Commercial Division Blog

Posted: January 11, 2016 / Categories Commercial, Malicious Prosecution, Sanctions

Motion Court Erred in Not Dismissing Malicious Prosecution and Judiciary Law Section 487 Claims

On December 29, 2015, the First Department issued a decision in Facebook, Inc. v. DLA Piper LLP (US), 2015 NY Slip Op. 09602, reversing a decision of the New York County Supreme Court (Rakower, J.) and dismissing the plaintiff's malicious prosecution and Judiciary Law Section 487 claims on the pleadings.

The action arose from a previous litigation, where a Mr. Paul Ceglia sued Mark Zuckerberg and Facebook, alleging that he had hired Zuckerberg in 2003 to design two websites, Street Fax and The Face Book, and that the contract gave him a 50% interest in The Face Book. The existence of the Street Fax contract was not in dispute, but Zuckerberg insisted that the Face Book contract was a forgery. When the suit was filed, a TRO was granted restraining Facebook from transferring any assets, but the TRO expired soon thereafter.

Ceglia and his personal lawyer (a non-appealing defendant) then hired several law firms to represent him, including the DLA Piper firm, the Lippes Mathias firm (both appellants) and the Kasowitz firm (a non-party). On March 30, 2011, a discovery consultant working for the Kasowitz firm discovered documents indicating that the Face Book contract was a forgery. The Kasowitz firm withdrew immediately. On April 11, 2011, DLA Piper and Lippes Mathias filed an amended complaint repeating Ceglia's claims regarding the Face Book contract. On April 13, 2011, Kasowitz notified DLA Piper and Lippes Mathias of its discovery, and Lippes Mathias undertook an investigation of the Face Book contract.

In June 2011, the parties moved for expedited discovery concerning the Face Book contract, both applications presenting expert evidence concerning the authenticity of the Face Book contract. Before a scheduled hearing on the motions, DLA Piper and Lippes Mathias withdrew without explanation. Ceglia then hired Millberg LLP (another appellant) but the Millberg firm withdrew three months later.

In November 2012, Ceglia was indicted for trying to defraud Zuckerberg and Facebook, and he fled the country. He is currently a fugitive from justice. The civil action was subsequently dismissed as a fraud on the court.

Zuckerberg and Facebook then brought the present action against the various attorney defendants, alleging claims for malicious prosecution and for attorney deceit in violation of Judiciary Law § 487. Judge Rakower denied the appellants' motion to dismiss (the claim against Ceglia's personal lawyer was part of the appeal), but the Appellate Division reversed.

Civil malicious prosecution requires the plaintiff to demonstrate, inter alia, that there was "an entire lack of probable cause in the prior proceeding" and "the lack of probable cause must be patent." The Appellate Division found that the TRO initially established probable cause, and that the expert affidavits as to the Face Book contract's validity, and the investigation—Ceglia apparently passed a lie detector test—meant that "further representation of Ceglia was [not] patently unsupported by probable cause." Plaintiff’s conclusory assertions that the Face Book contract was an obvious forgery were insufficient to overcome these facts.

Because plaintiffs could not demonstrate lack of probable cause, consideration of the other elements of malicious prosecution was unnecessary.

A Judiciary Law § 487 claim requires that the attorney's "act of deceit or intent to deceive must be stated with particularity." Here, the documentary record established that the amended complaint was filed before Kasowitz notified DLA Piper and Lippes Mathias of its discovery, and that the authenticity of the Face Book contract was disputed throughout the litigation, with expert testing and opinions on both sides. Plaintiffs' allegations that, upon information and belief, Kasowitz notified DLA Piper and Lippes Mathias before the amended complaint was filed, or that Ceglia told his lawyers that the Face Book contract was a fake, were insufficient to state a claim of scienter with particularity.

Accordingly, both claims were dismissed against all of the appealing defendants.