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

A shareholder, Lawrence Zucker, sued HP's directors, claiming they wasted company money by agreeing to such a large severance when they could have fired Hurd for cause and paid him nothing.

Judge Donald Parsons of the Delaware Chancery Court, however, wrote that the directors acted in good faith in approving the payment, though the amount "may appear extremely rich or altogether distasteful to some."

In his 30-page opinion issued on Thursday, Parsons said denying severance to Hurd could have hurt HP by making it more difficult to find a replacement.

In addition, Parsons said that the severance could have been considered payment for past service and he also noted that Hurd helped with the transition to a new leader and agreed to a period of confidentiality that covered his move to Oracle.

Parsons also dismissed a claim accusing HP of poor succession planning.

HP declined to comment. Attorneys for the plaintiff did not immediately reply to a request for comment.

The lawsuit was delayed by a separate legal fight over a letter sent to Hurd by Gloria Allred, a high-profile California attorney, on behalf of Fisher. Delaware's Supreme Court ruled in December that the letter should be unsealed though it contained embarrassing details about Hurd's behavior.

The case is Lawrence Zucker v Marc L. Andreessen et al, Delaware Court of Chancery, No. 6014.

(Reporting By Tom Hals in Wilmington, Del.; editing by Tim Dobbyn and M.D. Golan)

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