Barnes and Noble 2010 Annual Report Download - page 59

21. LEGAL PROCEEDINGS
The Company is involved in a variety of claims, suits,
investigations and proceedings that arise from time to time
in the ordinary course of its business, including actions
with respect to contracts, intellectual property, taxation,
employment, benefits, securities, personal injuries and
other matters. The results of these proceedings in the ordi-
nary course of business are not expected to have a material
adverse effect on the Company’s consolidated financial
position or results of operations.
The following is a discussion of the material legal matters
involving the Company.
In re Initial Public Offering Securities Litigation
The class action lawsuit In re Initial Public Offering Securities
Litigation filed 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 officers and direc-
tors. The amended complaints in the Action all allege that
the initial public offering registration statements filed by
the defendant issuers with the SEC, including the one filed
by Fatbrain, were false and misleading because they failed
to disclose that the defendant underwriters were receiv-
ing excess compensation in the form of profit sharing with
certain of its customers and that some of those customers
agreed to buy additional shares of the defendant issuers’
common stock in the aftermarket at increasing prices. The
amended complaints also allege that the foregoing consti-
tute violations of: (i) Section 11 of the Securities Act of 1933,
as amended (Securities Act), by the defendant issuers,
the directors and officers 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 officers of the defen-
dant issuers. A motion to dismiss by the defendant issuers,
including Fatbrain, was denied.
After extensive negotiations among representatives of
plaintiffs and defendants, the parties entered into a memo-
randum of understanding (MOU), outlining a proposed
settlement resolving the claims in the Action between
plaintiffs and the defendant issuers. Subsequently a settle-
ment agreement was executed between the defendants and
plaintiffs in the Action, the terms of which are consistent
with the MOU. The settlement 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 certification decision in six focus cases. In
light of that decision, the District Court stayed all proceed-
ings, including consideration of the settlement. Plaintiffs
then filed, in January 2007, a Petition for Rehearing En
Banc before the Second Circuit, which was denied in
April 2007. On May 30, 2007, plaintiffs 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, plaintiffs agreed to with-
draw the class certification motion. On October 10, 2008,
the District Court signed an order granting the request.
A settlement agreement in principle, subject to court
approval, was negotiated among counsel for all of the issu-
ers, plaintiffs, insurers and underwriters and executed by
Barnes & Noble. Final court approval of the settlement was
granted on October 5, 2009. The District Court has finished
entering the judgments approving the settlement in all of
the IPO cases, with the last judgment entered on January
22, 2010. Pursuant to the settlement, no settlement pay-
ment will be made by the Company. Since that time, various
notices of appeal have been filed by certain objectors on an
interlocutory basis. Should any of these appeals be suc-
cessful and the approval of the settlement overturned, the
Company intends to vigorously defend this lawsuit.
Hostetter v. Barnes & Noble Booksellers, Inc. et al.
On December 4, 2008, a purported class action com-
plaint was filed against Barnes & Noble Booksellers, Inc.
(B&N Booksellers) in the Superior Court for the State of
California making the following allegations against defen-
dants with respect to hourly managers and/or assistant
managers at Barnes & Noble stores located in the State of
California: (1) failure to pay wages and overtime; (2) failure
to provide meal and/or rest breaks; (3) waiting time penal-
ties; and (4) unfair competition. The complaint contains
no allegations concerning the number of any such alleged
violations or the amount of recovery sought on behalf the
purported class. On March 4, 2009, B&N Booksellers filed
an answer denying all claims. On March 5, 2009, B&N
Booksellers removed this matter to federal court. Discovery
concerning purported class member wages, hours worked,
and other matters has commenced. The plaintiff moved
for class certification on October 19, 2009. On January 25,
2010, the Court denied certification in its entirety, leaving
only Hostetter’s individual claim. On February 3, 2010,
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