Scott v. Wei

Background

The court had preliminarily approved the proposed settlement on October 1, 2020. Allan Scott, identified as the derivative plaintiff, sought final approval of the settlement involving nominal defendant 6D Global Technologies and defendants Tejune Kang, Mark Szynkowski, Terry McEwen, Adam Hartung, David S. Kaufman, Anubhav Saxena, Piotr A. Chrzaszcz, and Michael Bannout. The court held a final fairness hearing on February 23, 2021.

A shareholder derivative action is brought by a shareholder on behalf of a company. Under Federal Rule of Civil Procedure 23.1, the court must approve a settlement in such an action. The court considered whether the settlement was fair, reasonable, and adequate, including both the negotiation process and the settlement’s substantive benefits for 6D and its shareholders.

Procedural Fairness

The court concluded that the settlement was procedurally fair. It found that the settlement was reached without collusion through arm’s-length negotiations by capable and experienced counsel. The court also noted the substantial assistance of Magistrate Judge Sarah Netburn in reaching the settlement and applied a presumption that the settlement was fair.

Substantive Fairness of the Settlement

The court evaluated factors concerning the benefits of settlement compared with the possible recovery at trial, the likelihood of success, the expected duration and cost of continued litigation, and shareholder objections. It found that continued litigation would require complex and expensive discovery on multiple continents, including possible testimony from witnesses in China. The case was still in an early stage and would have required the derivative plaintiff to overcome possible motions to dismiss and summary judgment before reaching trial.

The court also identified litigation risks. It noted that claims against many defendants relied on circumstantial evidence and that claims against former outside directors could be viewed as oversight claims that are difficult to prove. Establishing damages would also be difficult because of competing expert testimony. In addition, the settling defendants’ limited resources could make collecting a judgment difficult even if the derivative plaintiff prevailed. No written objections were submitted, and no objectors appeared at the fairness hearing. The court concluded that these factors supported approval.

Attorneys’ Fees and Incentive Award

The parties stipulated to an attorneys’ fee and expense award of $80,000. The court found that counsel had obtained a substantial benefit for 6D and its shareholders, including a $240,000 payment from 6D’s insurer that would allow 6D to resolve a related class action settlement without using the company’s existing resources.

The court also noted that counsel had devoted at least 887 hours to the litigation, which counsel estimated represented a $596,585 lodestar at customary rates. The resulting lodestar multiplier was 0.13. The court found the $80,000 fee and expense award reasonable. It also found a $1,500 incentive award for Scott appropriate because he had taken a leadership role and devoted time and energy to the litigation. The incentive award would be paid from the fee and expense award and would not reduce the rest of the settlement.

Disposition

Judge Alison J. Nathan concluded that the settlement was fair, reasonable, and adequate. The court granted the derivative plaintiff’s motion for final approval of the derivative settlement and stated that it would enter the proposed Final Order and Judgment. The order resolved docket entries 131, 132, 133, and 134.