Part of Epinions Suit Tossed

Round one of the Epinions suit has come to a favorable close for Benchmark Capital, August Capital and B.V. Capital.

Last week, San Francisco Superior Court Judge Richard Kramer ruled to dismiss all claims against the firms, which were ensnared in a legal dispute with three co-founders and 45 former employees of former dot-com high-flier Epinions, who allege they were cheated out of a windfall when their company was merged with another startup called DealTime. (The combined company was renamed

Also named in the suit, filed in January, are venture capitalists and Epinions board members Bill Gurley of Benchmark, John Johnston of August, and Thomas Gieselmann of B.V. Capital, as well as a fourth Epinions co-founder and former CEO, Nirav Tolia.

The complaint states that the plaintiffs, convinced that Epinions would fail without the deal, allowed their common shares in Epinions to be valued at nothing, only to watch the VCs and Tolia (who unlike the plaintiffs, remained at the combined company), reap tens of millions of dollars when went public in October 2004.

The outcome last week isn’t surprising, says a source close to the situation.

“If the judge had extended the law to cover the funds, it would have been revolutionary,” the source says. “The law is clear that preferred stockholders don’t have a fiduciary obligation to common shareholders unless they’re a majority shareholder, which wasn’t the case here.”

Still on the hook for now are Gurley, Johnston, Gieselmann and Tolia. Though unlikely, the funds could be drawn back into the case, as well. Judge Kramer is giving plaintiffs’ attorneys 30 days to re-file their complaint against the three VC firms if they can offer greater detail about what took place at Epinions, which is widely expected to happen.

More developments will come in late September, when the two sides meet again in San Francisco Superior Court.