Lawsuit Of The Day: Facebook Sues DLA Piper
Why is the social-media giant suing the Biglaw behemoth?
Biglaw firms love having Facebook as a client. The firms and lawyers that represent Facebook often brag about it on their websites and in conversation. The former scrappy startup is now an S&P 500 component with a market capitalization of $200 billion. It’s great to have Facebook as a client.
It’s less great to have Facebook as your courtroom adversary. But that’s exactly the position that DLA Piper finds itself in. Earlier today, the social-media giant filed a lawsuit against the Biglaw behemoth, as well as several other lawyers and law firms.
Why does Facebook want DLA to pay the piper?
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Facebook’s lawsuit, filed today in New York Supreme Court (the state trial court), relates to DLA Piper’s role in woodchip salesman turned alleged huckster Paul Ceglia’s dubious lawsuit claiming ownership of a large chunk of Facebook (a matter that we covered extensively at the time). Facebook is suing for malicious prosecution and deceit and collusion. Here’s a report from Re/code:
Facebook and CEO Mark Zuckerberg sued a handful of lawyers who represented Paul Ceglia in a 2010 case in which Ceglia claimed he was entitled to 84 percent ownership of the social network.
Ceglia’s claim was dismissed earlier this year after Facebook and Zuckerberg alleged that Ceglia forged the documents he used as evidence of his ownership in the company. (Ceglia was actually arrested in 2012 for falsifying these records; the case is still pending.)
Here is the core of Facebook’s allegations, from the New York Times:
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“The lawyers representing Ceglia knew or should have known that the lawsuit was a fraud — it was brought by a convicted felon with a history of fraudulent scams, and it was based on an implausible story and obviously forged documents. In fact, Defendants’ own co-counsel discovered the fraud, informed the other lawyers, and withdrew. Despite all this, Defendants vigorously pursued the case in state and federal courts and in the media,” Facebook said in its suit.
The law firm that discovered the fraud, Kasowitz, Benson, Torres & Friedman, initially planned to tell the court of the fraud, Facebook said, but one of Mr. Ceglia’s other firms persuaded it to keep silent on the reasons for the firm’s withdrawal.
Eventually, the other firms withdrew, but never disclosed why, which Facebook said forced it to continue defending against Mr. Ceglia’s claims until this March, when a federal court dismissed Mr. Ceglia’s case against Facebook and allowed the criminal prosecution against him to proceed.
So the Ceglia lawsuit was too sketchy even for Kasowitz Benson. That firm is not exactly a goody two-shoes kind of place.
You can flip to the next page to read the full complaint. DLA Piper is the most prominent defendant, but others include Milberg LLP — formerly known as Milberg Weiss, before a bunch of the name partners got in trouble with the law — and former New York attorney general Dennis Vacco.
What does DLA Piper have to say for itself? We reached out to the firm for comment. Here is what Peter Pantaleo, DLA Piper’s general counsel, told us:
This is an entirely baseless lawsuit that has been 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.
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The “78 days” point and the Facebook IPO point are neither here nor there. It wouldn’t be a defense for DLA Piper to say, “Look, we committed fraud for just 78 days, and Facebook could afford it anyway.” As for the claim that the litigation is meritless, that’s what we’ll find out in the weeks and months ahead.
And I suspect that we actually will have significant discovery — after some wrangling over attorney-client privilege issues and the crime/fraud exception, perhaps — and maybe even a trial. Facebook, with billions in cash on hand, doesn’t need DLA’s dollars; why should it quietly settle? Facebook wants its day in court. As FB general counsel Colin Stretch explained in a statement issued to ATL, “We said from the beginning that Paul Ceglia’s claim was a fraud and that we would seek to hold those responsible accountable. 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.”
As a sign of its commitment, Facebook has hired high-priced counsel for this litigation: Kellogg Huber, the super-elite D.C. litigation boutique that’s teeming with Supreme Court clerks (lured there by $330,000 signing bonuses). Another noted litigation boutique, Moskowitz & Book, is serving as local counsel.
This litigation reminds me of Chevron’s lawsuit against Steven Donziger, another case in which a major corporation has hired top-tier lawyers to go after an alleged scam artist. The company’s critics might call it vindictive, but the company would defend its actions as fighting fraud and standing up for the rule of law.
Regardless of where you stand on the merits of the lawsuit, we can probably all agree: this case won’t be fun for DLA Piper, while Kellogg Huber and Moskowitz & Book will surely “like” representing an angry and affluent client for fun and profit. As a former DLA Piper lawyer famously quipped, “Churn that bill, baby! That bill shall know no limits.”
Disclosure: I own a small amount of Facebook stock, and I’m also exposed to Facebook through an S&P 500 index fund.
(Flip to the next page to review the Facebook complaint in full.)
