Written by: Robert Wenzel
Case: Facebook, Inc. and Mark Elliot Zuckerberg v. DLA Piper LLP, et. al.; filed on October 20, 2014 in the Supreme Court of the State of New York, County of New York
Procedural History: Paul D. Ceglia filed and attempted to prosecute a fraudulent lawsuit against Facebook and its CEO, Mark Zuckerberg. The original case was built upon evidence that Mr. Ceglia fabricated, such as altered emails and contracts, in an attempt to gain a settlement from Mr. Zuckerberg. The federal court that heard the original case dismissed the case as fraudulent and Mr. Ceglia was indicted for fraud by a federal grand jury.
Key Facts: Mr. Zuckerberg began to develop a website for Street Fax, Inc. in April 2003. Street Fax’s main contact was Mr. Ceglia. The two parties never discussed Facebook and Mr. Zuckerberg did not even begin to formulate the concept of Facebook until in or around December 2003. Facebook eventually launched on February 4, 2004 as a networking site for Harvard University students. However, Mr. Ceglia fabricated documents that stated he and Mr. Zuckerberg had entered into an agreement to share the proceeds from Facebook. Mr. Ceglia states that he was entitled to 84% of all Facebook proceeds. He falsified documents, contracts and emails between the two parties to illustrate his claim. Mr. Ceglia’s original attorneys removed themselves from the case when they became aware of the fraudulent nature of the documents and emails.
Issue: Is Mr. Ceglia entitled to a portion of the profits from Facebook and Mr. Zuckerberg?
Holding: No. The United States Magistrate Judge issued a written opinion on March 26, 2013, that recommended that the district court dismiss the case with prejudice. Further, on March 25, 2014, the United States District Court adopted the Magistrate Judge’s opinion and entered a judgment favoring Facebook and Mr. Zuckerberg and against Mr. Ceglia.
Reasoning: The original lawsuit was overturned for several reasons. The judge determined that Mr. Ceglia’s claims were meritless. Rather than trying to rectify a legitimate problem, Mr. Ceglia intentionally attempted to harm Mr. Zuckerberg with a frivolous lawsuit. Furthermore, the defendant tried to improve his financial situation by filing a lawsuit to take money from Mr. Zuckerberg to which he was not entitled.
At the same time, the defendants in the current lawsuit (including but not limited to Mr. Ceglia) knowingly disregarded the rights of Facebook and Mr. Zuckerberg for their own benefit. The defendants tried to harm Mr. Zuckerberg and his company. The Defendants’ actions caused damage and harm to Mr. Zuckerberg individually and to Facebook’s business. One consequence of the initial lawsuit is that Facebook could not transfer, sell, or assign any of the company’s assets, stocks, or bonds.
Lastly, the lawsuit resulted in Facebook spending unnecessary time to defend the company against a meritless claim. Had Mr. Ceglia not forged the documents and filed this particular lawsuit, Facebook and Mr. Zuckerberg would have avoided defending themselves against false charges.