Barnes and Noble 2008 Annual Report Download - page 38

16, 2008, the District Court entered an order doing so.
The time to fi le notices of appeal in the State Derivative
Action and the Federal Derivative Action expired in June
2008, and no such notices were fi led.
In re Initial Public Offering Securities Litigation
The class action lawsuit In re Initial Public Off ering
Securities Litigation fi led in the United States District
Court for the Southern District of New York in April
2002 (the Action) named over 1,000 individuals and 300
corporations, including Fatbrain.com, LLC, a former
subsidiary of Barnes & Noble.com (Fatbrain), and its
former offi cers and directors. The amended complaints
in the Action all allege that the initial public off ering
registration statements fi led by the defendant issu-
ers with the SEC, including the one fi led by Fatbrain,
were false and misleading because they failed to dis-
close that the defendant underwriters were receiving
excess compensation in the form of profi t sharing with
certain of its customers and that some of those custom-
ers agreed to buy additional shares of the defendant
issuers’ common stock in the after market at increasing
prices. The amended complaints also allege that the
foregoing constitute violations of: (i) Section 11 of the
Securities Act of 1933, as amended (Securities Act), by
the defendant issuers, the directors and offi cers signing
the related registration statements, and the related
underwriters; (ii) Rule 10b-5 promulgated under the
Securities Exchange Act of 1934, as amended (Exchange
Act), by the same parties; and (iii) the control person
provisions of the Securities Act and Exchange Act by
certain directors and offi cers of the defendant issuers.
A motion to dismiss by the defendant issuers, including
Fatbrain, was denied.
After extensive negotiations among representatives
of plaintiff s and defendants, the parties entered into
a memorandum of understanding (MOU), outlin-
ing a proposed settlement resolving the claims in the
Action between plaintiff s and the defendant issuers.
Subsequently a settlement agreement was executed
between the defendants and plaintiff s in the Action, the
terms of which are consistent with the MOU. The settle-
ment agreement was submitted to the court for approval
and on February 15, 2005, the judge granted preliminary
approval of the settlement.
On December 5, 2006, the federal appeals court for the
Second Circuit issued a decision reversing the District
Court’s class certifi cation decision in six focus cases.
In light of that decision, the District Court stayed all
proceedings, including consideration of the settle-
ment. Plaintiff s then fi led, in January 2007, a Petition
for Rehearing En Banc before the Second Circuit, which
was denied in April 2007. On May 30, 2007, plaintiff s
moved, before the District Court, to certify a new class.
On June 25, 2007, the District Court entered an order
terminating the settlement agreement. On October 2,
2008, plaintiff s agreed to withdraw the class certifi ca-
tion motion. On October 10, 2008, the District Court
signed an order granting the request.
An agreement in principle has now been negotiated
among counsel for all of the issuers, plaintiff s, insur-
ers and underwriters, which has been executed by the
Company and remains subject to court approval. If
the proposed settlement is approved, no settlement
payment will be made by the Company. If the proposed
settlement is not approved, the Company intends to
vigorously defend this lawsuit.
Barnesandnoble.com LLC v. Yee, et al.
On December 21, 2007, Barnes & Noble.com fi led a
complaint in the United States District Court for the
Eastern District of California for declaratory and injunc-
tive relief against the members of the California Board
of Equalization (the BOE) and others. The complaint
sought a declaration that the actions of the State of
California in seeking to impose California sales and use
tax on the sales of Barnes & Noble.com for the period
of May 1, 2000 through March 31, 2004 in the amount
of approximately $17,000, plus interest and penalties,
violate the Commerce Clause and the First Amendment
of the United States Constitution, as well as the
California Administrative Procedures Act. This assess-
ment was also the subject of an administrative protest
fi led by Barnes & Noble.com. Barnes & Noble.com was
also challenging another earlier assessment by the BOE
in the amount of approximately $700, plus interest and
penalties, for the period of November 15, 1999 through
January 31, 2000. This earlier assessment was struck
down by a decision of the California Superior Court on
September 7, 2007 in favor of Barnes & Noble.com, and
the BOE fi led an appeal in the California Court of Appeal
(First District).
On May 29, 2008, the BOE approved a global settlement
with Barnes & Noble.com resolving all disputes between
2008 Annual Report 37