716 Fed.Appx. 603 (9th Cir. 2017), 15-16688, In re Hewlett-Packard Company Shareholder Derivative Litigation

Docket Nº:15-16688, 15-16690
Citation:716 Fed.Appx. 603
Party Name:IN RE: HEWLETT-PACKARD COMPANY SHAREHOLDER DERIVATIVE LITIGATION, v. Hewlett-Packard Company; et al., Defendants-Appellees, Stanley Morrical, Plaintiff-Appellee, A. J. Copeland, Objector-Appellant, Vincent Ho, Intervenor-Defendant-Appellee. In re: Hewlett-Packard Company Shareholder Derivative Litigation, Stanley Morrical, Plaintiff-Appellee, ...
Attorney:Aron Kang-Hawa Liang, Esquire, Attorney, Mark Cotton Molumphy, Esquire, Attorney, Cotchett, Pitre & McCarthy, LLP, Burlingame, CA, for Plaintiff-Appellee Scott R. Shepherd, Attorney, Shepherd Finkelman Miller & Shah, LLC, Media, PA, for Objector-Appellant George Thomas Conway, III, Esquire, Marc ...
Judge Panel:Before: McKEOWN and MURGUIA, Circuit Judges, and RUFE, District Judge.
Case Date:November 28, 2017
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 603

716 Fed.Appx. 603 (9th Cir. 2017)

IN RE: HEWLETT-PACKARD COMPANY SHAREHOLDER DERIVATIVE LITIGATION,

Stanley Morrical, Plaintiff-Appellee,

A. J. Copeland, Objector-Appellant,

v.

Hewlett-Packard Company; et al., Defendants-Appellees,

Vincent Ho, Intervenor-Defendant-Appellee.

In re: Hewlett-Packard Company Shareholder Derivative Litigation,

Stanley Morrical, Plaintiff-Appellee,

Harriet Steinberg, Objector-Appellant,

v.

Hewlett-Packard Company; et al., Defendants-Appellees,

Vincent Ho, Intervenor-Defendant-Appellee.

Nos. 15-16688, 15-16690

United States Court of Appeals, Ninth Circuit

November 28, 2017

Argued and Submitted May 15, 2017 San Francisco, California

Editorial Note:

Governing the citation to unpublished opinions please refer to federal rules of appellate procedure rule 32.1. See also U.S.Ct. of App. 9th Cir. Rule 36-3.

Page 604

Appeal from the United States District Court for the Northern District of California, Charles R. Breyer, District Judge, Presiding, D.C. No. 3:12-cv-06003-CRB

Aron Kang-Hawa Liang, Esquire, Attorney, Mark Cotton Molumphy, Esquire, Attorney, Cotchett, Pitre & McCarthy, LLP, Burlingame, CA, for Plaintiff-Appellee

Scott R. Shepherd, Attorney, Shepherd Finkelman Miller & Shah, LLC, Media, PA, for Objector-Appellant

George Thomas Conway, III, Esquire, Marc Wolinsky, Wachtell, Lipton, Rosen & Katz, New York, NY, Neil A. Goteiner, Thomas B. Mayhew, Esquire, Attorney, Christopher Campbell Wheeler, Esquire, Attorney, Farella Braun & Martel LLP, San Francisco, CA, for Defendant-Appellee Hewlett-Packard Company

Bruce A. Ericson, Esquire, Pillsbury Winthrop Shaw Pittman LLP, San Francisco, CA, Colby A. Smith, Debevoise & Plimpton LLP, Washington, DC, for Defendant-Appellee Leo Apotheker

John Charles Dwyer, Esquire, Attorney, Jeffrey M. Kaban, Esquire, Stephen C. Neal, Cooley LLP, Palo Alto, CA, for Defendant-Appellee Margaret C. Whitman

Allen J. Ruby, Esquire, Attorney, Skadden, Arps, Slate, Meagher & Flom, LLP, Palo Alto, CA, Eric S. Waxman, Attorney, Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, CA, for Defendants-Appellees G. Kennedy Thompson, Shumeet Banjeri, Gary M. Reiner, John H. Hammergren, Marc L. Andreessen, Raymond J. Lane, Patricia F. Russo, Ann M. Livermore, Ralph V. Whitworth, Lawrence T. Babbio, Jr., Sari M. Baldauf, Dominique Senequier, Rajiv L. Gupta

Daniel Henry Bookin, Attorney, O’Melveny & Myers LLP, San Francisco, CA, Matthew W. Close, O’Melveny & Myers LLP, Los Angeles, CA, for Defendant-Appellee Shane V. Robison

Daniel Lawrence Baxter, Attorney, Matthew W. Powell, Esquire, Attorney, Wilke, Fleury, Hoffelt, Gould & Birney, LLP, Sacramento, CA, for Defendant-Appellee KPMG, LLP

Brendan Peter Cullen, Attorney, Sullivan & Cromwell LLP, Palo Alto, CA, Brian T. Frawley, Sullivan & Cromwell LLP, New York, NY, for Defendant-Appellee Barclays Capital Inc.

Patrick D. Robbins, Shearman & Sterling LLP, San Francisco, CA, for Defendant-Appellee Perella Weinberg Partners, LP

Willem Jonckheer, Esquire, Partner, Schubert Jonckheer & Kolbe LLP, San Francisco, CA, for Intervenor-Defendant-Appellee

Before: McKEOWN and MURGUIA, Circuit Judges, and RUFE,[*] District Judge.

Page 605

MEMORANDUM[**]

In this shareholder derivative suit, we review a settlement agreement that included corporate governance reforms but no monetary compensation for shareholders. After careful scrutiny of the settlement negotiations and terms, we conclude that the district court did not abuse its discretion in approving the settlement.

This appeal stems from Hewlett-Packard Company’s ("HP") failed acquisition of Autonomy Corporation ("Autonomy"). As the parties are familiar with the facts and history, we do not recount them here.

The district court must determine whether a proposed settlement is "fundamentally fair, adequate, and reasonable." In re P. Enters. Sec. Litig., 47 F.3d 373, 377 (9th Cir. 1995) (citation omitted). The court may consider a range of factors, including the strength of the plaintiffs’ case, the risk, expense, complexity, and likely duration of further litigation, the amount offered in settlement, the stage of the proceedings, the experience and views of counsel, and the reaction of class members to the proposed settlement. See Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1291 (9th Cir. 1992) (citation omitted).

We review for abuse of discretion the district court’s approval of the settlement, keeping in mind that we do not exalt our own notions of fairness over those of the district court and the parties, and recognizing the "strong judicial policy" in favor of settlement in complex cases. See P. Enters., 47 F.3d at 377-78 (citation omitted). The district court is not required to respond to settlement objections with formal findings of fact and conclusions of law so long as it gives a "reasoned response" in the record. Id. at 377. The district court’s explanation and response here satisfied these standards, contrary to the claims by Harriet Steinberg and A.J. Copeland ("Objectors").

The district court held an extensive settlement hearing in which it responded to the claims raised by Objectors and explained why the settlement was fair. The court found that in the absence of settlement, the shareholders would have faced "a nearly insurmountable obstacle to get by a motion to dismiss." The court determined that the corporate governance reforms adopted in the settlement had the potential to "actually change governance in the operation of Hewlett-Packard," and that the reforms "were caused in part by this litigation." The court accepted the release clauses only after finding that the scope of liability had been "significantly and substantively narrowed," and after rejecting two prior proposed settlements. Finally, the court found "no evidence of fraud or collusion" in the negotiations.

The findings on the strength of the shareholders’ claims were reasonable in

Page 606

light of the business judgment rule, which governs shareholder derivative lawsuits under Delaware law. See Aronson v. Lewis, 473 A.2d 805, 814-15 (Del. 1984), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (en banc). The Morrical shareholders did not make a demand on the HP Board before filing suit. Hence, their suit would be dismissed unless they could show that demand was futile by raising a reasonable doubt that "(1) the directors [were] disinterested and independent and (2) the challenged transaction was otherwise the product of a valid exercise of business judgment." Id. at 814. The district court had the benefit of a voluminous record concerning the independence of HP’s Board and HP’s extensive due diligence on the Autonomy deal.

At the time suit was filed, the HP Board was comprised almost entirely of outside directors, and none benefitted personally from the Autonomy Transaction. The only three HP directors who participated in the decision to acquire Autonomy recused themselves from the Board’s vote to accept the Demand Review Committee’s ("DRC") recommendations; the rest took their seats after the acquisition was completed.

HP considered Autonomy as an acquisition target as early as 2006. Well before formal due diligence began, HP reviewed and stress-tested information from Autonomy’s senior officers and investment bankers respecting the company’s financial condition, operating results, technology, product development, gross margins, and distribution channels. HP’s Corporate Development Group analyzed Autonomy’s reported financial information and scrutinized reports on Autonomy’s prospects from analysts, industry experts, and trade groups.

HP then expanded its team of outside advisors to include KPMG for accounting, Barclays for financial advice, Freshfields Bruckhaus Deringer for legal and tax advice, and Gibson Dunn & Crutcher as deal counsel. HP’s transaction team had weeks of daily diligence calls with Autonomy. HP also had conference calls with Deloitte, Autonomy’s auditor, to inquire about revenue recognition, fraud, controlling, internal governance, and unadjusted audit differences. HP’s Board ultimately received confirmation from the deal team that it obtained all "must have" diligence information. In the absence of settlement, the shareholders would have faced a difficult road indeed to prove that these efforts represented conduct "without the bounds of reason." McPadden v. Sidhu, 964 A.2d 1262, 1274 (Del. Ch. 2008) (citation omitted).

With respect to HP’s outside directors, the shareholders were on even weaker ground. HPs corporate charter...

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