SAN FRANCISCO (MarketWatch) -- A Delaware judge ruled Thursday that measures put into place by the directors of online classified-listings site Craigslist to block a potential takeover by fellow stakeholder eBay Inc., while significantly diluting eBay's stake, are unlawful.
In an opinion filed in Delaware Chancery Court, Judge William Chandler writes that Craigslist directors Jim Buckmaster and Craig Newmark "breached their fiduciary duties" by implementing provisions aimed at diluting eBay's stake to 24.9% from 28.4%, and hindering its ability to sell that stake to a third party.
However, the judge also partly ruled in favor of Craigslist, by dismissing eBay's EBAY, -0.99% objection to a "staggered board" provision put into place by Buckmaster and Newmark, which would hinder the larger company's ability to unilaterally elect a board director.
While Craigslist has demonstrated little desire to maximize profits, opting instead to maintain a Web site and service that differs little from when it first appeared in the 1990s, eBay has operated in an aggressive manner more appropriate for a large corporation with a wide base of shareholders.
EBay claimed in its 2008 suit that Craigslist was trying to unfairly dilute its stake, while Craigslist alleged in its own suit that eBay was using the fiercely independent, San Francisco-based site to develop a competing classified-listings service of its own, called Kijiji.com.
Buckmaster, who serves as Craigslist's chief executive, did not immediately respond to a request for comment.
In a statement, eBay said the ruling "overturns a series of unlawful transactions undertaken by Craigslist's majority shareholders."
"We are very pleased that the court gave eBay what it sought from the lawsuit," eBay general counsel Michael Jacobson said in the statement.
The online auctioneer purchased its stake in Craigslist in 2004, making it one of only three shareholders alongside Buckmaster and Newmark.
Yet when it became clear that eBay planned to compete in the market for classified listings, Buckmaster and Newmark asked the company to sell its stake.
When eBay refused, Buckmaster and Newmark apparently began implementing new provisions aimed at reducing eBay's stake, which in turn spurred the litigation.