Bloomberg News

EBay Loses Bid to Avoid Craigslist Fraud Suit in California

July 14, 2011

July 14 (Bloomberg) -- EBay Inc. failed to persuade a San Francisco judge that a Delaware lawsuit it won against Craigslist Inc. ruled out fraud claims by the online classified company in a California case.

Superior Court Judge Richard Kramer said yesterday that the judge who presided over the Delaware case and ruled last year in favor of EBay by throwing out closely-held Craigslist’s anti- takeover plan meant for the California lawsuit to proceed. EBay, a minority investor in Craigslist, had argued that the Delaware case dealt with the “totality” of its relationship with Craigslist.

“He makes no legal conclusion as to whether EBay is liable for the various claims in the California case,” Kramer said at a hearing yesterday. “He said clearly he is leaving it to me to resolve the California claims.”

Craigslist, based in San Francisco, claims in the California case, originally filed in 2008, that the world’s largest Web auctioneer stole confidential information to start a competing online ad site when the two companies were in negotiations about EBay purchasing a stake in Craigslist. The lawsuit alleges breach of contract, breach of fiduciary duty, negligent misrepresentation and violation of California securities laws.

Corporate Governance

Craigslist’s lawyers told Kramer yesterday in court that the Delaware case was about issues of corporate governance that were separate from claims in the California case, which is over whether EBay lied about its intent to compete with Craigslist and try to increase its holdings and take the company over.

“eBay is considering its options for appeal,” Michelle Fang, associate general counsel for the company, said in an e- mailed statement yesterday. “This litigation is still in its early stages. In its decision today, the court did not address the actual merits of the case, and we remain confident that we will ultimately prevail.”

Susan MacTavish Best, a spokeswoman for Craigslist, didn’t immediately return an e-mail seeking comment.

EBay, based in San Jose, California, 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 and to strip EBay of its board seat on the grounds that the minority shareholder posed a threat to their company.

EBay sued Craigslist in Delaware and won a ruling last year throwing out the poison-pill plan. The California lawsuit was put on hold pending the outcome of the Delaware case.

Kramer held a trial yesterday to determine what effect the Delaware ruling has on the California lawsuit. He scheduled a hearing in the lawsuit for September.

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

--Editors: Peter Blumberg, Andrew Dunn

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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