March 28 (Bloomberg) -- Liberty Media Corp.'s billionaire Chairman John Malone can't oust IAC/InterActiveCorp Chairman Barry Diller and six directors, a judge ruled, thwarting Malone's effort to gain control of the Internet company.

Liberty had argued Diller should be removed because his proposal to split IAC into five parts violated a proxy agreement giving him control of Liberty's majority voting power in IAC. In a ruling issued today in Wilmington, Delaware Chancery Court Judge Stephen Lamb found the plan didn't violate the accord.

Lamb's decision came after a contentious five-day trial to settle a dispute over the control of IAC. Diller, 66, is dueling with Malone, 67, over the spinoff plan, which would halve Liberty's voting power in four new companies. Lamb's ruling paves the way for Diller to move ahead with the proposal, which requires the approval of IAC's board.

``This alleviates a paralyzing uncertainty,'' said Standard & Poor's Scott Kessler, who recommends IAC shares but doesn't own them. ``It lets people look at the true value of the company and lets them be more optimistic.''

Liberty, based in Englewood, Colorado, could still block the spinoff plan if Lamb decides Diller and the IAC directors violated their fiduciary duties to shareholders by pursuing the idea, a matter he will rule on later. He said the matter was not yet legally ripe because there had been no board action.

The consolidated case is: In re IAC/InterActiveCorp, CA3486, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Sophia Pearson in Wilmington, Delaware Spearson3@bloomberg.net

Last Updated: March 28, 2008 17:27 EDT