Enforcement of Settlement Agreement Reached Through Mediation/Confidentiality: Settlement Agreement Containing Material Terms May Be Enforced

 

. . . And Confidentiality Requirement in the Agreement Also Applies, Even if Local Rules Governing Settlement Communications Do Not Apply in Federal Court

     Sometimes the tone of a Court’s opinion gives a good clue as to the outcome. Such was the case in Facebook, Inc. v. Pacific Northwest Software, Inc., 640 F.3d 1034 (2011), in which Justice Alex Kozinski observed of the Facebook dispute between Mark Zuckerberg and his nemeses, the Winkelvosses, that the litigation “gave bread to many lawyers,” suggesting a certain judicial weariness with the epic dispute.

     The Winkelvosses challenged enforcement of a short (1 and 1/3^rd pages) agreement reached through mediation, resulting in Facebook’s attorneys drafting an additional 130 pages of documents to implement the mediation agreement. Agreeing with Facebook that the agreement should be enforced, the Court of Appeals distinguished between material terms that are “necessary” and material terms that are “important.” Here, the necessary terms were included, because the contract was sufficiently specific to determine if it was breached, and to allow for a remedy of specific performance or damages: “This is not a very demanding test, and the Settlement Agreement easily passes it: The parties agreed that Facebook would swallow up ConnectU, the Winklevosses would get cash and a small piece of Facebook, and both sides would stop fighting and get on with their lives.” Incidentally, Justice Kozinski added, “[t]he district court got it exactly right when it found the Settlement Agreement enforceable but refused to add the stack of documents drafted by Facebook's deal lawyers.”

     The Court of Appeals expressed doubt that the federal district court Local Rules applying to ADR could create a “privilege” for confidential communications in a mediation, because privileges are created by the Federal Rules of Evidence, which rules cannot be overruled by Local Rules. Not to worry: the settlement agreement, by its terms, made the communications in the mediation confidential, and thus they could not be introduced to undermine the settlement agreement.

     If the remark about lawyers getting much “bread” at the beginning of the opinion suggested weariness with the litigation, so too did the ending of the opinion: “At some point, litigation must come to an end. That point has now been reached.”