IN RE RESIDEO TECHNOLOGIES, INC. DERIVATIVE LITIGATION

Background

The plaintiffs sought final approval of a settlement in a shareholder derivative action against Resideo Technologies, Inc.; Michael G. Nefkens; Joseph D. Ragan, III; Niccolo de Masi; Paul Deninger; Roger Fradin; Jack Lazar; Nina Richardson; Andrew Teichl; and Sharon Weinbar. A shareholder derivative action is a lawsuit brought by shareholders to assert claims on behalf of a company.

Under the settlement agreement, the claims would be released and the action would be completely dismissed with prejudice. In exchange, Resideo agreed to implement corporate-governance reforms intended to improve board oversight, ensure accurate market disclosures, and reduce legal and regulatory risks. The company agreed to spend $300,000 per year for five years on continuing oversight improvements and to maintain the reforms for at least three years.

The court had previously granted preliminary approval and approved a notice plan. Two investors objected to the settlement’s diversity requirements. The court held a settlement hearing on June 22, 2023.

Final Approval of the Settlement

Federal Rule of Civil Procedure 23.1 requires court approval before a derivative action may be settled, voluntarily dismissed, or compromised. The court applied the Eighth Circuit’s factors for deciding whether a settlement is fair, reasonable, and adequate: the strength of the plaintiffs’ claims compared with the settlement’s terms; the defendants’ financial condition; the complexity and expense of continued litigation; the amount of opposition; and the adequacy of representation.

The court concluded that each factor favored approval. It found that continued litigation involved risks, expense, delay, and possible defenses, while the governance reforms provided a meaningful benefit. Although the defendants could pay more, that fact did not make the settlement inadequate. Only two investors objected, and the court overruled the objections because they did not provide required evidence of when their shares were acquired. The court also found that the lead plaintiffs and their counsel had adequately represented the company’s stockholders, and that the settlement resulted from arm’s-length negotiations without evidence of collusion.

The court therefore found the settlement fair, reasonable, and adequate. It confirmed that the notice was the best practicable notice under the circumstances and satisfied Rule 23.1 and due-process requirements. Company stockholders were bound by the settlement terms.

Fees and Service Awards

The plaintiffs requested $1,600,000 in attorneys’ fees and $15,000 in total service awards. The court found the requested attorneys’ fees reasonable based on the benefit provided by the reforms, the risks faced by counsel, the difficulty of the legal and factual issues, the more than 2,457 hours worked, the lack of objections to the fee request, and awards in similar cases.

The court 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 the awards reasonable because the lead plaintiffs actively participated in the litigation and settlement.

Order

The court vacated the October 25, 2023 order, the October 26, 2023 judgment, the November 7, 2023 amended order, and the November 7, 2023 amended judgment. It granted the plaintiffs’ motion for final approval of the settlement, awarded $1,600,000 plus accrued interest in attorneys’ fees, approved the service awards, and dismissed the consolidated action with prejudice. The parties were to bear their own fees, costs, and expenses except for the approved attorneys’ fees and service awards. The court retained jurisdiction to resolve disputes concerning the settlement’s interpretation, administration, implementation, effect, and enforcement.