Facebook sues lawyers for pursuing dubious Ceglia lawsuit

By Jonathan Stempel

NEW YORK (Reuters) - Facebook Inc and Chief Executive Mark Zuckerberg have sued several lawyers who represented Paul Ceglia, claiming they helped the upstate New York entrepreneur pursue a fraudulent lawsuit to extort a 50 percent stake in the social networking company.

Monday's lawsuit was filed seven months after a federal judge dismissed Ceglia's civil case and two years after federal prosecutors in Manhattan charged Ceglia with criminal mail and wire fraud for alleged document forgery. Facebook's market value is now about $200 billion.

Ceglia, a wood pellet salesman from Wellsville, New York, is not a defendant in Facebook's lawsuit, which was filed with the New York state court in Manhattan.

The 13 defendants include DLA Piper, one of the world's largest law firms; Paul Argentieri, Ceglia's original lawyer; the law firms Milberg LLP and Lippes Mathias Wexler Friedman; and Dennis Vacco, a Lippes Mathias partner and former New York attorney general.

Facebook seeks unspecified damages for harm to its reputation and business, which it wants tripled because of the lawyers' alleged misconduct, plus punitive damages.

"We said from the beginning that Paul Ceglia's claim was a fraud and that we would seek to hold those responsible accountable," Facebook general counsel Colin Stretch said in a statement.

Peter Pantaleo, DLA Piper's general counsel, in a statement said Facebook sued "to intimidate lawyers" to refrain from suing the Menlo Park, California-based company. "We will defend this meritless litigation aggressively and we will prevail."

Vacco made similar claims in another statement, and said his firm's lawyers "operated completely within the rule of law and at the highest ethical standards at all times."

The other defendants did not respond to requests for comment.

Ceglia claimed in his June 2010 lawsuit that an April 2003 contract he signed with Zuckerberg, who was then a Harvard University freshman who had done programming work for Ceglia's StreetFax.com, entitled him to a Facebook stake as high as 84 percent.

Facebook said Ceglia's lawyers knew or should have known this lawsuit was a fraud, having been "based on an implausible story and obviously forged documents," but plowed ahead "for the purpose of extorting a lucrative and unwarranted settlement."

It also said those lawyers stayed with the case even after Aaron Marks, a lawyer at Kasowitz Benson Torres & Friedman who also represented Ceglia, warned that he had found "smoking-gun" evidence of fraud.

While the Kasowitz firm withdrew from the case, Marks agreed not to report the "misconduct" he had found to the court at the request of another of Ceglia's law firms, the complaint said. The Kasowitz firm and Marks were not named as defendants.

Ceglia's criminal trial is scheduled for May 4, 2015. He has pleaded not guilty.

The case is Facebook Inc et al v. DLA Piper LLP (US) et al, New York State Supreme Court, New York County, No. 653183/2014.

(Reporting by Jonathan Stempel in New York; editing by Andrew Hay and Cynthia Osterman)