IN RE RESIDEO TECHNOLOGIES, INC. DERIVATIVE LITIGATION

Background

The plaintiffs sought final approval of a settlement with Resideo Technologies, Inc. and the individual defendants named in the order. The settlement agreement provides for dismissal with prejudice of the claims in the action and releases of claims under the agreement’s terms. In exchange, Resideo agreed to implement corporate-governance reforms intended to improve board oversight, promote accurate disclosure of information to the markets, and reduce legal and regulatory risks.

The parties negotiated after investigation, discovery, motion practice, and mediation. The court had previously granted preliminary approval, preliminarily certified the settlement class, and approved a notice plan. Two objections were received, but neither objector requested exclusion from the settlement class. The court held a settlement hearing on June 22, 2023.

Settlement Approval

Under Federal Rule of Civil Procedure 23(e), a class action settlement requires court approval. The court concluded that the settlement was fair, reasonable, and adequate. It found that the lead plaintiffs and their counsel adequately represented the class, the negotiations were conducted at arm’s length without evidence of collusion, and the settlement provided adequate relief in light of the risks, costs, delay, complexity, and expense of continued litigation.

The settlement provides that Resideo will spend $300,000 per year for five years on continuing improvements to risk-management oversight and related measures. Resideo also agreed to maintain the reforms for at least three years. The court determined that these reforms provided a meaningful benefit to Resideo and its shareholders, even though their economic value could not be calculated precisely.

The court found that the settlement treated class members equitably. The two objections concerned diversity requirements but did not comply with the settlement notice’s requirements, so the court overruled them without addressing their substance. The court nevertheless stated that board-diversity requirements were a proper component of the settlement.

Settlement Class and Notice

For settlement purposes only, the court finally certified the settlement class under Rules 23(a) and 23(b)(3). It found sufficient numerosity, common questions of law and fact, typical claims by the lead plaintiffs, adequate representation, and no conflicts between the representatives and the class. The court also found that a class action was a superior method for resolving the claims of the shareholders involved.

The court determined that the notice provided to potential class members was the best practicable under the circumstances and satisfied Rule 23 and due process. Notice packets were sent beginning February 13, 2023, and a summary notice was published in The Wall Street Journal and on PR Newswire. The notice described material settlement terms, the proposed attorneys’ fees, the objection procedure, and the settlement hearing.

Attorneys’ Fees and Service Awards

The court approved $1,600,000 in attorneys’ fees, plus accrued interest, for plaintiffs’ counsel. It found the requested amount reasonable based on the benefit conferred, the risks counsel assumed, the difficulty of the legal and factual issues, the time and skill required, the class’s reaction, and comparisons with similar cases. The court noted that counsel worked on a contingent basis, had not been paid, spent more than 2,457 hours on the litigation, and successfully opposed defendants’ motion to dismiss and negotiated the settlement.

The court also approved service awards of $2,500 each for Riviera Beach Police Pension Fund, City of Hialeah Employees Retirement System, Jawad A. Ayaz, Daniel Sanclemente, Harry Frashier on behalf of Bud & Sue Frashier Family Trust, and Alice Burstein. The court found that these named plaintiffs actively participated in the litigation and settlement and that the awards were reasonable.

Order

The court vacated its October 25, 2023 order and October 26, 2023 judgment and directed the clerk to enter an amended order and amended judgment. It granted plaintiffs’ motion for final approval of the class-action settlement; finally approved the settlement agreement and plan of allocation; finally certified the settlement class for settlement purposes; and confirmed the adequacy of the notice.

Class members who timely requested exclusion were excluded from the settlement. Class members who did not timely request exclusion were bound by the settlement agreement. The consolidated action was dismissed with prejudice, with the parties to bear their own fees, costs, and expenses except for the approved attorneys’ fees and service awards. The court retained jurisdiction over disputes concerning the interpretation, administration, implementation, effectuation, and enforcement of the settlement.