Stack to hear Cybersource summary judgment argument
Judge Daniel Stack
When the market for technology stocks crashed in 2000, investors coped in many ways.
One of them, Brian Wilgus, filed a class action lawsuit. Now that suit has reached a moment of decision.
Cybersource Corp., defending itself in Madison County's smallest class action, has asked Circuit Judge Daniel Stack for summary judgment, arguing that Wilgus never owned the shares he claims Cybersource wouldn't let him sell.
Even if Wilgus owned the shares, Cybersource argues, company rules against insider trading would have kept him from selling the shares when he claims he would have sold them.
Stack has set a hearing Oct. 25.
Wilgus worked as a test engineer for PaylinX, a private company that designed software for credit card transactions.
He held an option to buy 7,500 shares of stock at $7.50 a share, vesting over time.
In 2000 PaylinX agreed to merge into Cybersource, a public company that helps businesses process payment transactions over the Internet.
Cybersource stock had hit $56 in January, but it had fallen all year.
PaylinX's stock option plan provided at merger would cause all options to vest. Wilgus agreed to amend it so that half his options would vest at merger.
The new plan specified that his option for 7,500 shares would turn into an option to buy 9,000 shares of Cybersource at $6.25 a share. Half the Cybersource shares would accelerate or vest when the merger closed.
It closed Sept. 18, 2000, with Cybersource stock at $10.75.
At the stock conversion in November, it had dwindled to $1.85.
John Hoffman of KoreinTillery sued for Wilgus in 2002, proposing a class action on behalf of about 75 former PaylinX employees at Cybersource.
Hoffman claimed that a delay in converting stock prevented Wilgus and others from immediately exercising their options. He claimed they could have exercised their options at $6.25 instead of $1.85.
He also claimed Cybersource failed to establish necessary E-trade accounts.
Cybersource did not object to class certification, and Circuit Judge Phillip Kardis granted it in 2004.
Kardis retired last year and this year the case landed on Stack's bench.
Cybersource attorney Alan Goldstein of St. Louis moved Aug. 31 for summary judgment.
"It is undisputed that plaintiff never exercised his option and never became a Cybersource stock holder," Goldstein wrote.
"He knew his option would not turn into stock automatically," he wrote.
He wrote that on Sept. 6, 2000, Cybersource notified employees that their trading window would close Sept. 8 and reopen Oct. 20. He wrote that Cybersource imposed this "blackout" to prevent illegal insider trading.
He wrote that a blackout did not bar the exercise of options, just trading of shares.
He wrote that four days before the merger, all PaylinX received email explaining how to convert options and describing the blackout.
He wrote that a day after the merger and the day after that, Cybersource held a seminar for former PaylinX employees and Wilgus attended.
He wrote that on the last day of the blackout, all Cybersource employees received email that the trading window would open the next day.
"Because of the blackout, no one at Cybersource who owned company stock could sell shares, while the share price was dropping from $10.75 to less than $6.50 between Sept. 18 and Oct. 20, 2000," Goldstein wrote.
He wrote that the black out did not apply to Wilgus anyway because Wilgus never exercised his option.
"His notion that the option conferred an unfettered right to sell company stock he did not even own ignores the plain language of the option," he wrote.
"Plaintiff's option does not even mention the words E-trade account," he wrote.