Ceglia v. Zuckerberg et al

Filing 401

ORDER denying 372 Defendants' Motion for Clarification of the Court's Order Regarding Discovery on Defendants' Rule 12(c) Motion. Signed by Hon. Leslie G. Foschio on 5/30/2012. (SDW)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK

PAUL D. CEGLIA,
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
MILBERG LLP
Attorneys for Plaintiff
SANFORD P. DUMAIN,
JENNIFER LEIGH YOUNG, and
MELISSA RYAN CLARK, of Counsel
One Pennsylvania Plaza, 49th Floor
New York, New York 10119-0165
JONES & SKIVINGTON
Attorneys for Plaintiff
PETER K. SKIVINGTON, of Counsel
31 Main Street
P.O. Box 129
Geneseo, New York 14454
ROBERT B. CALIHAN, ESQ.
Attorney for Plaintiff
16 West Main Street
Suite 761
Rochester, New York 14614

GIBSON, DUNN & CRUTCHER, LLP
Attorneys for Defendants
ORIN S. SNYDER,
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
Defendants’ Motion for Clarification of the Court’s Order Regarding Discovery on
Defendants’ Rule 12(c) Motion (Doc. No. 372) (“Defendants’ Motion”) filed May 8, 2012,
is before the undersigned pursuant to the referral order of Hon. Richard J. Arcara dated
May 27, 2011 (Doc. No. 41).
At issue in this action is whether a “Work for Hire” contract allegedly executed on
April 28, 2003, created a partnership between Plaintiff Paul D. Ceglia (“Plaintiff”) and
Defendant Mark Elliot Zuckerberg (“Zuckerberg”) for the development of two separate
internet business ventures including, relevant here, the social-networking website
created and maintained by Zuckerberg, and known as Defendant Facebook, Inc.
(“Facebook”). On March 26, 2012, Defendants filed dispositive motions seeking (1) to
dismiss the action to sanction Plaintiff for perpetrating a fraud on the court by, inter alia,
representing to the court that the Work for Hire contract is authentic, when Plaintiff
knows it is a forgery (Doc. No. 318) (“Motion to Dismiss”) and (2) judgment on the
pleadings asserting the action is time-barred and barred by the doctrine of laches (Doc.
No. 320) (“Motion for Judgment on the Pleadings”) (together, “dispositive motions”).
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Defendants’ argument in support of the Motion to Dismiss that Plaintiff’s claims are
time-barred is largely based on Defendants’ assertion that on April 13, 2004,
Zuckerberg incorporated in Florida a limited liability company, Thefacebook, LLC (“the
LLC”) as a precursor to Facebook. Because the Amended Complaint identifies July 29,
2004, the date Zuckerberg incorporated Facebook in Delaware, as the date Zuckerberg
allegedly misappropriated the partnership assets, thereby triggering the accrual of
Plaintiff’s claims in this action, the formation of the LLC three months earlier would
render this action, filed June 30, 2010, time-barred under the applicable six-year
limitations period. Contemporaneous with the filing of Defendants’ dispositive motions,
Defendants also moved to stay discovery pending resolution of the dispositive motions
(Doc. No. 322) (“Defendants’ Motion to Stay”).
On April 4, 2012, following oral argument on Defendants’ Motion to Stay
conducted before the undersigned, the court granted the motion insofar as Defendants
sought to stay general discovery, but denied the motion in part, permitting expert
discovery limited to that necessary for Plaintiff to oppose Defendants’ Motion to Dismiss
(Doc. No. 348) (“April 4, 2012 Minute Entry”). Plaintiff also was given seven days to
provide argument explaining why discovery was necessary to oppose the Motion for
Judgment on the Pleadings. Id.
On April 11, 2012, Plaintiff filed a Memorandum in Support of Discovery on
Defendants’ Rule 12(c) Motion (Doc. No. 349) asserting Plaintiff needed discovery as to
those matters outside the pleadings raised in Defendants’ Motion for Judgment on the
Pleadings. In particular, Plaintiff requested discovery to determine what other
Facebook entities existed and when they were formed, the identification of any other
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Facebook ownership interests created and transferred into such entities, and inspection
of the sealed records of previous litigation against Defendants. In their response filed
April 18, 2012 (Doc. No. 353) Defendants argued that no discovery would enable
Plaintiff to demonstrate the LLC, the public filing of which Defendants urges the court to
take judicial notice, was not formed on April 13, 2004, more than six years before
Plaintiff commenced the instant action, such that the action is time-barred. In Plaintiff’s
Reply in Support of Discovery on Defendants’ Rule 12(c) Motion (Doc. No. 360), filed
April 25, 2012, Plaintiff asserted discovery was necessary regarding the legal effect of
the formation of the LLC on the partnership allegedly established between Plaintiff and
Zuckerberg by the Work for Hire contract.
In a Decision and Order filed April 30, 2012 (Doc. No. 366) (“April 30, 2012
D&O”), the undersigned granted in part and denied in part Defendants’ Motion to Stay,
converting Defendants’ motion for judgment on the pleadings to a motion for partial
summary judgment on the issues of statute of limitations and laches. April 30, 2012
D&O at 5. The final two sentences of the April 30, 2012 D&O provide
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.
Id.
On May 8, 2012, Defendants filed the instant motion seeking clarification of the
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April 30, 2012 D&O, asserting that as written, Plaintiff “will deliberately misconstrue” the
April 30, 2012 D&O “as providing a springboard for wide-ranging discovery into matters
that have nothing to do with him or his claims.” Memorandum of Law in Support of
Defendants’ Motion for Clarification of the Court’s Order Regarding Discovery on
Defendants’ Rule 12(c) Motion (Doc. No. 373) (“Defendants’ Memorandum”) at 1.
Defendants suggest substituting the following language for the final two sentences of
the April 30, 2012 D&O:
Plaintiff is thus permitted discovery under Rule 56(d), limited to serving, within 60
days, interrogatories and document requests directly concerning (1) assuming,
arguendo, the Work for Hire contract dated August 28, 2003 is authentic, what
were Plaintiff’s intellectual property rights and other ownership interests under
the contract’s language providing that Plaintiff, in exchange for helping fund
Zuckerberg’s development of FaceBook, would own “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) the effect of the
formation of the LLC on Plaintiff’s interest in the partnership’s assets, including
Plaintiff’s intellectual property rights. Depositions will not be permitted absent
leave of the Court.
Defendants’ Memorandum at 8.
According to Defendants, the suggested “minor revisions” will prevent Plaintiff from
“willfully mischaracterizing the scope” of discovery permitted by the April 30, 2012 D&O
and “burdening Defendants with overly broad discovery requests” by clarifying Plaintiff
“may only request discovery on matters that directly concern (1) Ceglia’s alleged rights
and interests under the Work for Hire Document, and (2) the effect that the formation of
Thefacebook LLC had on Ceglia’s alleged rights and interests. Id. at 7-8 (underlining in
original).
In opposition, Plaintiff asserts Defendants’ proposed revisions do not “clarify
anything” and can only be presumed to be “designed to fit into prepared arguments
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[Defendants] have already generated to deny access to documents and refusals to
answer legitimate interrogatories.” Plaintiff’s Response to Defendants’ Motion for
Clarification of the Court’s Order Regarding Discovery on Defendants’ Rule 12(c)
Motion (Doc. No. 376) (“Plaintiff’s Response”) at 3. Plaintiff further maintains the April
30, 2012 D&O is “clear and narrowly tailored,” id. at 4, that discovery is critical as to
what Defendants “regard as the intellectual property rights that were granted to
[Plaintiff] under the [Work for Hire contract] before analyzing what property or property
rights were transferred by Zuckerberg to any subsequent person or entity, id. at 5, and
that discovery of what documents Zuckerberg signed reflecting asset transfers into the
LLC would reveal whether a breach of the Work for Hire contract occurred as no breach
would have occurred unless Zuckerberg attempted to transfer more than a 50% interest
in intellectual property rights into the LLC, id. at 5-7. Plaintiff also references the Third
Amended Complaint filed in another legal action commenced by Zuckerberg and
Facebook against Facebook co-founder Eduardo Saverin (“Saverin”), Facebook, Inc. v.
Saverin, No. 105CV039867, filed in California Superior Court, Clara County (“Saverin
Case”), in which Defendants to this action alleged
On April 13, 2004, Saverin formed the LLC, which was organized as a limited
liability company under Florida law. Zuckerberg, Moskovitz and Saverin are
each listed as members and managers of the LLC in the Articles of Organization.
At no time were the intellectual property rights in the business ever assigned to
the LLC. At no time did those rights ever belong to the LLC.
Saverin Case, Third Amended Complaint1 ¶ 10.
According to Plaintiff, this statement by Defendants in the Saverin Case establishes the

1

Attached as Exh. 1 to Plaintiff’s Response.
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absence of any merit to Defendants’ Motion for Judgment on the Pleadings because it
demonstrates that Defendants did not transfer any intellectual property assets into the
LLC, such that no breach of the Work for Hire contract occurred on April 13, 2004.
Plaintiff’s Response at 8.
In further support of clarification, Defendants assert that Plaintiff’s arguments in
opposition to clarification establish “the parties are in agreement on fundamental
points,” Defendants’ Reply Memorandum of Law in Support of Defendants’ Motion for
Clarification of the Court’s Order Regarding Discovery on Defendants’ Rule 12(c)
Motion (Doc. No. 380) (“Defendants’ Reply”) at 1, including that discovery under the
April 30, 2012 D&O should be limited to Plaintiff’s alleged rights and interests under the
Work for Hire contract, id. at 2-3, and that no discovery is necessary as to how the
formation of the LLC necessarily divested Plaintiff of any partnership assets, including
intellectual property rights, id. at 3-4, yet maintain that Plaintiff’s objections to the
language modifications proposed by Defendants are misplaced because the suggested
revisions do not result in any substantive change in meaning, id. at 5-6.
Consideration of the arguments advanced by Plaintiff and Defendants
establishes that no clarification of the April 30, 2012 D&O is warranted. In particular, as
Defendants recognize, Defendants’ Reply, passim, Plaintiff’s interpretation of the scope
of discovery permitted under the April 30, 2012 D&O is essentially the same as
Defendants’ interpretation. Plaintiff’s assertion, Plaintiff’s Response at 8, that
Defendants, by claiming, as plaintiffs in the Saverin case, that no intellectual property
rights were transferred into the LLC formed by Saverin on April 13, 2004 under Florida
law, moots that issue in the instant case and, as Defendants admit, Defendants’ Reply
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at 3, no further discovery on this issue is required. Given that the parties largely agree
as to the scope of discovery permitted by the April 30, 2012 D&O, any need for
clarification is, at this time, speculative. Accordingly, Defendants’ motion (Doc. No.
372) is DENIED.
Should Defendants find any interrogatory Plaintiff serves to be beyond that
permitted in accordance with the Order, Defendants may promptly move for a protective
order.
SO ORDERED.
/s/ Leslie G. Foschio
LESLIE G. FOSCHIO
UNITED STATES MAGISTRATE JUDGE
DATED:

May 30, 2012
Buffalo, New York

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