Wolf Haldenstein Faces Sanctions for Frivolous AOL Suit

, The Litigation Daily

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A federal judge in Manhattan on Thursday found that plaintiffs lawyers at Wolf Haldenstein Adler Freeman & Herz must face sanctions for filing a frivolous complaint against AOL, Inc.

The lawyers had pursued a securities class action on behalf of AOL shareholders claiming that the company essentially conducted a sham auction of its patent portfolio when it had already made a secret deal to sell that portfolio to Microsoft Corp. The lawyers alleged that the auction artificially depressed AOL's share price during a stock repurchase program. AOL's stock price shot up 43 percent in a single day after it announced the sale of its patent portfolio to Microsoft for more than $1 billion in cash in April 2012.

But in this 12-page opinion, U.S. District Judge Denise Cote found that Wolf Haldenstein lawyers based their claims that AOL's Tim Armstrong prearranged the deal with Microsoft's Steve Ballmer on little more than a blog post. Cote referred the case to a magistrate judge for settlement.

Cote found that the plaintiffs had nothing to support the contention in an amended complaint that AOL had selected Microsoft to buy the portfolio “well before” the beginning of the auction process. The complaint alleged that Armstrong had contacted Ballmer during the fall of 2011 to “close the deal” on the patent portfolio. “AOL had already committed to a plan to sell its patent portfolio to Microsoft, and was actively bringing to fruition the sale in secret, while benefiting from the artificially low price of AOL stock,” the amended complaint said.

Cote dismissed the complaint in August, finding that its "conspiracy theory is mere speculation." She found that the "allegation that Armstrong placed a telephone call to Ballmer to 'close the deal' is recklessly made without any factual support" and asked the plaintiffs to address whether sanctions should be imposed.

Plaintiffs filed a proposed findings of fact in September to respond to the judge. Wolf Haldenstein's Peter Harrar contended in a related filing that he never called the patent auction a sham, but that he only sought to allege that AOL designed a process to favor Microsoft and its knowledge of AOL's patent portfolio. Cote wrote in Thursday's opinion that the Wolf Haldenstein filing "largely ignores the core issues here."

We reached out to Harrar, but he didn't respond to our call.

AOL is represented by Wachtell, Lipton, Rose & Katz in the litigation. Wachtell's Jonathan Moses, likewise, didn't get back to us.
 

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