x : : : : : : : : : x MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS MOTION TO DISMISS 1050 Connecticut Avenue, NW GIBSON, DUNN & CRUTCHER LLP

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UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK PAUL D. CEGLIA, v. Plaintiff, MARK ELLIOT ZUCKERBERG and FACEBOOK, INC.,
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UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK PAUL D. CEGLIA, v. Plaintiff, MARK ELLIOT ZUCKERBERG and FACEBOOK, INC., Defendants x : : : : : : : : : x Civil Action No. 1:10-cv RJA MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS MOTION TO DISMISS Thomas H. Dupree, Jr. Orin Snyder GIBSON, DUNN & CRUTCHER LLP Alexander H. Southwell 1050 Connecticut Avenue, NW GIBSON, DUNN & CRUTCHER LLP Washington, DC Park Avenue, 47th Floor (202) New York, NY (212) Terrance P. Flynn HARRIS BEACH PLLC 726 Exchange Street Suite 1000 Buffalo, NY (716) March 26, 2012 TABLE OF CONTENTS Page PRELIMINARY STATEMENT... 1 BACKGROUND ARGUMENT I. THIS COURT HAS THE INHERENT POWER TO DISMISS THIS LAWSUIT A. Dismissal Is The Proper Remedy When The Plaintiff Has Perpetrated A Fraud On The Court B. Dismissal Is Warranted When The Plaintiff Has Destroyed Evidence And Engaged In Litigation Misconduct II. THIS LAWSUIT IS A FRAUD ON THE COURT AND MUST BE IMMEDIATELY DISMISSED A. The Discovery Of The StreetFax Contract Proves That The Work For Hire Document Is A Forgery B. Forensic Testing Further Establishes That The Work For Hire Document Is A Forgery C. The Purported s Quoted In The Amended Complaint Are Fabricated III. THIS LAWSUIT MUST BE IMMEDIATELY DISMISSED BECAUSE CEGLIA HAS DESTROYED CRITICAL EVIDENCE AND COMMITTED SEVERE LITIGATION MISCONDUCT A. Ceglia Created A New Version Of The Forged Work For Hire Document And Then Baked It B. During The Pendency Of This Litigation, Ceglia Willfully Destroyed USB Drives That Contained Electronic Images Called Zuckerberg Contract In A Folder Called Facebook Files C. Ceglia Twice Reinstalled Windows On His Computer In An Attempt To Destroy Evidence D. Ceglia Has Deleted Electronic Copies Of The Work For Hire Document And Other Relevant Electronic Evidence During This Lawsuit... 61 E. Ceglia Has Engaged In Extensive Litigation Misconduct CONCLUSION ii TABLE OF AUTHORITIES Cases Page(s) Airplanes of Boca, Inc. v. United States ex rel. FAA, 254 F. Supp. 2d 1304 (S.D. Fla. 2003) Aoude v. Mobil Oil Corp., 892 F.2d 1115 (1st Cir. 1989)... 21, 22, 23, 24 Brady v. United States, 877 F. Supp. 444 (C.D. Ill. 1994) Cerasani v. Sony Corp., 991 F. Supp. 343 (S.D.N.Y. 1998) Cerruti 1881 S.A. v. Cerruti, Inc., 169 F.R.D. 573 (S.D.N.Y. 1996) Chambers v. NASCO, Inc., 501 U.S. 32 (1991)... 7, 20 Combs v. Rockwell Int l Corp., 927 F.2d 486 (9th Cir. 1991) Cook v. Am. S.S. Co., 134 F.3d 771 (6th Cir. 1998) Corto v. Nat l Scenery Studios, 1997 WL (2d Cir. May 5, 1997)... 21, 25 DAG Jewish Directories, Inc. v. Y & R Media, LLC, 2010 WL (S.D.N.Y. Aug. 12, 2010)... 22, 23, 25 Davis v. Speechworks Int l, Inc., 2005 WL (W.D.N.Y. May 20, 2005) Greviskes v. Univs. Research Ass n, 417 F.3d 752 (7th Cir. 2005) Gutman v. Klein, 2008 WL (E.D.N.Y. Oct. 15, 2008) Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (1944)... 20, 21, 26 Jensen v. Phillips Screw Co., 546 F.3d 59 (1st Cir. 2008) iii Jimenez v. Madison Area Technical Coll., 321 F.3d 652 (7th Cir. 2003) Leon v. IDX Sys. Corp., 464 F.3d 951 (9th Cir. 2006) Link v. Wabash R.R. Co., 370 U.S. 626 (1962) Martina Theatre Corp. v. Schine Chain Theatres, Inc., 278 F.2d 798 (2d Cir. 1960) Nat l Hockey League v. Metro. Hockey Club, Inc., 427 U.S. 639 (1976) Penthouse Int l, Ltd. v. Playboy Enters., Inc., 663 F.2d 371 (2d Cir. 1981) Pope v. Fed. Express Corp., 974 F.2d 982 (8th Cir. 1992) Reilly v. NatWest Mkts. Grp., 181 F.3d 253 (2d Cir. 1999) Sentis Grp., Inc. v. Shell Oil Co., 559 F.3d 888 (8th Cir. 2009) Shangold v. Walt Disney Co., 275 F. App x 72 (2d Cir. 2008)... 7, 22, 23, 39, 42 Shangold v. Walt Disney Co., 2006 WL (S.D.N.Y. Jan. 12, 2006) Silvestri v. Gen. Motors Corp., 271 F.3d 583 (4th Cir. 2001) S. New England Tel. Co. v. Global NAPs Inc., 624 F.3d 123 (2d Cir. 2010)... 26, 28 State Farm Mut. Auto. Ins. Co. v. Grafman, 274 F.R.D. 442 (E.D.N.Y. 2011) Sun World, Inc. v. Lizarazu Olivarria, 144 F.R.D. 384 (E.D. Cal. 1992) United States v. Amiel, 95 F.3d 135 (2d Cir. 1996) iv United States v. Dixon, 650 F.3d 1080 (8th Cir. 2011) United States v. Hollins, 811 F.2d 384 (7th Cir. 1987) United States v. Parsons, 967 F.2d 452 (10th Cir. 1992) United States v. Wilson, 441 F.2d 655 (2d Cir. 1971) Vargas v. Peltz, 901 F. Supp (S.D. Fla. 1995)... 22, 24, 26, 27 West v. Goodyear Tire & Rubber Co., 167 F.3d 776 (2d Cir. 1999)... 26, 28 Zinn v. United States, _ F. Supp. 2d _, 2011 WL (S.D. Fla. 2011) Statutes And Rules 15 U.S.C. 260a(a) Fed. R. Civ. P. 37(b) Other Authorities 27 Am. Jur. Proof of Facts 3d (1994) A Special Report on Social Networking: Global Swap Shops, Economist, Jan. 30, Steven Bertoni, How Much Is Facebook Worth?, Forbes, Jan. 18, Simon Briggs, Winklevoss Twins Lose Their Facebook Status, Sunday Telegraph, Apr. 4, John Cassidy, Me Media: How Hanging out on the Internet Became Big Business, New Yorker, May 15, Libby Copeland, Click Clique: Facebook s Online College Community, Wash. Post, Dec. 28, Eisenberg, Timberlake Join Social Network, Film J. Int l, Nov. 1, v Gawking Over Clone Site, N.Y. Post, Feb. 21, Maria Halkias, Stores Newest Friend in Sales? Marketers Turn to Social Networking on Facebook, Dallas Morning News, Dec. 17, Dan Herbeck, Court Hears WNYer Suit Alleging Facebook Stake, Buffalo News, Oct. 14, Dan Herbeck, WNYer Loses Bid to Move Facebook Suit, Buffalo News, Mar. 29, Claire Hoffman, The Battle for Facebook, Rolling Stone, June 26, Michiko Kakutoni, Company on the Verge of a Social Breakthrough, N.Y. Times, June 8, David Kirkpatrick, The Facebook Effect (2010)... 10, 38 Michael Levenson, Facebook, ConnectU Settle Dispute, Boston Globe, June 27, Claire Cain Miller, For Start-Ups, Late Bursts of Private Cash, N.Y. Times, Apr. 1, On SecondMarket, Facebook Worth More Than Yahoo, Silicon Valley/San Jose Bus. J., June 4, Emil Protalinski, Exclusive: Paul Ceglia Says Facebook Is Doing The Forgery, ZDNet, Aug. 16, James Quinn, Facebook Nears $800m Revenue, Daily Telegraph, June 19, Brad Stone, Valuing Facebook, N.Y. Times, July 4, Alan J. Tabak, Hundreds Register for New Facebook Web Site, Harvard Crimson, Feb. 9, The Trailer for The Social Network, Dealbook, June 28, Twins Face Future, N.Y. Post, Dec. 27, Bob Van Voris, Facebook Would-Be Owner Says He Owes His Claim To Arrest, Bloomberg.com, Aug. 2, vi Christina Warren, First Poster for The Social Network, Mashable, June 19, Kaja Whitehouse, What Is Face Value? New Investment Pegs Zuckerberg s Site at $20B, N.Y. Post, May 4, Joe Windish, The Social Network: The Movie, Moderate Voice, May 17, Jay Yarow, Is the Facebook Movie Going To Be Terrible?, Bus. Insider, June 20, vii PRELIMINARY STATEMENT This lawsuit is a fraud. Overwhelming objective evidence proves that Paul Ceglia and his co-conspirators have forged documents, fabricated s and committed spoliation and other egregious, bad faith acts of litigation misconduct. This case should be immediately dismissed. Ceglia is a convicted felon with a long history of running scams, in at least one case through the use of forged documents. Last summer, based on Defendants substantial showing of fraud, this Court granted expedited discovery to allow Defendants to assemble evidence that Ceglia is perpetrating a fraud on the court based on his forged contract the Work for Hire Document and the fabricated s he claims to have exchanged with Zuckerberg. Defendants told the Court that once they had gathered additional evidence confirming the fraud through a forensic examination of Ceglia s computers, accounts, and the Work for Hire Document itself, they would then move to dismiss this lawsuit. The evidence is in. And it is devastating for Ceglia and his cohorts. As detailed below, Defendants have now established beyond any conceivable doubt and based on objective scientific and forensic evidence what common sense so powerfully demonstrates: the Work for Hire Document is forged, the purported s are fabrications, and this entire lawsuit is a fraud and a lie. Ceglia and his co-conspirators have compounded their wrongdoing by destroying and tampering with evidence, obstructing discovery, and defying court orders. They have no right to continue their abuse of the judicial system in hopes of extorting a settlement through their fraudulent scheme. At the outset of this case, Mark Zuckerberg stated under oath that he never signed the forged Work for Hire Document that Ceglia attached to his Complaint. Zuckerberg Decl. (Doc. No. 46) 5. He explained that he signed only an agreement to perform limited website development work for a now-defunct company named StreetFax an agreement that said nothing about Facebook or any other social networking website. Id Ceglia responded with a declaration in which he agreed that he and Zuckerberg signed only one agreement but he claimed that Zuckerberg s account was false and that the agreement they signed was the Work for Hire Document, not a contract that only concerned StreetFax. Ceglia Decl. (Doc. No. 65) 5-8. This Court ordered Ceglia to make his computers available for inspection, and when Defendants experts examined his hard drives, they made a case-ending discovery: they found the authentic StreetFax Contract. It was stored as an attachment to two s that Ceglia had sent on March 3, 2004 from the account to Jim Kole an initial member of StreetFax who at the time was a lawyer at the international law firm Sidley Austin. The subject line of Ceglia s first to Kole read: page 1 of 2 for Streetfax contract w mark ; the subject line of his second read: 2 of 2 for streetfax contract. Exactly as Zuckerberg had attested, the authentic StreetFax Contract concerned only StreetFax it said nothing about Facebook. See Report of Stroz Friedberg, LLC (Declaration of Alexander H. Southwell dated March 26, 2012 ( Southwell Decl. ), Ex. A) ( Stroz Friedberg Report ), at The discovery of the StreetFax Contract left no doubt about the nature and extent of Ceglia s crime. He had created the forged Work for Hire Document by doctoring the text of page 1 of the StreetFax Contract, adding in provisions purportedly giving him ownership of Facebook, then appended the doctored page 1 to the authentic page 2 of the StreetFax Contract (or a close facsimile thereof) the page that contained Zuckerberg s signature. 2 During expedited discovery, Ceglia initially tried to conceal the hard drive containing the StreetFax Contract. When Defendants found the StreetFax Contract during their forensic examination and exposed his fraud for all the world to see, Ceglia played the last, desperate card in his hand he asserted that Zuckerberg and his lawyers had created a forged document themselves and somehow planted it on his hard drive. See Emil Protalinski, Exclusive: Paul Ceglia Says Facebook Is Doing The Forgery, ZDNet, Aug. 16, 2011 (Southwell Decl., Ex. I). Defendants soon exposed this lie as well. With the Court s permission, they issued a subpoena to Sidley Austin, which found Ceglia s s and the StreetFax Contract on the law firm s server, where the documents had resided since See Stroz Friedberg Report at 18. The discovery of the authentic StreetFax Contract on Ceglia s own hard drive and the Sidley Austin server attached to s that Ceglia himself sent in 2004 brings this case to an end. These documents are indisputably genuine. They could not have been planted because they have existed since 2004, years before Ceglia emerged from the woodwork with his fraudulent claims. Indeed, when Defendants discovered the StreetFax Contract and the s to Kole on Ceglia s hard drive, he initially claimed that he sent them in 2004, asserting that they were privileged communications with his attorney; it was only after this Court overruled his frivolous privilege assertion and ordered him to produce them that Ceglia did an about-face and declared, for the first time, that the documents were planted. Moreover, forensic examination has revealed that TIFF images of the StreetFax Contract were uploaded onto Ceglia s computer minutes before the s were sent to Kole further proving that it could not have been planted. And the exchange in the following days between Kole and Ceglia discussing the StreetFax Contract and the work Zuckerberg was performing for StreetFax is additional, indisputable proof of authenticity. See Stroz Friedberg Report at There is no need for further analysis. The discovery of the StreetFax Contract proves that the Work for Hire Document is a forgery and compels the immediate dismissal of this fraudulent lawsuit. Separate and apart from the indisputable electronic evidence establishing fraud, Defendants experts have conducted extensive forensic testing on the physical Work for Hire Document itself. This testing has further confirmed that the Work for Hire Document is a recently-created forgery. Gerald LaPorte a world-renowned forensic chemist and document dating specialist tested the ink from the handwritten notations purportedly made when the document was signed in LaPorte determined that the ink is less than two years old. See Report of Gerald M. LaPorte (Southwell Decl., Ex. B) ( LaPorte Report ), at 15. Professor Frank Romano one of the nation s leading document authentication experts with more than 50 years in the field examined the typesetting and formatting of the Work for Hire Document and reached the same conclusion: Page 1 of the Work for Hire Document is an amateurish forgery. Report of Frank J. Romano (Southwell Decl., Ex. C) ( Romano Report ), at 2. Romano found, among other things, that page 1 of the Work for Hire Document is printed in a very similar but demonstrably different font than page 2. Id. at 9. In fact, the Work for Hire Document is a historical impossibility. The origins of Facebook have been exhaustively detailed and it is widely known that Zuckerberg did not even conceive of Facebook until around December 2003, making it impossible as a matter of historical fact that he could have signed a contract in April 2003 giving Ceglia an ownership stake in the non-existent business. In addition, while page 1 of the authentic StreetFax Contract refers to StreetFax, Inc., when Ceglia retyped the forged page 1 of the Work for Hire Document, he mistakenly wrote in StreetFax LLC a careless and devastating error when 4 forging a document purportedly signed in April 2003, as StreetFax LLC was not created until August Ceglia s fraud does not stop there. His Amended Complaint filed months after he brought this case purported to quote from exchanges he claimed to have had with Zuckerberg. But Ceglia did not attach any s to his Amended Complaint, and when this Court ordered him to produce them, it turned out that they did not exist. The so-called s were actually phony text that Ceglia had typed into backdated Microsoft Word documents. Forensic examination of these documents revealed Ceglia s botched attempt at electronic forgery. See Stroz Friedberg Report at The Word documents were created on a backdated computer that is, a computer on which Ceglia had reset the system clock to dates in 2003 and 2004, to make it appear that the documents had been created around the time he claimed to have been ing with Zuckerberg. But he erred by resetting the system clock to October 2003 a date before some of the s contained in these documents were even allegedly sent. Additionally, when Ceglia typed in the make-believe text purportedly reflecting the times the s were sent, he mistakenly entered Eastern Daylight Time, forgetting that during many of the months in question, Eastern Standard Time was in effect. See id. at That Ceglia s s quoted in the Amended Complaint are all fakes is further confirmed by the fact that all purport to have been sent to and from Zuckerberg s Harvard account yet not a single one exists on the Harvard server. What does exist in the Harvard account are numerous s between Zuckerberg, Ceglia, and StreetFax employees concerning Ceglia s failure to pay Zuckerberg for his StreetFax work and Ceglia s repeated pleas for forgiveness and his promises to scrape together the money he owed Zuckerberg. The real s in Zuckerberg s account show that Zuckerberg never discussed Facebook or any social 5 networking website with Ceglia or his colleagues, and that Ceglia s story of a purported partnership with Zuckerberg to launch Facebook is a complete fiction. See Declaration of Bryan J. Rose dated March 26, 2012 ( Rose Decl. ). The authentic StreetFax Contract was not the only smoking gun evidence found on Ceglia s computer. Defendants also discovered seven different versions of the Work for Hire Document that are very similar (but not identical) to the version attached to Ceglia s Complaint test forgeries that Ceglia had created last year during the course of this litigation. The metadata for these documents reveal Ceglia s attempts at backdating and document manipulation, as he repeatedly created different versions of the document and attempted to backdate them by adjusting the system clock on his computer. Ceglia also made extensive use of a hex editor a program commonly used by electronic forgers that allows a user to edit the raw data that make up a file in a manner that makes the fraudulent changes to the document more difficult to detect in testing the ways he could attempt to modify and manipulate Word documents without leaving a digital fingerprint. See Stroz Friedberg Report at The overwhelming objective evidence confirms what common sense makes clear: the Work for Hire Document is a forgery. Ceglia is a convicted felon a career criminal and scam artist whose past crimes include stealing retirement funds from senior citizens, forging government documents as part of a land swindle, and running a scheme to defraud local residents by tricking them into buying nonexistent wood pellets. He is a grifter and hustler who would not have forgotten for seven years that he was the rightful owner of one of the most prominent companies in the world. This lawsuit is a shakedown aimed at extorting a fast payoff. Indeed, after Ceglia filed his Complaint, his lawyers immediately sought a meeting to discuss settlement a strategy Ceglia candidly described in his Lawsuit Overview document that he used when 6 shopping his case to law firms. Southwell Decl., Ex. G. Ceglia has publicly boasted that he believes he has leverage given Facebook s upcoming initial public offering. As he said in an he sent to the Wellsville Daily Reporter: You won t go public Mark [Zuckerberg], you won t IPO, you won t pass go... I won t let you sell this company out from under me not while I have the power to stop you. See John Anderson, Ceglia: Facebook planted a fake contract on my computer, Daily Reporter, Aug. 17, 2011 (Southwell Decl., Ex. H). This Court should not permit itself to be the instrument of Ceglia s attempted shakedown. The Court is not powerless to protect the integrity of its own process and the rights of those that Ceglia and his co-conspirators seek to victimize. When fraud has been established, as it has here, nothing requires a court to permit the fraudulent lawsuit to proceed through full discovery or into summary judgment or trial. To the contrary, the case must be dismissed immediately. The law is clear. The Supreme Court and the Second Circuit have repeatedly held that federal district courts have the inherent power to dismiss lawsuits where a plaintiff has submitted forged documents or is otherwise perpetrating a fraud on the court. See Chambers v. NASCO, Inc., 501 U.S. 32, 45 (1991) (explaining that outright dismissal of a lawsuit under the court s inherent authority is within the court s discretion ); Shangold v. Walt Disney Co., 275 F. App x 72, 73 (2d Cir. 2008) (affirming dismissal for fraud on the court because the defendants established, by clear and convincing evidence, that [the plaintiffs] submitted fraudulent evidence to the district court in order to bolster their claim ). Here, of course, Ceglia has done far more than merely file a forged do
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