The other day, I reported on Facebook’s (FB) unusual malicious prosecution lawsuit against one of the world’s biggest law firms, DLA Piper. Having done some more digging, I can now elaborate on how the case reveals something about the corporate personality of the giant social networking site—not to mention the individual personality of its precocious founder, Mark Zuckerberg—as well as the mores of the elite law firm industry.
First, let’s recap from my initial piece:
No, this isn’t the Social Network case. That entertaining 2010 movie depicted Zuckerberg’s legal tussle with the strapping Winklevoss twins, Tyler and Cameron, over who invented Facebook. That case settled in 2008 with the Winklevi receiving tens of millions of dollars in cash and Facebook stock—pocket change to the billionaire Zuckerberg. Social Network apparently gave another character, one Paul Ceglia, the bright idea that he, too, could claim ownership of Facebook. In 2010, he sued Zuckerberg in New York state court, alleging that the digital tycoon had once promised him no less than 84 percent of the company that became the hugely popular and lucrative social networking site.
Eighty-four percent! You can’t fault Ceglia for lack of ambition. His suit, however, was a transparent sham based on forged documents, according to the federal judge who eventually disposed of it in March of this year. The judge based dismissal on earlier findings by a U.S. magistrate who described Ceglia’s arguments as “sophomoric” and “preposterous.” Along the way, Ceglia was criminally indicted in 2012 for seeking to defraud Zuckerberg and Facebook. The criminal charges are pending.
Not satisfied that Ceglia has been thoroughly defeated and discredited, Zuckerberg has now sued most of the law firms and individual lawyers who, at one time or another, represented Ceglia in his misbegotten grab for Facebook lucre. The most notable of these defendants is DLA Piper, a behemoth with 4,200 lawyers in 30 countries. Normally the Piper firm represents large corporations such as Facebook; in this instance, it took a spin with Ceglia that it may now deeply regret.
Why would Facebook bother to bring this suit? It’s rare for a victorious corporate litigant to allege malicious prosecution against an opposing law firm, let alone a prestigious firm such as DLA Piper. When I put this question to Facebook’s top in-house lawyer, Colin Stretch, he had a ready answer: “Because it was so obviously fraudulent, we were surprised to see a firm like DLA Piper take the Ceglia case,” Stretch wrote in an e-mail. “We were even more surprised to see them publicly stake the firm’s credibility on Ceglia’s poorly forged documents. We were shocked when we learned that DLA had continued to pursue the case even after their co-counsel pointed out to them that Ceglia’s ‘contract’ [with Zuckerberg] was a fake. And finally, we were baffled that, even to this day, DLA Piper has chosen not to inform the court about the fraud or to take responsibility for their role in it.”
In other words, Facebook was sufficiently angered by DLA Piper’s role that it decided to make an example of the law firm. Zuckerberg’s personal commitment to this punitive exercise is demonstrated by his having had his lawyers put his name on the suit as a plaintiff.
DLA Piper faces an impressive lawyer in Stretch. Named general counsel in June 2013, he has been with the company since 2010 and led the appellate litigation against the Winklevosses. Before joining Facebook, Stretch was a partner at the Washington law firm Kellogg Huber Hansen Todd Evans & Figel, which he joined after clerking on the Supreme Court for Justice Stephen Breyer and working at the Justice Department.
It appears that what really irritated Zuckerberg and his company was not just that DLA Piper chose to represent Ceglia but that the law firm made multiple public statements testifying to his credibility. In his e-mail, Stretch pointed out that the law firm “undertook a media tour emphasizing their ’100 percent confidence’ in the forged documents, publicly staking the firm’s reputation on the case.”
Over at DLA Piper, partner Peter Pantaleo, the firm’s in-house general counsel, acknowledged the obvious: If the firm had this to do over again, it would not take the Ceglia engagement. That said, Pantaleo firmly denied the malicious prosecution allegation: “This is an entirely baseless lawsuit that has been filed as a tactic to intimidate lawyers from bringing litigation against Facebook.”
I interpret that line as suggesting that DLA Piper believes Facebook is using the Ceglia matter to send a broader message to lawyers who might represent very different sorts of clients—for example, social network users who believe their privacy has been abused. Dear plaintiffs’ attorneys, Facebook is warning, before you draft a class action against us, consider that we may sue you and your firm for malicious prosecution.
“DLA Piper, which was not part of this case at its outset or its conclusion, was involved for 78 days,” Pantaleo told me. “Facebook and Mr. Zuckerberg claim they were damaged in those 78 days, yet a mere 10 months after DLA Piper withdrew from the case and while the [Ceglia] 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.”
That’s a peculiar argument. Fabulously wealthy people—and companies—can legitimately claim to have been ripped off. There’s no but-he’s-a-billionaire defense to a charge of extortion. In fact, it’s usually the well-to-do who get extorted. And, as Stretch says, “Fraud is fraud, regardless of ‘how long’ it went on.”
Both sides insist they want to go to trial. I, however, have a prediction: Settlement talks will get serious when a date is set for Zuckerberg’s deposition. As a named plaintiff, the Facebook chief executive officer has exposed himself to extended pretrial interrogation by Pantaleo and his colleagues. That deposition would probably probe Zuckerberg’s personal finances as well as his stewardship of Facebook. That can’t be the way the tech tycoon wants to spend three or four days in New York. And it would be videotaped.
Something tells me that before a Zuckerberg deposition rolls around next year, some of the pique may have faded over DLA Piper’s participation in what certainly seems like it was a transparent shakedown attempt.
(Bloomberg Businessweek)
