On Tuesday, DLA Piper and Lippes Mathias Wexler Friedman dropped client Paul Ceglia, the upstate New Yorker who claims Mark Zuckerberg signed a 2003 contract granting Ceglia a 50 percent stake in Facebook. But the firms may not be able to get out of the case that easily—especially since the move came just two days before a hearing on Facebook’s motion for expedited discovery.
OTC will be very surprised if Buffalo federal district court judge Richard Arcara does not grant Facebook’s motion after the Thursday’s hearing. And unless Ceglia and his new lawyer can show there’s more evidence to support his assertion that he and Zuckerberg exchanged the e-mails cited in Ceglia’s April 11 amended complaint, I’ll be even more surprised if Facebook’s lawyers at Gibson, Dunn & Crutcher do not move for sanctions against DLA, which signed the amended complaint. Facebook lead counsel Orin Snyder suggested as much in a June 10 letter to DLA: “Your apparent unwillingness to freely provide [discovery materials] only furthers our already grave concern that there was no good-faith basis for filing the amended complaint in the first place,” Snyder wrote.
Rule 11 of the federal rules of civil procedure requires lawyers who sign a filing to certify that the filing’s contents are true, to the best of their knowledge, and “after an inquiry reasonable under the circumstances.” If a federal judge determines that a law firm has not conducted such an inquiry, the firm can be ordered to pay the other side’s attorneys’ fees.
So the question is whether the inquiry DLA and Lippes Mathias conducted on the Ceglia e-mails before filing the amended complaint is “reasonable under the circumstances.” Dennis Vacco, the former New York attorney general who’s now a partner at Lippes, said the answer to that question “is a resounding yes—it was reasonable.” Vacco said that being asked to address the issue “is a little bit of a set-up” because attorney-client privilege prohibits Ceglia’s lawyers from outlining everything they did to verify the information in their court filings. “I can’t get sucked into a bullet point-by-bullet point rebuttal,” Vacco said. “But I can say that we conducted a reasonable investigation.”
Four DLA partners did not respond to OTC’s e-mail asking specific questions about the firm’s pre-filing investigation. A firm spokesman sent an e-mail statement: "We have withdrawn from the case and no longer represent Paul Ceglia. Due to our attorney-client privilege obligations, there will be no further comment."
OTC talked to four legal ethics experts about the publicly-known facts of the pre-filing investigation. Two said those facts could lead to problems for Ceglia’s former law firms. Two others, though, said it appeared the firms had been careful in their representation and deserve credit for withdrawing.
Let’s look at what we know about DLA, Lippes, and the Facebook case. As I’ve previously reported, DLA publicly surfaced in the case in April, when Ceglia’s lawyers at the Buffalo firm Connors & Villardo, withdrew. (Terrence Connors, a former federal prosecutor, did not return a call.) At the time, DLA Piper partner Robert Brownlie told The Wall Street Journal that he had initially been “skeptical of Mr. Ceglia’s claims,” but after investigating the documents and hiring an outside expert to “examine the computer filed used to create the contract and verify when it was first created,” he had gained “absolutely 100 percent confidence” that Ceglia’s agreement with Zuckerberg was authentic.
Ceglia’s lawyers had reason to be “skeptical.” Facebook had already denounced the 2003 contract as a fraud. Ceglia, moreover, had told Bloomberg that he discovered the contract as a result of his fraud arrest by New York state law enforcement officials. In jurisdictional proceedings before DLA entered the case, Gibson Dunn disclosed Ceglia had had additional brushes with the law.
The purported e-mails between Ceglia and Zuckerberg came to light in an amended complaint DLA filed in Buffalo federal district court on April 11. The complaint quoted liberally from the e-mails, but did not attach them. Two days after the filing, Ceglia told his local newspaper, the Wellsville Daily Reporter, that the e-mails had been saved on computers at his parents’ house.
After Facebook demanded to see the e-mails, however, DLA and Lippes disclosed that they do not exist as e-mails at all, on any computer. In a response to Facebook’s assertion that Ceglia fabricated the e-mails, Ceglia’s lawyers said that he had copied his e-mails with Zuckerberg into three Microsoft Word files, which he then saved on a floppy disk. An e-mail forensic expert hired by the Ceglia side later submitted an affidavit saying that the metadata associated with the e-mail files reflect that the Word documents were created in 2003 and 2004, as Ceglia supposedly engaged in the e-mail exchanges. The Ceglia lawyers said in their response to Facebook’s motion for expedited recovery that Ceglia’s e-mail service, MSN Hotmail, does not “provide for the saving of individual messages.”
The Ceglia lawyers did not address Facebook’s assertion that none of the Ceglia e-mails appeared on Harvard’s e-mail server—although 175 other e-mails between Zuckerberg and Ceglia did. And although the lawyers reported that Ceglia had passed a polygraph test about the 2003 contract, there is no indication he was asked about the e-mails in a polygraph test. Nor is there any indication in filings by Ceglia’s lawyers that they asked MSN if the e-mails exist on a server.
If DLA and Lippes didn’t try to verify the existence of the original e-mails, that could turn out to be a crucial oversight. “I would have moved heaven and earth to get the e-mails off a hard drive,” Northwestern law school ethics lecturer Allan Horwich (who’s also a partner at Schiff Hardin) told OTC. Did Ceglia’s firms do enough? “It’s borderline,” Horwich said. “Under the best evidence rule, it’s pretty damn important” to find out if the e-mails were real.
“The whole thing sounds implausible,” added Richard Painter of the University of Minnesota law school. “I think an effort ought to have been made to dig up the originals. You know the other side is going to demand it. Part of your professional obligation is to see what you can do now, before you put something in a complaint.” At the very least, Painter said, Ceglia’s lawyers should have called his e-mail service to find out if the e-mails exist on its servers. “This is the type of thing someone could argue Rule 11 is designed for,” he said.
But as Painter cautioned—and two other ethics experts also said—courts tend to give broad leeway to lawyers, as long as they don’t knowingly include false representations in their filings. “There’s no ethical obligation not to cite evidence you have doubts about,” said W. Bradley Wendel of Cornell law school.
Indeed, Wendel and ethics expert John Steele told OTC that DLA and Lippes appear to have been careful to test Ceglia’s credibility, taking such extreme measures as administering the polygraph test and subsequently withdrawing from the case, presumably because of concerns about Ceglia’s credibility. “That’s really hard to do,” said Steele. “I’m glad they had the thought process and integrity to pull out.”
(Reporting by Alison Frankel)