Facebook assets frozen in bizarre New York lawsuit

By Stacy Cowley, tech editor


NEW YORK (CNNMoney.com) -- Proving that even a seemingly frivolous lawsuit can throw a wrench in the corporate works, Facebook is fending off a New York restraining order temporarily preventing it from transferring or selling any of its assets.

The order stems from a case filed in late June in New York's Allegany County state court by Paul Ceglia, a local resident who claims that in 2003 he paid Facebook founder Mark Zuckerberg $1,000 to build a website "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.'"

In return, Ceglia was to receive a 50% stake in the site, according to a contract he filed with the court. Based on the contract's details, he is now seeking 84% ownership of Facebook -- a Palo Alto, Calif., company that investors have valued at $15 billion. "Time is of the essence as I have not received any remuneration from the Defendants," Ceglia said in his affidavit to the court. (To see Ceglia's legal filing, including the alleged contract, click here.)

His complaint prompted Judge Thomas Brown to slap Facebook with a restraining order preventing any asset sales -- though Brown struck down a proposed clause that would have blocked Facebook from accessing any money stashed in its bank accounts.

Facebook fired back by having the case transferred to federal district court in Buffalo, where it is currently pending. In a motion filed Friday, Facebook asked the federal court to dissolve the restraining order. Ceglia "has utterly failed to meet the procedural and substantive requirements for such drastic relief, and the order issued by the state court is similarly flawed and woefully inadequate," the company wrote.

"We believe this suit is completely frivolous and we will fight it vigorously," a Facebook spokesman said in response to the lawsuit. "The order will not affect our ability to do business, but we do not believe it is legally supported and we have moved to have the it vacated."

Facebook's legal filings document a laundry list of objections to the state court's action, which was issued without any notice to Facebook. The company also notes that New York's six-year statute of limitations almost certainly bars Ceglia's attempt to take action on a seven-year-old alleged contractual breach.

Ceglia has a checkered legal past. In 2009, New York Attorney General Andrew Cuomo sued Ceglia for allegedly defrauding customers of a wood-pellet fuel company he owned. Cuomo won a restraining order binding the assets of Ceglia's Allegany Pellets after he charged the company with taking $200,000 in advance payments from customers and then failing to deliver the goods.

Cuomo's office said that an investigation into Paul Ceglia and his wife Iasia turned up evidence of "extensive real estate holdings, including 75 acres of oceanfront property in Nova Scotia; 30 acres and 70 rental properties in Wellsville; and their own residence on 2 acres in Wellsville." To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,804.71 -238.19 -1.40%
Nasdaq 4,422.09 -71.30 -1.59%
S&P 500 1,946.16 -26.13 -1.32%
Treasuries 2.40 -0.10 -4.19%
Data as of 6:21pm ET
Company Price Change % Change
Bank of America Corp... 16.82 -0.23 -1.35%
Ford Motor Co 14.59 -0.18 -1.22%
Facebook Inc 76.55 -2.49 -3.15%
Apple Inc 99.18 -1.57 -1.56%
Cisco Systems Inc 25.03 -0.08 -0.34%
Data as of 4:03pm ET

Sections

In the last five years, pumpkin sales have risen 34% as people demand pumpkin in everything from beer to beef jerky. More

New York City launches a comprehensive site for all things related to its digital tech scene, Digital.NYC. More

New York City launches a comprehensive site for all things related to its digital tech scene, Digital.NYC. More

For these seniors, the best retirement is not to retire. From a 102-year-old Wal-Mart worker to an activist park ranger, these workers have stayed on the job well into their golden years. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.