# Allred v. Walker

> District Court, S.D. New York · December 9, 2021

URL: https://www.frixlaw.com/law-library/cases/10337223

## Case

- **Court:** District Court, S.D. New York
- **Decided:** December 9, 2021
- **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/10337223

## How later opinions describe it (automated extraction)

- stating that settlement of derivative case would be set aside if individual in a position to control it for plaintiffs and who was proponent of settlement had received an undisclosed benefit from defendants
- holding that service award request should be supported by an affidavit demonstrating a “thorough accounting of hours dedicated to the litigation and a statement that these hours constituted lost work time”

## Opinion text

USDC SDNY
DOCUMENT
UNITED STATES DISTRICT COURT ELECTRONICALLY FILED
SOUTHERN DISTRICT OF NEW YORK DOC #:
Sonnac nnn ence nnnnns IK DATE FILED:_12/09/2021
KEITH ALLRED, derivatively on behalf of Aclaris :
Therapeutics, Inc., :
: 19-cv-10641 (LJL)
Plaintiff, : 19-cv-10876 (LJL)
-v- : OPINION AND ORDER
NEAL WALKER, et al., :
Defendants. :
wn ee KX
LEWIS J. LIMAN, United States District Judge:
Derivative plaintiffs Keith Allred (“Allred”) and Bruce Brown (“Brown” and collectively
with Allred, “Derivative Plaintiffs”) move for final approval of the settlement set forth in the
stipulation and agreement of settlement dated July 29, 2021; entry of the proposed order and
final judgment and dismissal of all claims; an award of attorneys’ fees and reimbursement of
expenses to be paid by defendants’ insurer; and service awards of $1,500 to each of Allred,
Brown, and stockholder Celeste Piper (“Piper” and collectively with Derivative Plaintiffs,
“Plaintiffs”). Dkt. No. 28.!
BACKGROUND
The first derivative complaint in this action was filed on November 15, 2019 by Allred.
Dkt. No. 1. It asserts claims on behalf of Aclaris Therapeutics, Inc. (“Aclaris” or “Company”’)
(as nominal defendant) against the directors of Aclaris and its Chief Financial Officer. The
allegations appear to stem from allegations made by shareholders of Aclaris in a parallel civil

' Simultaneous with this opinion, the Court issues an opinion and order approving, with
modifications, the settlement of the parallel securities class action against Aclaris and various of
its officers. See Rosi v. Aclaris Therapeutics, Inc. et al, 19-cv-7118 (S.D.N.Y).

securities action against Aclaris and its officers, Rosi v. Aclaris Therapeutics, Inc., 19-cv-7118
(S.D.N.Y.), claiming that, during the time period May 8, 2018 through June 20, 2019, Aclaris
made false and misleading statements and omissions in connection with the risks, efficacy, and
side effects of Aclaris’s then-product ESKATA™ (“ESKATA”), which was used for the
treatment of raised seborrheic keratosis, and failed to ensure the Company maintained adequate

internal controls. The complaint alleges a derivative claim against the individual defendants
under Section 14(a) of the Securities Exchange Act, 15 U.S.C. § 78n(a)(1), for causing Aclaris to
issue a 2019 proxy statement that was allegedly false and misleading and for negligently making
false and misleading statements in that proxy statement. Dkt. No. 1 ¶¶ 125-135. It also alleges
that the individual defendants breached their fiduciary duties of candor, good faith, loyalty,
reasonable inquiry, oversight and supervision, including by failing to maintain an adequate
system of oversight, disclosure controls and procedures and internal controls, by making and
causing Aclaris to make false and misleading statements, and by failing to correct and causing
Aclaris to fail to correct any of the false and misleading statements. Id. ¶¶ 136-148. The

complaint also alleges that the individual defendants breached their fiduciary duties by causing
themselves to receive excessive compensation from Aclaris given their misconduct. Id. Finally,
the complaint contains claims for unjust enrichment, “abuse of control,” gross mismanagement,
and waste of corporate assets. Id. ¶¶ 149-168.
On November 25, 2019, Brown filed a nearly identical shareholder derivative action on
behalf of Aclaris alleging substantially similar facts and making substantially similar claims to
those made by Allred, see Brown v. Walker et al, 19-cv-10876 (S.D.N.Y.), Dkt. No. 1, and on
December 12, 2019, the Court entered an order consolidating the derivative actions into one
action, Dkt. No. 9.
On January 10, 2020, the Court entered a joint stipulation and order staying the
consolidated derivative action pending the resolution of the anticipated motion to dismiss the
complaint in the parallel Rosi action. Dkt. No. 11. On May 18, 2021, after the Court issued an
order in Rosi granting in part and denying in part the motion to dismiss, the Court entered a
stipulation and order staying the consolidated derivative action pending the resolution of a

motion for summary judgment in Rosi. Dkt. No. 18.
On July 30, 2021, simultaneous with the submission of a proposed settlement in Rosi,
Derivative Plaintiffs in this case made a motion for preliminary approval of a settlement of the
consolidated derivative action. Dkt. No. 22. The Court held a hearing on that motion on August
17, 2021, and the next day, entered an order granting preliminary approval to the settlement.
Dkt. Nos. 26-27. The Court also approved the form and manner of notice and set a date for the
settlement hearing. Dkt. No. 27.
The settlement is reflected in the Stipulation and Agreement of Settlement (“Settlement
Stipulation”). Dkt. No. 25-1. The Settlement Stipulation requires Aclaris, within 90 days of the

entry of judgment, to adopt resolutions and amend appropriate committee charters to ensure
adherence to a series of identified corporate governance reforms. Id. § 2.1 & Ex. A. The
corporate governance reforms require the Compliance Committee to report to the Audit
Committee annually on the Chief Executive Officer’s and Chief Financial Officer’s contribution
to Aclaris’s culture of ethics and compliance and their effectiveness and dedication to ensuring
Aclaris’s compliance with applicable laws, rules, and regulations. Also, the Compliance
Committee must, with the assistance of the Chief Compliance Officer and an independent
advisor, review Aclaris’s internal controls over compliance and implement changes as necessary,
which shall include an evaluation of the effectiveness of Aclaris’s newly implemented controls
and procedures. The corporate governance reforms also enhance Aclaris’s training procedures
related to its code of conduct, risk management and compliance. The corporate governance
reforms require that new members of Aclaris’s workforce and management receive special
training sessions within fourteen days of hiring or appointment. The corporate governance
reforms also require that the Company strengthen its whistleblower policy and post the amended

policy to its website. Dkt. No. 31 ¶ 34. The reforms also provide new responsibilities for the
Company’s recently created R&D Committee.
In exchange, the releasing parties, including Plaintiffs, Plaintiffs’ counsel, Aclaris, and
current Aclaris shareholders, agree to a release of all claims that could have been asserted in the
derivative action as well as in an inspection demand that was served (but not responded to) prior
to the settlement of the action. In addition, in consideration of the substantial benefits conferred
upon Aclaris as a direct result of the corporate governance reforms and Plaintiffs’ and Plaintiffs’
counsel’s efforts in connection with the derivative action and the inspection demand, and subject
to court approval, the individual defendants agree to cause their insurer to pay Plaintiffs’

attorneys’ fees and expenses in the total amount of $425,000—an amount that has been approved
by the independent, non-defendant directors of the Aclaris board, in a good faith exercise of their
business judgment. The settling parties also agree that Plaintiffs’ counsel may apply to the Court
for a service award of up to $1,500 for each of the Plaintiffs, to be paid only upon court approval
from the fee and expense award. The settlement is not contingent upon the Court’s approval of
either the fee award or the service award.
The Court held the settlement hearing on November 30, 2021. Dkt. No. 26. Prior to the
hearing, notice of the settlement and the hearing was published on GlobeNewswire, in an Aclaris
Form 8-K, and on Aclaris’s website. Dkt. No. 35. No objections were submitted to the
settlement. Dkt. No. 36.
DISCUSSION
Rule 23.1(c) of the Federal Rules of Civil Procedure provides that derivative actions may
only be settled with court approval. See Fed. R. Civ. P. 23.1(c). “In the context of a derivative

action settled on behalf of the class of all shareholders, the Court must consider whether the
settlement was procedurally fair—i.e., whether it was the result of arm’s length negotiations and
whether Plaintiffs’ counsel adequately and effectively represented the interests of the shareholder
class—and whether the substantive terms of the settlement ‘are in the interests of the company
and its shareholders relative to the likely rewards of litigation.’” Scott v. Wei, 2021 WL
1910657, at *1 (S.D.N.Y. May 12, 2021) (quoting In re Pfizer Inc. S’holder Derivative Litig.,
780 F. Supp. 2d 336, 340 (S.D.N.Y. 2011)). When considering the fairness, reasonableness, and
adequacy of a proposed settlement, “the Court is not to substitute its judgment for that of the
parties, nor is it to reopen and enter into negotiations with the parties, nor is it to turn
consideration of the adequacy of the settlement into a trial or a rehearsal of the trial.” In re

Metro. Life Derivative Litig., 935 F. Supp. 286, 292 (S.D.N.Y. 1996) (internal quotation marks
omitted). The Court first considers the fairness, reasonableness, and adequacy of the proposed
settlement. It then turns to the attorneys’ fees award and the service award request.
I. The Settlement Is Fair, Reasonable, and Adequate
The derivative settlement is procedurally fair. Plaintiffs have demonstrated that it was
reached as the result of arm’s length negotiations and by counsel on both sides with the requisite
experience and ability. See Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 116 (2d Cir.
2005) (“A ‘presumption of fairness, adequacy, and reasonableness may attach to a class
settlement reached in arm’s length negotiations between experienced, capable counsel . . . .’”
(quoting Manual for Complex Litigation, Third, § 30.42 (1995)). The settlement was reached
with the assistance of an experienced and well-regarded mediator. See D’Amato v. Deutsche
Bank, 236 F.3d 78, 85 (2d Cir. 2001) (noting that the involvement of a mediator in settlement
negotiations “helps to ensure that the proceedings were free of collusion and undue pressure”);
see also In re Fab Universal Corp. S’holder Derivative Litig., 148 F. Supp. 3d 277, 280

(S.D.N.Y. 2015) (settlement that was product of “extensive formal mediation” with a neutral
mediator are “hallmarks of a non-collusive, arm’s length settlement process”). Plaintiffs sent a
settlement demand letter to defendants before the mediation and defendants responded to that
demand. The parties also exchanged substantive mediation briefs, addressing the allegations in
the action. The parties did not reach a substantive agreement on the terms of the proposed
settlement until the end of a full-day mediation. They did not negotiate attorneys’ fees and
expenses until after they reached an agreement on the substantive terms of the settlement, and the
agreement on the substantive terms of the settlement was not contingent upon the parties
reaching an agreement on attorneys’ fees. Dkt. No. 25-1.

Each of the firms representing Plaintiffs has extensive experience in shareholder
derivative actions. The Robbins LLP firm is one of the most recognized firms nationwide in
shareholders rights and shareholder derivative litigation. Dkt. No. 33, Ex. A. The Rosen Law
Firm has a long record of shareholder derivative litigation. Dkt. No. 32, Ex A. The Brown Law
Firm was founded in 2014 to specialize in shareholder derivative litigation. Dkt. No. 31, Ex. A.
The derivative settlement also is fair, reasonable, and adequate from a substantive
standpoint. The factors set forth in City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir.
1974), inform the Court’s analysis of substantive fairness. See Scott, 2021 WL 1910657, at *1;
In re Fab, 148 F. Supp. 3d at 281; In re Pfizer, 780 F. Supp. 2d at 340. Those factors include:
“(1) the reasonableness of the benefits achieved by the settlement in light of the potential
recovery at trial; (2) the likelihood of success in light of the risks posed by continued litigation;
(3) the likely duration and cost of continued litigation; and (4) any shareholder objections to the
proposed settlement.” Scott, 2021 WL 1910657, at *2.
The settlement achieved substantial benefits to Aclaris in the form of the corporate

governance reforms set forth in the three-page exhibit to the Settlement Stipulation. Dkt. No. 25-
1 at 25-27. In the Settlement Stipulation, Aclaris and its board acknowledge and agree that the
corporate governance reforms confer substantial benefits upon Aclaris and its stockholders and
that the filing, pendency, and settlement of the derivative action and the inspection demand were
the cause of Aclaris’s decision to adopt, implement, and maintain the corporate governance
reforms. Id. at 13-14. That acknowledgement was confirmed by counsel’s representations at the
hearing before the Court. Each of the reforms is new, and none was required by law or the
requirements of Aclaris’s auditors. “Reforms addressing the issues giving rise to the derivative
suit ‘are exactly the type that courts deem to confer a substantial benefit on the company.’” Scott

v. Weig, 2018 WL 2254541, at *4 (S.D.N.Y. May 17, 2018) (quoting In re Fab, 148 F. Supp. 3d
at 281).
Against the substantial benefits conferred by the litigation were the risks posed by
continued litigation. “The doctrine of demand futility, the business judgment rule, and the
generally uncertain prospect of establishing a breach of fiduciary duties combine to make
shareholder derivative suits an infamously uphill battle for plaintiffs.” In re Fab, 148 F. Supp.
3d at 281-82; see In re AOL Time Warner Shareholder Derivative Litig., 2006 WL 2572114, at
*5 (S.D.N.Y. Sept. 6, 2006) (noting difficulties of proving demand futility and breach of
fiduciary duty, overcoming the “substantial protection of the business judgment rule,” and the
task of “proving highly contested damages”). Here, even to proceed, Plaintiffs here would have
had to establish demand futility, a significant challenge under Delaware law which would have
been applicable here to this Delaware corporation. See United Food and Commercial Workers
Union and Participating Food Industry Employers Tri-State Pension Fund v. Zuckerberg, 2021
WL 4344361 (Del. Sept. 23, 2021) (setting forth test for demand futility); In re AOL, 2006 WL

2572114, at *5 (“[P]roving demand futility is merely the first of several hurdles Plaintiffs would
face before ever reaching trial.”). Assuming Plaintiffs surmounted that hurdle, they would have
had to establish liability. Plaintiffs’ primary claim was that the independent directors failed in
their duty of oversight; the complaint failed to identify facts supporting any affirmative
wrongdoing by any of the individual defendants. But the Delaware courts have aptly remarked
that a claim for failure to exercise a duty of oversight is “the most difficult theory in corporation
law upon which a plaintiff might hope to win a judgment.” In re Caremark Int’l Derivative
Litig., 698 A.2d 959, 967 (Del. Ch. 1996); see also Scott, 2021 WL 1910657, at *3; In re Pfizer,
780 F. Supp. 2d at 340. That basis of liability, as well as the others in the derivative complaint,

would have been made all the more challenging by the Court’s decision on defendants’ motion to
dismiss in the Rosi matter that many of the statements upon which those plaintiffs and Plaintiffs
here base their claim were not misleading at all. Even then, had Plaintiffs established liability, it
would have been challenging to establish and recover damages, including in light of the question
whether Aclaris suffered any damages at all from the alleged breaches of duty and the protection
that any exculpation provision might have accorded the individual defendants.
Litigation of Plaintiffs’ claims through trial and an appeal would have been extremely
time-consuming and expensive. Plaintiffs would have had to engage in extensive document
discovery, taken numerous depositions, and had to retain experts and take the depositions of
experts for the defendants. Litigation would not have ended any time soon. “By contrast, the
Settlement assures immediate corporate reforms.” In re Fab, 148 F. Supp. 3d at 282.
Finally, and tellingly, there have been no objections to the proposed settlement. “[T]he
favorable reaction of the overwhelming majority of class members to the Settlement is perhaps
the most significant factor in [the] Grinnell inquiry.” Wal-Mart Stores, 396 F.3d at 119. Also,

the independent, non-defendant directors on Aclaris’s board, who presumptively are charged
with making decisions in the best interests of Aclaris and its shareholders, including regarding
the “corporation’s litigation asset,” Zuckerberg, 2021 WL 4344361 at *7, unanimously
approved the settlement and each of its terms as in the best interests of Aclaris and its
stockholders.
The settlement accordingly is approved.
II. The Attorneys’ Fees Award
Plaintiffs request that the Court approve an award of attorneys’ fees and expenses in the
amount of $425,000, to be paid by the insurer for the individual defendants. Dkt. No. 30 at 18.
The application is granted.

An award of counsel fees is justified in a shareholder derivative action “where the
derivative action results in a substantial non-monetary benefit to a corporation.” In re Fab, 148
F. Supp. 3d at 283 (quoting Kaplan v. Rand, 192 F.3d 60, 69 (2d Cir.1999)). “The same
principle applies to substantive benefits achieved by settlement.” Id.; see also In re Pfizer, 780
F. Supp. 2d at 343 (“. . . it is well-established that plaintiffs who confer a corporate benefit may
be awarded attorneys’ fees and expenses under Delaware law.”).
In determining the size of a fee award to approve in a derivative case, courts in this
District frequently “consider the so-called Goldberger factors: (i) the benefit recovered in
relation to the settlement; (ii) the magnitude and complexities of the litigation; (iii) the litigation
risk; (iv) the quality of representation; (v) public policy considerations; and (vi) the time and
labor spent.” Scott, 2021 WL 1910657 at *3 (citing Goldberger v. Integrated Res., Inc., 209
F.3d 43, 50 (2d Cir. 2000)); see also In re Pfizer, 780 F. Supp. 2d at 343 (same).
Plaintiffs argue that the Court should approve the fees award because it was negotiated at
arm’s length between the parties. Dkt. No. 30 at 18-19. They stress that the fee amount is not to

be paid from a common fund and that it was negotiated between sophisticated counsel with the
benefit of an experienced and reputable mediator after the parties had agreed on the substantive
terms of the settlement. Id. They also note that it was approved by the independent, non-
defendant directors of Aclaris. Id.
The few courts that have considered the issue over the years have held that great, and
potentially dispositive, weight should be given to a fee amount not to be paid from a common
fund negotiated at arm’s length between sophisticated counsel after the substantive terms of a
settlement have been agreed. See Shapiro v. JPMorgan Chase & Co., 2014 WL 1224666, at *25
(S.D.N.Y. Mar. 24, 2014) (“That the Attorneys’ Fee Payment was later separately negotiated

weighs in favor of its reasonableness.” (citing cases)); Elias v. Ungar’s Food Products, Inc.,
2013 WL 12426604, at *8 (D.N.J. Jan. 28, 2013) (approving “fee agreement [that] was reached
only after the parties had agreed on the principle terms of the settlement”); McAlarnen v. Swift
Transp. Co., Inc., 2010 WL 365823, at *12 (E.D. Pa. Jan. 29, 2010) (holding that fact that
“counsel [did not] engage in arm’s-length negotiations over fees and costs to be paid by
Defendant” until after substantive settlement terms had been agreed weighed in favor of
approving fee petition); In re Schering-Plough/Merck Merger Litigation, 2010 WL 1257722, at
*8 (D.N.J. Mar. 26, 2010) (approving fee award that was “the product of mediation conducted
before a disinterested and revered member of the legal community”); Weber v. Government
Employees Ins. Co., 262 F.R.D. 431, 451 (D.N.J. 2009) (approving award where “the parties’
agreement with regard to attorney’s fees was the product of arm’s-length negotiations which did
not commence until after the parties had reached agreement in principle of all the terms relating
to relief for the Class” (internal quotation marks omitted)).
There is force to the argument that the Court should defer to the agreement of the parties

reached at arms-length regarding an appropriate fee where that fee is not to be paid from a
common fund and was agreed in the presence of a mediator and after the substantive terms of the
settlement were reached. The fact that the fee is not to be paid from the common fund eliminates
the concern, present in many securities class action settlements, that the fees to be awarded to
counsel will deplete the funds available to pay injured class members who have released their
claims. The fact that the fees are negotiated and agreed only after the substantive settlement
terms have been agreed and that the agreement on the substantive settlement terms is not
contingent on an agreement on fees addresses the further risk that counsel will trade away the
interests of her client in exchange for the defendant to pay her attorneys’ fees. The presence of a

mediator for both the substantive settlement and the later negotiation of fees also goes far to
eliminate the risk of collusion. At the same time, by respecting the arms-length agreement
between the parties regarding fees, the Court allows each party to mitigate its own risk—the risk
on the part of plaintiff that the Court will grant what plaintiff would consider an inordinately
small award and the risk on the part of defendant that the Court will be extravagant in its fee
award. Each side, with knowledge that if they do not reach agreement the Court will determine
the fee award in light of the Goldberger factors, can assess the award that it believes to be
reasonable. Assuming an arms-length negotiation between experienced counsel, the award
should fall within the wide range of fees the Court would be permitted to award even without the
agreement of the parties. The fact that the independent, non-defendant directors approved the fee
agreement lends further force to the reasonableness of that agreement. See § 1839 Dismissal or
Compromise of Shareholder-Derivative Suits, 7C Fed. Prac. & Proc. Civ. § 1839 (3d ed.) (“In
reaching its decision, the court may take into consideration the fact that the corporation, through
a disinterested board of directors, endorses the proposal.”).

In any event, the requested fee award here satisfies the Goldberger factors. Although the
tasks counsel performed in this shareholder derivative matter before it was settled were not
particularly complex, the quality of counsel was high and the benefit provided to Aclaris and its
shareholders was substantial. Counsel took litigation risk; had the motion to dismiss in the Rosi
matter been granted in its entirety or had this matter continued to its duration, there was a real
prospect Plaintiffs would have recovered nothing. Public policy also favors an award of
attorneys’ fees in derivative actions—which keep corporate directors honest and improve
corporate governance. See In re Fab, 148 F. Supp. 3d at 284 (holding that “[a]ward of attorney’s
fees in excess of a 1.0 lodestar multiplier incentivizes counsel to take [shareholder derivative]

matters on contingency, further promoting compliance with commercial law by increasing the
likelihood of enforcement”); In re AOL, 2010 WL 363113, at *23 (fee awards incentivize
“future counsel to devise remedies as an alternative to money, strengthening corporate America
in the long run through innovation and prophylaxis”). Finally, in terms of time and labor spent,
each firm devoted substantial time to the matter. The Brown Law Firm devoted approximately
310 hours, the Robbins law firm devoted 298 hours; and the Rosen Law Firm devoted thirty-nine
hours. Dkt. Nos. 37-1, 37-2, 37-3. The total lodestar calculated by Plaintiffs’ counsel is
$347,509.75 for a lodestar multiplier of 1.19. Dkt. No. 30 at 24. Although not all of those hours
were necessary or reasonable, the tasks performed were appropriate. They included research and
drafting the complaints in the action, handling various procedural matters such as the
consolidation of the actions, preparing lists of corporate governance reforms, drafting the
mediation statement and participating in the mediation, and drafting the settlement papers. Even
assuming a far lower lodestar, the fee request of $425,000 would still be reasonable. See Wal-
Mart Stores, 396 F.3d at 123 (affirming multiplier of 3.5); In re Fab, 148 F. Supp. 3d at 283

(quoting lodestar multipliers of 3 to 5).
III. Service Awards
Finally, Plaintiffs ask the Court to approve service awards for each of the three named
plaintiffs in the amount of $1,500 each. Like the fee award, the service award amount was
negotiated between Plaintiffs’ counsel and defendants. If approved, it would be paid out of the
attorneys’ fees award and not from a common fund.
Unlike service awards in federal securities class actions, which are governed by both
statute and judge-made law, service awards in shareholder derivative actions are purely a
creature of the common law. In shareholder derivative cases, “[c]ourts in this Circuit routinely
award . . . costs and expenses both to reimburse the named plaintiffs for expenses incurred

through their involvement with the action and lost wages, as well as to provide an incentive for
such plaintiffs to remain involved in the litigation and to incur such expenses in the first place.”
In re Fab, 148 F. Supp. 3d at 285 (quoting In re Bear Stearns Companies, Inc. Sec., Derivative,
& ERISA Litig., 909 F. Supp. 2d 259, 272-73 (S.D.N.Y. 2012)). The concerns animating judicial
scrutiny of service awards in shareholder derivative and securities class actions are similar to
those animating judicial scrutiny of attorneys’ fees awards. A named plaintiff acts as fiduciary
for others—either current shareholders (in a derivative case) or a class of purchasers or sellers of
securities (in the case of a class action). In any case where a named plaintiff is acting as
representative, an improvident award can suggest or give rise to the concern that the named
plaintiff is benefitting at the expense of the persons for whom he or she acts as fiduciary either
directly, through a payment from a common fund otherwise available to shareholders, or
indirectly, by compromising the claims of the absent shareholders in exchange for payment in
the form of a service fee. Cf. Sakiko Fujiwara v. Sushi Yasuda Ltd., 58 F. Supp. 3d 424, 434
(S.D.N.Y. 2014) (Fair Labor Standards Act case; opining that “confidence and trust in a class

representative to pursue claims with diligence” depends “in large measure [on] knowing that the
class representative stands in the same shoes as all other members of the class” (quoting
Silberblatt v. Morgan Stanley, 524 F. Supp. 2d 425, 435 (S.D.N.Y. 2007)); Weseley v. Spear,
Leeds & Kellogg, 711 F. Supp. 713, 720 (E.D.N.Y. 1989) (securities fraud case; expressing
concerns that class representatives “may be tempted to accept suboptimal settlements” if they
“expect routinely to receive special awards in addition to their share of the recovery”); Women’s
Comm. for Equal Employment Opportunity (WC = EO) v. Nat’l Broadcasting Co., 76 F.R.D.
173, 180 (S.D.N.Y. 1977) (employment discrimination class action; asserting that “grave
problems of collusion are raised” when class representatives “make what amounts to a separate

peace with defendants”); cf. Alleghany Corp. v. Kirby, 218 F. Supp. 164, 175-76 (S.D.N.Y.
1963) (stating that settlement of derivative case would be set aside if individual in a position to
control it for plaintiffs and who was proponent of settlement had received an undisclosed benefit
from defendants).
There does not exist, in the case of service awards for named plaintiffs, the same line of
cases that accord weight to a negotiated agreement with respect to attorneys’ fees between
defendants and plaintiffs’ counsel. There are different concerns in the case of service awards
than there are in the case of attorneys’ fees awards. In the case of a service award, there is a risk
that, without safeguards on the size of a service award, a named plaintiff could be swayed to
agree to a settlement that is less than satisfactory to those on whose behalf he purports to act by
the fact or the promise of a large payment to himself personally. Judicial review helps ensure
that any service award is proportionate to the costs (tangible and intangible) that the named
plaintiff is forced to bear in his capacity as representative or, at the least, that the award is not so
large as to create the appearance of a conflict of interest. See In re Fab, 148 F. Supp. 3d at 285.

Plaintiffs admit that they do not have time records to support the request for a service
award of the type that the Second Circuit has indicated should be provided in securities class
actions. See In re Bank of Am. Corp. Sec., Derivative, & Emp. Ret. Income Sec. Act (ERISA)
Litig., 772 F.3d 125, 133 (2d Cir. 2014) (holding that service award request should be supported
by an affidavit demonstrating a “thorough accounting of hours dedicated to the litigation and a
statement that these hours constituted lost work time”). They do not identify any costs that the
named plaintiffs had to bear or that they could have expected to bear. Shareholder derivative
actions based on alleged corporate mismanagement rarely require discovery from or the
depositions of the named plaintiffs. None of the named plaintiffs is alleged to have participated

in court hearings or the mediation. None appears to have taken any personal risk in lending their
name to the lawsuit.
Counsel asserts that the request is based on “the Stockholders’ selfless involvement,
interest, and participation in this action, on behalf of [Aclaris], by virtue of holding ownership in
[Aclaris] and reviewing and authorizing the actions taken in this matter,” without which, they
claim, “none of the substantial benefits in this case could have been achieved.” Dkt. No. 37 at 2.
In short, they did “little but lend a name.” In re MetLife Demutualization Litig., 689 F. Supp. 2d
297, 370 (E.D.N.Y. 2010). They had standing to sue and authorized the lawsuit to be filed in
their names. The interest in providing an incentive for a plaintiff to bring and remain in the
lawsuit thus supports only a nominal award, particularly when there are three named plaintiffs.
Accordingly, the Court will reduce the requested award by half and approve an award of $750 to
each of the named plaintiffs to be paid out of the attorneys’ fee award.
CONCLUSION
The settlement is approved. The Court awards attorneys’ fees and expenses in the
amount of $425,000. The Court approves a service award of $750 to each of the named
plaintiffs to be paid out of the attorneys’ fees award.
The Clerk of Court is respectfully directed to close Dkt. No. 28 and to close the case.
The Clerk of Court is also respectfully directed to close member case 19-cv-10876, Brown v.
Walker et al.

SO ORDERED.
wl MO sn
Dated: December 9, 2021
New York, New York LEWIS J. LIMAN
United States District Judge

16

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10337223. Public record. Not legal advice.