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Report: E-voting firms in hostile-takeover tussle

Hart InterCivic may move on Sequoia as early as Tuesday

By Brad Friedman
April 10, 2008 12:00 PM ET

Computerworld - A flurry of attempts by Sequoia Voting Systems Inc. to avoid a hostile takeover by electronic-voting competitor Hart InterCivic Inc. has not only failed to stave off the acquisition, according to reports, but also led to a series of legal maneuvers that a Delaware judge has described in terms such as "too outlandish to survive summary judgment."

According to court documents, Hart notified Sequoia of its intention to purchase the $2 million note held by Smartmatic Corp. on Feb. 15, giving the group of owners and shareholders of Sequoia 60 days to match the offer.

Sequoia lawyers filed multiple motions to stymie Hart's bid, but their efforts have failed to impress Vice Chancellor Stephen P. Lamb of the Court of Chancery in Delaware.

In a rather testy opinion letter (download PDF) filed last Friday, Lamb shot down every legal challenge posed by Sequoia, writing that he would "not play referee to the parties' contract negotiations" and critiquing various points in the filing as "allegations ... insufficient as a matter of law," "baseless," "completely frivolous," a "truly odd claim" and "too outlandish to survive summary judgment."

The Sequoia takeover attempt is part of the continuing fallout from the 2006 discovery that the Oakland, Calif.-based firm's previous ownership, offshore consortium Smartmatic, had ties to Venezuelan leader Hugo Chavez. After a failed sale attempt, Smartmatic was forced to give up ownership of Sequoia, which passed to SVS Holdings.

Smartastic continued to look for a buyer for a $2 million note it was holding from that transaction, and it appeared to have found one in Hart InterCivic, an Austin-based competitor and the fourth-largest e-voting company in the U.S. (Premier Election Solutions Inc. -- previously known as the Diebold Election Services division -- is the second largest, behind Omaha-based Election Systems & Software Inc.)

It's unclear at the moment how a Hart-Sequoia takeover would affect various legal proceedings currently filed against the two companies. Hart is currently the subject of a federal qui tam (fraud) complaint (download PDF) filed after a company whistle-blower took his observations on company misstatements and misrepresentations first to state and then to federal officials.

Meanwhile, Sequoia has run afoul of various states as their e-voting machines have been tried and found wanting. In a recent case, the company threatened to sue researchers and voting officials in New Jersey if they examined the state's purchased Sequoia Voting Systems AVC Advantage voting machines.

Sequoia machines are expected to play a role in next week's Pennsylvania primary after several counties in that state purchased the same machines that had problems in New Jersey's elections.

In addition, the takeover could affect several major Sequoia contracts that are pending, including a $10 million agreement with the city of San Francisco and a $100 million contract with the state of New York. The latter deal is a cooperative agreement with Toronto-based Dominion Voting Systems Corp.

More information about the Hart InterCivic-Sequoia takeover battle is available at The Brad Blog.

Additional reporting by Angela Gunn.

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