NEW YORK (Reuters) - A New York state appeals court on Tuesday (Dec 29) threw out Facebook Inc's unusual malicious prosecution lawsuit against DLA Piper and other law firms that have represented a fugitive who claimed a 50 per cent stake in the social media company.
Reversing a lower court ruling that favoured Facebook and Chief Executive Mark Zuckerberg, the Appellate Division in Manhattan found a lack of evidence that the law firms knew or should have known that their client Paul Ceglia's case was fraudulent and based on fabricated evidence.
Ceglia, 42, a wood pellet salesman from Wellsville, New York, had sued Facebook and Zuckerberg in June 2010, alleging that a 2003 contract for Zuckerberg to do programming for his company Street Fax entitled him to half of Facebook.
Federal prosecutors later deemed the contract a forgery and brought criminal charges against Ceglia. He had faced a May 4 trial, but in early March removed his electronic ankle bracelet and disappeared, along with his wife, two children and a dog.
Facebook's market value is now roughly US$300 billion (S$424 billion).
In May, state Supreme Court Justice Eileen Rakower said Facebook and Zuckerberg could pursue claims that DLA Piper, Milberg LLP and Lippes Mathias Wexler Friedman knew there was no basis for Ceglia's civil lawsuit.
But the appeals court noted that the law firms had found experts to counter Facebook's claim that the 2003 contract was forged, and that Ceglia had passed a lie detector test.
The court called Facebook's allegations that the law firms lacked probable cause to pursue Ceglia's civil case "entirely conclusory," and that they knew of Ceglia's fraud "conclusory and not supported by the record."
Facebook said it is evaluating whether to appeal.
"We are disappointed," a spokeswoman said. "DLA Piper and the other named law firms possessed evidence proving the case was based on forged documents and that Paul Ceglia's claim was a fraud, but chose to pursue it anyway. We believe they should be held accountable."
DLA Piper, one of the world's largest law firms, and its outside counsel did not immediately respond to requests for comment.
Sigmund Wissner-Gross, a lawyer representing Lippes Mathias, said he was pleased with the decision. Gregory Joseph, a lawyer representing Milberg, declined to comment.
The Facebook spokeswoman said the Menlo Park, California-based company will continue litigation against Paul Argentieri, another of Ceglia's lawyers. He could not be immediately reached for comment.