Plaintiffs’ Counsel Sanctioned Over ‘Frivolous’ Complaint’ in AOL Dispute
Dec. 6 — The U.S. District Court for the Southern District of New York Dec. 5 sanctioned counsel for the plaintiffs in a would-be class securities fraud suit against AOL Inc. (AOL)over the stock repurchase program it carried out during the months before it announced a $1.056 billion patent sale to Microsoft Inc. (MSFT) (In re AOL Repurchase Offer Litigation, S.D.N.Y., 12 Civ. 3497 (DLC), 12/5/13).
According to Judge Denise L. Cote, the plaintiffs failed to support their claim AOL already had a secret deal with Microsoft but wanted to depress its stock price until the repurchase program was completed. She said the process for setting the amount of the sanctions will be addressed in a separate order.
The court recounted that in April 2012, AOL’s stock price jumped 43 percent after the entity announced the sale of a patent portfolio to Microsoft for $1.056 billion in cash. In their lawsuit, the plaintiffs claimed that AOL had conducted a sham auction of the portfolio to disguise the fact that months earlier, it had reached a secret deal with Microsoft.
Allegedly, the court continued, “the purpose of this dissimulating was to keep AOL’s stock price depressed while the company completed a repurchase program under which it acquired nearly 14.8 million shares of its own stock, stock that became much more valuable when the news of the patent sale was revealed.”
In August, however, the court dismissed the allegations (162 SLD, 8/21/13). It said the plaintiffs did not plead enough facts “to raise this theory above the speculative level.”
In this case, the court concluded that the plaintiffs’ counsel must be sanctioned under Fed.R.Civ.P. 11 for filing a frivolous complaint. It said the secret-deal theory underlying the allegations was “’utterly lacking’” in factual support.
The defendants were represented by Jonathan M. Moses, Adam M. Gogolak, and Michael J. McDuffie, Wachtell Lipton Rosen & Katz LLP, New York.
The plaintiffs were represented by Peter C. Harrar and Beth A. Landes, Wolf Haldenstein Adler Freeman & Herz LLP, New York.
To see the decision, go to http://www.bloomberglaw.com/public/document/IN_RE_AOL_INC_REPURCHASE_OFFER_LITIGATION_Docket_No_112cv03497_SD/1.