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Chang v. Winklevoss

Appeals Court of Massachusetts, Suffolk

April 24, 2019

WAYNE CHANG & another [1]

          Heard: December 13, 2018.

         Civil action commenced in the Superior Court Department on December 21, 2009.

         Motions to dismiss, filed on May 7 and 18, 2010, were heard by Peter M. Lauriat, J., and a motion for reconsideration, filed on May 26, 2011, was considered by him; a motion for summary judgment, filed on April 28, 2014, was heard by Thomas P. Billings, J.; the entry of judgment was ordered by Edward P. Leibensperger, J., and a motion for costs was heard by him.

          Alan D. Rose, Jr. (Meredith W. Doty also present) for the plaintiffs.

          Matthew Murray, of California (Michael Rubin, of California, & Max D. Stern also present) for Cameron Winklevoss & others.

          Erin K. Higgins (Christopher K. Sweeney also present) for Finnegan, Henderson, Farabow, Garrett & Dunner LLP, & another.

          Present: Kinder, Neyman, & Desmond, JJ.

          KINDER, J.

         In this case we examine the dismissal of contract and tort-based claims brought by software developer Wayne Chang against brothers Cameron and Tyler Winklevoss, the creators of ConnectU, Inc. (ConnectU), a social networking website that was a competitor to The Facebook, Inc. (Facebook). This action was filed following the settlement of protracted multistate litigation between Mark Zuckerberg, the founder of Facebook, and the Winklevoss brothers, Zuckerberg's pre-Facebook collaborators. Chang's complaint alleged that he was entitled to a share of the proceeds of the settlement between the Winklevoss brothers and Zuckerberg -- $65 million in cash and stock tendered by Facebook in exchange for ConnectU.

         Chang's suit arises from the failed business relationship between Chang and his company, The i2hub Organization, Inc. (i2hub), the Winklevoss brothers, Divya Narendra, and Howard Winklevoss (collectively, the Winklevoss defendants), [3] and ConnectU. Chang's complaint also included malpractice claims against Scott R. Mosko (Mosko), an attorney who previously represented Chang, and Mosko's law firm[4] (collectively, the Mosko defendants).

         Chang asserted contract and tort claims against the Winklevoss defendants, claiming that they had breached at least one of two agreements entitling him to a portion of the Facebook settlement proceeds. Alternatively, Chang claimed that, in the absence of an enforceable agreement, he was entitled to recover damages through equitable claims, including quantum meruit and unjust enrichment. Chang's equitable claims were dismissed for failure to state a claim, and his remaining contract and tort claims were subsequently dismissed on summary judgment. The professional negligence claims against the Mosko defendants were also dismissed on a motion pursuant to Mass. R. Civ. P. 12 (b), 365 Mass. 754 (1974), and final judgment entered for all defendants.[5] On appeal, Chang claims error in the orders of dismissal and the decision on the defendants' motion for summary judgment. We affirm, principally because we agree that the business relationship between Chang and the Winklevoss defendants ended long before the commencement of the settlement negotiations between the Winklevoss brothers and Facebook.


         1. Formation of the business relationship.

         We summarize the facts alleged in Chang's complaint, accepting them as true for the purpose of our review of the rule 12 (b) dismissal of the quantum meruit and unjust enrichment claims. Harrington v. Costello, 467 Mass. 720, 724 (2014).

         Chang launched i2hub, a peer-to-peer, file-sharing "platform," in March 2004. ConnectU, a social networking site in competition with Facebook, was founded by Cameron and Tyler Winklevoss. At some point, Divya Narendra and Howard Winklevoss (Cameron and Tyler's father) also became coowners of Connect U.Seeking to increase ConnectU's user base, Cameron and Tyler contacted Chang in October of 2004, to explore forming a business relationship. The parties agreed to integrate i2hub software into ConnectU's social networking website, and discussed forming a jointly owned holding company, later referred to as the Winklevoss Chang Group (WCG), which would own both companies as well as other Internet-based entities that they would jointly develop. The parties further agreed that, upon completion of the integration, Chang would be given the option to acquire a fifteen percent ownership interest in ConnectU. On November 23, 2004, Cameron sent Chang a memorandum of understanding (MOU) via e-mail, [6] and Chang accepted the terms the next day by e-mail.

         Over the next several months, the parties worked collaboratively, holding themselves out as partners in the development of ConnectU, i2hub, and other Internet entities. Chang and the Winklevoss defendants opened an office in Amherst run by Chang, with a small staff paid for by Cameron and Tyler. Revenue generated by i2hub and other Internet entities Chang worked on was redirected to ConnectU. Chang also began working to integrate the i2hub software into ConnectU, and claimed he completed the integration in February, 2005. The complaint did not indicate what, if any, compensation Chang received. Beginning in April 2005, the business relationship quickly deteriorated as the parties became entangled in various financial and ownership disputes (further described infra).

         2. Termination of the business relationship.

         We summarize the undisputed facts which relate to the Winklevoss defendants' motion for summary judgment. The business collaboration between Chang and the Winklevoss defendants was short-lived. The parties do not dispute that they never executed a written agreement to form WCG; nor is there any evidence of any agreement on the specific terms of a working partnership or holding company. Several months after the relationship commenced in the fall of 2004, it became antagonistic due to intensifying financial and ownership disputes. In April of 2005, Cameron and Tyler informed Chang that they had ceased funding him and the Amherst office. They also claimed that Chang was in debt to them for expenses in the amount of approximately $18, 000 and demanded repayment or equity in i2hub.

         The record contains substantial documentation in the form of e-mail messages and online discussions (instant messaging) exchanged during April and May of 2005 between Chang and the Winklevoss brothers, as well as between Chang and John Taves, a principal of a company hired to work on the integration of ConnectU and i2hub. These communications indicate that both parties sought to end their business relationship. On April 23, 2005, Chang told Taves that he had "no desire to continue to work with them" and that he was "figur[ing] out how to get funding, wash myself of the Winklevosses, and move onto the next venture." The next day, Chang further stated to Taves, "[A] 11 I want is i2hub . . . [I'm] willing to take just i2hub, rather than keeping my hands in connectu." Chang reiterated this position in an e-mail to Taves on April 25, stating that his "end goal" was to retain ownership of i2hub and, on April 28, he again told Taves that he had "no wish to continue to work with them," adding that he had "already begun disintegration."

         In a lengthy instant message exchange on May 25, 2005, Chang and Tyler discussed the status of their working relationship and Chang's alleged debt. Focusing on an upcoming press release concerning i2hub, Tyler told Chang to "make sure you take our names off of anything to do with i2hub." Chang responded, "[M]ake sure you remove i2hub from connectu." The conversation continued with Tyler asking, "[W]hy would you want our names on the press release if we are no longer working together?" Chang responded, "[I] don't," adding that he also did not "want i2hub associated with connectu anymore," and ended by stating that i2hub and Connectu were "no longer working together."

         Chang also expressed doubts as to whether WCG or any other holding company or partnership was ever formed. In an e-mail to Tyler on April 23, 2005, Chang stated that WCG "was never fleshed out," that he was "sent a draft of the agreement, but nothing was done on that . . . [and that it was] something that hasn't been created." In an instant message exchange with Taves on April 24, Chang referred to WCG as "a non-existent holding company," claiming he "never agreed to [a] holding company," and that no "merger" had occurred because he "didn't agree to the terms [Cameron and Tyler] set out." In an e-mail to Taves on the same day, he further asserted that "the parent company was never formed." In another e-mail to Taves in late May, he stated: "The umbrella corporation never materialized. So both companies have been separate, but working jointly." In the same May 25 instant message exchange noted above, in response to Tyler's admonishing him to fulfill his agreements, Chang countered by saying, "[S]how me the agreement." Chang further stated that until the dispute over the debt was resolved, "there is no deal in place." He went on to explain that "there is no agreement" and, therefore, when the funding stopped, he "stopped working with connectu's interest in mind," and that there was "no reason for [him] to continue when connectu has no desire to." Chang continued to reiterate that "theres [sic] no agreement in place." Chang ended the exchange by stating that the financial dispute needed to be resolved before he would go forward: "[Y]ou decide what you want to do. [I]f you want the integration to go ahead, make an offer."

         Finally, while Chang claimed in his complaint that he had completed the integration, he indicated to Tyler in the May 25 instant message exchange that the integration was "never completed." He explained that he had stopped working on integration because Cameron and Tyler ceased funding him, and would continue to withhold his services until the dispute over the debt was resolved.

         After May 25, 2005, there was little contact between the parties. The parties do not dispute that the Winklevoss defendants continued operating ConnectU without Chang. Likewise, Chang continued to operate i2hub until he shut it down six months later on November 14, 2005.

         3. The Facebook litigation.

         On September 2, 2004, prior to Chang's involvement with the Winklevoss defendants, ConnectU filed an action in the United States District Court for the District of Massachusetts against Zuckerberg, Facebook, and others, asserting, inter alia, misappropriation of trade secrets. See ConnectU LLC vs. Mark Zuckerberg, No. 04-CV-11923 (D. Mass.) (Massachusetts action). Chang was not a party to the action. Almost a year later, in August 2005 (after Chang and the Winklevoss defendants had ended their business collaboration), Facebook brought an action in the California Superior Court against ConnectU and the Winklevoss defendants alleging that one of the websites Chang had helped develop misappropriated Facebook's proprietary information and user data. The case was later removed to the United States District Court for the Northern District of California (District Court). See Facebook Inc. ...

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