# In re Pinterest Derivative Litigation > District Court, N.D. California · June 9, 2022 URL: https://www.frixlaw.com/law-library/cases/10071777 ## Case - **Court:** District Court, N.D. California - **Decided:** June 9, 2022 - **Opinion:** 100trialcourt - **Cited by:** 0 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10071777 ## Opinion text 1 2 3 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA 4 5 6 No. C 20-08331-WHA 7 No. C 20-08438-WHA 8 No. C 20-09390-WHA No. C 21-05385-WHA 9 (Consolidated) 10 ORDER RE MOTIONS FOR FINAL 11 This Document Relates to: SETTLEMENT APPROVAL AND ATTORNEY’S FEES 12 ALL ACTIONS. 13 14 15 INTRODUCTION 16 In this shareholder derivative suit, plaintiffs move for final approval of a settlement and 17 for attorney’s fees and costs. Defendants do not oppose, but one shareholder has objected. For 18 the reasons stated below, the objection is OVERRULED. To the extent stated below, the motions 19 are GRANTED. 20 STATEMENT 21 A prior order detailed our facts (Dkt. No. 115). In brief, this lawsuit, brought by Pinterest 22 shareholders, arises out of allegations of widespread race and sex discrimination at defendant 23 Pinterest, Inc. Two former Pinterest employees, for example, complained internally, and later 24 publicly, about discrimination they experienced as Black women while working for Pinterest. 25 The company allegedly ignored the internal complaints. Numerous other female employees and 26 employees of color are referenced in the complaint as confidential witnesses who similarly 27 describe allegations of discrimination. The complaint further alleges pay inequity. For 1 peer despite her significant accomplishments at the company. When she raised the issue, the 2 complaint alleges, Pinterest’s co-founder and CEO Benjamin Silbermann retaliated by firing 3 her. These events, among others, were alleged to be emblematic of a toxic culture at Pinterest 4 (Dkt. No. 54). 5 In response to public statements made by Pinterest employees, its board formed a special 6 committee to investigate. Between June and December 2020, the committee conducted 350 7 interviews with current and former employees, among other steps. In December 2020, the 8 committee proposed a series of reforms to address the problem. All of this reform work was 9 independent of this derivative action. 10 Pinterest began to implement the special committee’s reforms in early 2021 (Dkt. No. 11 107). These lawsuits were consolidated in a series of orders issued between December 2020 12 and July 2021 (Dkt. Nos. 28, 39, 49, 86). The parties reached a settlement in November 2021 13 (Dkt. No. 99). The settlement provided additional and incremental reforms beyond those 14 provided by the special committee. Preliminary approval was given in February 2022 (Dkt. No. 15 115). Plaintiffs now move for final approval and for attorney’s fees and costs. Defendants do 16 not oppose either motion (Dkt. No. 120). Shareholders have received notice of the proposal and 17 the requested fees, and one shareholder has objected. This order follows briefing and a fairness 18 hearing. 19 ANALYSIS 20 Federal Rule of Civil Procedure 23.1 provides that a shareholder derivative action “shall 21 not be dismissed or compromised without the approval of the court.” Above all, “[t]he principal 22 factor to be considered in determining the fairness of a settlement concluding a shareholders’ 23 derivative action is the extent of the benefit to be derived from the proposed settlement by the 24 corporation, the real party in interest.” In re Apple Computer, Inc. Derivative Litig., 2008 WL 25 4820784, at *2 (N.D. Cal. Nov. 5, 2008) (Judge Jeremy Fogel) (quoting Shlensky v. Dorsey, 574 26 F.2d 131, 147 (3d Cir. 1978)). A district court may weigh a variety of factors as the particular 27 facts of a case demand. Some factors include: the amount offered in settlement; the strength of 1 litigation. See Linney v. Cellular Ak. P’ship, 151 F.3d 1234, 1242 (9th Cir. 1998). The reaction 2 of shareholders also factors into assessing the fairness of a settlement. See In re Wells Fargo & 3 Co. S’holder Derivative Lit., 445 F. Supp. 3d 508, 518 (N.D. Cal. 2020) (Judge Jon Tigar), 4 aff'd, 845 F. App'x 563 (9th Cir. 2021). 5 Here, over 264,000 shareholder notices were mailed (Dkt. No. 123). A single Pinterest 6 shareholder, Matthew Sweeney, objected to the proposed settlement (Dkt. No. 123). His 7 objection is that the settlement is unduly focused on social welfare as opposed to prioritizing 8 shareholder value. Specifically, Mr. Sweeney objects that the $50 million budget contemplated 9 by the settlement is excessive and that this is lawsuit is frivolous. This is not convincing. An 10 independent special committee investigation concluded that there were serious cultural 11 problems at the company that warranted reform. Plaintiffs, moreover, cite numerous studies 12 suggesting that improving corporate governance through reforms like those provided in the 13 proposed settlement are attractive to investors and accordingly have the potential to increase 14 shareholder value (see Br. at 9, n.2; 12–13). Treating employees equitably and increasing 15 opportunities for women and people of color will benefit Pinterest and its shareholders. In 16 short, it is good business. 17 Mr. Sweeney further contends that notice to shareholders was inadequate because he did 18 not receive notice of the settlement until May 23, 2022, just one day before the deadline for 19 objections. This is troubling. Plaintiffs have, however, submitted a declaration from the 20 settlement administrator that notices were delivered directly to shareholders on March 2, 2022, 21 and that notice of the settlement was also published on Pinterest’s website and in other 22 publications (Dkt. Nos. 122–123). The settlement administrator subsequently sent additional 23 notices to brokers in late March, and plaintiffs speculate that Mr. Sweeney may have received 24 his late notice from his broker. In light of these declarations, Mr. Sweeney’s late notice does 25 not suggest a larger, structural failure in the approved notice to shareholders. Moreover, though 26 delayed, Mr. Sweeney received actual notice of the proposed settlement, voiced his objections, 27 and has been heard. Having been heard, Mr. Sweeney’s objections are OVERRULED. 1 In short, the settlement will, among other improvements, help promote pay transparency at 2 the company, help encourage equitable hiring practices, and require a commitment to not 3 enforce non-disclosure agreements. The settlement will further establish mechanisms, 4 including regular internal audits and accompanying reports to the board, to assess the progress 5 of the reforms, which will be supported by a $50 million budget to be spent over ten years. As 6 described in detail in the prior order granting preliminary approval, these reforms appear 7 potentially meaningful (see Dkt. No. 115). Plaintiffs’ motion for final approval is accordingly 8 GRANTED. 9 Plaintiffs’ counsel also seek attorney’s fees in the amount of $5,373,079, which represents 10 a 2.0 multiplier of their claimed collective lodestar. Pinterest stated at the motion hearing that it 11 does not oppose the request, that its view is that the requested amount is reasonable, and that it 12 prefers to leave the amount to the Court to decide. For the reasons that follow, this order will 13 grant an adjusted lodestar of $2.5 million now and delay awarding a multiplier, if any, for two 14 years, as detailed below. 15 “Under both Delaware and federal law, a court may grant fees and expenses to derivative 16 counsel when the derivative suit . . . confers a substantial corporate benefit.” In re Oracle Sec. 17 Litig., 852 F. Supp. 1437, 1445 (N.D. Cal. 1994) (Judge Vaughn Walker); see also Lewis v. 18 Anderson, 692 F.2d 1267, 1270 (9th Cir. 1982). The benefit need not be pecuniary to give rise 19 to attorney’s fees. See Klein v. Gordon, No. C 17-00123, 2019 WL 1751839, at *1 (C.D. Cal. 20 Feb. 12, 2019) (Judge André Birotte Jr.). Rather, to conclude that the benefits realized by the 21 corporation are substantial, a district court may find that “the results of the derivative action 22 maintained the health of the corporation and raised the standards of the fiduciary relationships 23 and of other economic behavior. . . .” Ibid. As in the class action context, courts in this circuit 24 use either the lodestar or percentage method to assess the reasonableness of attorney’s fees. 25 See, e.g., In re Wells Fargo & Co. S'holder Derivative Litig., 445 F. Supp. 3d at 519. Courts 26 that employ the lodestar method have the discretion to approve a multiplier. See, e.g., Klein, 27 2019 WL 1751839, at *4 (granting multiplier of 1.4). 1 As previously stated, the Court is concerned that this settlement could prove to be mainly 2 cosmetic. No defendant will pay money to the corporation. Instead, certain corporate reforms 3 are to be undertaken but a fair number of the reforms were already in place as a result of the 4 corporation’s own actions addressing the problem. 5 This settlement’s incremental reforms may prove to be the most beneficial. They might, 6 however, serve as weak therapeutics. The settlement includes a commitment, for example, to 7 not enforce NDAs, but does not require directly informing employees who signed NDAs that 8 they may speak freely about their experiences. Counsel also repeatedly tout that Pinterest has 9 allocated a “budget” of fifty million over ten years to carry out the reforms. But a budget is not 10 a fund. The money is not already appropriated or in a bank account. 11 These reforms are only as good as future implementation. Who will be there to enforce 12 the settlement terms and police the corporation to make sure the reforms are realized? 13 Counsel want all of their fees now and to walk away, saying that they’ve achieved a 14 benefit merely by reaching an agreement for future non-pecuniary reforms spread out over ten 15 years. This is a recurring problem in derivative shareholder actions. See, e.g., Sean J. Griffith, 16 Correcting Corporate Benefit: How to Fix Shareholder Litigation by Shifting the Doctrine on 17 Fees, 56 B.C. L. Rev. 1, 25 (2015) (describing a “proliferation” of non-pecuniary derivative 18 action “settlements that nevertheless entitle the plaintiffs' attorneys to recover fees from the 19 corporation”). 20 After the Court raised this problem at a prior hearing, plaintiffs’ counsel conferred and 21 stated they would stay on an additional two years to monitor compliance (Br. 3–4). This would 22 be helpful, but leaves the other eight years unpoliced. The settlement, if it has any true value 23 beyond the reforms by the special committee, depends on compliance over the next ten years. 24 The Court has encouraged the parties to agree on a longer monitoring period, but the parties 25 were unable to reach an agreement on any length of time beyond two years (Dkt. No. 133). 26 Nonetheless, this order accepts the parties’ proposal to have plaintiffs’ counsel monitor 27 compliance for two years. Therefore, a portion of the attorney’s fee award will be postponed 1 Accordingly, an adjusted lodestar of $2,500,000.00 will be awarded and paid now as 2 attorney’s fees. Counsel’s claimed lodestar of $2,686,539.50 is too high for the amount of work 3 done. While counsel negotiated the settlement, much of the difficult work of gaining Pinterest’s 4 acknowledgment of the problem and establishing a plausible framework for achievable reforms 5 was already accomplished through the special committee’s efforts. The special committee, for 6 example, interviewed 350 Pinterest employees. Derivative counsel interviewed only sixteen. 7 Moreover, they seek an award for work done by twenty-one attorneys from four different law 8 firms. This was too many timekeepers. More effort should have been made to streamline the 9 representation. The lodestar is accordingly reduced to $2.5 million. If counsel prefer, the Court 10 will instead appoint a special master to scrutinize the lodestar. Please advise by JUNE 17. 11 A further amount may be awarded in two years based upon future compliance and a 12 showing of the actual benefit that has flowed from the agreement. Plaintiffs’ counsel must 13 select no more than two partners and two associates to perform the monitoring and policing 14 work. Over the next two years, counsel shall file a public report with the Court each 15 DECEMBER 31 AND JUNE 30. The report shall set forth each goal of the settlement (over and 16 above what was already required by the special committee) and state how much progress has 17 actually been made (or not made) toward it. The report shall further attach the company’s 18 reports required under the terms of the settlement, including: “the audit reports presented to the 19 Audit Committee on a periodic basis as the audits progress” and the accompanying “summary” 20 provided “to the full board on an annual basis” (Dkt. No. 99-1, Exh. A § II, ¶ 6); the Annual 21 Diversity Report (id. § IV, ¶ 2); the Inclusion & Diversity Team’s quarterly reports (id. § VIII, ¶ 22 1); the “bi-annual audits for pay equity” (id. § XIII, ¶ 1); and the annual report tracking “the 23 spending of funds used for implementation and maintenance of the reforms” (id. § XIV, ¶ 1). 24 As for costs, counsel request $47,047.58 in litigation expenses. The costs primarily 25 involve legal research and expert fees. The costs seem reasonable. The request for 26 reimbursement is GRANTED and shall be paid now. 27 / / 1 CONCLUSION 2 The motion for final approval of the settlement is GRANTED. The settlement shall be 3 consummated in accordance with its terms. The Court shall retain jurisdiction as described. 4 Counsel’s further request for attorney’s fees and costs is GRANTED to the extent stated above. 5 6 IT IS SO ORDERED. 7 8 Dated: June 9, 2022. LC Pree 10 = LLIAM ALSUP I UNITED STATES DISTRICT JUDGE 12 © 15 16 = 17 Z 18 19 20 21 22 23 24 25 26 27 28 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10071777. Public record. Not legal advice.