An Old Lawsuit Won't Go Away as Barnes & Noble Readies New Nook E-Reader

This coming Tuesday, Barnes & Noble (BKS) will host an event at its flagship store in New York City's Union Square. The bookseller isn't saying officially what will be announced, but it's widelybelieved to be a new, color edition of the Nook e-reader, appropriately named Nook Color, that will operate off an Android (GOOG)-based system.

As the company moves forward with new digital products, however, it also faces blowback from the past, thanks to a series of lawsuits that won't go away -- and which have the potential to complicate chairman Leonard Riggio's plans to stay with B&N if the company is sold to the highest bidder.

Judge Says B&N College Buyout Deal Has a "Fishy Smell"

At issue is the company's August 2009 buyout of B&N College for $596 million (or, as it turned out, $460 million in net cash on hand), a separate entity from the chain bookstores and online division. While B&N went public in 1994, B&N College and its 624 stores remained a private company owned by Riggio. And even though the book retailer established a "special committee" to make sure the requisite letters were dotted and crossed before the buyout, a number of shareholders were upset at what they viewed to be a preferential transaction, and sued the company on the grounds that B&N paid "well beyond" a fair price for B&N College, and that some board members were conflicted by long-term friendships with Riggio.

One of those lawsuits, by the Louisiana Municipal Police Employees Retirement System, will definitely go ahead. Bloomberg News reported that Delaware Chancery Court judge Leo Strine -- the same judge who ruled that No. 2 shareholder Ron Burkle had no legal grounds to complain about the "poison pill" measure that kept him from acquiring more than 20% of B&N shares -- denied a motion to dismiss, saying the College deal "gives off a very fishy smell."

Strine's ruling opens up the possibility for more proceedings and even a trial, which, if it goes ahead, would set a precedent for four other similar suits pending in Delaware Court from retirement funds in the Virgin Islands and Ann Arbor, Michigan; the Southeast Pennsylvania Transport Authority (SEPTA); and Louise Schuman (none of these parties have responded to periodic requests for comment).

Burkle Lost One Battle, but He's Not Going Away

It also cracks the door open on assessing Riggio's motives with respect to the company he acquired in 1971 and shaped into the multi-billion dollar bookstore chain it is today. The proxy fight with Burkle may have gone his way, but Burkle hasn't disappeared from the shareholder rolls, and there is still a strong entity ready to scrutinize Riggio's moves from here on in -- a situation he's well aware of, based on his most recent regulatory filing with the SEC. In that letter, Riggio pledged he wouldn't plan or form a group to buy B&N outright or with an unspecified group of investors "without the consent of the special committee" overseeing the exploration of strategic options.

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"I am absolutely committed to see this process through, and I want only to see a good outcome for our stockholders and for the Company," Riggio explained in the letter. "To that end, I will fully support a process that maximizes the value of the Company to its stockholders, including ensuring that if the Company is sold, it is sold to the highest bidder able to consummate a transaction in a timely manner."

The first phase of B&N's buyer search is expected to wrap up by the end of the month, with up to 20 interested parties -- including Riggio. The special committee drafted to evaluate those potential bids is made up of four so-called "independent" directors: George Campbell Jr., William Dillard, II, Margaret Monaco and Patricia Higgins. All, with the exception of Campbell, served on the same "special committee" that enabled Riggio to sell his College division to the company.

That committee coziness, and old lawsuits back in the news, could remind shareholders that their best interests may not align with that of B&N's board of directors -- especially if they choose an option that keeps their chairman in the fold and takes the company private.