Ceglia v. Zuckerberg et al

Filing 452

MEMORANDUM in Opposition re 437 MOTION to Disqualify Counsel NOTICE filed by Facebook, Inc., Mark Elliot Zuckerberg. (Attachments: # 1 Certificate of Service)(Snyder, Orin)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
-----------------------------------PAUL D. CEGLIA,
Plaintiff,
v.
MARK ELLIOT ZUCKERBERG and
FACEBOOK, INC.,
Defendants.
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Civil Action No. 1:10-cv-00569RJA

DEFENDANTS’ OPPOSITION TO CEGLIA’S MOTION
TO DISQUALIFY DEFENDANTS’ COUNSEL

Thomas H. Dupree, Jr.
GIBSON, DUNN & CRUTCHER LLP
1050 Connecticut Avenue, NW
Washington, DC 20036
[phone]
Terrance P. Flynn
HARRIS BEACH PLLC
726 Exchange Street
Suite 1000
Buffalo, NY 14210
[phone]
June 22, 2012

Orin Snyder
Alexander H. Southwell
GIBSON, DUNN & CRUTCHER LLP
200 Park Avenue, 47th Floor
New York, NY 10166-0193
[phone]

PRELIMINARY STATEMENT
Ceglia’s Motion to Disqualify Defendants’ Counsel is a thinly-veiled effort to blow up
the schedule for expedited discovery established in this Court’s April 4, 2012 Order (Doc. No.
348). The motion is frivolous on its face, but the punch line is in the relief that Ceglia requests—
a stay of all discovery until the Court has ruled on Ceglia’s motion. Doc. No. 438 at 16-17. This
Court has already rejected a stay, concluding that Ceglia’s Motion to Disqualify “appears
without sufficient potential merit” to warrant it. Doc. No. 451 at 7. But the fact that Ceglia
made a stay of discovery the centerpiece of his requested relief demonstrates that his Motion to
Disqualify was intended solely to achieve obstruction, delay, and harassment. Indeed, Ceglia
expressly acknowledged that he was seeking an excuse not to attend “Defendants’ currently
noticed depositions.” Doc. No. 438 at 17. Having correctly denied Ceglia’s attempt to disrupt
the expert discovery process and delay the inevitable dismissal of his fraudulent suit, the Court
should also deny the Motion to Disqualify.
The utterly baseless nature of the claims in Ceglia’s motion confirms that it could not
conceivably have been filed in good faith. The Court need not even reach the merits because
Ceglia lacks standing to move to disqualify Defendants’ counsel. As the Court has already
recognized, Ceglia has not “shown he is presently a Facebook shareholder with standing to raise
the disqualification question on behalf of the corporation.” Doc. No. 451 at 7. Moreover, Ceglia
has waived the arguments that he raises in his motion by failing to assert them at any previous
time within the nearly two years that this suit has been pending.
Even if the Court were to reach the merits, Ceglia’s motion should be denied for the
simple reason that he relies on the wrong rules: Ceglia’s motion is based entirely on the New
York Disciplinary Rules, but those rules were replaced on April 1, 2009 by the New York Rules
of Professional Conduct. See 22 N.Y.C.R.R. § 1200.0; see also Local Rule 83.3(a) (“Attorneys
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practicing in this Court shall faithfully adhere to the New York Rules of Professional Conduct.”).
Ceglia does not even mention the governing Rules of Professional Conduct. Under those rules,
counsel’s representation of both Mark Zuckerberg and Facebook, Inc. in this case is
unquestionably appropriate because there is no actual conflict of interest between Defendants,
and even if such a conflict existed, Defendants have given their informed consent to the dual
representation. Indeed, as this Court has already found, it is “implausible . . . that the interests of
Defendant Zuckerberg, an acknowledged lead founder and majority shareholder of Defendant
Facebook, Inc. could conceivably be divergent so as to require the court to find such waiver and
consent to be ineffective.” Doc. No. 451 at 7.
Accordingly, Ceglia’s frivolous and abusive motion should be rejected. Moreover,
because this motion is the latest in a long series of filings that have “multiplie[d] the
proceedings . . . unreasonably and vexatiously,” the Court should order Ceglia’s counsel, Mr.
Boland and Mr. Argentieri, to show cause why they should not be sanctioned under 28 U.S.C.
§ 1927. Courts often impose sanctions under § 1927 when a party uses a disqualification motion
“as a pretext to harass an opponent and delay litigation.” Vegetable Kingdom, Inc. v. Katzen,
653 F. Supp. 917, 926 (N.D.N.Y. 1987).
ARGUMENT
Ceglia claims that Defendants’ counsel should be disqualified from representing
Defendants in this case because their “dual representation” of both Defendants purportedly gives
rise to a conflict of interest that violates the New York Disciplinary Rules. Doc. No. 438 at 4-6.
The Court need not even reach the merits of that claim because—as this Court has already
recognized, Doc. No. 451 at 7—Ceglia lacks standing to bring it. New York courts have
repeatedly and unambiguously held that a “party seeking disqualification of [his or her]
adversary’s lawyer must prove,” among other things, “the existence of a prior attorney-client
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relationship between the moving party and opposing counsel.” Scafuri v. DeMaso, 71 A.D.3d
755, 756 (N.Y. App. Div. 2010) (internal quotation marks omitted); see also Local Rule 83.3(a)
(this Court gives “due regard” to New York state court decisions in interpreting the New York
Rules of Professional Conduct). Thus, parties lack standing to seek disqualification of an
attorney that “never represented them in any matter.” Id.; see also, e.g., Murchison v. Kirby, 201
F. Supp. 122, 124 (S.D.N.Y. 1961) (“Absent a complaint by the former or present client the
moving party has no status to object to the representation of the adverse party by an attorney of
his choice.”). Courts have specifically applied this rule to motions to disqualify based on “dual
representation,” holding that parties seeking disqualification on that ground do “not have
standing to seek . . . disqualification” when they are “neither a former nor a present client of the
law firm” engaging in the dual representation. Hall Dickler Kent Goldstein & Wood, LLP v.
McCormick, 36 A.D.3d 758, 759 (N.Y. App. Div. 2007); see also, e.g., Singh v. Friedson, 10
A.D.3d 721, 722 (N.Y. App. Div. 2004) (same). Under this settled precedent, Ceglia lacks
standing to seek disqualification because he has never had an attorney-client relationship with
Defendants’ counsel. Indeed, as this Court found in denying Ceglia’s request for a stay, Ceglia
has not “shown he is presently a Facebook shareholder with standing to raise the disqualification
question on behalf of the corporation.” Doc. No. 451 at 7.
The Court also need not reach the merits of Ceglia’s “recent discovery” of an alleged
rules violation, Doc. No. 451 at 6, because his “unexplained delay” in moving for
disqualification results in a waiver of his frivolous arguments. St. Barnabas Hosp. v. N.Y. City
Health & Hosps. Corp., 7 A.D.3d 83, 84 (N.Y. App. Div. 2004). The court in St. Barnabas
Hospital explained that “inordinate delay in moving for [disqualification] is an indication that the
motion has been made to gain a tactical advantage in the litigation, or for purposes of delay.” Id.

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at 95. Because the moving party in that case “inexcusably waited about 14 months from the time
th[e] action was commenced . . . before finally serving its disqualification motion,” and because
the moving party was “fully aware” during that period “of all the facts on which it subsequently
relied,” the party’s disqualification arguments were waived. Id. at 94-95; see also, e.g., Talvy v.
Am. Red Cross in Greater N.Y., 205 A.D.2d 143, 153-54 (N.Y. App. Div. 1994) (“plaintiff’s
inexcusable delay of over three years in moving for disqualification” supported denial of
disqualification motion); Sauer v. Xerox Corp., 85 F. Supp. 2d 198, 201 (W.D.N.Y. 2000)
(denying disqualification motion because litigation was “in its advanced stages, and forcing
plaintiff to find new counsel at this point would further delay resolution of the remaining issues,
as well as work some hardship upon plaintiff”).
Under these decisions, Ceglia’s Motion to Disqualify must be denied because he has
inexcusably delayed in bringing his meritless disqualification arguments. This litigation has
been pending for nearly two years, and counsel have engaged in dual representation of
Defendants throughout that period. But Ceglia has only now moved for disqualification—just as
the parties are poised to begin expert discovery and depositions. Ceglia does not and cannot
offer any explanation for this delay. He cannot reasonably claim that he was not previously
aware of the alleged conflict of interest that he raises in his motion—particularly because his
arguments are based largely on Defendants’ Answer, which was filed more than a year ago.
Doc. No. 438 at 10-12. This “inordinate delay” clearly demonstrates that Ceglia’s Motion to
Disqualify “has been made to gain a tactical advantage in the litigation, or for purposes of
delay,” and Ceglia’s arguments should therefore be deemed waived. St. Barnabas Hosp., 7
A.D.3d at 95. Indeed, it would be perverse and highly prejudicial to permit a party like Ceglia to
lie in wait for two years, only to spring forth with a disqualification motion after opposing

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counsel have devoted massive amounts of time and resources to litigating the case and obtaining
intimate knowledge of the facts and governing law.
In any event, even if this Court were to reach the merits, Ceglia’s Motion to Disqualify
should still be denied. “[M]otions to disqualify are generally disfavored.” Sauer, 85 F. Supp. 2d
at 199. That is because, as this Court and the Second Circuit have explained, “‘disqualification
has an immediate adverse effect on the client by separating him from counsel of his choice,
and . . . disqualification motions are often interposed for tactical reasons.’” Id. (quoting Bd. of
Educ. of City of N.Y. v. Nyquist, 590 F.2d 1241, 1246 (2d Cir.1979)). Thus, “[t]he burden is on
the movant to demonstrate that an attorney should be disqualified, . . . [and] that burden is a
heavy one,” requiring the “party moving for disqualification [to] satisfy ‘a high standard of
proof.’” Id. (quoting Evans v. Artek Sys. Corp., 715 F.2d 788, 791 (2d Cir.1983)).
Ceglia does not come close to satisfying this heavy burden for a simple reason: His
Motion to Disqualify relies entirely on rules that are no longer applicable. The only ground on
which Ceglia seeks disqualification is that counsel’s dual representation of Defendants allegedly
violates New York Disciplinary Rule 5-105. But the New York Disciplinary Rules were
replaced on April 1, 2009 by the New York Rules of Professional Conduct. See 22 N.Y.C.R.R.
§ 1200.0. Indeed, this Court’s Local Rules expressly recognize this change, providing that
“[a]ttorneys practicing in this Court shall faithfully adhere to the New York Rules of Professional
Conduct,” not the now-defunct Disciplinary Rules. Local Rule 83.3(a) (emphasis added).
Ceglia’s entire motion is therefore baseless.
In any event, whether evaluated under the defunct rule on which Ceglia relies or the
operative rule in effect during this litigation, counsel’s joint representation of Zuckerberg and
Facebook is fully consistent with the rules of professional responsibility. In fact, the rules

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expressly allow for the dual representation at issue here. Rule 1.13(d) of the Rules of
Professional Conduct provides that “[a] lawyer representing an organization may also represent
any of its directors, officers, employees, members, shareholders or other constituents, subject to
the provisions of Rule 1.7.” Rule 1.13(d) (emphasis added). The comments to the rules confirm
that dual (or “common”) representation is entirely proper—and, indeed, is often preferable to
requiring parties to retain separate counsel—if it complies with the requirements of Rule 1.7,
which governs concurrent conflicts of interest. The comments explain that “[i]n civil matters,
two or more clients may wish to be represented by a single lawyer.” Rule 1.7 cmt. 29. “The
alternative to common representation,” the comments explain, “can be that each party may have
to obtain separate representation, with the possibility of incurring additional cost [or]
complication.” Id. Thus, “clients may prefer common representation to separate representation”
(id.), and “multiple representation of persons having similar interests in civil litigation is proper
if the requirements of [Rule 1.7(b)] are met. Id. cmt. 23 (emphasis added); see also Kittay v.
Kornstein, 230 F.3d 531, 538 (2d Cir. 2000) (recognizing that, even under the New York
Disciplinary Rules on which Ceglia relies, counsel were permitted to engage in dual
representation of clients with informed consent).
In this case, counsel’s representation of both Zuckerberg and Facebook is fully consistent
with Rule 1.7 of the Rules of Professional Conduct, which provides:
(a) Except as provided in paragraph (b), a lawyer shall not represent a client if a
reasonable lawyer would conclude that either:
(1) the representation will involve the lawyer in representing differing
interests; or
(2) there is a significant risk that the lawyer’s professional judgment on
behalf of a client will be adversely affected by the lawyer’s own financial,
business, property or other personal interests.

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(b) Notwithstanding the existence of a concurrent conflict of interest under
paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to provide
competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one
client against another client represented by the lawyer in the same
litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing.
Rule 1.7.
As a threshold matter, Ceglia has utterly failed to carry his heavy burden of
demonstrating that there is any actual conflict of interest in this case under Rule 1.7(a) that
would even implicate Rule 1.7(b)’s informed consent requirement. As the rule makes clear,
informed consent is required only when the representation “will involve the lawyer in
representing differing interests”—not when there is a mere potential that a conflict of interest
might arise. Rule 1.7(a) (emphasis added). Ceglia’s Motion to Disqualify, however, consists
entirely of baseless allegations and conspiracy theories regarding hypothetical conflicts of
interest between Zuckerberg and Facebook—for example, that Facebook would want to analyze
the handwriting on Ceglia’s fraudulent Work for Hire Document, but Zuckerberg would not.
Doc. No. 438 at 8-9. These allegations are preposterous, and they constitute precisely the sort of
“conclusory and speculative assertions regarding a conflict of interest” that have been deemed
“insufficient to warrant the disqualification of [a] law firm” in countless cases. Scafuri, 71
A.D.3d at 756.
In reality, there is no actual conflict between the interests of Zuckerberg and the interests
of Facebook in this case that would even require informed consent. As Defendants have detailed
in their Motion to Dismiss, indisputable evidence establishes that Ceglia’s suit is a fraud, and

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Defendants therefore have a complete unity of interest—to ensure that Ceglia’s fraudulent claims
are dismissed as quickly as possible. Ceglia cites “differing answers to the allegations in the
complaint” from Zuckerberg and Facebook, Doc. No. 438 at 10, but those “differing answers”
simply reflect the state of each Defendant’s knowledge at the time their Answer was filed, not an
actual conflict of interest. Indeed, because the evidence obtained in expedited discovery after the
Answer was filed has made it abundantly clear that Ceglia’s claims are fraudulent, Ceglia cannot
legitimately allege any actual conflict of interest between Zuckerberg and Facebook based on the
Answer. To the contrary, Facebook and its shareholders have a potent common interest with
Zuckerberg in defending against Ceglia’s fraudulent claims of ownership against the company’s
founder and CEO.
In any event, to the extent that any actual conflict of interest could be considered to exist
under Rule 1.7(a), counsel’s dual representation of Zuckerberg and Facebook is plainly permitted
under Rule 1.7(b). Counsel have reasonably determined that they can competently and diligently
represent both Defendants. Rule 1.7(b)(1). This representation also is not prohibited by law, and
this case does not involve the assertion of a claim by one of the Defendants against the other.
Rule 1.7(b)(2)-(3). And each of the Defendants has given informed consent, confirmed in
writing, to dual representation by all counsel for Defendants in this case. Rule 1.7(b)(4). This
Court has already explained that it “appears implausible to the court that the interests of
Defendant Zuckerberg, an acknowledged lead founder and majority shareholder of Defendant
Facebook, Inc. could conceivably be divergent so as to require the court to find such waiver and
consent to be ineffective.” Doc. No. 451 at 7. Thus, counsel’s dual representation of Zuckerberg
and Facebook is fully consistent with the rules of professional responsibility.

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Ultimately, it is clear that Ceglia’s Motion to Disqualify has been “interposed for tactical
reasons” (Sauer, 85 F. Supp. 2d at 199 (internal quotation marks omitted))—namely, to further
Ceglia’s bad-faith litigation strategy of obstruction, harassment, and delay. It is no coincidence
that Ceglia filed this motion after the case has been pending for nearly two years, just as the
expert discovery process is beginning. Indeed, Ceglia’s request that expert discovery be stayed
pending resolution of his motion (Doc. No. 438 at 16-17) lays bare his true motivation—he was
seeking an excuse not to appear at the depositions of his experts that Defendants have noticed to
begin days from now. Ceglia was attempting to delay the inevitable—that his experts will be
deposed, that he will be forced to file his response to Defendants’ Motion to Dismiss, and that
this Court will dismiss his case based on the overwhelming evidence that Ceglia is committing a
fraud on the Court. This Court has correctly rejected those delay tactics by denying Ceglia’s
request for a stay. Doc. No. 451. Because his Motion to Disqualify was filed for no other reason
than to disrupt the expert discovery process established by this Court, the motion should be
denied.
The Court should also order Ceglia’s counsel, Mr. Boland and Mr. Argentieri, to show
cause why they should not be sanctioned under 28 U.S.C. § 1927 for “multipl[ying] the
proceedings in [this] case unreasonably and vexatiously” by filing this Motion to Disqualify.
Given the timing of the motion and its utter lack of merit—as well as the recent deluge of
similarly frivolous motions filed by Ceglia’s counsel—it is readily apparent that Mr. Boland and
Mr. Argentieri filed this motion in bad faith. “[T]he use of disqualification motions as a pretext
to harass an opponent and delay litigation has been deemed grounds for sanctions under § 1927.”
Vegetable Kingdom, 653 F. Supp. at 926 (imposing § 1927 sanctions for bad-faith motion to
disqualify); see also, e.g., Optyl Eyewear Fashion Int’l Corp. v. Style Cos., Ltd., 760 F.2d 1045,

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1050-51 (9th Cir. 1985) (same); Wold v. Minerals Eng’g Co., 575 F. Supp. 166, 167-68 (D.
Colo. 1983) (same); Greater Buffalo Press, Inc. v. Fed. Res. Bank of N.Y., 129 F.R.D. 462, 467
(W.D.N.Y. 1990) (imposing sanctions under Rule 11 for frivolous disqualification motion). To
prevent further harassment, delay, and obstruction, Ceglia’s counsel should be held accountable.
CONCLUSION
For the foregoing reasons, the Court should deny Ceglia’s motion to disqualify
Defendants’ counsel and order all other relief it deems just and proper, including directing
Ceglia’s counsel to show cause why they should not be sanctioned under 28 U.S.C. § 1927.

Dated:

New York, New York
June 22, 2012
Respectfully submitted,
/s/ Orin Snyder
Orin Snyder
Alexander H. Southwell
Matthew J. Benjamin
Amanda M. Aycock
GIBSON, DUNN & CRUTCHER LLP
200 Park Avenue, 47th Floor
New York, NY 10166-0193
[phone]

Thomas H. Dupree, Jr.
GIBSON, DUNN & CRUTCHER LLP
1050 Connecticut Avenue, NW
Washington, DC 20036
[phone]
Terrance P. Flynn
HARRIS BEACH PLLC
726 Exchange Street
Suite 1000
Buffalo, NY 14210
[phone]

Attorneys for Defendants Mark Zuckerberg and Facebook, Inc.

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