Small Win for Idealab in Shareholder Suit

Former high-flying dot-com incubator Idealab got some good news and some bad
news late Thursday when a California judge dismissed portions of a lawsuit by
investors but ruled that the litigation can proceed on some counts.

The investor group filed
suit
in March, alleging Idealab’s management abused its authority
and diverted corporate assets to the harm and detriment of minority
shareholders. It also alleged an improper distribution of corporate assets
and called for the dissolution and liquidation of the company and removal of
all directors.

However, Los Angeles Judge Ralph Dau ruled the investor group must refile
the complaint as a derivative action on behalf of the corporation, rather than
on behalf of the investor group. The judge also ruled that the investors
can proceed to trial on their claim to remove directors and management of
Idealab. The case is expected to go to trial early next year.

Idealab welcomed the judge’s ruling, claiming it was a “major victory”
against the shareholders who own about 9 percent of the company’s stock. “We
have maintained all along that the plaintiffs have no case based both on the
facts and on the law itself. For the second time, the judge has tossed out
the plaintiffs’ claims because they have failed to state an adequate legal
basis even to bring a claim,” said Doug McPherson, Idealab’s general
counsel.

Idealab chairman Bill Gross called the legal challenge a “publicity
stunt” and argued that the judge’s latest ruling “only confirms that the
plaintiffs’ claims are legally baseless.”

The shareholder group is asking the court to find that the Pasadena,
Calif.-based Idealab, which has launched the dot-com careers of sites like
PETsMART.com, Tickets.com and New.net, pay about $1 billion in
damages.

Besides Idealab, the lawsuit names as defendants its Chairman and CEO
Bill Gross; his fiancee Marcia Goodstein whom he appointed as Idealab’s
President and COO; CFO Bradley Ramberg; other Idealab officers and directors
Robert Kavner, Howard Morgan, Benjamin M. Rosen and Lawrence Gross (Bill
Gross’ brother); as well as Douglas McPherson.

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