California Court of Appeal Dismisses Derivative Suit Against Yahoo Directors

The Court of Appeal for California's Sixth District upheld the dismissal of a purported shareholder derivative suit against the directors of Yahoo (  The shareholder plaintiff asserted that five of Yahoo's twelve directors had engaged in insider trading in violation of the California Corporations Code.  The Court first correctly applied Delaware law in decided whether a pre-suit demand by the shareholder plaintiff was excused.  The Court assumed for the sake of the appeal that the five directors who allegedly committed insider trading were not independent for purposes of whether demand was excused.  However, the shareholder could not plead specific facts sufficient to taint the independence of the remaining seven directors.  As is common in these cases, plaintiff asserted a hodgepodge of allegations against the other seven directors including that some also engaged in some insider trading, were beholden to their comrades, and failed to fix the problems at Yahoo or otherwise prevent the insider trading.  The case provides an excellent explanation and summary of Delaware law on demand futility and properly applied that law to dismiss the claims asserted.