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JORDAN ETH (BAR NO. 121617)
JEth@mofo.com
ANNA ERICKSON WHITE (BAR NO. 161385)
AWhite@mofo.com
SAMUEL S. SONG (BAR NO. 245007)
SSong@mofo.com
MORRISON & FOERSTER LLP
425 Market Street
San Francisco, California 94105-2482
Telephone: 415.268.7000
Facsimile: 415.268.7522
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Attorneys for Nominal Defendant Yahoo! Inc.
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
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COUNTY OF SANTA CLARA
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MIGUEL A. LEYTE-VIDAL on Behalf of
Himself and All Others Similarly Situated and
Derivatively on Behalf of YAHOO! INC.,
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Plaintiff,
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v.
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TERRY S. SEMEL, SUSAN L. DECKER,
ARTHUR H. KERN, JERRY YANG, DAVID
FILO, ERIC HIPPEAU, EDWARD R. KOZEL,
ROBERT A. KOTICK, ROY J. BOSTOCK,
GARY L. WILSON, RONALD W. BURKLE,
VYOMESH JOSHI, DANIEL L.
ROSENSWEIG, FARZAD NAZEM, and
MAGGIE WILDEROTTER,
Case No.
1-09-CV-147707
DERIVATIVE ACTION
[PROPOSED] ORDER RE:
YAHOO!’S DEMURRER TO
THIRD AMENDED
SHAREHOLDER DERIVATIVE
COMPLAINT
Date:
Time:
Judge:
Dept:
September 9, 2011
9:00 a.m.
Hon. James P. Kleinberg
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Action Filed:
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July 17, 2009
Defendants,
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and
YAHOO! INC., a Delaware corporation,
Nominal Defendant.
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[PROPOSED] ORDER RE: YAHOO!’S DEMURRER TO THIRD AMENDED COMPLAINT
sf-3028057
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Nominal Defendant Yahoo! Inc. (“Yahoo!”) demurs to the Third Amended Shareholder
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Derivative Complaint (“TAC”) filed by plaintiff Miguel Leyte-Vidal (“Plaintiff”) on the ground of
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failure to state sufficient facts demonstrating that a demand on Yahoo!’s Board of Directors to bring
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this derivative action would have been futile. The matter having been submitted, the court orders as
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follows:
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Yahoo!’s request for judicial notice of: (1) Reporter’s Transcript of Proceedings, July 8,
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2011, hearing in this action on Yahoo!’s demurrer to Plaintiff’s Second Amended Shareholder
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Derivative Complaint (“SAC”) (Exh. 1 to RJN); (2) Redline comparison of the SAC with the TAC,
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using an electronic document-comparison program (Exh. 2 to RJN); (3) Excerpts of Yahoo!’s proxy
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statement, on Form DEF 14A, filed with the Securities and Exchange Commission (“SEC”) on April
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29, 2011 (Exh. 3 to RJN); (4) Excerpts of Yahoo!’s Current Report, on Form 8-K, filed with the SEC
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on June 18, 2007 (Exh. 4 to RJN); (5) Excerpts of Carl C. Icahn’s additional proxy soliciting
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materials, on Form DFAN 14A, filed with the SEC on May 15, 2008 (Exh. 5 to RJN); and
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(6) Yahoo!’s Amended and Restated Certificate of Incorporation filed May 25, 2000, and certified by
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the Secretary of State of Delaware on July 13, 2009 is GRANTED. (See Evid. Code, § 452, subds.
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(d), (h); Miller v. Superior Court (2002) 101 Cal.App.4th 728, 734 fn.2 [judicial notice of reporter’s
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transcript]; StorMedia, Inc. v. Superior Court (1999) 20 Cal.4th 449, 456-457 [judicial notice of
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proxy statement and registration statement filed with SEC].)
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Yahoo!’s demurrer to the TAC is SUSTAINED without leave to amend. The TAC fails to
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properly establish Plaintiff’s derivative standing through sufficient allegations of demand futility.
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“The controlling legal standard for determining the sufficiency of a complaint to withstand dismissal
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based on a claim of demand futility under Court of Chancery Rule 23.1 is well-established. . . . The
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[Rales v. Blasband (Del. 1993) 634 A.2d 927] test applies where the subject of a derivative suit is not
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a business decision of the Board but rather a violation of the Board’s oversight duties. The Rales test
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requires that the plaintiff allege particularized facts establishing a reason to doubt that the board of
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directors could have properly exercised its independent and disinterested business judgment in
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responding to a demand.” (Wood v. Baum (Del. 2008) 953 A.2d 136, 140 [internal citations,
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footnotes, and quotation marks omitted].) “[T]he mere threat of personal liability . . . is insufficient
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[PROPOSED] ORDER RE: YAHOO!’S DEMURRER TO THIRD AMENDED COMPLAINT
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to challenge either the independence or disinterestedness of directors”; a reasonable doubt that a
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majority of directors is incapable of considering a demand is only found where there is “a substantial
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likelihood” of personal liability. (See Rales, 634 A.2d at p. 936; Aronson v. Lewis (Del. 1984) 473
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A.2d 805, 815.)
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According to the TAC, there were twelve directors on the Yahoo! Board at the time this
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action was filed: (1) Carl Icahn, (2) Frank Biondi, Jr., (3) John Chapple, (4) Carol Bartz, and
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defendants (5) Jerry Yang, (6) Roy Bostock, (7) Ronald Burkle, (8) Eric Hippeau, (9) Vyomesh
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Joshi, (10) Arthur Kern, (11) Maggie Wilderotter, and (12) Gary Wilson.1 Where there is an even
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number of directors, a derivative plaintiff must show that at least half the board was incapable of
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considering a demand. (See Beam v. Stewart (Del. 2004) 845 A.2d 1040, 1046 n.8.)
Plaintiff’s allegations that a majority of Yahoo!’s directors are interested are not pled with
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sufficient particularity. (See Wood v. Baum (Del. 2008) 953 A.2d 136, 140.) Specifically, the TAC
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fails to allege particularized facts creating a reasonable doubt that a majority of Yahoo!’s Board faces
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a substantial likelihood of personal liability or is otherwise interested in the subject of the present
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demand. (See Wood, supra, 953 A.2d at p. 140 and Bader v. Anderson (2009) 179 Cal.App.4th 775,
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792 [citing Rales, supra, 634 A.2d at p. 933].)
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Because the court finds that Plaintiff has failed to plead particularized facts showing that any
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director is interested, it need not consider the independence of the directors. (See Brehm v. Eisner
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(Del. 2000) 746 A.2d 244, 258 and In re Dow Chem. Co. Derivative Litig. (Del. Ch. Jan. 11, 2010)
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2010 Del. Ch. LEXIS 2, at *25-26 & n.36.) Even if Plaintiff has sufficiently pled director interest,
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the court finds that Plaintiff’s allegations that Yahoo!’s directors are beholden to director Jerry Yang,
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or otherwise lack independence, are likewise not pled with sufficient particularity. (See Bader,
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supra, 179 Cal.App.4th at p. 792 [citing Aronson v. Lewis (Del. 1984) 473 A.2d 805, 815 and Beam
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v. Stewart (Del. 2004) 845 A.2d 1040, 1052].)
Regarding Yahoo!’s litigation conduct, Plaintiff’s reliance on Patrick v. Alacer Corp. (2008)
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167 Cal.App.4th 995 is misplaced because Patrick did not involve the issue of pleading demand
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See TAC ¶ 218.
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[PROPOSED] ORDER RE: YAHOO!’S DEMURRER TO THIRD AMENDED COMPLAINT
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futility, and it is not based on Delaware law which governs. Furthermore, Patrick acknowledged that
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a corporation can oppose an action on the ground of lack of standing. (See Patrick, supra, 167
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Cal.App.4th at p. 1006.)
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Finally, Plaintiff argues that the “insured versus insured exclusion” in Yahoo!’s directors and
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officers liability insurance policy creates a reasonable doubt that Bostock, Burkle, Hippeau, Joshi,
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Kern, Wilderotter, Wilson, and Yang would allow a derivative claim because such a claim would not
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be covered under Yahoo!’s policy. In light of the TAC’s other deficiencies with regard to
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particularized pleading, the argument based on the alleged insurance exclusion is insufficient to plead
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demand futility. Decker v. Clausen (Del. Ch. Nov. 6, 1989) 1989 Del. Ch. LEXIS 143 at *8.
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For these reasons, the court finds that Plaintiff fails to plead particularized facts establishing a
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reasonable doubt that a majority of Yahoo!’s Board of Directors was capable of considering a
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demand at the time the instant action was filed.
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The court finds that, despite having had more than four years and at least four opportunities to
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adequately plead demand futility, Plaintiff has failed to establish his standing through sufficient
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allegations of demand futility and has failed to demonstrate a “reasonable possibility” that the defects
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in his complaint can be cured by amendment. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [leave
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to amend should not be granted where there is not a “reasonable possibility that the defect can be
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cured by amendment”].)
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FOR GOOD CAUSE SHOWN,
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1) Yahoo!’s Request for Judicial Notice of Exhibits 1 through 6 to the Request for Judicial
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Notice, filed August 5, 2011, is GRANTED.
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2) Yahoo!’s demurrer to the TAC is SUSTAINED without leave to amend.
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IT IS SO ORDERED.
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Dated: ________________________
The Honorable James P. Kleinberg
Judge of the Superior Court
Count of Santa Clara
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[PROPOSED] ORDER RE: YAHOO!’S DEMURRER TO THIRD AMENDED COMPLAINT
sf-3028057