Ceglia v. Zuckerberg et al

Filing 366

DECISION AND ORDER. Upon consideration of the argument set forth by Plaintiff and Defendants on the issue of discovery, Defendants' Motion to Stay as to Defendants' motion for judgment on the pleadings, is GRANTED in part, and DENIED in part, with Defendants' motion for judgment on the pleadings converted to a motion for partial summary judgment on the issues of statute of limitations and laches. Signed by Hon. Leslie G. Foschio on 4/30/2012. (SDW)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK

PAUL D. CEGLIA,

DECISION
and
ORDER

Plaintiff,
v.

10-CV-00569A(F)
MARK ELLIOT ZUCKERBERG, and
FACEBOOK, INC.,
Defendants.

APPEARANCES:

PAUL A. ARGENTIERI, ESQ.
Attorney for Plaintiff
188 Main Street
Hornell, New York 14843
BOLAND LEGAL LLC
Attorneys for Plaintiff
DEAN M. BOLAND, of Counsel
18123 Sloane Avenue
Lakewood, Ohio 44107
GIBSON, DUNN & CRUTCHER, LLP
Attorneys for Defendants
ALEXANDER H. SOUTHWELL, and
THOMAS H. DUPREE, of Counsel
200 Park Avenue, 47th Floor
New York, New York 10166-0193
HARRIS BEACH LLP
Attorneys for Defendants
TERRANCE P. FLYNN, of Counsel
Larkin at Exchange
726 Exchange Street, Suite 1000
Buffalo, New York 14210

This action is based on a “Work for Hire” contract allegedly executed on April 28,
2003, pursuant to which Plaintiff Paul D. Ceglia (“Plaintiff”), and Defendant Mark Elliot
Zuckerberg (“Zuckerberg”), established a partnership for the development and

commercialization of two separate internet business ventures, including, relevant to this
case, “The Face Book,” the social-networking website created and maintained by
Zuckerberg, and now known as Defendant Facebook, Inc. (“Facebook”). The putative
contract provides that, inter alia, Plaintiff would help fund the development of Facebook
in exchange for “a half interest (50%) in the software, programming language and
business interests derived from the expansion of that service to a larger audience.”
First Amended Complaint (Doc. No. 39) (“Amended Complaint”) ¶ 1. Plaintiff asserts
seven claims for relief including declaratory judgment based on the alleged partnership
with Zuckerberg (Claims 1 and 5), breach of fiduciary duty (Claim 2), actual and
constructive fraud (Claims 3 and 4), and breach of contract (Claims 6 and 7).
On March 26, 2011, Defendants filed two dispositive motions, including a motion
to dismiss (Doc. No. 318) (“motion to dismiss”), and for judgment on the pleadings
(Doc. No. 320) (“motion for judgment on the pleadings”) (together, “Defendants’
dispositive motions”), as well as a motion to stay discovery pending the court’s decision
on Defendants’ dispositive motions (Doc. No. 322) (“Defendants’ Motion to Stay”),
supported by a memorandum of law (Doc. No. 323). On April 1, 2012, Plaintiff filed a
response in opposition to Defendants’ Motion to Stay Discovery Pending a Ruling on
Their Dispositive Motions (Doc. No. 345). In further support of Defendant’s Motion to
Stay, Defendants filed on April 3, 2012, a reply memorandum of law (Doc. No. 346). At
oral argument on Defendants’ Motion to Stay, conducted on April 4, 2012, general
discovery was stayed, but a limited period of expert discovery was permitted with regard
to the motion to dismiss, and Plaintiff was directed to provide argument, within seven
days, as to why Plaintiff needed discovery on the motion for judgment on the pleadings.
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April 4, 2012 Minute and Order (Doc. No. 348).
Accordingly, on April 11, 2012, Plaintiff filed a memorandum of law regarding
Plaintiff’s need for discovery on Defendants’ motion for judgment on the pleadings
(Doc. No. 349) (“Plaintiff’s Memorandum”). Defendants’ memorandum in opposition to
Plaintiff’s Memorandum was filed on April 18, 2012 (Doc. No. 353) (“Defendants’
Response”). On April 25, 2012, Plaintiff filed a reply memorandum of law in further
support of discovery necessary to oppose Defendants’ motion for judgment on the
pleadings (Doc. No. 360) (“Plaintiff’s Reply”). Further oral argument was deemed
unnecessary.
In the Amended Complaint, Plaintiff identifies July 29, 2004, the date Zuckerberg
incorporated TheFaceBook, Inc., in Delaware, into which Zuckerberg thereafter
allegedly misappropriated the partnership’s assets, as the date Plaintiff’s claims
accrued. Amended Complaint ¶¶ 7, 57. Defendants assert in support of their motion
for judgment on the pleadings that each of Plaintiff’s claims for relief is barred by the
applicable statute of limitation, Memorandum of Law in Support of Defendants’ Motion
for Judgment on the Pleadings (Doc. No. 321) (“Defendants’ Judgment on the
Pleadings Memorandum”), at 8-14; that Plaintiff’s claims asserted in the amended
complaint do not relate back to the filing of the original complaint, id. at 14-20, and that
Plaintiff’s claims are barred by laches given Plaintiff’s inexcusable delay in commencing
this action. Id. at 20-25. Defendants’ arguments that Plaintiff’s claims are time-barred
or barred by laches turn, in large part, on Defendants’ assertion that on April 13, 2004,
Defendant Mark Elliot Zuckerberg (“Zuckerberg”), formed in Florida a limited liability
company, Thefacebook, LLC (“the LLC”), to run the business, which was the precursor
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to Thefacebook, Inc. (“the Inc.”), which later became known as Defendant FaceBook,
Inc. (“FaceBook”). Defendants’ Judgment on the Pleadings Memorandum at 1-2, 8-9.
According to Defendants, Zuckerberg, by listing himself and two others, but not Plaintiff,
as the owners of the LLC, “publicly and unequivocally excluded [Plaintiff] from
ownership of the company in April 2004,” resulting in an accrual of Plaintiff’s claims
after the six years provided under the applicable statute of limitations prior to Plaintiff’s
commencement of this action on June 30, 2010. Id. at 2 (underlining in original).
Defendants further maintain that Plaintiff, by waiting more than six years to bring this
action, has created an unjustified and prejudicial delay such that Plaintiff’s claims are
now barred by laches. Id.
Plaintiff maintains that Defendants’ motion for judgment on the pleadings, insofar
as it presents matters outside the pleadings, should be converted to a motion for
summary judgment under Fed.R.Civ.P. 56, and Plaintiff should be permitted to conduct
discovery necessary to oppose the motion. Plaintiff’s Memorandum at 2-4. Defendants
argue in opposition that no discovery will enable Plaintiff to demonstrate that the LLC,
for which Defendants urge the court to take judicial notice of the public filing, was not
formed on April 13, 2004, more than six years before Plaintiff commenced the instant
action, such that Plaintiff’s claims are time-barred. Defendants’ Response at 3 (“The
only question before the Court in ruling on [Defendants’ motion for judgment on the
pleadings] are whether [Plaintiff’s] allegations on their face, in conjunction with facts
established by public records or other matters subject to judicial notice, are barred by
the statute of limitations or laches.”). In further support of discovery, Plaintiff asserts
that the formation of the LLC only raises questions regarding the legal effect of the
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formation of the LLC on the partnership allegedly established between Plaintiff and
Zuckerberg on April 28, 2003. Plaintiff’s Reply at 2-7.
Upon consideration of the argument set forth by Plaintiff and Defendants on the
issue of discovery, Defendants’ Motion to Stay as to Defendants’ motion for judgment
on the pleadings, is GRANTED in part, and DENIED in part, with Defendants’ motion
for judgment on the pleadings converted to a motion for partial summary judgment on
the issues of statute of limitations and laches. Plaintiff is thus permitted discovery
under Fed.R.Civ.P. 56(d), limited to serving, within 60 days, interrogatories and
document requests regarding (1) assuming, arguendo, the Work for Hire contract dated
April 28, 2003 is authentic, what intellectual property rights and other ownership
interests were created by the contract’s language providing that Plaintiff, in exchange
for helping fund Zuckerberg’s development of FaceBook, would give Plaintiff “a half
interest (50%) in the software, programming language and business interests derived
from the expansion of that service to a larger audience,” and (2) how the formation of
the LLC necessarily divested Plaintiff of any and all interest in the partnership’s assets,
including intellectual property rights. Depositions will not be permitted absent leave of
the court.
SO ORDERED.
/s/ Leslie G. Foschio
LESLIE G. FOSCHIO
UNITED STATES MAGISTRATE JUDGE
DATED:

April 30, 2012
Buffalo, New York

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