Ride the Lightning

DLA Piper & Milberg Deny Taking Part in Alleged Facebook Fraud

November 4, 2015

The American Lawyer reported last week that lawyers for DLA Piper, Milberg and Lippes Mathias Wexler Freedman and eight individual lawyers at the three firms argued before the New York Supreme Court Appellate Division's First Department, saying that the firms behaved appropriately in representing accused fraudster Paul Ceglia in his failed breach of contract suit against Facebook.

The suit alleges that the firms perpetuated a fraudulent scheme by Ceglia, a New York businessman who claimed that a contract with Facebook founder Mark Zuckerberg entitled him to an 84 percent stake in Facebook.

Facebook accuses the three law firms of malicious prosecution, as well as attorney deceit under Section 487 of New York Judiciary Law.

Ceglia’s underlying ownership suit against Facebook was dismissed in March 2014, after a federal judge in Buffalo found that he faked his supposed contract with Zuckerberg. By that time, Ceglia had already been indicted by federal prosecutors in Manhattan for the alleged fraud. Ceglia has been a fugitive since March when he fled court-ordered home detention and vanished with his wife and two young children.

Arguing for DLA Piper at Friday’s hearing, Tibor Nagy of Dontzin Nagy & Fleissig told the four-judge appellate panel that a lower court judge—New York Supreme Court Justice Eileen Rakower—had wrongly denied the three firms’ motions to dismiss Facebook’s case in May. Nagy stated that the facts asserted in Facebook’s complaint “don’t come close” to meeting the standard for a viable attorney deceit or malicious prosecution claim.

Lawyers for the defendant law firms spent considerable time during the arguments discussing an April 2011 letter to Ceglia’s counsel from Kasowitz, Benson, Torres & Friedman, partner Aaron Marks, who was briefly involved in the case. Marks withdrew from representing Ceglia immediately after a forensics examination of the purported ownership contract indicated forgery. Marks then quickly warned DLA Piper of the evidence of a potential forgery.

Despite the notice from Kasowitz, Nagy argued that DLA Piper and the other firms also had reasons at the time to stand by Ceglia’s case. Those reasons included expert testimony that the purported Zuckerberg contract was real, as well as statements made under oath by Ceglia himself.

“They had substantial reasons to believe the contract was legitimate,” said Nagy. “Our client’s sworn testimony is something we’re allowed to rely upon.”

My view is that clients lie all the time, under oath or not. And we all know it. On the other hand, a forensic examination of the electronic version of the contract is very powerful evidence. Certified forensic examiners, unless they are guns for hire or otherwise lack integrity, are only in search of the truth. As we say all the time, "the evidence is what it is."

Kevin Huff of Kellogg, Huber, Hansen, Todd, Evans & Figel, who argued the appeal for Facebook, shot back that the lower court made the right call. He argued that Facebook’s complaint relied on more than the Kasowitz letter to support the deceit and malicious prosecution claims. He said that Kasowitz had also provided Ceglia’s lawyers with a genuine version of the allegedly doctored contract.

That evidence, plus the extraordinary story that Ceglia was telling— “the whole idea that he forgot he had an 84 percent stake in a billion-dollar company”—should have sounded the alarm that something was amiss with the case, the Kellogg Huber lawyer said. When Kasowitz examined the same set of circumstances, it immediately withdrew from the case, Huff added. Personally, I certainly agree with Huff that when a case smells bad, ethical duties are triggered.

Huff said that while law firms are generally well within their rights to conduct their own probes while assessing a client’s claims, in this case the evidence of fraud was “so overwhelming” that no further investigation was necessary to convince them to withdraw.

All three of the defendant firms did eventually withdraw from Ceglia’s ownership case, with their representations ranging from two-and-a-half to about three months each.

The wrath of Facebook is mighty. I sure would like to see the forensic evidence. If it is solid, the accused firms and lawyers may have an uphill battle. One to watch . . .

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