When Facebook doesn’t ‘like’ lawyers


…it sues them. Or so it seems given the recent civil complaint filed by Facebook and its CEO Mark Zuckerberg in New York last week. The claim has been brought against DLA Piper, Lippes Mathias Wexler Friedman, Milberg LLP, and Paul Argentieri & Assoc., and a numbers of named partners in those firms.

The case arises out of an attempt, since 2010, by Paul Ceglia to establish a claim to ownersip of a substantial share of Facebook, actions which have so far led not only to the summary dismissal of Ceglia’s civil suit in 2013, but to Ceglia’s indictment before a grand jury on criminal fraud charges. (Though it should be noted both that the criminal charges have not yet come to trial, and that Ceglia has appealed the dismissal of his civil claim against Zuckerberg – the latter one assumes more in hope than expectation given the Magistrate Judge’s damning comments on the quality of Ceglia’s evidence).

The case against DLA Piper (US) and the other law firms is of interest for a number of reasons, beyond the spectator sport of a big corporation turning on ‘big law’ (what some may see as a variation on Oscar Wilde’s theme of the unspeakable in pursuit of the uneatable). It will almost certainly raise procedural-ethical issues regarding lawyer-client privilege, and, further, the lawyers’ duty not to mislead the court. In the latter context it also raises a larger meta-ethical issue for the court, as to its willingness to permit a plaintiff with deep pockets to pursue lawyers through the courts for (allegedly) just doing their job… or not.

And that will be the crux of the case. Ceglia managed to go through lawyers faster than the proverbial knife through butter before his claim was dismissed. Facebook’s full complaint (posted here by Above the Law) has been selective in choosing as its targets those that it sees as most culpable. The defendant most vulnerable in this regard is surely Paul Argentieri and his firm, since the local NY attorney Argentieri is not only the lawyer who has lasted longest by Ceglia’s side, but the one who devised the initial litigation strategy that sought to bolster the credibility of Ceglia’s claim precisely by bringing in a number of ‘blue chip’ firms like DLA Piper. It is of course this very strategy that now threatens those who bought into it with a very uncomfortable few months, and which gives Facebook’s (civil) claims of malicious prosecution and conspiracy at least a scintilla of a chance – or better.

The liability of DLA Piper, Milberg and others will likely turn on key events between the end of March 2011 and May 2012, when Milberg lawyers Dumain and Young withdrew. Ceglia’s claim was based primarily on a contract with Zuckerberg which appeared to show that the latter was engaged by Ceglia to work on “The Face Book” and another project called “StreetFax”. Around the end of March 2011 one of Ceglia’s attorneys (from Kasowitz, Benson, Torres & Friedman) found what appeared to be an original of this contract on Ceglia’s computer hard drive, but without the whole first page which made reference to Facebook. This led the Kasowitz attorneys to the conclusion that the ‘StreetFax’ contract was redrafted long after the event to include Facebook, and Ceglia’s claim was therefore fraudulent. Kasowitz immediately withdrew from representation, communicating its concerns about the apparent forgery to Argentieri. DLA Piper and Lippes Mathias continued to represent Ceglia. DLA apparently playing a significant part in amending, and bolstering Ceglia’s complaint by reference to emails (the provenance of which also came to be heavily contested) said to be between Ceglia and Zuckerberg, but which had not been mentioned in the original complaint. The Amended Complaint was filed on 11th April, and on that same day another of Ceglia’s representative firms, Connors & Vilardo withdrew their representation, being replaced by additional counsel from DLA Piper. On 13th April, attorney Marks of Kasowitz wrote to Lippes Matthias, DLA Piper and Argentieri, memorialising his earlier discoveries about the contract and prior communications with Argentieri. Marks indicated that he would not report the matter to the District Court pending an investigation promised by Dennis Vacco of Lippes Matthias. Whether there was an investigation by Vacco is moot, but it appears that DLA Piper and Lippes Matthias continued to represent Ceglia into June 2011, with both firms withdrawing only at the end of the month, and on the eve of a court hearing brought by Facebook seeking expedited discovery.  Neither of these firms (nor Kasowitz) appears to have alerted the court as to concerns as to the falsity of any facts as alleged by Ceglia. After the withdrawal of his counsel Ceglia continued to be represented by Argentieri and a San Diego sole practitioner, Jeffrey Lake (until 18th October 2011), when the lawyer merry-go-round set off again. The final defendant firm, Milberg joined the action in early March 2012, withdrawing at the end of May,  There appears to be some uncertainty as to why Milberg withdrew, but, again, nothing in the public record indicates that they raised concerns of a possible fraud on the court.

At the core of Facebook’s case, then, seems to be a claim that the failure of successive firms to disclose why they were withdrawing effectively kept Ceglia’s action on the road, and forced the company to keep defending long after the wheels should have come off what was (in the view of Facebook/Zuckerberg) a groundless scam. But that by itself is unlikely to be enough for Facebook/Zuckerberg to win in court. The action here is proceeding on the basis of two tortious claims: malicious prosecution and deceit/collusion with intent to deceive a court (the latter specifically under the New York Judiciary Law). Malicious prosecution is not easy to establish: the plaintiff needs to show the suit was brought without probable cause, initiated out of actual malice, and (in New York) there is also a requirement to show special damage. Each of these requirements set the bar high for a plaintiff. Probable cause may be the least of it: if the defendants can be shown to have known, or ought reasonably to have known that Ceglia was engaging in fraud, perjury or the suppression of evidence, then that element could well be satisfied. Proving malice and special damage is likely to be more difficult, though the extent to which the defendants investigated Ceglia’s claims is certainly a matter that Facebook will pursue, as failure to investigate may itself be regarded as evidence of malice.

Discovery will likely be interesting; some evidence is already in the public domain from the original action, but we must wait to see how critical a part lawyer-client privilege (and the crime/fraud exception) will play in limiting the defendants’ exposure to scrutiny.

How the second action for deceit plays out will also be interesting. Courts do not like being deceived, and that is clearly reflected in section 487 of the NY Judiciary Law, which not only creates a specific action of deceiving the court, but requires the court to award treble damages where deceit is proven. But courts are also nervous of being used by plaintiffs for purely strategic or vengeful ends, and there is some concern, particularly in the US, following the Chevron litigation, that corporate plaintiffs are adopting a tactic of using the courts to deter lawyers from acting against them.

While I can’t say I’m a fan of corporate power in the courtroom, I’m not particularly convinced by that argument either, given its continuing dependence on the ideal-typical lawyer as a disinterested neutral partisan. There is surely a risk with high profile-high value litigation that lawyer self-interest gets significantly caught up in the mix, not least because success in a high value claim not only offers a substantial payday for the firm (particularly if the case is run on a generous contingency), but because it can be a reputation-maker for the lawyers involved. Whether that is what happened in the original Ceglia case, we must wait and see, but the tendency of some very experienced and high profile firms to get involved in this case, particularly as more and more lawyers pulled out, seems hard to explain on entirely rational grounds – at least with the benefit of hindsight!

If the Facebook claim does get to trial (and I would hesitate to bet against it, despite the obstacles) the outcome if the defendants lose are not going to be pretty, either financially or reputationally. Moreover though this action, of course, does not have a disciplinary function, a finding against the lawyers involved for Ceglia could also have disciplinary consequences for them, as proof of malicious prosecution would surely offer at least prima facie evidence of breaches of their professional obligations to the court (here under rules 3.1 and 3.3 of the New York Rules of Professional Conduct).

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