July 14, 2010 -- The world's most powerful social networking site is fending off a lawsuit from a New York man who claims that he's owed a majority stake in the company.
In a complaint filed late last month, Paul Ceglia, the owner of a wood-pellet fuel company in rural Wellsville, N.Y., alleges that a contract he signed with Facebook founder and CEO Mark Zuckerberg in April 2003 entitles him to an 84 percent stake in the company. Ceglia said he was supposed to acquire a 50 percent interest in Facebook -- then known as "The Face Book" -- in an agreement to develop the site that also entailed Ceglia paying Zuckerberg $1,000.
The contract, Ceglia said in his complaint, also allowed him an additional 1 percent stake in the business for each day after Jan. 1, 2004 until the website was completed. The website thefacebook.com, according to the lawsuit, was finished on Feb. 4, 2004 -- a 34-day span that would entitle Ceglia to another 34 percent stake in the business, the lawsuit said.
Palo Alto, California-based Facebook, which last week moved to have the case transferred from New York state court to federal court, said in an e-mail to ABCNews.com that the lawsuit "is completely frivolous" and that the company "would fight it vigorously."
Before the case was transferred, a judge in Allegany County, New York, issued a temporary restraining order preventing Zuckerberg and Facebook from transferring or selling any assets.
Facebook said that while the order won't affect the company's ability to do business, it is nonetheless asking the federal court to dissolve the order because Facebook does "not believe it is legally supported."
Ceglia's lawyer, Paul Argentieri, did not return two calls for comment. Attempts to reach Ceglia were unsuccessful.
The contract Ceglia included with his complaint lists himself as a purchaser and Zuckerberg as a "contractor/seller" in an agreement for the "continued development of the software, program 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 access to a wesite [sic] similar to a live functioning yearbook with the working title of 'The Face Book.'"
Facebook Lawsuits: Both Sides Have Controversial Histories
Some have cast doubt on the timeline presented in Ceglia's claim, noting that Zuckerberg didn't register the domain name thefacebook.com until January 2004 and that he didn't develop predecessors to the website -- Course Match, a site that allowed Harvard students to see what classes their friends were taking; and Facemash, which allowed students to rank the attractiveness of student ID photos -- until the autumn before, according to published reports on the founding of Facebook. (Facemash landed Zuckerberg in a university discplinary hearing for security breaches and privacy and copyright violations but he was not expelled, Zuckerberg told The Harvard Crimson in 2003.)
In 2009, New York Attorney General Andrew Cuomo sued Ceglia, his wife and Allegany Pellets, the couple's wood-pellet fuel company, for allegedly taking more than $200,000 from customers but failing to deliver any products or refunds. Cuomo obtained a temporary restraining order at the time banning the business from taking payments from customers.
An e-mail on Tuesday from ABCNews.com to Allegany Pellets prompted an automatic message from the company's e-mail account. The message said, "We are in the process of reaching an agreement with the New York State Attorney General's office and will let everyone know once an agreement is reached."
Facebook, a privately-held multi-billion dollar company, is no stranger to legal claims over the company's origins. In 2008, Facebook settled a lawsuit with the founders of the website ConnectU, who claimed that Zuckerberg stole their ideas for a Harvard social networking site. Facebook also settled a lawsuit with early Facebook investor Eduardo Saverin.
Federal Court Strategy Could Help Facebook
By transferring the Ceglia case from state to federal court, Facebook has undertaken a legal tactic common to companies that are headquartered outside the states in which they're sued, said Paul Mark Sandler, a Maryland trial lawyer and a former secretary of the litigation section of the American Bar Association.
Moving the case away from a local court, he said, helps a company avoid getting "homered" or getting unfavorable treatment from jurors who might have sympathy for a local resident "striking out against a big business in a climate where the business is not necessarily a favored player."
"If you were walking down the street and two people were in trouble and one of them was your next door neigbhor and you could only help one, you'd probably pick your next door neighbor," Sandler said. "It's just human nature."