
Zuckerberg admits working for man claiming Facebook ownership - cesare
http://www.theregister.co.uk/2010/07/21/ceglia_facebook/
======
grellas
The nature this case in relation to how it is being reported fascinates me.
Let me summarize while making a few observations:

1\. A guy comes out of nowhere and files a lawsuit in a state court in
Allegany County, New York (population: about 50,000 -
<http://quickfacts.census.gov/qfd/states/36/36003.html>).

2\. The lawsuit is filed on June 30, 2010 and consists of a grand total of 2
pages of allegations, coupled with a request for relief (see
[http://www.scribd.com/doc/34239119/Ceglia-v-Zuckerberg-
compl...](http://www.scribd.com/doc/34239119/Ceglia-v-Zuckerberg-complaint)).

3\. Among the substantive allegations are absurdly wrong ones (from a lawyer
standpoint), such as the allegation in paragraph 3 that Facebook is a
"domestic corporation" in New York. Facebook is in fact a foreign corporation
that is qualified to do business in New York, as is shown by the very
attachment the lawyer appends to the complaint itself (Exhibit B). I make this
point only to highlight a certain level of sloppiness that attends this whole
matter. This is hardly a mark of top-flight lawyering.

4\. The contract states that it is entered into as a "Purchase agreement and
'work made for hire' that reflects two separate business ventures," the first
for something called StreetFax Database and the second for the "continued
development of the software, programs, and for the purchase and design of a
suitable website for the project Seller has already initiated that is designed
to offer the students of Harvard university [sic] access to a website similar
to a live functioning yearbook with the working title 'The Face Book'." Mr.
Ceglia was to pay to Mr. Zuckerberg $1,000 for the work he did on StreetFax
and an additional $1,000 for the work he did on "The Face Book." In turn, Mr.
Ceglia was to receive (with respect to the "Face Book" work, the following:
"It is agreed that the Purchaser will own a half interest (50%) in the
software, programming language and business interests derived from the
expansion of that service to a larger audience." The contract then provides
that "the agreed upon completion for the expanded project with working title
'The Face Book' shall be January 1, 2004 and an additional 1% interest in the
business will be due the buyer for each day the website is delayed from that
date."

5\. The agreement appears to be a canned document and is poorly drafted. Since
its terms appear to be heavily slanted in favor of Mr. Ceglia, it is probably
fair to assume that this was his form of contract which he presented to Mr.
Zuckerberg (then a student) to sign.

6\. The complaint then alleges that the website was completed on February 4,
2004 (paragraph 7) and asserts that Mr. Ceglia is therefore entitled to an
extra 34% of "the business," (paragraph 8) or 84% in total.

7\. A few comments on the above:

(a) can anyone say "vagueness" and "uncertainty" as serious problems with this
contract? with no company formed at the time, this is a guy who essentially
hired Mr. Zuckerberg to develop a website that was to be like a "live
yearbook" and who claims that he is to have an 84% stake in _any_ future
expansion of that idea to be made by Mr. Zuckerberg, no matter what form it
took and no matter who else contributed value to build that business; this in
essence is a claim by Mr. Ceglia that, at any time and under under any
circumstances, he can pull a piece of paper out of his pocket and claim a
perpetual non-dilutable stake in somebody's company based on a work-for-hire
contract for a small development fee done before that company was even to be
formed; thus, every founder who might work in that company, even for years,
every investor who might invest in it, and every other stakeholder (including
innocent purchasers for value who bought shares in the company in secondary
trading), all such persons were to work, sweat, and toil, taking huge risks
all the while, and all were to be subject to dilution - except for Mr. Ceglia,
who could take his sweet time and come forward at any time with his claim of
an 84% non-dilutable interest;

(b) if not vagueness, how about an unenforceable penalty? How would you react
to someone who told you he would pay $1,000 for some development work and then
take 1% of your company for every _day_ delay in completing the project? Such
terms are outrageous to say the least and probably serve to render the entire
contract unenforceable, particular when the contract as a whole amounts to an
alleged non-dilutable stake in a business no matter what future form it might
take;

(c) how about statutes of limitations? New York apparently has a 6-year
statute for breach of a written agreement. If the work was done by February 4,
2004, then Mr. Zuckerberg's obligation to perform would have started on that
date. The complaint was filed on June 30, 2010, well past the 6-year deadline.
Thus, on its face, the claim appears to be time-barred. One can of course
allege facts for why the statute did not begin to run until a later date. This
complaint fails to do so.

(d) Other equitable defenses would almost certainly apply so as to preclude
assertion of any claim for equitable relief after such a long delay (laches
being the most obvious - I discussed this in an earlier comment,
<http://news.ycombinator.com/item?id=1509601>).

Thus, all in all, a lawsuit full of holes is built up by sensationalist
reporting into a supposed major threat to Facebook and to Mr. Zuckerberg.

This is where the reporting becomes interesting. I think this relates to a
strong impulse to see Mr. Zuckerberg get some sort of comeuppance for whatever
reason.

The case got major headlines nationwide because a judge in a small state court
entered a TRO, with the reports touting the idea that this gave the claim more
gravitas because judges do not enter a TRO lightly. Yet this judge _did just
that_. He entered the order even though the defendants had been given no
notice of the application and even though the plaintiff made no showing
whatever of likelihood of success on the merits and of alleged irreparable
harm that he would suffer if the defendants were not enjoined from
transferring assets while the TRO was in effect (see the brief filed by
Facebook making these points, [http://www.scribd.com/doc/34240120/Ceglia-v-
Facebook-Motion-...](http://www.scribd.com/doc/34240120/Ceglia-v-Facebook-
Motion-for-Dissolution)). Without getting into technicalities, this amounts to
a court having concluded that the TRO had to be entered to cover a 15-day
period in which Mr. Ceglia might otherwise suffer _irreparable harm_ absent a
court order barring any transfer of Facebook assets during that period. After
a nearly 7-year delay, it is basically absurd that such an order should have
been entered. No possible harm could have come to Mr. Ceglia over a 15-day
period that would have been any different from whatever risk he had faced for
the nearly 7 years pre-dating the order. Thus, the TRO was ill-conceived at
best and the federal court to which this case was removed immediately stayed
its effect upon getting the case (the parties have since agreed to allow it to
expire and die a merciful death).

In this piece, then, we get a subtitle stating or implying that the claims
made by Facebook's lawyers (that this lawsuit was frivolous) were in
themselves frivolous. Why? Because we now have an admission by Mr.
Zuckerberg's lawyers that he did indeed sign the contract. This is then touted
as some sort of setback for Facebook's case.

From a lawyer's standpoint, this is all really _weird_. This case is full of
holes and represents at best a wild swing at Facebook and Mr. Zuckerberg. The
contract is worded in a flaky manner. The terms themselves are outrageous by
any measure (think about you would react if someone claimed a perpetual stake
in whatever you did just because he paid you a small fee for a minor
development effort). The lawyering in support is slipshod at best. Yet, in
spite of all this, the reporting on it is building continual momentum such
that it is perceived as a serious problem for the company and all because a
judge entered an ill-conceived TRO and because of the basically irrelevant
fact that Mr. Zuckerberg's lawyers admit that he signed the contract (a fact
never previously denied). Yes, this all makes for high drama, but it also
makes for highly inaccurate reporting on the legal merits of what is
happening.

At most, in my view, this case represents a nuisance claim against Facebook,
as no court in the world is about to prejudice the interests of innocent
investors, co-founders, employees and the like for the sake of some guy who
comes out of the woodwork after long delays with a wildly worded contract that
is of dubious enforceability. While a court might be more open to entertaining
a claim against Mr. Zuckerberg personally, even that is so dubious here as to
be barely worth considering.

There are obviously many people who want to see Mr. Zuckerberg get what is due
to him but this will _not_ be the channel by which that might happen,
notwithstanding the reporting on the case. In the end, this will be tried to a
federal court and not in the blogs. And, in the courts, this thing is going
nowhere.

I am, by the way, no apologist for Mr. Zuckerberg and have been quite critical
of his actions in relation to the whole ConnectU mess (which _does_ pose a
serious risk for him and for Facebook, as I discussed in an earlier comment,
<http://news.ycombinator.com/item?id=1362379>).

~~~
irq11
While I think you're probably absolutely correct from a _legal_ perspective, I
also think that you're missing the point. This is interesting precisely
_because_ the contract is so amateurish, yet it appears that Zuckerberg
actually _signed_ the damned thing! As bizarre and weak as the claims may be
to a lawyer, to a layman, this is the clearest evidence yet that Zuckerberg
was involved in some shady dealings early in Facebook history. And this time,
unlike the rich kids involved in the previous dispute, we've got an amateur
investor, who can't afford competent legal counsel.

You're thinking like a lawyer, and focusing on the technicalities of the case.
Everyone else is taking the contract at face value. If Zuckerberg gets out of
this on a legal technicality, it's because he's damned lucky that the contract
he signed wasn't written by a better attorney. Frankly, I doubt that most
laypeople like the precedent of that outcome.

~~~
pvg
_to a layman, this is the clearest evidence yet that Zuckerberg was involved
in some shady dealings_

Really? Perhaps to the sort of layman who's already quite convinced 'shady
dealings' took place. If someone got some college kid to sign an unenforceable
(and certainly ridiculously unfair, from an ethical, if not legal standpoint)
contract, how is that evidence of 'shady dealings', rather than inexperience
and naivete?

The whole thing seems completely preposterous, I think to anyone who's entered
a contract or two. It's hard to imagine the 'everyone' who would take this
contract at face value, at least, not the subset of everyone who's ever signed
a lease, mortgage or employment agreement and/or has had the most passing
consultation with a lawyer about one. The fact that someone with professional
legal expertise feels the whole thing is likely preposterous makes it more,
not less likely that is the case. To suggest otherwise is to possess an oddly
conspiratorial turn of mind.

~~~
irq11
Your position is as biased as any other -- you're just choosing to focus on
Zuckerberg's age, and consequently assume that he was victimized. Perhaps
that's true, perhaps not.

When I look at this, I see an incredibly unsophisticated legal agreement. The
author of the contract hardly strikes me as a knowledgable player, and I'm not
inclined to assume that he _ever_ had the upper hand in a battle of wits with
Zuckerberg. In any case, the fact that a contract is poorly written doesn't
automatically make me disregard it's _intent_ , and here the intent of the
contract is so clear that even Mark Zuckerberg -- innocent babe that he was --
could have understood it.

~~~
pvg
Right but it's exactly the intent that seems almost predatory, however legally
unsophisticated it is. Let's assume, as seems reasonable, that both parties
were fairly clueless and acting without the benefit of good professional
advice. When you read the contract, doesn't the stuff Ceglia is asking for
seem kind of nuts? And not in any technical legal sense, just in general.

------
chaosmachine
Of all the speculation on what could kill Facebook, did anyone ever imagine it
might be a "wood fuel salesman" from New York? Sometimes truth is stranger
than fiction.

~~~
keltex
It will never kill Facebook. Facebook as an entity will still exist. Sure
there might be a change in ownership, lawsuits, etc. But nobody involved would
want to threaten the functional business / golden goose which is Facebook.

~~~
liuliu
Good intent doesn't always end up with good result. Maybe this guy doesn't
want Facebook to die, but without Zuck, the company culture, the engineers
will flee away rapidly. It will never be a good change to hand a tech company
to a "wood fuel salesman".

~~~
angstrom
Well, he did have the foresight to invest a mere $1000 in a potentially
worthless venture, but more surprisingly, he had the patience to hang on to
it. It would make for a rather infamous turn of events either way.

------
finiteloop
Please see [http://tech.fortune.cnn.com/2010/07/21/the-massive-hole-
in-f...](http://tech.fortune.cnn.com/2010/07/21/the-massive-hole-in-facebooks-
latest-legal-challenge/)

We strongly suspect the contract is forged. We have not seen the original (no
one has). Thus, we’re focusing on the things that are not open to
interpretation and are indisputable -- Mark could not have given interest in a
company that didn’t exist or and idea he had not thought of yet and, even if
he could, the statute of limitations has expired.

Bret Taylor, Facebook CTO

------
mark_l_watson
It sounds to me that FB should settle for a nice wad of cash, and make this
all go away. Given a decent offer, my advice to Ceglia would be to take it.
That said, a lot of people invested in FB in good faith, so perhaps any
payments should come from Zuckerberg himself? I am usually not so interested
in legal proceedings, but this may get interesting.

~~~
jacksoncarter
What exactly would be a decent offer considering the valuation of FB?

~~~
wallflower
As commented in another thread, it would be ludicrous for Microsoft, Digital
Sky Technologies et al. to allow Mr. Ceglia a seat on Facebook's board. They
will explore and deploy every legal option to avoid this. It is not so
ludicrous for investment bankers to engineer a tax-minimal FU-style lifestyle
for Mr. Ceglia by endowing a non-profit for some pet interest of his choice
and paying him handsomely.

If Mr. Ceglia truly wants ownership of Facebook, he is going to have to fight
for years. If he wants enough money for a private jet, he just might get it.
As will his lawyers.

This could be the most lucrative transaction in the history of Craigslist.

And the twist is if Ceglia truly did have this contract with Zuckerberg, it
leaves the ConnectU guys in a particular interesting situation (as the
Facebook idea was being worked on way before ConnectU).

~~~
codexon
_And the twist is if Ceglia truly did have this contract with Zuckerberg, it
leaves the ConnectU guys in a particular interesting situation._

No it doesn't. The issue was never "who thought of Facebook first". All of
this was when Myspace was at it's peak. Everyone had the idea to do a Myspace
competitor.

The issue is Zuckerberg taking people's money and making false commitments by
accepting a job and lying to the ConnectU guys that he was still working on it
to delay them as much as he could.

~~~
pyre

      > No it doesn't. The issue was never "who thought of
      > Facebook first". All of this was when Myspace was at
      > it's peak. Everyone had the idea to do a Myspace
      > competitor.
    

Really? MySpace was at its peak at the end of 2003/beginning of 2004? And
everyone at that time was trying to build a 'MySpace competitor?'

------
stretchwithme
I hate these leeches. "Yeah, I hired him to shovel the driveway, and you
didn't do the sidewalk behind the garage, so I own your house now."

~~~
dhyasama
I hate people that agree to one thing and then do another if it isn't what
they want later on. "Yeah, I hired him to shovel my driveway. He said he
invented a new shovel called "The Shovel" and needed money to sell it. I
invested with him and now he says his new shovel, called "Shovel", is
unrelated."

~~~
stretchwithme
my comments may have been premature

------
spokey
I actually found the last line:

Facebook paid [ConnectU] $65m to go away.

to be the most interesting. I don't follow the Facebook story very closely,
but I had no idea that much money changed hands over the ConnectU thing.

~~~
megablast
So you never followed the story very closely, but are suprised by some of the
facts in the story? I never really read much physics, but was surprised to
learn that Gravity = 9.8m/s/s. Does that make much sense?

------
tlrobinson
If this guy's claims are legitimate, does he own 85% of all of Facebook, or
85% of Zuckerberg's share of Facebook? Presumably he would have been diluted
in subsequent funding rounds, etc?

What portion of Facebook does Zuckerberg still own?

~~~
mseebach
IANAL, but perhaps it could be argued that MZs continued work after the
"online yearbook" site launched in 02/2004 constituted sweat-equity and thus
diluted Ceglia's shares?

Anyway, if Ceglia and his lawyers have half a mind, they're after a _tiny_
(compared to 84%) settlement.

------
amichail
Why would a Harvard student give up 50%+ of ownership for a mere $1000?

~~~
tlrobinson
Also, why didn't he resolve the situation by either starting a new company or
buying back his shares as soon as it was apparent Facebook could become
something big?

~~~
mkramlich
possibly because he is/was young and naive

~~~
tlrobinson
Yes, but this is the sort of thing that should have come up during the due
diligence of the very first round of funding.

------
jimbobimbo
My bet is Zuck has a contract with Fincher for The Social Network, its sequel
and prequel, and maybe even TV series.

------
karlzt
some good comments on slashdot:
[http://idle.slashdot.org/comments.pl?sid=1727682&cid=329...](http://idle.slashdot.org/comments.pl?sid=1727682&cid=32984548)

------
mkramlich
Facebook may be close to becoming a Harvard Business School case on how to
create a startup with dangerously murky ownership of IP and equity.

~~~
jgrahamc
See also Skype.

------
Charuru
If Zuck was a more empathizable character I would feel really really sorry for
him. This is the sort of youth mistake that really gets you.

