eBay, Inc. was a publicly traded company that operated online auction sites worldwide and employed over 16,000 people. Its primary goal was to maximize profit and market share. eBay bought 28 percent of craigslist, which operated a popular website for classified ads. Craigslist had just two shareholders – Craig Newmark and Jim Buckmaster – and only 34 employees. Its goal was to enhance its user community. 

In the purchase documents, Craig and Jim had agreed that eBay could compete with craigslist. But when eBay launched a rival website, the pair were furious. (As other people have discovered, agreeing in theory to an open marriage is very different from actually experiencing it.) Jim and Craig asked out of the deal, but eBay refused to sell its stock. 

In their role as directors, Craig and Jim adopted a rights plan that prevented eBay from buying more shares of craigslist, selling its existing shares to third parties, or choosing a board member. They maintained that this plan would protect craigslist’s unique culture and promote shareholder value. eBay filed suit, alleging that Craig and Jim had violated craigslist’s fiduciary duty to eBay as a minority shareholder. 

Questions:

1. Did Craig, Jim and craigslist violate their fiduciary duty to the minority shareholder?

2. What was the court’s ruling?

3. What does the outcome of this case demonstrate?