Facebook founder Mark Zuckerberg is not a stranger to litigation. The tech guru, who made billions on a business model designed to connect friends, family and colleagues, is currently being sued for breaching his alleged promise to introduce select individuals to a seller of a real property in exchange for a reduced purchase price. A recent civil complaint filed in the Santa Clara County Superior Court explains.
In 2012, real estate developer Mircea Voskerician entered into a contract for the right to purchase property behind Zuckerberg’s palatial digs in Palo Alto, California. He sent a letter to Zuckerberg telling him that he planned to build a large house on the lot, which would overlook Zuckerberg’s master bedroom. Voskerician offered to sell him a portion of the lot so that Zuckerberg could maintain his privacy. Along the way, there was a meeting with the parties and their real estate agents, where Voskerician claims that that he and Zuckerberg orally agreed that Voskerician would assign his interest to purchase the land to Zuckerberg in exchange for $1.7 million, and that Zuckerberg would provide future referrals and introductions to Voskerician to build his real estate business.
The interesting part about this developing case is that although the agreement was likely a fully integrated written contract, there is not a peep about Zuckerberg’s alleged promise for these special introductions to persons associated with Google, Facebook and Apple, in exchange for the reduced purchase price.
Zuckerberg paid $1.7 million for the contract rights to Voskerician, and then paid an additional $4.8 million to purchase the parcel from its owner. Voskerician apparently attempted to secure his alleged introductions through contact with various people at Facebook and when that failed, he filed suit for promissory fraud, intentional misrepresentation, concealment, rescission and breach of contract. Voskerician claims that he could have sold the rights to take over the contract to purchase the land for $4.3 million.
Zuckerberg contends that no such oral agreement for referrals and introductions was ever made and was not negotiated in the agreement for the purchase rights. Thus far, the smoking gun appears to be an e-mail from Zuckerberg’s assistant saying he (Zuckerberg) recalled agreeing to help Voskerician in a “light way.” Is this admissible evidence of the alleged oral promise?
In California, this would be governed by the parol evidence rule (codified in California Code of Civil Procedure § 1856 and California Civil Code § 1625). This rule provides that the terms of integrated contracts may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement. It is based on the principle that when parties to a contract put all the terms of their agreement in writing, those terms supersede the statements made during the negotiations and that their final express understanding is not subject to change. One of the ways to get around integration is to claim an exception to the parol evidence rule. Until 2013, California case law prevented the use of parol evidence (such as oral or written statements) to contradict the terms of a written contract in fraud suits.
That however, all changed with the recent holding in River Island Cold Storage, Inc. v. Fresno-Madera Production Credit Association (2013) 55 Cal 4th 1169. In River Island, the California Supreme Court effectively expanded the parol evidence exception and held that parties can plead and prove fraud in the inducement in circumstances where an oral promise was made that contradicts the written agreement. That seems to be exactly what Voskerician hopes to prove in his case.
Nevertheless, in the pending dispute, Zuckerberg will likely argue that the alleged oral promise should still be excluded because Voskerician is not actually attacking the validity of the written agreement he had with Zuckerberg. That is, Voskerician does not appear to be trying to prove that the written contract is void for mistake, fraud, duress, undue influence, illegality, alteration, lack of consideration or another invalidating cause. Instead, Voskerician seeks to recover for a promise he alleges was made to him – a promise that runs counter to the written agreement.
According to numerous legal minds, the fraud exception in River Island should not apply in this circumstance but the parol evidence rule should. The alleged promise should not be admitted to contradict the terms of the written contract. And that smoking gun e-mail? It may just end up being legally irrelevant under the parol evidence rule.
Feel free to contact business law attorney Drew E. Pomerance to discuss your breach of contract case in further detail.