Overstock.com 2008 Annual Report Download - page 105

Table of Contents
equitable indemnity. In a separate ruling on the same day relating to the Company and Patrick Byrne, the court dismissed the common
law fraud claims and equitable indemnity claims and eliminated the possibility of money damages under Copper River's claims that
Overstock and Byrne engaged in unfair business practices. In other portions of the court's rulings, the court declined to dismiss Copper
River's securities fraud claims and its request for an injunction for unfair business practices against the Company and Patrick Byrne
and the claims for tortuous interference with contract and prospective business advantage against the Company, Patrick Byrne and
John Fisher. On June 20, Copper River dismissed its complaints against Mr. Fisher. The parties are in the discovery phase of the case.
The Company intends to defend the Copper River cross-complaint vigorously.
On February 2, 2007, along with five shareholder plaintiffs, the Company filed a lawsuit in the Superior Court of California,
County of San Francisco against Morgan Stanley & Co. Incorporated, Goldman Sachs & Co., Bear Stearns Companies, Inc., Bank of
America Securities LLC, Bank of New York, Citigroup Inc., Credit Suisse (USA) Inc., Deutsche Bank Securities, Inc., Merrill Lynch,
Pierce, Fenner & Smith, Inc., and UBS Financial Services, Inc. In September 2007, the Company filed an amended complaint adding
two plaintiff shareholders, naming Lehman Brothers Holdings Inc. as a defendant, eliminating the previous claim of intentional
interference with prospective economic advantage and clarifying various points of other claims in the original complaint. The suit
alleges that the defendants, who control over 80% of the prime brokerage market, participated in an illegal stock market manipulation
scheme and that the defendants had no intention of covering short sell orders with borrowed stock, as they are required to do, causing
what are referred to as "fails to deliver" and that the defendants' actions caused and continue to cause dramatic distortions within the
nature and amount of trading in the Company's stock as well as dramatic declines in the share price of the Company's stock. The suit
asserts that a persistent large number of "fails to deliver" creates significant downward pressure on the price of a company's stock and
that the amount of "fails to deliver" has exceeded the Company's entire supply of outstanding shares. The suit accuses the defendants
of violations of California securities laws and common law, specifically, conversion, trespass to chattels, intentional interference with
prospective economic advantage, and violations of California's Unfair Business Practices Act. The Company is seeking damages of
$3.48 billion. In April 2007 defendants filed a demurrer and motion to strike the Company's complaint. The Company opposed the
demurrer and motion to strike. In July 2007 the court substantially denied defendants' demurrer and motion to strike. In
November 2007, the defendants filed additional motions to strike. In February 2008, the court denied defendants' motion to strike the
Company's claims under California's Securities Anti-Fraud statute and defendants' motion to strike the Company's common law
punitive damages claims, but granted in part the defendants' motion to strike Overstock's claims under California's Unfair Business
Practices Act, while allowing the Company's claims for injunctive relief under California's Unfair Business Practices Act. Lehman
Brothers Holdings filed for bankruptcy on September 15, 2008 and Barclays Bank has purchased its investment banking and trading
business. The bankruptcy may adversely affect our ability to collect a judgment against Lehman. Dislocations in the financial markets
and economy could result in additional bankruptcies or consolidations that may impact the litigation or our ability to collect a
judgment. On January 12, 2009, Goldman Sachs Group, Inc,., Goldman Sachs &Co.; Goldman Sachs Execution & Clearing L.P., Citi
Group, Inc, Citi Group Global markets, Inc., Credit Suisse (USA) Inc., and Credit Suisse Securities (USA) LLC filed a motion to
strike portions of the Second Amended Complaint regarding allegations of collective action among defendants and the request for
punitive damages. Also, on January 12, 2009, Goldman Sachs Group, Inc,., Goldman Sachs &Co.; Goldman Sachs Execution &
Clearing L.P., Citi Group, Inc, Citi Group Global markets, Inc., Credit Suisse (USA) Inc., and Credit Suisse Securities (USA) LLC
filed a demurrer to the first and second causes of action of the Second Amended Complaint for conversion and trespass to chattels.
These motions are now pending. Discovery in this case continues. No trial date has been set. The Company intends to vigorously
prosecute this action.
On April 15, 2008, the Company received a letter from the Office of the District Attorney of Marin County, California, stating
that the District Attorneys of Marin and four other counties in Northern California have begun an investigation into the way the
Company advertises products for sale, together with an administrative subpoena seeking related information and documents. The
subpoena requests a range of documents, including documents relating to pricing methodologies, definitions of core and partner
product, as well as other site-defined terms, and the methods of internal and external pricing of products, as well as documents related
to the pricing of a list of product items identified in the subpoena. The Company has responded to the subpoena. The Company
believes that it follows industry advertising practices and intends to cooperate with the investigation.
On May 30, 2008 the Company filed a complaint in New York state court against the New York State Department of Taxation
and Finance, its Commissioner, the State of New York and its governor, alleging that a recently enacted New York state tax law is
unconstitutional. The effect of the New York law is to require internet sellers to collect and remit New York sales taxes on their New
York sales, even if the seller has no New York tax "nexus" other than with New York based independent contractors who are internet
advertising affiliates. The complaint asks for the court to declare the law unconstitutional and enjoin its application to the Company.
New York filed a motion to dismiss. The Company responded to the motion and filed a motion for summary judgment, and both
motions were heard simultaneously. On January 12, 2009, the court granted New York's motion to dismiss and denied the Company's
motion for summary judgment. On February 12, 2009, the Company filed notice to appeal the ruling.
On August 12, 2008, the Company along with seven other defendants, was sued in the United States District Court for the
Northern District of California, by Sean Lane, and seventeen other individuals, on their own behalf and for others similarly in a class
action suit, alleging violations of the Electronic Communications Privacy Act, Computer Fraud and Abuse Act, Video Privacy
Protection Act, and California's Consumer legal Remedies Act and Computer Crime Law. The compliant relates to the Company's
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