Users argued the breach cost them money by requiring the purchase of identity-theft prevention services and that Yahoo should have disclosed the breach sooner.
Yahoo, and its parent company Verizon, will now have no choice but to face the U.S. lawsuits against it over the company's multiple data breaches.
California judge Lucy Koh rejected a bid by Verizon, which bought the internet giant past year, to dismiss a large portion of the claims, including breach of contract, deceit and concealment, and negligence.
"The sole argument raised in defendants' motion to dismiss is unpersuasive", Koh wrote in the 43-page order issued late Friday.
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Yahoo, which sold its internet business to Verizon Communications Inc., filed a bid in the court seeking dismissal of all the petitions filed by the shareholders demanding compensation for losses caused by share price decline.
The lawsuit accuses Yahoo of failing to disclose to its users a series of three major data breaches that hit the company between 2013 and 2016.
A message from Newsweek asking Verizon for comment on the ruling did not receive an immediate reply.
Koh said the amended complaint highlighted the importance of security in the plaintiffs' decision to use Yahoo. While Yahoo initially revealed a 1 billion account attack, it later tripled that estimate.
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Judge Lucy Koh agreed that the plaintiffs' allegations are sufficient to show that they would have behaved differently had Yahoo disclosed the security weaknesses of the Yahoo Mail System.
In seeking a dismissal, Yahoo said it has always been the target of "relentless criminal attacks", and the plaintiffs' "20/20 hindsight" did not cast doubt on its "unending" efforts to thwart "constantly evolving security threats".
US prosecutors have charged four individuals - two Russian intelligence agents and two hackers - in connection with the data breach.
One accused hacker, Karim Baratov, a Canadian born in Kazakhstan, pleaded guilty in November to aggravated identity theft and conspiracy charges.
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