Yahoo rejected a $40 per share offer from Microsoft in January 2007 and refused to negotiate in good faith, plaintiffs said in a shareholder lawsuit unsealed on Monday.

The offer disclosure was a part suit filed in a Delaware Chancery Court by a shareholding pension fund which alleges that Yahoo chief executive Jerry Yang, co-founder David Filo, and the company's board of directors breached their fiduciary duties when negotiating with Microsoft.

Chancery judge William B. Chandler III concluded on Monday that Yahoo did not show good cause for keeping portions of the suit under seal.

Yahoo's reaction has been consistent, giving the back of the hand to Microsoft's efforts towards a consensual deal, including a January 2007 acquisition proposal offering about $40 per share, the plaintiffs allege in the suit.

In January of 2008, after more than a year of private negotiations, Microsoft launched a public bid for Yahoo, offering $31 per share, a 62 percent premium to the stock's value at the time. In the course of the next three months, Microsoft's offer rose as high as $33 per share, or a 72 percent premium.

Yahoo's shares on Monday closed down 36 cents, or 1.35 percent, to $26.40.

Yang, who was given power by the board to negotiate with Microsoft had a deep hostility toward the takeover, the plaintiffs alleged.

Yang used that power to delay, to refuse to negotiate in good faith, and to erect roadblocks, the plaintiffs allege.

Yang's ego drove him to strongly desire a future for Yahoo that could diverge from the best interests of shareholders – preserving independence from industry giant Microsoft, the suit states.

The plaintiff's state that during the negotiations, Yahoo adopted an employee severance package which created tremendous costs and risk for the acquirer. It also accused Yahoo of threatening to enter into a web search and advertising deal with Google which would make Yahoo an unattractive takeover target for Microsoft.

The board was also accused of not being independent as a result of their compensation from Yahoo, their affiliation with institutions with ties to yahoo and/or Defendant Yang, and other factors.

Among the requests for relief, plaintiffs asked that the suit be classified as class action. They also asked that the court order defendants to avoid agreements that inhibit their ability to maximize shareholder value, or defensive measures that preclude a takeover. They also seek invalidation or redemption of the employee severance plan as well as court costs.

The case is Police and Fire Retirement System of the City of Detroit v. Yahoo, CA3561, Delaware Chancery Court (Wilmington.)