Court Opinion

ID: 177689
Source: CourtListenerOpinion
Date Created: 2010-10-22 00:02:10+00
Date Added: 2024-06-11T17:25:42.660088
License: Public Domain

FILED
                              NOT FOR PUBLICATION                           OCT 21 2010

                                                                       MOLLY C. DWYER, CLERK
                       UNITED STATES COURT OF APPEALS                    U .S. C O U R T OF APPE ALS

                              FOR THE NINTH CIRCUIT

 CONGREGATION BETH AARON,                              No. 09-16499
 DERIVATIVELY ON BEHALF OF
 YAHOO! INC.,                                          D.C. No. 08-cv-05438-RMW

           Plaintiff/Appellant,
                                                       MEMORANDUM *
  v.

 JERRY YANG, RON BURKLE, ROBERT
 KOTICK, GARY WILSON, MAGGIE
 WILDEROTTER, ROY BOSTOCK, ERIC
 HIPPEAU, ARTHUR R. KERN, EDWARD
 KOZEL, AND VYOMESH JOSHI,

           Defendants/Appellees

                     and

 YAHOO! INC.,

           Nominal Defendant/Appellee

                    Appeal from the United States District Court
                      for the Northern District of California
                    Ronald M. Whyte, District Judge, Presiding

       *
         This disposition is not appropriate for publication and may not be cited to or
by the courts of this circuit except as provided by Ninth Circuit Rule 36-3.
                        Argued and Submitted October 7, 2010
                              San Francisco, California

Before:      RYMER and N. R. SMITH, Circuit Judges, and LEIGHTON,**
             District Judge.

       Plaintiff Congregation Beth Aaron (“CBA”) appeals the District Court’s

dismissal with prejudice of its derivative state and federal claims. Aaron v. Yang,

No. 08-cv-05438-RMW, 2009 WL 1689707 (N.D.Cal. June 15, 2009). CBA also

appeals the District Court’s denial of leave to amend its complaint. We have

jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

       Dismissals under Federal Rule of Civil Procedure 12(b)(6) are reviewed de

novo. McNamara-Blad v. Ass’n of Prof’l Flight Attendants, 275 F.3d 1165, 1169

(9th Cir. 2002). A complaint must include “sufficient factual matter, accepted as

true, to ‘state a claim for relief that is plausible on its face.’” Ashcroft v. Iqbal, 129

S.Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombley, 550 U.S. 544,

570 (2007)). A district court’s decision whether to grant leave to amend a

complaint is reviewed for abuse of discretion. Bowles v. Reade, 198 F.3d 752, 757

(9th Cir. 1999).

       In February 2008, Microsoft made an open bid for all outstanding shares of

       **
         The Honorable Ronald B. Leighton, United States District Judge for the Western
District of Washington, sitting by designation.

                                            2
Yahoo! Inc. The Yahoo! Board of Directors, comprised of the named defendant-

appellees (“Director-Defendants”), rejected the offer and allegedly acted to thwart

Microsoft’s acquisition. These actions included adoption of two Change in

Control Employee Severance Plans (“Severance Plans”). Multiple stockholder

derivative lawsuits followed, including an action by plaintiff Congregation Beth

Aaron (CBA) in District Court and a consolidated action by plaintiffs in the

Delaware Court of Chancery. In March 2009, the Court of Chancery approved a

Settlement Agreement that included a release of all claims related to the Director-

Defendants’ conduct opposing Microsoft’s bid, with exceptions not relevant here.

      The District Court held that CBA’s claims against the Director-Defendants

were barred by the Settlement Agreement and thus also barred under the Full Faith

and Credit Act, 28 U.S.C. § 1738. The Full Faith and Credit Act requires federal

courts to give state court judgments “the same preclusive effect as would be given

that judgment under the law of the State in which the judgment was rendered.”

Migra v. Warren City Sch. Dist. Bd. Of Educ., 465 U.S. 75, 81 (1984). The District

Court therefore dismissed CBA’s claims under Federal Rule of Civil Procedure

12(b)(6) with prejudice. On appeal, CBA asserts that its state law claim of

                                          3
entrenchment1 and federal law claims of violation of the Securities Exchange Act

of 1934 fall outside the scope of the Settlement Agreement.

      CBA first argues that the Director-Defendants’ act of entering into the

Settlement Agreement constituted an unlawful act of entrenchment, violating their

“fiduciary duty to act in the best interests of the corporation’s stockholders.”

Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985). CBA

asserts that this claim is not rooted in the Director-Defendants’ conduct regarding

the Microsoft bid, which is expressly encompassed by the Settlement Agreement.

Paradoxically, CBA also asserts that the act of entering into the Settlement

Agreement constitutes entrenchment because it protects the Director-Defendants

from having to answer for their improper conduct regarding the Microsoft bid.

This second assertion undermines the first; at its core, CBA’s argument is that the

Director-Defendants act of entering into the Settlement Agreement constitutes

entrenchment because their alleged attempts to thwart Microsoft violated their

fiduciary duties under Unocal. Because the Settlement Agreement released the

Director-Defendants’ from all claims arising from the Microsoft-related conduct,

      1
       CBA raises two state law claims, entrenchment and corporate waste. CBA
only makes an argument regarding entrenchment and does not dispute the District
Court’s characterization of the waste claim as derivative of the entrenchment
claim. Thus, the waste claim fails if the entrenchment claim fails.

                                           4
that conduct cannot serve as a foundation for an entrenchment claim. Nor can the

act of entering into an agreement, without more, support an entrenchment claim,

for that fact alone does not show that a Board is acting to entrench itself. Because

CBA fails to assert facts sufficient to support a valid claim, the District Court

properly dismissed CBA’s state law claims.

      CBA next argues that the Director-Defendants made false and misleading

statements in a Proxy Statement issued in June 2009, before the Settlement

Agreement but after Microsoft made its bid. In the Proxy Statement, the Director-

Defendants endorsed the Severance Plans and opposed a stockholder’s Pay for

Performance Proposal that would have tied executive compensation more closely

to company performance. The Proxy Statement asserted that the Board was

making its recommendations under advisement of independent compensation

consultants. CBA claims the Director-Defendants violated the Securities Exchange

Act by misleading investors into falsely believing the independent consultants

supported both of the Board’s recommendations. Claims of Securities Exchange

Act violations related to the Severance Plans are clearly encompassed by the

Settlement Agreement. However, CBA argues the recommendations regarding the

Severance Plans and the Pay for Performance Proposal, though similar in nature,

are factually independent and the Pay for Performance recommendation has

                                           5
nothing to do with conduct covered by the Settlement Agreement.

      The District Court found that both recommendations are rooted in the Proxy

Statement itself, which is encompassed by the Settlement Agreement. We agree.

Because the Pay for Performance recommendation was part of the Proxy Statement

and the Proxy Statement is encompassed by the Settlement Agreement, all claims

arising out of the Proxy Statement are barred by the Settlement Agreement.

      Finally, the District Court denied CBA leave to amend its complaint because

the court viewed any attempt to cure the complaint’s deficiencies to be futile. CBA

highlights this court’s strong policy favoring amendments of pleadings, Bowles,

198 F.3d at 757, but does not identify any plausible facts which could be alleged to

save its claims. Because it is not clear what facts could be alleged to cure CBA’s

complaint deficiencies and CBA suggests none, the District Court did not abuse its

discretion in denying leave to amend.

      AFFIRMED.

                                          6