Lawyers on both sides of a shareholder lawsuit over Yahoo Inc.'s board's handling of Microsoft's $47.5 billion takeover offer are accusing one another of turning it into a public relations battle.
A Delaware judge weighing the shareholders' request to make their complaint against the company public held a private phone conference with lawyers for Sunnyvale, Calif.-based Yahoo and dissident shareholders Tuesday morning.
Plaintiffs' attorney Joel Friedlander wrote in a letter to Chancellor William Chandler III last week that Internet pioneer Yahoo is trying to "whitewash embarrassing documents" it believes will damage the board's efforts to repel a proxy fight by activist investor Carl Icahn.
The two sides will submit additional arguments this week and next, and the judge will rule after that, Friedlander said Tuesday.
Much of the information the defendants want to keep secret, according to Friedlander, involves employee severance plans that Yahoo adopted shortly after software maker Microsoft Corp. made its initial bid on Jan. 31.
Adoption of the severance plans was an "unreasonable defensive measure" that breached the board's fiduciary duty to maximize value for Yahoo shareholders, the plaintiffs claim.
Icahn has nominated an alternate slate of candidates to oppose Yahoo's 10 current directors, including Chief Executive Jerry Yang, at Yahoo's July 3 annual meeting.
In another letter sent to Chandler just prior to Tuesday's teleconference, Friedlander said Yahoo is ignoring constitutional and common-law standards for the sealing of public judicial records. The company has offered no factual justification for redacting 24 paragraphs of the complaint, portions of 12 other paragraphs, and all six exhibits, he added.
"It ignores defendants' selective disclosure of their own confidential information, in a manner that mischaracterizes Yahoo internal documents, while redacting plaintiffs' filings to suit defendants' public relations strategy," Friedlander wrote.
In a response filed late Monday to the letter sent to Chandler last week, Yahoo attorney Edward Welch denied that Yahoo was trying to "sanitize the public record." He accused the plaintiffs of violating the court's confidentiality order by publicly filing the letter.
Welch argued that the redactions made by the company to the shareholders' complaint were done in good faith under a court rule for filing documents under seal. He countered that the plaintiffs' claims were themselves motivated by the public relations battle being waged against Yahoo in the context of the looming proxy contest with Icahn.
"In addition to violating the terms of the confidentiality order, plaintiffs' counsel's actions also run afoul of the long-standing Delaware practice of litigating cases in the courts, and not in the press," Welch wrote, adding that the plaintiffs' actions were "especially egregious" given the upcoming proxy battle with Icahn.
"Indeed, plaintiffs' pattern and practice of litigating this case in the press alone justifies the redactions of Yahoo's nonpublic information from the proposed amended complaint," Welch wrote.
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