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An arbitrator has rejected a claim by an Orrick, Herrington & Sutcliffe partner that he was unfairly prevented from selling stock he acquired after his Internet business was purchased by another company. In February 2000, NBCi Internet Inc. agreed to merge with AllBusiness.com Inc. in a stock deal worth about $225 million — and that could have meant a hefty payday for Richard Harroch, an Orrick partner and significant stockholder in AllBusiness.com. At the time of the deal, NBCi’s stock price had hit $90 a share, and Harroch stood to make as much as $22.5 million — or 10 percent of the value of the deal. But NBCi’s high-flying stock price didn’t last. In the space of two months, it dropped to less than $20 a share. And under a phased lockup provision, Harroch was precluded from selling any of his shares for 90 days. Three times in 2000 — Feb. 29, April 13 and June 6 — Harroch asked NBCi to let him sell some of his stock early, claiming that a provision in the merger agreement allowed the company’s new owners to release him from the lockup. NBCi refused, saying that to do so would have hurt other shareholders by further driving down the stock price. So Harroch filed an arbitration claim against the company, saying it had breached its contract by not considering his requests in good faith. The contract had specified that NBCi would “consider in good faith any request for release from the lockup and may allow a release consented to by purchaser’s lead underwriter.” But Harroch’s attempts to get out of the lockups didn’t fare well in an arbitration with Eugene Lynch, a retired federal judge. In his recent decision, Lynch said Harroch had failed to ask deal underwriter Goldman Sachs for permission to get out of the lockups. Harroch had argued that that portion of the agreement was ambiguous, and that NBCi should have sought Goldman Sachs’ approval. But Lynch disagreed, and in any event said there was evidence that “clearly indicates that Goldman Sachs was unalterably opposed to any release from the lockup.” And he said there was “little support” for Harroch’s contention that NBCi’s chief in-house counsel, Jack Levin, had verbally assured him he could sell 10 percent of his shares at closing or 60 days thereafter. “For one, it is hard to imagine that after a hard-fought negotiation of what the terms of the lockup would be that NBCi would suddenly agree to allow 10 percent more shares to be sold,” Lynch wrote. Harroch argued that NBCi hadn’t acted in good faith when it denied his requests, but Lynch said the company was “objectively reasonable” in reaching its decision. “One can clearly be critical of the manner in which NBCi approached its good faith obligation,” Lynch wrote. He said the company seemed to approach the requests on “an ad hoc basis,” and had failed to determine if there was a way of satisfying Harroch without further harming the value of the stock. “Of course, [Harroch] didn’t do any of this either,” Lynch wrote. “He merely made his request, and although he tries to indicate that there were family reasons for the request, in fact, it appears clear that the only reason he ever gave or elucidated was that he was losing money as the stock went down.” Harroch was the only shareholder to seek early release of the lockup under this provision, Lynch noted in his decision. “It is also telling that the other shareholders who had received NBCi stock in the merger � appeared to agree with Levin’s decision not to allow a release,” Lynch wrote. Two of Harroch’s colleagues — AllBusiness.com President Keith Belling and CEO Teymour Boutros-Ghali (the nephew of former United Nations Secretary General Boutros Boutros-Ghali) — also testified. NBCi attorney Michael Bettinger, a partner in Preston Gates & Ellis’ San Francisco office, said Harroch’s claim was “nothing more than a bluff.” Noting that Harroch has written two books on poker and gambling, Bettinger said he told the judge to read the chapter on bluffing in Harroch’s book “Poker for Dummies.” Harroch declined to discuss the case. “It’s a private matter,” he said. “It’s still in arbitration. Anything is very tentative right now.” Lynch ruled the arbitration clause between the two parties did not indicate if the prevailing party is entitled to attorneys fees and costs and left it to NBCi to further argue the issue. NBCi filed a petition Monday to recover these costs. Editor’s Note: In 2001, Harroch sued Law.com Inc. (a wholly owned subsidiary of The Recorder‘s parent company), claiming damages arising from Law.com’s breach of a non-exclusive license agreement entered into between Harroch and Law.com. Law.com has denied Harroch’s allegations, and this action is pending in San Francisco Superior Court. Also in 2001, Harroch’s wholly owned and operated company, LegalDocs Online, filed a separate arbitration action against Law.com alleging breach of a termination and release agreement. The LegalDocs action was dismissed in March of this year.

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