Congregation Beth Aaron, Derivatively on Behalf of Yahoo! Inc. v. Jerry Yang, Ron Burkle, Robert Kotick, Gary Wilson, Maggie Wilderotter, Roy Bostock,…

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.
NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CONGREGATION BETH AARON,
DERIVATIVELY ON BEHALF OF
YAHOO! INC.,
Plaintiff/Appellant,
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
No. 09-16499
D.C. No. 08-cv-05438-RMW
MEMORANDUM*
Appeal from the United States District Court
for the Northern District of California
Ronald M. Whyte, District Judge, Presiding
FILED
OCT 21 2010
MOLLY C. DWYER, CLERK
U .S. C OU R T OF APPE ALS

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

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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

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CBA raises two state law claims, entrenchment and corporate waste. CBA1
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.
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entrenchment and federal law claims of violation of the Securities Exchange Act1
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,

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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

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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.

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