EBay wins legal ruling against Craigslist

By Dow Jones Newswires
Posted Sep. 9, 2010 at 4:52 p.m.

EBay Inc. on Thursday won a lawsuit over Craigslist Inc.’s move to deprive the online auction giant of its seat on the online classifieds group’s board.

A Delaware Chancery Court judge rescinded Craigslist’s poison-pill plan and upheld most of eBay’s minority shareholder rights in a ruling issued Thursday.

In his opinion, Chancellor William B. Chandler III said Craigslist’s Jim Buckmaster and Craig Newmark “breached their fiduciary duties” owed to eBay by using their power as directors and controlling stockholders to implement an interested transaction that was not entirely fair to the minority stockholder.

But in a split decision, the judge left in place a separate provision allowing Craigslist to stagger its director elections, a provision that helped Craigslist strip eBay of its board seat.

EBay paid $32 million to acquire a 28.4% stake in Craigslist in 2004, but the relationship soured after eBay launched a rival U.S. classifieds business, called Kijiji, in 2007.

Craigslist hit back by diluting eBay’s stake to 24.85%, a move officials said was aimed at bolstering the closely held company’s anti-takeover defenses and stop eBay’s misuse of its confidential information.

EBay alleged the move to dilute its stake was a “self-dealing” and secret scheme that caused it to lose its right to elect a Craigslist board member. It had asked the court to restore its interest in Craigslist to the terms of their 2004 agreement.

Michael R. Jacobson, eBay general counsel, said the company brought the suit to protect its own shareholders and preserve its valuable investment in Craigslist.

“The evidence presented at trial demonstrated that the actions were taken by Mr. Buckmaster and Mr. Newmark to benefit themselves at the expense of eBay,” he said.

Craigslist has charged in a separate lawsuit in California that eBay improperly used confidential data to launch Kijiji.

Craigslist representatives were not immediately available for comment.

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  1. jack (me) Sep. 10, 2010 at 10:19 a.m.

    Aside from the corporate governance law issues meant, does that mean that EBay had 28.4% of the profits from craigslist.org’s prostitution advertising business, and thus that EBay’s profits will now be similarly reduced if the attorneys general eventually get what they want?

  2. B Lab Sep. 23, 2010 at 10:49 a.m.

    It’s a shame that the Delaware courts affirmed that stockholder wealth maximization is the only game in town. One solution for preserving mission: become a Benefit Corporation. Read more about it at http://blogs.forbes.com/csr/2010/09/21/what-ebays-court-fight-with-craigslist-reveals/