Case sued over purchase of Grove Farm

Shareholders claim Steve Case had insider information that helped him buy the company

Steve Case, the Honolulu native who created and once ran the world's largest media conglomerate, has been sued by former shareholders of a Kauai company that Case acquired in 2000.

The former shareholders of Grove Farm Co. Inc. allege that Case engaged in insider trading while negotiating the acquisition of privately held Grove Farm for $26 million, or $152 a share. The suit alleges that Case acted on information provided to him by his father, Dan, whose law firm, Case Bigelow & Lombardi, served as counsel to Grove Farm at the time of the acquisition.

The suit, filed this week in U.S. District Court in Honolulu, alleges that the elder Case represented his son during the acquisition and made information available to the younger Case that was not available to other parties interested in buying Grove Farm, a large Kauai landowner. The suit further alleges that shareholders were kept in the dark about information that was given to Case by his father and his father's law partners, who were representing the seller at the time.

Although the suit alleges misdeeds by several people, including Dan Case and former Grove Farm executives, the only defendant named is Steve Case, who according to Forbes magazine is one of the richest men in the United States.

The suit alleges that Steve Case and companies affiliated with him were enriched by $750 million as a result of the alleged illegal trading. The suit alleges that the plaintiffs were damaged by the same amount, each in proportion to the amount of stock the plaintiff owned. The suit names 25 plaintiffs.

Steve Case could not be reached for comment yesterday at the offices of his Washington, D.C., company, Revolution Health Group. Dan Case was not available for comment. John McDermott, the attorney for the plaintiffs in Honolulu, referred queries to Matthew Simmons, a lawyer in Bethesda, Md., who did not return calls.

The 63-page complaint offers a detailed narrative of alleged events surrounding the deal. The complaint portrays Steve Case as the ultimate insider whose connections in Honolulu's insular business community allowed him to get information about Grove Farm that was unavailable to others and was the only bidder with a real opportunity.

The co-founder of America Online, Case went on to create the world's largest media company by engineering the $106 billion acquisition of Time Warner Inc. in 2001. As chairman of AOL Time Warner, Case oversaw a media empire that included Time Inc. magazines, CNN and Warner Brothers studios. Case stepped down as chairman in 2003 and resigned from the board earlier this year.

A prominent corporate lawyer, Dan Case is on the board of directors of Oahu Publications Inc., which publishes the Honolulu Star-Bulletin. Case also is a minority shareholder of Oahu Publications.

Grove Farm is a Kauai landowner and real estate development company whose assets at the time of the sale included the Kukui Grove Center, Kauai's only regional shopping center. The company sold the center this year to undisclosed investors for an undisclosed amount.

The suit presents dozens of pieces of information that the plaintiffs allege were kept from them by management, but given to Steve Case. These include financial data, such as cash-flow estimates, proposed lease arrangements, property appraisals and terms of Grove Farm's bank debt that made its obligations less onerous than they appeared.

The suit also alleges that management told shareholders the company's financial condition was worse than it actually was to convince them to sell to Case.

The suit is the fourth* shareholder action filed concerning the Grove Farm sale. In a previous suit filed in Hawaii Circuit Court in 2000, plaintiff Michael Sheehan alleged Grove Farm and its management violated fiduciary duties to shareholders by omitting information from shareholders and selling the company for less than it was worth. That suit was dismissed in December 2002.

In all, three other suits have been filed: Two are pending in state Circuit Court on Kauai, and a third is on appeal to the Hawaii Supreme Court.*