Is it the duty of a CEO to make sure his company's shareholders can make a big short-term gain, even if it means the loss of the company in the long term? A Delaware court will decide that question when it hears Yahoo shareholders' case.

A class-action suit against Yahoo filed last February 21 in Delaware, originally on behalf of shareholders of retirement funds for Detroit city workers and law enforcement personnel, could pick up added class members as a result of last weekend's Yahoo and Microsoft merger talk failure. Attorneys on behalf of the shareholders are confirming today that they're pressing ahead with plans to hold Yahoo's chief executives and board of directors liable for failing to enter into a deal that would likely have maximized their share value.

"Yang's willingness to put the heart of Yahoo's search function in Google's hands to preclude a Microsoft bid representing a 70%-plus premium demonstrates that Yang was never negotiating in good faith," Lebovitch continued.

Indeed, Microsoft CEO Steve Ballmer blamed Yahoo's opening up of communication with Google for having spoiled the deal. In his letter to Yang on Saturday, Ballmer wrote that a Google partnership, "would fundamentally undermine Yahoo's own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth...Given this, it would impair Yahoo's ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies."

The class-action suit alleges Yahoo's failure to maximize value dates back several years, at least to 2004, at a time when Terry Semel headed the company and when Google systematically defeated Yahoo in their competition for search-driven ad revenue. By the time Jerry Yang succeeded Semel last year, the lawsuit alleges Yahoo's business model was already failing, and that Yang was doing little or nothing to turn the company around. In light of that characterization, the Microsoft offer is described as a "gift."

But Yang was driven not to pursue that gift -- in fact, to avoid it at all costs -- to the extent, the lawsuit alleges, that he was willing to entertain the idea (or at least leak to the press that he was considering doing so) of a business deal with News Corp., AOL, or Google just to poison his own company. The suit relies on Wall Street Journal reports for its evidence, rather than company communication, which has apparently yet to be subpoenaed. WSJ reports in late February and early March speculated that Yang and Chairman Roy Bostock may have been trying to conclude a deal with News Corp. or another suitor, prior to shareholders having a chance to vote on the deal, under a structure that, by company bylaws, would not have required shareholder oversight.

"Without the need to obtain shareholder approval or satisfy financing contingencies, the Yahoo Board will be in position to rapidly foreclose Microsoft's superior offer at the expense of Yahoo and its shareholders," the February lawsuit alleges. "The Yahoo Directors should be enjoined from doing so because, as alleged in detail herein, they have allowed their own inflated egos and self interest impair their ability to assess the true value presented by Microsoft's latest acquisition offer."

Analyzing the deal's breakup and fallout yesterday, AR Communications senior vice president Carmi Levy told BetaNews that he believes Yang's conduct during the entire affair may bear scrutiny.

"As the chief executive officer of a publicly traded company, your primary accountability is to preserve and enhance shareholder value," remarked Levy. "One can very easily question whether Yahoo's actions in recent weeks have done that, or whether they've frittered away shareholder value in the process simply for an emotional, and possibly business-illogical, reason."

Yahoo stock on the NASDAQ exchange recovered a bit of what it had lost the day before, trading up about 4% in value by 11:15 am EDT to $25 and change, after closing Monday below $25. Its stock had traded as high as $44 per share in early 2006. The company's annual shareholders' meeting is slated for July 3.