He Depu v. Oath Holdings, Inc.

• Citation: 531 F.Supp.3d 219
• Decision Date: 22 March 2021
• Docket Number: Civil Action No. 17-635 (RDM)
• Parties: HE DEPU et al., Plaintiffs, v. OATH HOLDINGS, INC. et al., Defendants.
• Court: U.S. District Court — District of Columbia

531 F.Supp.3d 219

HE DEPU et al., Plaintiffs,

v.OATH HOLDINGS, INC. et al., Defendants.

Civil Action No. 17-635 (RDM)

United States District Court, District of Columbia.

Signed March 22, 2021

David Slarskey, Pro Hac Vice, Evan Fried, Pro Hac Vice, Slarskey LLC, New York, NY, Times Wang, North River Law PLLC, Washington, DC, for Plaintiffs He Depu, Li Dawei, Wang Jinbo, Ouyang Yi, Xu Yonghai, Xu Wanping.

Brandi G. Howard, McGuireWoods, Washington, DC, Brian Emory Pumphrey, Pro Hac Vice, McGuireWoods LLP, Richmond, VA, James J. Holt, McGuireWoods LLP Tysons Corner, VA, for Defendants Michael Callahan, Ronald Bell.

David I. Bledsoe, Alexandria, VA, George E. Kostel, Impresa Legal Group, Arlington, VA, for Defendants Laogai Human Rights Organization, Laogai Research Foundation-California.

Mikhael D. Charnoff, Perry Charnoff PLLC, Arlington, VA, for Defendant Estate of Harry Wu.

Brandi G. Howard, McGuireWoods, Washington, DC, for Defendant Oath Holdings, Inc.

George E. Kostel, Impresa Legal Group, Arlington, VA, for Defendant Laogai Research Foundation.

MEMORANDUM OPINION AND ORDER

RANDOLPH D. MOSS, United States District Judge

In 2007, in an earlier lawsuit brought before a different court, Chinese dissidents who had been imprisoned based on their online activity sued Yahoo. As part of a settlement agreement in that case, Yahoo paid $17.3 million to create the Yahoo Human Rights Fund, a portion of which was to be distributed to other Chinese dissidents who were imprisoned based on their online activity. This new Fund would be administered by Chinese human rights activist Harry Wu and his Laogai Research Foundation (and later the Laogai Human Rights Organization).

Plaintiffs are six Chinese dissidents who either received some money from the Fund or who applied for such funding but were denied. They allege that the Fund is a charitable trust and that they are past or potential beneficiaries of that trust. Plaintiffs further allege that they would have received more funding, except that Wu and his organizations mismanaged the fund, distributing only 4 percent of the $17.3 million to Chinese dissidents and using well over $10 million for their own purposes. They name as Defendants Oath Holdings, Inc., which is Yahoo's successor in interest, as well as former Yahoo employees Ronald Bell and Michael Callahan, who allegedly served as trustees of the Fund (collectively, the "Yahoo Defendants"); the Laogai Research Foundation ("LRF") and Laogai Human Rights Organization ("LHRO"), which were tasked with administering the Fund (collectively, the "Laogai Defendants"); and the Estate of Harry Wu, who allegedly treated the Fund money as if it were his own ("Wu Estate").

In an earlier decision, this Court (Bates, J.) dismissed the case on the grounds that the 2007 settlement agreement did not create a trust and, even if it had, that Plaintiffs did not have standing to bring a breach of trust claim. The D.C. Circuit reversed and remanded. The three sets of Defendants have each filed renewed motions to dismiss. For the reasons that follow, the Court will GRANT in part and DENY in part the pending motions.

I. BACKGROUND

A. Factual Background

For the purpose of resolving Defendants’ pending motions to dismiss, the Court assumes the truth of the allegations in the Second Amended Complaint. Banneker Ventures, LLC v. Graham , 798 F.3d 1119, 1129 (D.C. Cir. 2015). This case relates to the settlement agreement in an earlier lawsuit, which Plaintiffs allege created a trust whose charitable purpose Defendants have violated. In 2007, imprisoned Chinese dissidents Wang Xiaoning and Shi Tao, along with Wang's wife, Ling Yu, sued Yahoo. See Depu v. Yahoo! Inc. , 950 F.3d 897, 899 (D.C. Cir. 2020) (" Depu II ") (citing Wang v. Yahoo! Inc. , No. 7-cv-2151, 2007 WL 1230526 (N.D. Cal. Apr. 18, 2007) ). They alleged that the company had facilitated the prisoners’ prosecutions by turning the contents of their email accounts over to Chinese authorities, in violation of federal and state law. Id. With Harry Wu acting on behalf of the plaintiffs in that case, the parties entered a confidential settlement agreement. See Dkt. 64 at 17 (2d Am. Compl. §§ 39–40); Dkt. 66-1 (Settlement Agreement).

The settlement provided that Yahoo would pay $3.2 million to each of the plaintiffs’ families, with the money to be held in trust by the LRF.¹ Dkt. 66-1 at 3 (§ II.B). In addition, the settlement called for payment from Yahoo to the LRF of $17.3 million in four installments to establish the Yahoo Human Rights Fund ("YHRF" or "Fund"), which is the subject of the current dispute. Id. (§ II.C). The settlement provided that "all payments" to the LRF for the Fund would be "[m]ade in [t]rust." Id. (§ II.C.1). The LRF was to "maintain" the YHRF money "separately from other [LRF] funds," and the second, third, and fourth installments were contingent on Yahoo's "satisfactory review" of the disbursements from the prior quarter to ensure that they "conform with the purposes of the" Fund. Id.

Under the settlement agreement, the YHRF money "may be used for three purposes only." Id. at 4 (§ II.C.2). First, money from the Fund would go "to provide humanitarian and legal assistance primarily to persons in or from the People's Republic of China who have been imprisoned for expressing their views through Yahoo! or another medium." Id. In implementing this charitable purpose, the LRF "and its Executive Director, Harry Wu, agree[d] to use their best efforts to maximize the benefits achieved through their use of a portion of the [YHRF] for humanitarian and legal assistance." Id. (§ II.C.2.i). Second, the Fund would be used "to resolve claims primarily by [imprisoned] persons, or persons threatened with prosecution or imprisonment, against the Yahoo! Entities or any Yahoo! subsidiary or affiliate." Id. (§ II.C.2). The settlement details a procedure through which the LRF and Yahoo would work together to facilitate the resolution of such claims in the future. Id. (§ II.C.2.ii). Third, money from the Fund could be used "for payment of [LRF] operating expenses and [the LRF]’s educational work conducted in the United States in support of human rights," provided that no more than $1 million per year go to operating expenses and provided that the LRF report its operating and educational expenditures to Yahoo. Id. (§ II.C.2.iii). The agreement provided that its terms "may be amended, modified, canceled, or waived only by written instrument executed by each of the parties." Id. at 10 (§ 4.O).

After entering the settlement, Yahoo publicly promoted the Fund and its humanitarian purpose. In a November 13, 2007 press release, Yahoo explained that it was "working to create a separate human rights fund to provide humanitarian and legal support to political dissidents who have been imprisoned for expressing their views online, as well as their families." Dkt. 64 at 21 (2d Am. Compl. § 46). The release quoted Yahoo CEO Jerry Yang as saying that the company was "committed to making sure our actions match our values around the world." Id. And in a Wall Street Journal article, an unnamed "person close to Yahoo" told the paper that the creation of the fund "was not a legal calculation, but a humanitarian decision." Id. at 22 (2d Am. Compl. § 47) (internal quotation marks omitted).

After the settlement, Yahoo publicly deferred to Wu and the LRF with respect to the Fund's administration. Id. at 23 (2d Am. Compl. ¶ 52). Behind the scenes, however, Yahoo appears to have wielded (though not always exerted) significant authority over the Fund, according to documents obtained by Plaintiffs. Id. (2d Am. Compl. ¶ 53). In setting up the Fund, Yahoo and the LRF drafted guidelines to govern its operations. Id. (2d Am. Compl. ¶ 54). The guidelines required (1) that at least one Yahoo employee serve on the Fund's board of directors, (2) that the board would not have a quorum for meetings unless Yahoo's designated board member was present, and (3) that all disbursements of Fund assets required board consensus. Id. Taken together, these provisions gave Yahoo veto power over any spending of Fund assets. In addition, the guidelines required the Fund's board to notify Yahoo at least twice per year of the Fund's activities. Id.

According to Plaintiffs, Defendant Michael Callahan, who was executive vice president, general counsel, and corporate secretary for Yahoo from 1999 to 2012, was a trustee of the Fund and its humanitarian purpose until his departure from Yahoo. Id. at 12–13 (2d Am. Compl. ¶ 20). Likewise, Plaintiffs allege that Defendant Ronald Bell, who also served as Yahoo's general counsel and corporate secretary, was a trustee of the Fund and its humanitarian purpose until 2016. Id. at 13 (2d Am. Compl. ¶ 21).

The guidelines also provided parameters for disbursements in support of the Fund's humanitarian purpose. Id. at 23–24 (2d Am. Compl. ¶ 55). Applications for funding were to be evaluated based on specific criteria, including whether the applicant was from China, whether the applicant suffered violations of fundamental human rights, whether those violations resulted from the applicant's freedom of expression, and whether the case involved Yahoo's services or other electronic media. Id. The guidelines directed that the amount of assistance would be based on whether the applicant was imprisoned and the length of her sentence, as well as the applicant's family situation and legal defense needs. Id. at 24.

Yahoo later reiterated the charitable purpose of the Fund in communications with the LRF. Before wiring the final portion of the trust funds to the LRF in 2008, Yahoo vice president and deputy general counsel Michael Samway wrote to LRF employee and board member Liao Tienchi ("Liao"), emphasizing that "[a]s a general principle, we need to use the Fund for its intended purposes regarding online dissent," despite "limited exceptions," such as "supporting some of the preparatory work for the LRF Museum." Id. at 17, 22 (2d Am....