Yesterday, Facebook sued DLA Piper along with three other firms and nine lawyers who represented Paul Ceglia, a New York man who emerged in 2010 with claims that he was entitled to at least 50 percent of Facebook.
Given that it’s nearly 2015, Facebook’s move comes as something of a surprise. Ceglia’s suit against Facebook was dismissed back in March by a federal judge amid clear evidence that his claims to Facebook were based on a “recently created fabrication.” More, two years ago, Ceglia was arrested and charged with mail and wire fraud for allegedly falsifying the contract and creating bogus emails to support his case. (His criminal trial is now scheduled for May.)
Facebook’s festering ire at the firms that represented Ceglia is understandable to a point. Ceglia’s lawsuit and the questions it raised were a huge distraction before Facebook went public in 2012.
Industry observers are probably cheering on Facebook, too, partly in hopes that law firms will think harder about bringing frivolous lawsuits.
Still, Facebook’s rationale for pursuing these firms at this late date sounds a little vengeful. “We said from the beginning that Paul Ceglia’s claim was a fraud and that we would seek to hold those responsible accountable,” Facebook General Counsel Colin Stretch said in a statement given to reporters yesterday. “DLA Piper and the other named law firms knew the case was based on forged documents, yet they pursued it anyway, and they should be held to account.”
Stretch might just as well have said, “DLA Piper and the other named law firms deserve an atomic wedgie, and we’re going to give them one to remember.”
DLA Piper sent StrictlyVC a comment about the suit today. Written by Peter Pantaleo, DLA Piper’s general counsel, the firm calls the lawsuit “entirely baseless” and “filed as a tactic to intimidate lawyers from bringing litigation against Facebook. DLA Piper, which was not part of this case at its outset or its conclusion, was involved for 78 days. Facebook and Mr. Zuckerberg claim that they were damaged in those 78 days, yet a mere 10 months after DLA Piper withdrew from the case and while the litigation was still pending, Facebook went to market with an initial public offering that valued the company at $100 billion. Today, Facebook is worth $200 billion and Mr. Zuckerberg is among the richest people in the world. We will defend this meritless litigation aggressively and we will prevail.”
Either way, a 2011 conversation we had with a corporate litigation attorney about Ceglia suggests that Facebook’s case against DLA Piper and the other firms probably isn’t a slam dunk.
Generally speaking, this attorney explained, lawyers have to “ensure that there’s a good faith basis for the claims that they file on behalf of their clients. That doesn’t mean that they have to think that they necessarily will prevail, but there has to be some kind of factual basis, in their view, to provide some support for the allegations.”
Presumably, DLA Piper didn’t know when it took the case that Ceglia fabricated the evidence to support his claims.
We’re also guessing it will be hard to argue that Ceglia’s lawyers used uniquely reckless judgment in taking on the Ceglia case. In 2010, for example, DLA Piper decided to represent CNet founder Halsey Minor in a Chapter 11 proceeding despite Minor’s long history of stiffing service providers.
DLA Piper subsequently dropped Minor eight months after engaging with him, but you see the point: if it were so easy to sue a law firm over its ne’er-do-well customers, we wouldn’t have lawyers.
Facebook says its lawsuit is a matter of principle. We think it sounds heavy-handed. It also seems very much like another distraction that the company doesn’t need.
Updated to include a statement from DLA Piper.
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