Facebook, Inc. v. DLA Piper LLP

• Decision Date: 29 December 2015
• Parties: FACEBOOK, INC., et al., Plaintiffs–Respondents, v. DLA PIPER LLP (US), et al., Defendants–Appellants, Paul Argentieri & Associates, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

134 A.D.3d 610

23 N.Y.S.3d 173

FACEBOOK, INC., et al., Plaintiffs–Respondents,

v. DLA PIPER LLP (US), et al., Defendants–Appellants,Paul Argentieri & Associates, et al., Defendants.

Supreme Court, Appellate Division, First Department, New York.

Dec. 29, 2015.

Dontzin Nagy & Fleissig LLP, New York (Tibor L. Nagy, Jr. of counsel), for DLA Piper LLP (US), Christopher P. Hall, John Allock, Robert W. Brownlie and Gerard A. Trippitelli, appellants.

Brown Rudnick LLP, New York (Sigmund S. Wissner–Gross of counsel), for Lippes Mathias Wexler Friedman LLP, Dennis C. Vacco and Kevin J. Cross, appellants.

Joseph Hage Aaronson LLC, New York (Gregory P. Joseph of counsel), for Milberg LLP, Sanford P. Dumain and Jennifer L. Young, appellants.

Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, DC (Kevin B. Huff of the bar of the District of Columbia, admitted pro hoc vice, of counsel), for respondents.

GONZALEZ, P.J., SWEENY, RENWICK, MANZANET–DANIELS, JJ.

Order, Supreme Court, New York County (Eileen A. Rakower, J.), entered May 11, 2015, which denied the pre-answer motions of defendants-appellants DLA Piper LLP (US), Christopher P. Hall, John Allcock, Robert W. Brownlie, and Gerard A. Trippitelli (collectively the DLA Piper defendants); Milberg LLP, Sanford P. Dumain and Jennifer L. Young (collectively, the Milberg defendants); and Lippes Mathias Wexler Friedman LLP, Dennis C. Vacco and Kevin J. Cross (collectively, the Lippes defendants) to dismiss the complaint under CPLR 3211(a)(7), unanimously reversed, on the law, without costs, the motions granted, and the complaint dismissed. The Clerk is directed to enter judgment accordingly.

This case arises from dealings dating back over a decade between plaintiff Mark Elliot Zuckerberg and nonparty Paul Ceglia. The underlying facts of this case are as follows:

On April 28, 2003, Ceglia hired Zuckerberg to design a website for a company called Street Fax, Inc. Ceglia and Zuckerberg executed a two-page contract (the Street Fax Contract) and Zuckerberg performed some work under the contract, although he was not paid in full by Ceglia.

In December 2003, Zuckerberg conceived of Facebook, which he launched on February 4, 2004.

On June 30, 2010, Ceglia, through defendant attorney Paul Argentieri, filed a complaint in Allegheny County Supreme Court against Facebook and Zuckerberg (the Ceglia action), alleging that on April 28, 2003, Zuckerberg and Ceglia purportedly entered into a "Work For Hire Contract." This purported contract allegedly reflected Ceglia's agreement to pay Zuckerberg for developing the Street Fax website and a separate website with the working title of "The Face Book," and Ceglia's purported acquisition of a 50% interest in the software, programming language and business interests derived from any expansion of The Face Book, along with an additional 1% interest for each day the website was delayed beyond January 1, 2004. At the time they filed the complaint, Ceglia's representatives obtained an ex parte TRO from the court restraining Facebook from transferring, selling, or assigning any assets owned by it. The TRO was served on Facebook on July 6, 2010, and expired on or before July 23, 2010.

On July 9, 2010, the case was removed to federal court based on diversity jurisdiction. From the outset of the litigation, Zuckerberg took the position that the Work For Hire Contract was a forgery and the Ceglia action was fraudulent.

In early 2011, Ceglia and Argentieri offered a contingency fee arrangement to various law firms via a "Lawsuit Overview" document, which mapped out the strategy and bases of the lawsuit. Several law firms, including the DLA Piper and the Lippes defendants, as well as Kasowitz, Benson, Torres and Friedman, LLP (Kasowitz), agreed to represent Ceglia.

On March 30, 2011, a forensic e-discovery consultant working with Kasowitz discovered the original Street Fax Contract on Ceglia's computer hard drive and concluded it had been altered to create the "Work For Hire Contract" by adding references to Facebook. Kasowitz notified Argentieri of these findings several times and immediately withdrew as Ceglia's counsel.

On April 11, 2011, the DLA Piper and the Lippes defendants (DLA–Lippes) filed an amended complaint in the Ceglia action repeating Ceglia's claims against Facebook based on the Work For Hire Contract, and quoting, but not attaching, purported emails between Zuckerberg and Ceglia discussing the development of Facebook.

On April 13, 2011, Kasowitz sent a letter to the DLA–Lippes defendants, informing them that on March 30, it had seen documents on Ceglia's computer that established that the Work For Hire Contract was a forgery and that it had communicated these findings to Argentieri on March 30, April 4, and April 12. The letter further stated that Kasowitz would agree, pending an investigation that defendant Vacco of Lippes Mathias had promised to undertake, to refrain from reporting its findings to the Federal Court.¹ This investigation was indeed undertaken as discussed infra.

On June 2, the parties moved and cross-moved for expedited discovery concerning the Work For Hire Contract, complete with affidavits and expert evidence both for and against the authenticity of the contract. On June 29, on the eve of the hearing for expedited discovery, the DLA–Lippes defendants withdrew from the case without explanation.² The Federal Magistrate ordered expedited discovery into the authenticity of the Work For Hire Contract and the purported emails.

During the expedited discovery period, Ceglia hired the Milberg defendants, which first entered an appearance on March 5, 2012. They moved to withdraw from representing Ceglia on May 20, 2012.

On November 26, 2012, Ceglia was indicted for mail and wire fraud as a result of his scheme to defraud plaintiffs. He subsequently fled the jurisdiction and is currently a fugitive.

On March 26, 2013, following discovery, the Federal Magistrate recommended that the District Court dismiss the Ceglia action with prejudice, finding that the Work for Hire Contract and purported emails were all forgeries and that the lawsuit was a massive fraud on the court. This recommendation was adopted by the District Court on March 25, 2014, and the complaint was dismissed.

Based on these factual allegations, plaintiffs commenced the instant action, asserting claims for malicious prosecution and attorney deceit against defendants-appellants (defendants), among others, alleging that they initiated the Ceglia lawsuit without probable cause, and thereafter continued it even as they knew, or reasonably should have known, that it was fraudulent, without merit, and based on fabricated evidence from the moment the original complaint was filed and at all times while the action was pending.

Defendants moved to dismiss the complaint, alleging, among other things, that the allegations regarding malicious prosecution failed to demonstrate that they acted with "actual malice," that they lacked "probable cause" to maintain the action, or that plaintiffs sustained a "special injury." With respect to the claims brought under Judiciary Law § 487 for attorney deceit, defendants argued that the complaint should be dismissed because it failed to allege with the requisite particularity that they intended to deceive the court or plaintiffs, that they engaged in a chronic and extreme pattern of legal delinquency, or that they were aware of the fraud and deceit during the Ceglia action. Plaintiffs opposed those respective motions and the motion court denied all motions. For the following reasons, we now reverse.

On a motion to dismiss pursuant to CPLR 3211, we must accept as true the facts as alleged in the complaint and accord plaintiffs the benefit of every favorable inference (see Sokoloff v. Harriman Estates Dev. Corp., 96 N.Y.2d 409, 414, 729 N.Y.S.2d 425, 754 N.E.2d 184 [2001] ). However, "[f]actual allegations presumed to be true on a motion pursuant to CPLR 3211 may properly be negated by affidavits and documentary evidence" (Wilhelmina Models, Inc. v. Fleisher, 19 A.D.3d 267, 269, 797 N.Y.S.2d 83 [1st Dept.2005], citing Biondi v. Beekman Hill House Apt. Corp., 257 A.D.2d 76, 81, 692 N.Y.S.2d 304 [1st Dept.1999], affd. 94 N.Y.2d 659, 709 N.Y.S.2d 861, 731 N.E.2d 577 [2000] ; see also Matter of Sud v. Sud, 211 A.D.2d 423, 424, 621 N.Y.S.2d 37 [1st Dept.1995] ).

With respect to the civil malicious prosecution claim, that cause of action should have been dismissed. The tort of malicious prosecution requires proof of each of the following elements: "(1) the commencement or continuation of a ... proceeding by the defendant against the plaintiff, (2) the termination of the proceeding in favor of the [plaintiff], (3) the absence of probable cause for the ... proceeding and (4) actual malice" (Broughton v. State of New York, 37 N.Y.2d 451, 457, 373 N.Y.S.2d 87, 335 N.E.2d 310 [1975], cert. denied sub nom. Schanbarger v. Kellogg, 423 U.S. 929, 96 S.Ct. 277, 46 L.Ed.2d 257 [1975] ). Additionally, a plaintiff must also allege and prove "special injury" (Engel v. CBS, Inc., 93 N.Y.2d 195, 201, 689 N.Y.S.2d 411, 711 N.E.2d 626 [1999] ).

With respect to the element of probable cause, a plaintiff must allege that the underlying action was filed with "a...