A New York judge "refused to throw out Facebook Inc.'s malicious prosecution suit targeting DLA Piper, Milberg LLC and others over an action brought by" now-fugitive scam artist Paul Ceglia "who claimed an 84 percent stake in the company, finding Monday the social media giant has adequately claimed the firms knew the case was meritless" as reported by Law 360.
Facebook's complaint alleges:
The Defendant lawyers and their client, Paul D. Ceglia, conspired to file and prosecute a fraudulent lawsuit against Facebook and its founder and CEO Mark Zuckerberg, based on fabricated evidence, for the purpose of extorting a lucrative and unwarranted settlement. 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. Ultimately, the federal court hearing the case dismissed it as a fraud and a federal grand jury indicted Ceglia for the same fraud. Plaintiffs Facebook and Zuckerberg bring this lawsuit for malicious prosecution and deceit and collusion with intent to deceive the court in violation of N.Y. Judicial Law section 487, to recover damages they incurred as a result of Defendants' fraudulent lawsuit.
A criminal trial was set to begin on May 4 against Paul Ceglia for allegedly filing a sham lawsuit against Facebook and Zuckerberg but the apparent fraudster has gone on the lam according to the U.S. Marshals Service which has offered a $5,000 reward for information on his whereabouts as reported by Bob Van Voris for Bloomberg.
There's a real irony that Milberg postures itself as representing fraud victims but at least for a time championed Ceglia's case. Facebook also has named Milberg partners Sanford Dumain and Jennifer Young for their alleged roles in the malicious prosecution.
A few years ago an earlier incarnation of the Milberg firm was indicted for its alleged role in a decades-long conspiracy pursuant to which serial plaintiffs were paid kickbacks from court-approved attorneys' fees in their cases. Mel Weiss and Bill Lerach were sent to prison, and the firm avoided further prosecution after paying a $75 million fine and employing a compliance monitor for two years.
At the time of the June 2008 settlement between Milberg and the feds Sanford Dumain said: "We can now say to courts and clients that we are not a firm under indictment," and "we needed an understanding from the government that no one currently at the firm had any knowledge of the wrongdoing." Similarly, speaking on the integrity of the remaining partners at Milberg, Ariana Tadler stated: "The lawyers that stayed were not implicated or involved in the indictment, and we are going to work just as aggressively as we always have to do the best for our clients."
And yet notwithstanding their innocence the question still begged is whether some of those remaining partners had suspicions about the scheme prior to the indictment and what, if any, steps they took to address the problem. After all, what did they think was happening when the same individuals repeatedly were serving as plaintiffs in dozens of lawsuits? Indeed, in 1995, Congress enacted the Private Securities Litigation Reform Act specifically for the purpose of curbing the abuses for which Milberg and several of its partners were indicted, and surely this legislation raised a red flag even among the innocents at the firm. After all, isn't the specialty of the lawyers at Milberg to root out such things? Maybe some of these lawyers should find another line of work after missing the crimes that apparently were occurring for decades right under their proverbial noses. And what then was the need for federal prosecutors to install a compliance monitor at Milberg? Perhaps operating under the trust-but-verify principle.