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Depu v. Yahoo! Inc.

United States District Court, District of Columbia

March 30, 2018

HE DEPU, et al., Plaintiffs,
YAHOO! INC., et al. Defendants.



         China's vast censorship of speech on the Internet has been widely reported, as has the Chinese government's detention and imprisonment of many of its citizens for expressing political views online. Plaintiffs are seven Chinese citizens who allege that they were imprisoned in China for online speech, and the wife of another Chinese citizen who was also imprisoned. They allege that as part of a settlement of a 2007 lawsuit brought by imprisoned Chinese activists against Yahoo, the defendants established a charitable trust to provide humanitarian and legal assistance to imprisoned Chinese dissidents. But then defendants allegedly mismanaged and depleted the trust funds and terminated the trust's humanitarian purpose, in violation of their duties under trust and contract law. As explained below, plaintiffs' claims that sound in trust law will be dismissed because they have not plausibly alleged that Yahoo established a charitable trust in 2007 and, even if they had, they lack standing to bring these claims. Plaintiff Ling Yu's contract claims are both insufficiently pled and were released by her when she settled an earlier lawsuit against these defendants. Hence, those claims also fail and the complaint in its entirety will be dismissed.


         This case arises from another case filed by Chinese political activists against Yahoo more than ten years ago. See Am. Compl. [ECF No. 26] ¶ 29 [hereinafter "FAC"]; Wang v. Yahoo! Inc. No. 07-cv-2151-CW (N.D. Cal. filed Apr. 18, 2007). The Wang lawsuit was brought by Wang Xiaoning and Shi Tao, two imprisoned Chinese political activists, and Wang's wife, Ling Yu, who is also a plaintiff in this case. The plaintiffs in Wang alleged that Yahoo violated federal and state laws by turning over their Yahoo e-mails to Chinese authorities who used the information to prosecute Wang and Shi for political dissent. FAC ¶¶ 28-30. Yahoo moved to dismiss the Wang lawsuit in August 2007.

         In November 2007 (while the case remained pending), Yahoo's CEO, Jerry Yang, testified before Congress concerning the company's disclosure of information to Chinese authorities. Shortly after the hearing, and facing significant pressure from certain members of Congress, Yahoo agreed to settle the Wang lawsuit. In exchange for the Wang plaintiffs' agreement to dismiss their lawsuit with prejudice, Yahoo agreed to pay $3.2 million to each plaintiffs family, and an additional $17.3 million to the Laogai Research Foundation ("LRF") to establish the Yahoo Human Rights Fund ("YHRF"). Id. ¶¶ 33, 36. Plaintiffs here allege that the YHRF is a charitable trust for which they are beneficiaries. See, e.g., id ¶ 33. The LRF is a non-profit corporation founded by Harry Wu, a former Chinese political prisoner turned political activist. Id. ¶ 24.

         Under the terms of the settlement agreement (the "Wang Settlement"), the LRF was to use the $17.3 million for three purposes: (1) "to provide humanitarian and legal assistance primarily to persons in or from . . . China who have been imprisoned for expressing their views through Yahoo! or another medium"; (2) "to resolve claims primarily by such persons, or persons threatened with prosecution or imprisonment, against the Yahoo! Entities or any Yahoo! subsidiary or affiliate"; and (3) "for payment of [LRF] operating expenses and the [LRF's] educational work conducted in the United States in support of human rights." Wang Settlement (Ex. 2 to Yahoo's Mot. to Dismiss) [ECF No. 29-5] at 113; FAC ¶ 40 n.4. The Wang Settlement further provided that there were "no express or implied third party beneficiaries" to the agreement, and that individuals who received funds from the LRF to resolve claims against Yahoo were not third-party beneficiaries. Id. at 113, 119.

         In June 2009, the Wang Settlement was amended to create the Yahoo Irrevocable Human Rights Trust 2009 ("YIHRT").[1]FAC ¶ 6 & n. 1. As part of the amendment, the LRF transferred $3.55 million to the YIHRT, while the remaining funds were transferred to the newly formed Laogai Human Rights Organization ("LHRO"). See id ¶¶ 25, 52-54; see also June 12, 2009 Amendment (Ex. 3 to Yahoo's Mot. to Dismiss) [ECF No. 29-6] at 128. The LHRO was to provide up to $1 million annually to the LRF for its operational expenses, and additional support for LRF's "humanitarian and legal assistance" to Chinese activists. See LHRO and YIHRT 2009 Documents (Ex. 1 to Yahoo's Mot. to Dismiss) [ECF No. 29-4] at 8.

         Meanwhile, Harry Wu-once a celebrated human rights activist with close ties to members of Congress-came under increased scrutiny for his alleged mismanagement of the LRF and the YHRF, and he was involved in several lawsuits. See FAC ¶¶ 37-39; see generally Andrew Jacobs, Champion of Human Rights in China Leaves a Tarnished Legacy, N. Y. Times, Aug. 13, 2016 (Ex. 13 to Yahoo's Mot. to Dismiss) [ECF No. 29-16]. One of those lawsuits was filed in 2011 by Ling Yu, who is also a plaintiff in this case. See Yu v. Wu, No. 11-cv-92 (E.D. Va. filed Jan. 28, 2011) [hereinafter "the 2011 Lawsuit"].[2] Yu sued Harry Wu, the LRF, the LHRO, and the YHRF for the alleged mismanagement, misuse, and conversion of settlement funds, including the LRF's purchase of real estate in Washington, and defendants' other alleged breaches of their fiduciary duties owed to the plaintiffs. See DAC ¶¶ 5-7, 48. Yu settled her lawsuit later in 2011. She agreed to dismiss all of her claims with prejudice, see Notice of Dismissal with Prejudice (Ex. B to LRFs Mot. to Dismiss) [ECF No. 27-3] at 1, and granted Wu, the LRF, the LHRO, and the YHRF, and their affiliates, comprehensive releases, see 2011 Lawsuit Release (Ex. 5 to Yahoo's Mot. to Dismiss) [ECF No. 29-8] at 138.

         Six years later, Yu filed this lawsuit against Yahoo and two of its executives, the Estate of Harry Wu, [3] the LRF, the LHRO, the "Yahoo Human Rights Fund Trust, " and unknown Doe defendants who are allegedly current and former employees, officers, and directors of the defendants. FAC¶¶ 19-27. Yu is joined by seven other plaintiffs-He Depu, Yang Zili, LiDawei, Wang Jinbo, Ouyang Yi, Xu Yonghai, and Xu Wangping (collectively the "Beneficiary Plaintiffs")-who allegedly are all political activists who were imprisoned in China for online dissent. LI ¶¶ 10-16. Plaintiffs contend that through the 2007 Wang Settlement Yahoo established a charitable trust with the "primary" purpose of providing humanitarian and legal assistance to Chinese dissidents imprisoned for exercising their freedom of expression online. Id. ¶¶ 1, 19, 26, 33, 36. The Beneficiary Plaintiffs allege that they are "beneficiar[ies] of the Trust's humanitarian purpose." Id. ¶¶ 10-16. They contend that defendants-all of whom are allegedly trustees-improperly depleted the trust's assets and unlawfully terminated the trust's humanitarian purpose. They bring claims for breach and modification of trust, id ¶¶ 125-131, 135-36, as well as third party and principal-agent liability claims for breach of trust, id ¶¶ 137-141. Plaintiff Yu brings claims for unjust enrichment, id ¶¶ 132-34, and for breach of the Wang Settlement, Id. ¶¶ 142-45. All of the plaintiffs bring a claim for civil conspiracy. Id. ¶¶ 146-49. Defendants have all filed motions to dismiss the FAC. See Mot, in Supp. of Defs. LRF Cal. and LRF Va.'s Mot. to Dismiss ("LRFs Mot. to Dismiss") [ECF No. 27-1]; Mem. of Law in Supp. of Def. LHRO's Mot. to Dismiss [ECF No. 28-1]; Mem. of Law in Supp. of Defs. Yahoo! Inc., Ronald Bell, & Mchael Callahan's Mot. to Dismiss ("Yahoo's Mot. to Dismiss") [ECF No. 30-1], LEGAL STANDARD

         Federal Rule of Civil Procedure 12(b)(6) requires dismissal of a complaint that "fail[s] to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). At the motion to dismiss stage, all of a plaintiff s factual allegations are taken as true. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). To survive a Rule 12(b)(6) motion to dismiss, a complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level." Id. The complaint "must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted). However, "conclusory statements, " "[t]hreadbare recitals of the elements" of a claim, and legal conclusions masquerading as facts will not suffice. Id. at 678-79.

         When considering a motion to dismiss for lack of standing under Rule 12(b)(1), the Court likewise accepts the plaintiffs allegations as true and draws all reasonable inferences in its favor. See Settles v. U.S. Parole Comm'n, 429 F.3d 1098, 1107 (D.C. Cir. 2005). However, because the Court has an "affirmative obligation to ensure that it is acting within the scope" of its authority, a '"plaintiffs factual allegations . . .will bear closer scrutiny in resolving a 12(b)(1) motion' than in resolving a 12(b)(6) motion." Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F.Supp.2d 9, 13-14 (D.D.C. 2001) (quoting 5A Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1350 (2d ed. 1987)). In deciding a motion to dismiss, the Court may consider documents attached to or incorporated in the complaint and matters subject to judicial notice. See Settles, 429 F.3d at 1107.


         I. Whether the Wang Settlement Created a Charitable Trust

         An initial issue is whether plaintiffs have plausibly alleged that Yahoo established a charitable trust through the Wang Settlement in 2007. Plaintiffs' trust claims-Counts One, Three, Four, and Five-are founded on the proposition that they are beneficiaries of the alleged charitable trust; thus, if there is no trust, these claims must be dismissed. A charitable trust, as opposed to a private trust, is "designed to accomplish objects that are beneficial to the community." Restatement (Third) of Trusts § 28 cmt. a. (2003); see George G. Bogert, George T. Bogert, & Amy Hess, The Law of Trusts and Trustees § 361 (3d ed. 2017) [hereinafter "Bogert"]. To state viable trust claims, plaintiffs must establish that there are: "[1] a trustee, who holds the trust property and is subject to equitable duties to deal with it for the benefit of another; [2] beneficiar[ies], to whom the trustee owes such duties; ... [3] trust property, which is held by the trustee for the beneficiar[ies] ... [4] [and an] intention [by the settlor] to create a trust, which may be manifested 'by written or spoken language or by conduct.'" Duggan v. Keto, 554 A.2d 1126, 1133 (D.C. 1989) (citation omitted).

         Plaintiffs contend that "these elements are easily met, " and they place great stock in the fact that payments were made "in trust" to the LRF. Pis.' Opp'n at 10 (citing FAC ¶¶ 36 & n.3, 40). But courts have recognized that there is nothing talismanic about inclusion of the term "in trust" in an agreement. See In re Ames Dep't Stores, Inc., 144 Fed.Appx. 900, 901-02 (2d Cir. 2005) ("[A]dding the words 'trust' or 'agency' to a contract does not, without more, convert [the agreement] into a trust or agency relationship."); Meima v. Broemmel, 117 P.3d 429, 444-46 (Wyo. 2005) (finding no trust established even though the parties used the words "in trust" in the relevant agreement). Plaintiffs also assert that a settlement agreement "can[] result in the creation of a trust-indeed, numerous cases involve just that scenario." Pis.' Opp'n at 11. But just because a settlement agreement can create a trust does not mean that it does. Each of the cases cited by plaintiffs for this proposition involved express language in a settlement agreement that created a trust. See Athey v. United States, 132 Fed. CI. 683, 687 (Fed. CI. 2017) (settlement required payments to be made to an administrator who would then "establish an 'Athey Class Settlement' Trust"), appeal docketed, 17-2277 (Fed. Cir. filed July 10, 2017); In re Diet Drugs Prods. Liab. Liti. No. 99-cv-20593, 2001 WL 283163, at *1 (E.D. Pa. Mar. 21, 2001) (settlement created "[trust] fund [that] must be administered by . . . seven court appointed trustees"). Here, such language is absent from the Wang Settlement.

         Defendants, in turn, provide several arguments why the Wang Settlement did not create a charitable trust. As an initial matter, the Wang Settlement is a contract and, unlike the 2009 amendment, it does not purport to be a trust document. Compare Wang Settlement with LHRO and YIFIRT 2009 Documents. Defendants also contend that plaintiffs have wholly failed to support their conclusory allegations that they are "charitable beneficiaries" of the purported trust. The term "charitable beneficiaries" is never mentioned in the Wang Settlement; indeed, the agreement expressly disclaims the creation of any third-party beneficiaries. See Wang Settlement at 119 ("This Agreement shall bind and inure to the benefit only of, and be enforceable only by, the Parties hereto and their respective successors and assigns .... There are no express or implied third party beneficiaries of this Agreement."). Defendants also assert that plaintiffs have failed to plausibly allege that Yahoo intended to establish a charitable trust. See Bogert § 323 ("The conduct of the alleged settlor of the charitable trust must show an intent to create a trust and not some similar relationship or some other effect."); Duggan, 554 A.2d at 1136 (intent must be "clearly manifested" by the settlor). Plaintiffs have acknowledged that Yahoo has never publicly or privately referred to the YHRF as a trust.[4]See Pis.' Opp'n at 2. Moreover, Yahoo's intent as stated in the settlement was its "desire ... to resolve [its] disputes, and all claims, causes of action and controversies" with plaintiffs in the Wang litigation "without further expenditure of time and expense on litigation." Wang Settlement at 111. That stated intent plainly is not ...

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