In a recent lawsuit, filed June 30, 2010 in Allegheny County in New York, Paul Ceglia requested a declaratory judgment enforcing the contract he made with Facebook founder Mark Zuckerberg, giving him 84% ownership in the company, which is currently valued at $15 billion. (You can see the court filing and the contract here - PDF.)
The first question is, is the contract real? And the second question is, is Ceglia misinterpreting the contract?
After not being able to find an image of Mr. Zuckerberg’s signature anywhere, it’s hard to know whether the document is legitimate. It certainly looks like a contract. (See Exhibit B – “Work for Hire” Contract – PDF) And although Facebook will definitely fight this, if the court rules that it is valid, it will be potentially the most lucrative 2-page contract ever.
What is so curious to me is provision 3, that describes what will happen if the completion of the requested work (the building of a website through which students can communicate with each other) is late. It reads, “Late fees are agreed to be a 5% reduction for the seller if the project is not completed by the due date[,] and an additional 1% deduction for each day the project is delayed beyond that point.” This statement immediately follows the statement of the fee for the work, which is $1000.
My understanding of the contract, then, is that the agreed-upon price is $1000, and if it is late the price automatically decreases by $50, with an additional $10 subtracted per day until the project is completed.
Looking at the complaint, however, Ceglia has alleged that the 1% per day gives him an extra 1% share in “the software, programming language and business interests” of the project, which starts at 50% according to provision 2. (See page 2, and page 4, paragraph 8 ) That extra 34% Ceglian is requesting amounts to $5.1 billion, which is a pretty significant discrepancy that will assuredly be litigated heavily if this case gets to that point.
Unfortunately, that shows me that even if the contract is deemed real, valid, and enforceable (aside from the statue of limitations concerns), Ceglia is potentially requesting relief in bad faith, which calls his credibility into question from the start, particularly in light of his past legal problems.
This will be an interesting case to watch, but I expect it will involve a settlement at some point months from now, without any official determination of the validity of the contract.
**Update: An astute reader pointed out that the contract also provides for a 1% extra share in the business for every day the project is late. Of course, that means my initial concern about the reading of the contract was incorrect. However, there is still a question as to whether that sort of provision is proper. There is an interesting balance between the right of parties to contract in any way they desire, and the duty of the courts to make sure that contracts are not drafted so as to take advantage of parties who are not experts in the field (as well as the dreaded unconscionable contract). These concepts will be explored in future posts.
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Graham Martin is a solo practitioner focusing on Contract law (including drafting, review, and litigation). He operates Martin Legal Services, LLC in the Minneapolis-St. Paul area.