By Jef Feeley and Joseph Galante
Feb. 16 (Bloomberg) – Craigslist Inc. executives reneged on a deal to guarantee EBay Inc. a board seat for its investment in the online-advertising company and planned to portray themselves as victims of the Internet auctioneer, EBay’s lawyers argued in court papers.
Craigslist officials’ alterations to the company’s stock structure were designed to unfairly strip EBay of its right to have a director on Craigslist’s board, attorneys for the San Jose, California-based EBay said in closing briefs in its Delaware Chancery Court lawsuit over the changes. EBay bought a 28 percent stake in San Francisco-based Craigslist in 2004.
The changes were made in “bad faith” and were “motivated by a desire to harm EBay,” the company’s lawyers told Judge William B. Chandler III in the Feb. 12 filing in Wilmington, Delaware.
EBay is asking Chandler to find Craigslist owners Craig Newmark and Jim Buckmaster violated Delaware corporate law by issuing shares to themselves to dilute EBay’s stake. EBay runs the world’s most-visited e-commerce site, according to Reston, Virginia-based ComScore Inc., an Internet-marketing research firm.
Anne C. Foster, a Wilmington-based lawyer for Craigslist, wasn’t immediately available to comment today on EBay’s filing. Craigslist’s attorneys are scheduled to file their closing brief in the case next month.
Meg Whitman
Newmark and Buckmaster testified during a two-week trial in December that they changed the closely held company’s stock structure to beef up Craigslist’s anti-takeover defenses.
They alleged ex-EBay Chief Executive Officer Meg Whitman and other executives testified they’d repeatedly vowed to acquire Craigslist and used their board seat to gather confidential Craigslist data that helped their business. Whitman stepped down as EBay’ top executive in 2008 and is now running for governor of California as a Republican.
Craigslist officials allege EBay executives used some of the online-advertising firm’s proprietary information to start a competing classified-advertising site in the U.S. Craigslist is the most-visited U.S. classifieds site, according to Florida- based Advanced Interactive Media Group LLC.
EBay’s lawyers noted a 2004 agreement governing the company’s Craigslist investment didn’t give Newmark and Buckmaster the right to cancel EBay’s board seat and internal documents showed the pair saw EBay’s suit as an opportunity.
‘Blatant Self-Dealing’
Newmark and Buckmaster “welcomed this litigation as a tool to harm EBay — to portray EBay as the Goliath to their David,” lawyers said in the filing. They pointed to an e-mail from Buckmaster in which Craigslist’s chief executive said the depiction “could be good PR” for the advertising firm.
Newmark and Buckmaster also engaged in “blatant self- dealing” when they abrogated the agreement with EBay and issued themselves shares to dilute the minority investor’s stake, the lawyers argued.
EBay was fined 200,000 euros ($274,000) by a Paris court last week trademark violations tied to the practice of driving customers who misspelled words corresponding to LVMH Moet Hennessy Louis Vuitton SA’s brand names on Internet search engines to EBay’s Web site.
The Delaware case is EBay Domestic Holdings Inc. v. Craig Newmark, CA3705, Delaware Chancery Court (Georgetown).
To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Joseph Galante in San Francisco at jgalante3@bloomberg.net.
February 16, 2010
source: bloomberg.com