Court Says Investors Can Seek Idealab’s Dissolution

Idealab Inc. investors can refile a claim seeking to dissolve the Internet incubator that created defunct retailer EToys Inc. and other companies, a California appeals court said Monday.

The California Court of Appeal in Los Angeles issued its opinion at the request of the trial judge, who wanted a question of law clarified. The judge last year dismissed most of the investors’ claims that Pasadena-based Idealab’s directors used funds for their personal gain.

The investors, including the investment arm of Dell Inc. and a T. Rowe Price Associates Inc. fund, paid $725 million for 7.25 million shares of preferred stock in Idealab. They argued that gives them the minimum one-third ownership stake required by California law to seek a company’s dissolution. Idealab, using another method of calculation, said the investors own about 10% of the company.

“We conclude that a proper interpretation” of California law gives the investors “the right to file a petition for the dissolution of Idealab, if their Series D preferred shares represent 33.3% of the equity of Idealab,” wrote Judge Madeline Flier in a decision for the three-judge panel.

“We’re obviously pleased that the court has upheld the involuntary dissolution claim and our standing to assert it,” said Skip Miller, a lawyer for the investors.

Teresa Bridwell, an Idealab spokeswoman, didn’t immediately return calls for comment.

In addition to EToys, Idealab created Internet-commerce companies including Overture Services Inc., EMachines Inc. and NetZero Inc., now part of United Online Inc.

The closely held company now develops wireless networks, solar cells and other new technologies.