Current "pending" lawsuits against INSP...
According to the recent 10K for 2001, there are (were?) "approximately" 15 currently pending lawsuits against INSP. There were two big ones from last year, that we know about, as they were mentioned publicly. One was the "derivative lawsuit" filed by a single individual asking for $2 billion I believe. That one has been narrowed down by the court, but has not yet been settled one way or the other.
The other big class action lawsuit that was discussed at some length this board. It is the one in which attorneys from all over the country tried to get in on the action last year. It was finally "consolidated" (in October 2001, I believe) by Judge Thomas Zilly, naming a "Lead Plaintiff" and "Lead Attorney." The "Lead Attorney," I believe, is actually three firms combined: Hagens Berman, Milberg Weiss, and Schiffer & Bailey. This is the pending lawsuit in which it was announced in a Press Release yesterday (by the "Lead Attorney") that they are amending their class action lawsuit, based on the findings of the NY Attorney General's lawsuit against Merrill Lynch, et al. This case was first filed with Judge Zilly on August 20, 2001. It is my understanding that Judge has not yet ruled on whether the case can proceed. If he does eventually approve it proceeding, I'm expecting a huge settlement proposal from INSP...as these things seldom go to a full trial...just too damn risky and expensive for everyone involved (not to mention all the bad publicity continuing perhaps for many years).
Below is what I found in the most recent INSP 10k filing for 2001 regarding lawsuits. It's funny that, although they refer to "approximately" fifteen pending lawsuits earlier in the 100 page document, they only discuss seven in detail later on in the document. So we have absolutely know idea what the other eight lawsuits are about, as far as I can tell.
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From INSP's 2001 10K regarding "legal proceedings:
INSP-10K (2001)
Filed: March 27, 2002
LAWSUITS
(Excerpts from page 23)
We are subject to legal proceedings that could result in liability and damage our business.
From time to time, we have been, and expect to continue to be, subject to legal proceedings and claims in the ordinary course of our business, including claims to equity by alleged employees and claims of infringement of intellectual property rights by us, as well as a putative securities class action lawsuit and other securities-related litigation.
Approximately fifteen lawsuits against us are currently pending in which claims have been asserted against us or directors and executive officers, in addition to ordinary course collection matters and intellectual property infringement claims that are not material to our business.
We are unable to determine the amount for which we potentially could be liable since a number of these lawsuits do not specify an amount for damages sought, and we maintain insurance which may cover some or all of the claims, should they be successful.
Such proceedings and claims, even if not meritorious, could require the expenditure of significant financial and managerial resources, which could harm our business. We believe we have meritorious defenses to all the claims currently made against InfoSpace.
However, litigation is inherently uncertain, and we may not prevail in these suits. We cannot predict whether future claims will be made or the ultimate resolution of any current or future claim. For an expanded discussion of our pending legal proceedings, see "Item 3. Legal Proceedings."
(Excerpts from pages 27-29)
ITEM 3. -- Legal Proceedings
From time to time we have been, and expect to continue to be, subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of third-party trademarks and other intellectual property rights by us. These claims, even if not meritorious, could require the expenditure of significant financial and managerial resources.
On June 19, 2001, a putative securities class action complaint entitled Horton v. InfoSpace, Inc., et al. was filed in the United States District Court for the Western District of Washington. The complaint alleges that InfoSpace and its chief executive officer made false and misleading statements about InfoSpace's business and prospects during the period between January 26, 2000 and January 30, 2001. The complaint alleges violations of the federal securities laws and does not specify the amount of damages sought. Subsequently, other similar complaints were filed. The Horton matter and the subsequent complaints have been consolidated into one matter, captioned In re InfoSpace, Inc. Securities Litigation. The Court has appointed lead plaintiffs and counsel, and a consolidated complaint was filed on January 22, 2002, which, among other things, added our chief financial officer as a defendant. We believe we have meritorious defenses to these claims but litigation is inherently uncertain and we may not prevail in this matter.
On March 19, 2001, a purported shareholder derivative complaint entitled Youtz v. Jain, et al. was filed in the Superior Court of Washington for King County. The complaint has been amended twice thus far and has been renamed Dreiling v. Jain, et al. The complaint names as defendants current and former officers and directors of ours and entities related to a few of the individual defendants; InfoSpace is named as a 3nominal defendant.2 The complaint alleges that certain defendants breached their fiduciary duties to us and were unjustly enriched by engaging in insider trading, and also alleges that certain defendants breached their fiduciary duties in connection with the Go2Net and Prio mergers and that one defendant converted our assets to his personal use. Various equitable remedies are requested in the complaint, including disgorgement, restitution, accounting and imposition of a constructive trust, and the complaint also seeks monetary damages. As stated, the complaint is derivative in nature and does not seek monetary damages from, or the imposition of equitable remedies on, InfoSpace. We have entered into indemnification agreements in the ordinary course of business with officers and directors and may be obligated throughout the pendency of this action to advance payment of legal fees and costs incurred by the defendant officers and directors pursuant to our obligations under the indemnification agreements and applicable Delaware law. The special litigation committee of our Board of Directors, with the assistance of independent legal counsel, has investigated the complaint, and filed on March 22, 2002 a motion to terminate this derivative action.
On December 18, 2000, an employee filed a complaint against us in the United States District Court for the Western District of Washington alleging claims for breach of contract, breach of the covenant of good faith and fair dealing, and fraudulent and negligent misrepresentation. The suit also included a claim against Naveen Jain, our Chief Executive Officer, for violations of the Racketeer Influenced Corrupt Organizations (RICO) Act. The employee contends that he agreed to work for us on the basis of an oral representation that he would be granted more stock options than any other employee and that he would always have more stock options than any other employee (other than Mr. Jain) and that he would always have more stock options than any other such employee. The employee also contends that he was falsely promised certain levels of authority and support in his position. The employee seeks unspecified compensatory damages from us as well as equitable relief. On March 29, 2001 the court dismissed the plaintiff's claims for breach of the covenant of good faith and fair dealing. On March 1, 2002, the court dismissed the employee's claims for breach of contract, fraudulent and negligent misrepresentation with respect to the alleged promise that the employee would always have more stock options than any other InfoSpace employee, and violation of the RICO Act, and also denied certain other motions by the plaintiff. The only surviving claim is plaintiff's allegation of fraudulent and negligent misrepresentation based on the alleged representation that the stock options received by the employee at the time he was hired were the most given to any InfoSpace employee (other than Mr. Jain). The parties are scheduled for trial on the surviving claim on June 24, 2002. We believe we have meritorious defenses to this claim. Nevertheless, litigation is uncertain and we may not prevail in this suit.
In September of 2000, Go2Net sued FreeYellow.com, Inc. a Florida corporation, and John Molino, FreeYellow's sole shareholder, in the Superior Court of Washington for King County seeking to rescind its acquisition of FreeYellow that closed in October of 1999, and in the alternative, seeking damages. Molino denied the allegations, and asserted a counterclaim for breach of the merger agreement. In October 2000, Go2Net was acquired by and become a wholly owned subsidiary of InfoSpace. On August 6, 2001, Go2Net amended the complaint to add a claim against FreeYellow and Molino under the Securities Act of Washington (3WSA2). Both parties moved for summary judgment on the merits of their respective claims, and those motions were denied. In February of 2002, Go2Net moved for summary judgment to dismiss Molino's equitable defenses of waiver and estoppel to Go2Net's WSA claim. Molino opposed that motion, and moved to dismiss Go2Net's WSA claim. On March 8, 2002, the court granted Go2Net's summary judgment motion and denied Molino's motion to dismiss. The case is scheduled to go to trial on July 1, 2002. We believe we have meritorious defenses to these claims. Nevertheless, litigation is uncertain and we may not prevail in this suit.
(On May 2, 2000), Two of nine founding shareholders and three other shareholders of Authorize.Net Corporation, a subsidiary acquired through our merger with Go2Net, filed a lawsuit on May 2, 2000 in Utah State Court in Provo, Utah. This action was brought to reallocate amongst the founding shareholders the consideration received in the acquisition of Authorize.Net by Go2Net. The plaintiffs allege that the corporate officers of Authorize.Net fraudulently obtained a percentage of Authorize.Net shares greater than what was anticipated by the founding shareholders, and are making claims under the Utah Uniform Securities Act as well as claims of fraud, negligent misrepresentation, breach of fiduciary duty, conflict of interest, breach of contract and related claims. Plaintiffs seek compensatory and punitive damages in the amount of $200 million, rescission of certain transactions in Authorize.Net securities, and declaratory and injunctive relief. The plaintiffs subsequently amended the claim to name Authorize.Net as a defendant with regard to the claims under the Utah Uniform Securities Act and have asserted related claims against Go2Net. The case is currently in the expert witness discovery phase, which is expected to end on March 29, 2002. We have filed a motion for summary judgment on behalf of Authorize.Net and have asserted counterclaims against the plaintiffs. We believe we have meritorious defenses to these plaintiffs' claims. Nevertheless, litigation is uncertain and we may not prevail in this suit.
(On September 22, 1999), One of the shareholders of INEX Corporation filed a complaint with the Ontario Superior Court of Justice in Canada on September 22, 1999 alleging that the original shareholders of INEX and INEX itself were bound by a shareholders agreement that entitled the shareholder to pre-emptive rights and rights of first refusal. The complaint was amended on December 20, 1999 to allege that we assumed the obligations of INEX under the alleged shareholders agreement as a result of our acquisition of INEX on October 14, 1999. The plaintiff has agreed to dismiss the complaint with prejudice and release all claims against defendants in exchange for the defendants' agreement to forego collection of litigation costs assessed against the plaintiff to date in the suit. Defendants have submitted settlement documents to plaintiff's counsel who has approved them. The parties are awaiting final signatures to complete the settlement.
On December 5, 2001, a complaint entitled The boxLot Company v. InfoSpace, Inc., et. al. was filed in the Superior Court of California for San Diego County. The complaint names as defendants InfoSpace and certain of our current and former directors, and alleges violations of state law in connection with the asset purchase transaction between InfoSpace, Inc. and The boxLot Company in December of 2000. Plaintiffs filed an amended complaint on February 15, 2002, and the defendants have not yet responded to the amended complaint. We believe we have meritorious defenses to these claims but litigation is inherently uncertain and we may not prevail in this matter. |
