[greendestiny]

Well I'm not a lawyer, but from a complete laymans point of view I'm not sure I agree with all your points. I don't expect my opinion to be worth a lot to anyone, but I still think there are a lot of questions I'd want answered if I was financially invested in facebook.

Firstly the contract is only a couple of pages long and the point about owning 50% of thefacebook is right there in the first paragraph. It might seem ridiculous now that thefacebook was only valued by them at $2000 at that time, but thats only in hindsight. And at a valuation of $2000 1% a day is only $20 a day as a late penalty.

No idea about the timing issues, but if the guy thought the deal was successfully completed (afterall he paid Zuckerberg, we have no idea if he cashed that cheque) then as far as he was concerned all was fine and he owned 84% of the business. I don't see how a problem arose until Zuckerberg incorporated and didn't give this guy his fair share - and that happened in summer 2004 (according to wikipedia).

As for the unreasonableness of it all, Zuckerberg obviously needed the money at the time and thought that's what thefacebook was worth at the time. Arguably facebook wouldn't be in the position it is now without that guy's money. Maybe he's only entitled to 84% of Zuckerberg's personal share, but thats still pretty significant. Who knows, it might all be a forgery, but it doesn't seem that frivolous to me anyway.

[grellas]

I leave it to New York lawyers to get into the fine points of the contract law here but I would add this to my earlier comments:

1. This contract is outrageous and unconscionable - not one founder among the thousands I have worked with over 25 years in Silicon Valley would even begin to consider giving away half or more of his company (much less 84%) for a $1K investment. If I tried to do this as a lawyer in a client's company, I would be instantly disbarred. This type of money typically gets someone a 1% interest or less, even at the earliest stage.

2. When I pay x dollars for item y, and the other party breaches the contract by failing to deliver y after I have paid my x dollars to him, I have been damaged and am entitled to a remedy. The normal remedy is an award of damages, which means I am normally entitled to the monetary value of y as of the date of breach or, if I rescind the contract for the failure to perform, to a refund of my x dollars. Applying this principle in Mr. Ceglia's case (and assuming he gets the best possible outcome in establishing liability), he would get either the monetary value of 84% of what Facebook was worth in the summer of 2004 (when it was first formed and when he became entitled to his equity interest) or else to a refund of his $1,000 - in each case, with interest accruing since the date of breach. If we assume Facebook is like the typical startup, and was worth at most a few hundred thousands of dollars at inception, Mr. Ceglia's maximum damages would be up to a couple of hundred thousands (plus interest since 2004).

3. For Mr. Ceglia to be get a judgment ordering Mr. Zuckerberg to convey 84% of his stock in Facebook to him, he would need to show that he is entitled to specific performance of the contract. This is an equitable remedy and a court will award it only where the item that was to have been a delivered has a "unique" aspect to it that cannot be compensated by damages (the classic example is a parcel of real property). I would doubt that stock would qualify as "unique" in this respect. Also, because specific performance is an equitable remedy, a court will only use such a remedy to do equity and will therefore not grant it where (just to pick a few items off the list in a Wikipedia piece on this remedy, http://en.wikipedia.org/wiki/Specific_performance) (a) it would cause severe hardship to the defendant, (b) the contract is unconscionable or illegal, (c) the claimant misbehaved (no clean hands), (d) specific performance is impossible, or (e) the contract is too vague to be enforced. As appears from that list (assuming that New York law generally conforms with this approach), Mr. Ceglia has some daunting obstacles to overcome before he can claim a share of Mr. Zuckerberg's holdings, even if he can prove that he was harmed by a breach of contract. Of course, those same equitable factors utterly preclude his being able to get specific performance in any way that would harm Facebook's innocent shareholders generally.

[Scott_MacGregor]

As far as "point 1" is concerned, in our industry it really does seem "outrageous and unconscionable", but as far as case law is concerned I wonder if in the grand scope of new businesses in general it would be viewed as such. The court may be predisposed to believe that people and businesses have freedom to contract, and it seems reasonable to believe that the argument could be made that this clause should be left to stand as written.

New York may have been chosen as venue in order to "fit" with known case law on this and other points. Such as the allegation in paragraph 3 that Facebook is a "domestic corporation" in New York (a very basic detail to get wrong about this) seems like it might be an "error-on-purpose" to lay the foundation for using a particular case, either now or later. Sloppy errors do happen, so does venue shopping, and with a case that has this big of a potential payoff, feigned errors on the part of counsel might allow introduction of some "hoped for" piece of a supporting case. It is New York after all.

[greendestiny]

Ok thanks for that, I would certainly agree that I don't know any founders who sell (at least) 50% of their company at any stage for $1000. Also the way its in a contract about some other software delivery is bizarre. My post was taking a very generous view of Mr Ceglia's claims (and no doubt completely wrong about the law) and assuming that Mr Zuckerberg had knowingly signed the contract. It still makes me wonder if this isn't all some kind of forgery.

[angstrom]

The contract seems quite fair and it's worth pointing out that Andy Bechtolsheim invested $100,000 in "Google" before "Googol" was even incorporated. Google lore has it they changed the name just to cash the check. As far as 1% penalties, it's not unheard of (particularly in construction) to penalize lateness and reward early completion. This guy's lawyer may be a putz, but if it has merit he'll have no trouble hiring better counsel.