In re Wells Fargo & Co.
| Decision Date | 07 April 2020 |
| Docket Number | Lead Case No. 16-cv-05541-JST |
| Citation | 445 F.Supp.3d 508 |
| Court | U.S. District Court — Northern District of California |
| Parties | IN RE WELLS FARGO & COMPANY SHAREHOLDER DERIVATIVE LITIGATION This Document Relates To: All Actions |
ORDER GRANTING MOTION FOR FINAL APPROVAL AND MOTION FOR ATTORNEY'S FEES
Before the Court are Plaintiffs' motions for final approval of a derivative action settlement, ECF No. 276, and attorney's fees and expenses, ECF No. 277. The Court will grant the motion for final approval and grant the motion for attorney's fees in part.
This is a shareholder derivative action on behalf of nominal Defendant Wells Fargo & Co. against the company's officers, directors, and senior management ("Individual Defendants"). Consolidated Amended Verified Stockholder Derivative Complaint ("Compl."), ECF No. 83 ¶ 64. The substance of Plaintiffs' claims is set forth in greater detail in the Court's prior orders on Defendants' motions to dismiss. See ECF No. 129 at 1-9; ECF No. 174 at 2-4. In short, Plaintiffs allege that, "[f]rom at least January 1, 2011 to the present (‘the Relevant Period’), Defendants knew or consciously disregarded that Wells Fargo employees were illicitly creating millions of deposit and credit card accounts for their customers, without those customers' knowledge or consent." Compl. ¶ 1. Plaintiffs seek to hold Individual Defendants accountable for these failures under various securities laws and common-law duties.
Based on the Improper Sales Practices1 and the Defendants' alleged oversight failures, several entities filed shareholder derivative complaints in this district, which were then consolidated into a single action. ECF Nos. 39, 70, 219. The Court appointed the Fire & Police Pension Association of Colorado ("FPPA") and the City of Birmingham Retirement & Relief System ("Birmingham") as Co-Lead Plaintiffs and Lieff Cabraser Heimann & Bernstein and Saxena White as Co-Lead Counsel. ECF No. 70. Plaintiffs then filed a consolidated amended complaint on February 24, 2017. ECF No. 83.
On March 17, 2017, Wells Fargo filed a motion to dismiss for failure to plead demand futility, in which the Individual Defendants joined. ECF Nos. 99, 100, 101, 102, 107, 108, 110. The Court largely denied the motion. ECF No. 129.
Various Individual Defendants proceeded to file a series of motions to dismiss for failure to state a claim. ECF Nos. 139, 140, 141, 143, 144, 145. On October 4, 2017, the Court denied the motions in large part. ECF No. 174.
After an initial unsuccessful round of three mediation sessions, the parties resumed intensive negotiations in September 2018. ECF No. 270 at 16. The parties engaged in four day-long sessions under the supervision of Judge Daniel Weinstein (Ret.) and Jed Melnick. ECF No. 270-3 ¶ 7. On December 12, 2018, the parties accepted Judge Weinstein's mediator's proposal, which forms the basis for the proposed settlement agreement. Id. ¶ 12.
On February 28, 2019, Plaintiffs filed a motion for preliminary approval. ECF No. 270. The Court granted the motion on May 14, 2019, and directed notice to the shareholders. Preliminary Approval Order, ECF No. 274.
Plaintiffs filed these motions for final approval and an award of attorney's fees and expenses on June 27, 2019. ECF Nos. 276, 277. Four objections were filed. ECF Nos. 279, 281, 282, 284. On July 25, 2019, Plaintiffs filed a reply responding to those objections. ECF No. 287. The Court held a final approval hearing on August 1, 2019.
On October 24, 2019, the Court issued an order to show cause why the Court should not appoint an expert witness pursuant to Evidence Code section 706 to determine "the appropriate hourly rate the Court should assign to contract attorney services when calculating ... Plaintiffs' counsel's lodestar" for purposes of Plaintiffs' attorney's fees motion ("Court Expert Order"). ECF No. 301 at 1. The parties and an objector filed written responses to the OSC on November 8, 2019. ECF Nos. 304, 305, 306.
The proposed settlement agreement ("Settlement") resolves the claims Plaintiffs have asserted on behalf of Wells Fargo in this action. Settlement, ECF No. 270-1 at 1-36.
Pursuant to the Settlement, the Individual Defendants' insurers will pay $240 million to Wells Fargo. Settlement ¶ V(33). The Settlement also identifies additional Wells Fargo reform actions the parties attribute in part to Plaintiffs' pursuit of this action. First, after this suit was filed, Wells Fargo's board clawed back $122.5 million from certain Individual Defendants through "stock grant forfeitures, reduced compensation, and return of incentive compensation." Id. ¶ V(1); see also ECF No. 270-1 at 47-48. The parties agree among themselves, and argue to the Court, that Plaintiffs' suit was a "significant factor in the determination to undertake [these] actions, and that these remedial actions conferred a value to Wells Fargo of $60 million." ECF No. 270-1 at 48. Second, the Settlement points to "Corporate Governance Reforms," meaning "the corporate actions undertaken by Wells Fargo to address Improper Sales Practices including, but not limited to, amending certain corporate charters and bylaws, increasing oversight and monitoring of business units, leadership changes, the creation of positions, and the increased reporting from business units." Settlement ¶ V(5); see also ECF No. 270-1 at 40-44. The parties note that Plaintiffs proposed "certain of these corporate governance reforms" and "agree and acknowledge that these reforms have conferred significant benefits to Wells Fargo," of which $20 million can be attributed to Plaintiffs' efforts. ECF No. 270-1 at 44.
In exchange for this consideration, Plaintiffs agree to release the following claims on behalf of themselves, Wells Fargo, and its shareholders:
[A]ny and all manner of claims, demands, rights, liabilities, losses, obligations, duties, damages, costs, debts, expenses, interest, penalties, sanctions, fees, attorneys' fees, actions, potential actions, causes of action, suits, agreements, judgments, decrees, matters, issues and controversies of any kind, nature or description whatsoever, whether known or unknown, disclosed or undisclosed, accrued or unaccrued, apparent or not apparent, foreseen or unforeseen, matured or not matured, suspected or unsuspected, liquidated or not liquidated, fixed or contingent, including Unknown Claims, whether based on state, local, foreign, federal, statutory, regulatory, common or other law or rule, brought or that could be brought derivatively or otherwise by or on behalf of Wells Fargo against any of the Released Parties, which now or hereafter are based upon, arise out of, relate in any way to, or involve, directly or indirectly, any of the actions, transactions, occurrences, statements, representations, misrepresentations, omissions, allegations, facts, practices, events, claims or any other matters, things or causes whatsoever, or any series thereof, that are, were, could have been, or in the future can or might be alleged, asserted, set forth, claimed, embraced, involved or referred to in the Derivative Action and relate to, directly or indirectly, the subject matter of the Derivative Action in any court, tribunal, forum or proceeding, including, without limitation, any and all claims by or on behalf of Wells Fargo which are based upon, arise out of, relate in any way to, or involve, directly or indirectly: (i) Improper Sales Practices; or (ii) any of the allegations in any complaint or amendment(s) thereto filed in (x) the Derivative Action or (y) any Action described above in Section II.C, with the exception, as described above, of the CPI Allegations in the Connecticut Laborers Action.
Settlement ¶ V(26).2 The "Released Parties" consist of the Individual Defendants, Wells Fargo, American Express, and various other "Related Parties." Id. ¶¶ V(25), (27). The Settlement does not, however, release (1) claims to enforce the agreement, (2) direct claims asserted on behalf of present or former Wells Fargo shareholders at issue in Hefler v. Wells Fargo & Co. , No. 16-cv-05479-JST (N.D. Cal.),3 or (3) certain claims that "the Individual Defendants or Wells Fargo may have against any of the Insurers." Id. ¶ V(26).
In addition, the parties separately negotiated Wells Fargo's payment of attorney's fees to Co-Lead Counsel. Id. ¶ (V)(44). Wells Fargo has agreed not to oppose Plaintiffs' request for attorney's fees and costs of up to $68 million. Id. Plaintiffs also intend to seek $25,000 incentive awards for each Co-Lead Plaintiff, to be paid from the fee award. Id.
Pursuant to Federal Rule of Civil Procedure 23.1, "[a] derivative action may be settled, voluntarily dismissed, or compromised only with the court's approval." Fed. R. Civ. P. 23.1(c). Rule 23, in turn, "governs a district court's analysis of the fairness of a settlement of a shareholder derivative action." In re Hewlett-Packard Co. S'holder Derivative Litig. , No. 12-cv-06003-CRB, 2015 WL 1153864, at *3 (N.D. Cal. Mar. 13, 2015) ; see also In re Cadence Design Sys., Inc. Sec. Litig. , No. 08-cv-4966 SC, 2011 WL 13156644, at *2 (N.D. Cal. Aug. 26, 2011) )). Accordingly, "[c]ourts considering settlements of derivative actions have generally found ‘[c]ases involving dismissal or compromise under Rule 23(e) of nonderivative cases ... relevant by analogy." Lloyd v. Gupta , No. 15-cv-04183-MEJ, 2016 WL 3951652, at *4 (N.D. Cal. July 22, 2016) () (quoting 7C Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1839 (3d ed. 2007) ). The Ninth Circuit...
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