EBay and Craigslist have been partners since late 1999 when eBay purchased an unspecified amount of stock that represented a 28.4% stake in Craigslist. DailyTech reported last week that eBay filed suit against Craigslist for taking actions that diluted eBay’s holdings in the company.

When DailyTech initially reported on the suit, no legal documents pertaining to the suit and the reasons for the suit being filed were available. This week, eBay posted the court documents outlining exactly why it filed suit against Craigslist. Much of the financial details of the court documents are redacted because Craigslist is a privately held company and not publically traded. The redacted material prevents shareholder financials from being publically announced.

According to the suit, eBay and defendants Craig Newmark and James Buckmaster are the only holders of stock in Craigslist. The court documents allege that Newmark and Buckmaster breached their fiduciary duties by implementing self-dealing transactions to benefit themselves and harm eBay.

EBay says that it seeks to rescind the transactions and have them declared void or unenforceable in the court. Part of the original agreement between Newmark, Buckmaster, and eBay was that each party would have the right of first refusal if one of the shareholders decided to sell their shares of stock in Craigslist and granted eBay the right to approve transactions directly or through a director designated by eBay.

Part of the shareholders agreement stipulated that if eBay engaged in competitive activity, the right of first refusal would terminate and the rights of Newmark and Buckmaster for first refusal of eBay’s shares would also terminate. This provision in the agreement also allowed eBay’s minority non-controlled interest to be sold without company, board of defendants consent, and over their objections.

EBay first elected Pierre Omidyar to the Craigslist board. In late 2005, Omidyar resigned and eBay nominated Joshua Silvermen to the board to serve as its designee. Earlier in 2005, eBay launched Kijiji.com, an online classified ad service in non-English speaking countries. EBay says in the court documents that it alerted Craigslist and the other board members of its activities with Kijiji.

After the 2007 U.S. launch of Kijiji, eBay says it received a letter from Buckmaster stating that eBay had engaged in competitive activity by launching domestic Kijiji operations. As a result of the letter, eBay’s shares were subject to the agreement making them no longer subject to first refusal and making them transferable without eBay or the boards consent.

EBay says that it notified the board that Silverman would be stepping down to prevent any possible conflict because of his prior association with Kijiji and nominated a new board member—Thomas Jeon. EBay says at that time it still had the power to elect one director to the board and that by holding more than 25% of the stock eBay would always be able to elect one board member. EBay says Craigslist never responded to its request to replace Silverman with Jeon on the board.

EBay says that instead of responding to its nomination of a new board member, Newmark and Buckmaster engaged in a series of clandestine transactions to ensure eBay would not be able to elect a director and dilute its interests amongst other things.

EBay also says that in July Buckmaster sent an email to then President and CEO of eBay Meg Whitman to express negative feelings he had with Kijiji in the U.S. and to say Craigslist was no longer comfortable with eBay as a partner and wished to discuss repurchasing eBay’s shares or finding another suitable home for the shares.

Whitman’s email response to Newmark stated in part that eBay took steps to firewall off operations of Kijiji from its relationship with Craigslist and that it was not willing to part with its shares and she stated that eBay would welcome the opportunity to acquire the remainder of Craigslist shares.

Apparently, Newmark and Buckmaster took that as a threat of a potential hostile takeover. This led to what eBay calls a series of self-dealing and self-interested transactions detrimental to eBay. These transactions and the resulting dilution of eBay shares below the point at which it could elect board members resulted in the lawsuit filed by eBay.