Wayne Chang, a former partner in ConnectU, Facebook's social networking rival, brought suit against his former ConnectU partners (the "Winklevoss Defendants") and their attorneys over a settlement reached with Facebook in a separate litigation. Chang v. Winklevoss, No. 09-5397-BLS1, 2011 WL 1758963 (Super. Ct. Mass. May 3, 2011). After the defendants filed motions to dismiss, the Superior Court of Massachusetts held that Chang lacked standing to assert claims against the attorneys, but found that Chang's complaint sufficiently alleged subject matter jurisdiction and state law claims.
The dispute between Chang and the Winklevoss Defendants arose from the partnership entered into between the parties. The Winklevoss Defendants contacted Chang, the creator of i2hub, a peer-to-peer file sharing software, in an effort to increase ConnectU's user base by employing Chang to integrate the i2hub software with the ConnectU Web site. The parties agreed to form a partnership called the Winklevoss Chang Group (WCG) and further agreed that after Chang's completion of the integration, he would acquire a 15% ownership in ConnectU. Thereafter, the parties executed a Memorandum of Understanding (the "Memorandum") to reflect their agreement. After Chang successfully integrated i2hub and ConnectU, his relationship with the Winklevoss Defendants began to deteriorate and ultimately terminated at the urging of the Defendants.
Meanwhile, ConnectU and Facebook became entangled in separate litigation arising out of their rivalry. Chang, though not a party to the litigation, was subpoenaed and subsequently added as a party to the action against ConnectU. The attorneys retained to defend the Winklevoss Defendants in the Facebook litigation, Mosko and Finnegan, agreed to represent Chang as well. The Facebook litigation culminated in a mediation and subsequent settlement agreement, though Chang alleged that he was never informed of the mediation or terms of the settlement.
Chang filed the instant action against the Winklevoss Defendants, ConnectU, and Mosko and Finnegan. His claims against the Winklevoss Defendants stemmed from his partnership interest in ConnectU and sought a portion of the Facebook settlement as a result of his interest in the partnership. Additionally, Chang alleged that Mosko and Finnegan intentionally excluded him from settlement discussions and conspired with the Winklevoss Defendants to deprive him of his interest in the settlement proceeds.
Although the Court found that "lost settlement opportunities may constitute injury sufficient to support a claim for legal malpractice," it nevertheless found that Chang lacked standing to assert claims against Finnegan and Mosko. In doing so, the Court reasoned that "any injury as a result of missed settlement opportunities is far too speculative, and any causal connection to the defendants' conduct far too attenuated, to confer standing."
The Winklevoss Defendants, however, did not fare as well as their attorneys. Though the Defendants argued that Chang lacked standing because the settlement proceeds had not yet been disbursed and thus, Chang had suffered no injury, the Court acknowledged that although Chang sought "as his remedy his share of the proceeds, the basis of his claims is that he has rights either under the Memorandum or as a partner in WCG." Therefore, the Court held that "[w]hile Chang's claims with respect to the settlement proceeds are too speculative to confer standing, his claims with respect to an ownership in ConnectU are not." Accordingly, the Court dismissed the Winklevoss Defendants' motion to dismiss for lack of subject matter jurisdiction.
The Winklevoss Defendants also launched challenges to Chang's state law claims, most of which hinged on whether the parties had entered into a valid contract. The Defendants asserted "that the Memorandum was merely an 'agreement to agree,'" while Chang argued that the Memorandum embodied the full understanding between the parties, containing most of the material terms of the parties' agreement. Noting that "it is not required that all terms of the agreement be precisely specified, and the presence of undefined or unspecified terms will not necessarily preclude the formation of a binding contact," the Court held that the Memorandum set forth "all of the material terms of the agreement, and is thus sufficient to form a valid contract." The mere fact that the parties intended to draft a more "formal contract" to memorialize the terms set forth in the Memorandum did not preclude a finding that the parties "intended to be bound by the terms of the Memorandum." Accordingly, the Court denied the Winklevoss Defendants' motions to dismiss Chang's breach of contract claims.
Furthermore, the Court found that Chang's complaint sufficiently alleged a partnership between the parties with respect to the formation of WCG and thus, Chang alleged a valid cause of action for breach of partnership and breach of fiduciary duty. Because the parties failed to execute a formal partnership agreement, the Court applied basic partnership principles and noted that "[w]here persons associate themselves together to carry on a joint business for their common benefit, to which each contributes either property or services . . . the essential elements of a contract of partnership are made out." Considering ConnectU's monetary contributions and the services provided by Chang to ConnectU, the Court held that the complaint sufficiently alleged that the parties formed a valid partnership.
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