U.S. District Judge Edward Davila of San Jose, California, said the plaintiffs failed to show that the board's approval of Hurd's separation agreement was not in the company's best interest.

The shareholders, including lead plaintiff Louis Levine, had alleged that the cash and benefits paid to Hurd as part of the agreement were excessive and that the company received no benefit from approving the agreement, the opinion said.

Hurd, now a president of rival Oracle Corp, resigned in August 2010 following allegations of sexual harassment by independent HP contractor Jodie Fisher. An internal HP investigation had cleared Hurd of harassment but found he had filed inaccurate expense reports.

HP had no comment on the case. An attorney for the plaintiffs was unavailable for comment.

The judge gave the plaintiffs 30 days to file an amended complaint. The lawsuit was originally filed in August 2010.

In June, a Delaware state court judge dismissed a similar suit brought against HP's directors.

The case is In re HP Derivative Litigation, U.S. District Court for the Northern District of California, No. 10-03608.

(Reporting By Erin Geiger Smith; Editing by Edmund Klamann)

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