Facebook v. ConnectU Illustrates Importance of Business Formation Attorney in Massachusetts

Bloomberg reports a judge has declined to immediately dismiss the never-ending lawsuit filed against Facebook by the Winklevoss twins.

Made famous as the subject of the movie “The Social Newtwork,” it stands as a cautionary tale for those dealing with business formation in Massachusetts. Cameron and Tyler Winklevoss claim Facebook was an idea they brought to founder Mark Zuckerberg while the three were students at Harvard. Their lawsuit was settled in 2008 for $65 million but they are seeking to reopen the lawsuit on the grounds that Facebook engaged in fraud by not providing an accurate valuation of the company.
A Massachusetts business startup attorney should always be used to form a corporation or other business formation matters. Complying with state and federal law can be complex. Ensuring the integrity of your business from claims by founding partners or others is critical to an entity’s long-term survival. Particularly when investors or partners are involved, getting in writing the business arrangement — complete with the claims and responsibilities of each party — can save a lifetime of headaches down the road. Too often, early business ventures are sealed with a handshake. We understand money is often a concern. But getting it right beats getting it done cheap. And foregoing legal advice is usually a costly mistake.

Facebook hired former White House spokesperson Joe Lockhart this month as it prepares for an Initial Public Offering and life as a publicly traded company. That could happen as early as next year. Fortune reported this month that the company’s value is expected to be $100 to $165 billion when it begins public trading.

Existing shares of the privately-held company are closely guarded and trade on special secondary markets, if at all. Those trades place the current market value at $85 billion. Most recently, the company has been providing employees with stock grants, rather than stock options, in an effort to keep shares of the company off the market. However, Securities and Exchange Commission rules require any company with 500 or more shareholders to publicly disclose finances and comply with many other rules that govern public corporations. Facebook is expected to hit that threshold early next year, which most think will finally push it to become public.

Facebook v. ConnectU Inc. is an extreme example. Facebook and the Winklevoss twins have fought the lawsuit in federal courts in San Francisco and Boston. The Massachusetts court has agreed to put its case on hold until the California ruling. Most recently, the U.S. Court of Appeals in San Francisco agreed to halt litigation while the twins ask the U.S. Supreme Court to reverse the dismissal of their claims. Attorneys for Facebook have asked that litigation end in light of the 2008 settlement.

The Supreme Court petition “should not stand in the way of resolving the last meritless motion that will end this case once and for all,” Facebook said in a filing. An April decision by the appeals court called the 2008 settlement “quite favorable” to the twins and ruled that it barred them from filing future lawsuits against the social networking giant.

The Massachusetts business law attorneys at The Brown Law Firm, LLC are available for free and confidential consultations. Call (617) 489-0817.

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