Bloomberg News

EBay Says Win in Delaware Craigslist Case Bars New Claims

July 13, 2011

(Updates with judge to rule tomorrow in ninth paragraph.)

July 12 (Bloomberg) -- EBay Inc. shouldn’t have to face fraud and negligence claims by Craigslist Inc. in California because a similar case it won in Delaware upheld its minority investment rights in the online classified-ad provider, a company lawyer said.

The Delaware court’s ruling last year, which supported Ebay’s right to compete with Craigslist, precludes Craigslist from proceeding with an unfair competition and fraud lawsuit in California that seeks to strip EBay of its Craigslist shares, EBay attorney Michael Rhodes told a state court judge today in San Francisco.

The Delaware court threw out Craigslist’s poison-pill plan, which EBay alleged was an attempt to punish the online auctioneer for starting a competing, online classified-ad service.

“They want you to undo what we just got” in Delaware, Rhodes told Superior Court Judge Richard Kramer.

The day after losing the case in September, Craigslist amended its 2008 California lawsuit, which had been put on hold, to revive claims it lost in the earlier case, he said.

Jason Yurasek, Craigslist’s attorney, said the Delaware case was about issues of corporate governance that the judge recognized as separate from claims in the California case. Both companies agreed years ago that any dispute over EBay’s investment should be resolved in state court in San Francisco, he said. Craigslist says the California case is about whether EBay lied about its intent to compete with Craigslist and try to increase its holding and take the company over, he said.

‘Proverbial Stone’

“This dispute was not over when he ruled,” Yurasek said, citing comments by the Delaware judge that whether his ruling was the “proverbial stone in Craigslist’s sling that will slay the giant EBay” remained to be seen.

“It’s clear from the decision that he recognized that this battle in California would happen,” said Yurasek. “It’s not appropriate to throw it out.”

Kramer said he would rule tomorrow on what effect, if any, the Delaware ruling has on the California lawsuit, filed by closely held Craigslist over claims that EBay used confidential information obtained during negotiations about its minority stake to start a competing classified service.

EBay bought a 28 percent stake in Craigslist in 2004. The company developed an online classified site called Kijiji in 2007. The site was renamed EBayClassifieds.com.

Takeover Defense

The classifieds site prompted Craigslist owners James Buckmaster and Craig Newmark to enact takeover defenses, such as the poison-pill provision, and to strip EBay of its board seat on the grounds that the minority shareholder posed a threat to the online-advertising company.

Craigslist started out as an e-mail list of San Francisco events by Newmark, a software engineer, in 1995, according to the company’s website.

While ruling in favor of San Jose, California-based EBay on Craigslist’s poison-pill plan, Delaware Chancery Court Judge William B. Chandler III left in place a provision allowing for staggered director elections. Craigslist officials used that provision to help strip EBay of its board seat, according to his ruling.

The case is Craigslist v. EBay, 475276, Superior Court of California (San Francisco).

--With assistance from Jeff Feeley and Phil Milford in Wilmington, Delaware. Editors: Peter Blumberg, Fred Strasser

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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