JS Halberstam Irrevocable Grantor Trust v. Davis

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

JS HALBERSTAM IRREVOCABLE Case No. 3:21-cv-413-SI

GRANTOR TRUST, Derivatively and on

behalf of Portland General Electric OPINION AND ORDER

Company,

Plaintiff,

Vv.

JACK E. DAVIS; JOHN W.

BALLANTINE; RODNEY L. BROWN,

JR.; KIRBY A. DYESS; MARK B. GANZ;

MARIE OH HUBER; KATHRYN J.

JACKSON, PH.D.; MICHAEL A. LEWIS;

MICHAEL H. MILLEGAN; NEIL J.

NELSON, M. LEE PELTON, PH.D;

MARIA M. POPE; CHARLES W.

SHIVERY; JAMES P.

TORGERSON; and JAMES LOBDELL,

Defendants,

and

PORTLAND GENERAL ELECTRIC

COMPANY,

Nominal Defendant.

PAGE 1 — OPINION AND ORDER

Michael G. Hanlon, LAW OFFICES OF MICHAEL G. HANLON PC, 101 SW Main Street, Suite 825,

Portland, OR 97204; and David C. Katz, Mark D. Smilow, and Joshua M. Rubin, WEISSLAW

LLP, 305 Broadway, Seventh Floor, New York, NY 10007. Of Attorneys for Plaintiffs JS

Halberstam Irrevocable Trust.

Paul H. Trinchero and Eryn K. Hoerster, FOSTER GARVEY PC, 121 SW Morrison Street, 11th

Floor, Portland, OR 97204; Dallas S. DeLuca and Stanton R. Gallegos, MARKOWITZ HERBOLD

Pc, 1455 SW Broadway, Suite 1900, Portland, OR 97201; and Susan L. Saltzstein, Alexander C.

Drylewski, and Shaud G. Tavakoli, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, One

Manhattan West, New York, NY 10001. Of Attorneys for Defendants.

Michael H. Simon, District Judge.

Plaintiff JS Halberstam Irrevocable Grantor Trust brings this derivative action on behalf

of nominal Defendant Portland General Electric (PGE) against several directors, board members,

and executives at PGE. The parties have reached a Stipulation and Agreement of Settlement

(Settlement) and now seek the Court’s final approval under Rule 23.1 of the Federal Rules of

Civil Procedure. For the reasons explained below, the Court approves the Settlement.!

BACKGROUND

The Actions arise out of alleged misrepresentations about PGE’s energy trading practices.

Plaintiff Halberstam? alleges that PGE maintained a risk-averse, conservative profile that led

investors and analysts to characterize PGE as a low-risk investment. Plaintiff further alleges that

this low-risk profile was especially important to PGE given its relationship with Enron Corp.

' The Settlement fully resolves all derivative claims against all Defendants in this lawsuit,

JS Halberstam Irrevocable Grantor Trust v. Davis, Case No. 3:21-cv-00413-SI (D. Or.) (the

Halberstam Action), as well as in Shimberg v. Pope, et al., Case No. 21CV02957 (Multnomah

Co. Cir. Ct.) (filed January 26, 2021) (the Shimberg Action); Ashabraner vy. Pope et al., Case

No. 21CV13698 (Multnomah Co. Cir. Ct.) (filed April 7, 2021) (the Ashabraner Action); and

Berning, et al. vs. Pope, et al., Case No. 3:21-cv-00783-SI (D. Or.) (filed May 21, 2021) (the

Berning Action). The Court refers to the Halberstam Action, the Shimberg Action, the

Ashabraner Action, and the Berning Action collectively as the Actions.

* Unless otherwise explicitly stated, “Plaintiff” refers to Plaintiff Halberstam, although

the claims asserted in the Shimberg Action, the Ashabraner Action, and the Berning Action are

substantially similar to the claims asserted in the Halberstam Action.

PAGE 2 — OPINION AND ORDER

before Enron filed for bankruptcy. As with other power companies, PGE allegedly traded within

the energy market to hedge against the uncertainty of future energy prices. This price-hedging

form of energy trading is known as trading for “retail purposes.” Plaintiff alleges that beginning

in early 2020, PGE also engaged in energy trading for “non-retail purposes,” that is, energy

trading for the purpose of directly generating profits. As a result, Plaintiff contends, PGE’s

statements in its filings with the Securities and Exchange Commission stating that PGE did not

engage in energy trading practices for non-retail purposes were false or misleading. In August

2020, PGE announced that it suffered a $127 million loss due to these high-risk non-retail trades.

After PGE’s announcement, its stock price dropped by 8.4 percent.

This derivative lawsuit and a related securities fraud class action followed. In the

securities fraud class action (Case No. 3:20-cv-1583-S]), the plaintiff stockholders alleged that

PGE and its executives violated the Securities and Exchange Act by making false or misleading

statements about PGE’s energy trading practices. The parties reached a settlement in that case,

and this Court has approved that settlement.

In this derivative lawsuit, Plaintiff asserts claims for violations of the Securities and

Exchange Act, breach of fiduciary duty, waste of corporate assets, contribution and

indemnification, aiding and abetting, and gross mismanagement. Before Defendants filed any

motion to dismiss, the parties reached a settlement. The Court preliminarily approved the

Settlement on March 28, 2022. Now before the Court is Plaintiff's unopposed motion for final

approval of the Settlement and award of attorney’s fees, expenses, and service awards.

PAGE 3 — OPINION AND ORDER

DISCUSSION

A. Settlement Approval

1. General Standards

Under 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).

Courts assess settlements of derivative claims using the standards for settlements under

Rule 23(e), which requires that a settlement is “fair, reasonable, and adequate.” Fed. R. Civ.

23(e)(2); see Inre Pac. Enters. Sec. Litig., 47 F.3d 373, 377 (9th Cir. 1995) (applying

Rule 23(e) to settlement of derivative action). The settlement must be considered as a whole, and

although there are “strict procedural requirements on the approval of a class settlement, a district

court’s only role in reviewing the substance of that settlement is to ensure it is ‘fair, adequate,

and free from collusion.’” Lane v. Facebook, Inc., 696 F.3d 811, 818-19 (9th Cir. 2012) (quoting

Hanlon vy. Chrysler Corp., 150 F.3d 1011, 1027 (9th Cir. 1998)).

In a class settlement, a court must consider whether: “(A) the class representatives and

class counsel have adequately represented the class; (B) the proposal was negotiated at arm’s

length; (C) the relief provided for the class is adequate; and (D) the proposal treats class

members equitably relative to each other.” Fed. R. Civ. P. 23(e)(2). The Ninth Circuit has

articulated a number of factors guiding this review, including: (1) the strength of the plaintiffs’

case; (2) the risk, expense, complexity, and likely duration of further litigation; (3) the risk of

maintaining class action status throughout the trial; (4) the amount offered in settlement; (5) the

extent of discovery completed and the stage of the proceedings; (6) the experience and views of

counsel; (7) the presence of a governmental participant; and (8) the reaction of the class

members to the proposed settlement. Lane, 696 F.3d at 819. Courts within the Ninth Circuit “put

PAGE 4 — OPINION AND ORDER

a good deal of stock in the product of an arms-length, non-collusive, negotiated resolution.”

Rodriguez v. W. Publ’g Corp., 563 F.3d 948, 965 (9th Cir. 2009).

The Ninth Circuit has also recognized that “[j]udicial review also takes place in the

shadow of the reality that rejection of a settlement creates not only delay but also a state of

uncertainty on all sides, with whatever gains were potentially achieved for the putative class put

at risk.” Staton v. Boeing Co., 327 F.3d 938, 952 (9th Cir. 2003). Thus, there is a “strong judicial

policy that favors settlements, particularly where complex class action litigation is concerned.”

Inre Hyundai & Kia Fuel Econ. Litig., 926 F.3d 539, 556 (9th Cir. 2019) (en banc) (quoting

Allen vy. Bedolla, 787 F.3d 1218, 1223 (9th Cir. 2015)).

2. Strength of Plaintiff?s Case; Risk, Expense, Complexity, and Likely Duration of

Future Litigation

Plaintiff contends that although it believes it has meritorious claims, proceeding with this

litigation would be risky. Plaintiff would have to overcome Defendants’ anticipated motion to

dismiss in part by demonstrating that particularized alleged facts show futility of making a

demand on the board of directors under /n re Caremark Int'l Inc. Derivative Litig., 698 A.2d 959

(Del. Ch. 1996). Plaintiff also explains that even if its claims survive a motion to dismiss,

Plaintiff would continue to face additional hurdles at subsequent stages of litigation, such as

overcoming the business judgment rule, overcoming the exculpatory provisions of PGE’s

Articles of Incorporation, responding to any motion to dismiss filed by PGE’s Special Litigation

Committee, and proving damages. See also Inre Pac. Enters. Sec. Litig., 47 F.3d at 378 (stating

that “the odds of winning” a derivative lawsuit “are extremely small’). Besides the risk of

dismissal before trial or loss at trial, continued litigation would be expensive and time-

consuming. Thus, given the parties’ uncertainty of the outcome and the complexity of this case,

these factors favor approval of the Settlement Agreement.

PAGE 5 — OPINION AND ORDER

3. Terms of the Settlement

Plaintiffs’ counsel represents that the terms of the Settlement will confer substantial non-

monetary benefits to PGE. Under the terms of the Settlement, PGE agreed to make changes to its

Executive Risk Committee, Audit & Risk Committee, Nominating & Corporate Governance

Committee, and corporate government guidelines, as well as to continue its whistleblower policy

and formalize the job duties of the Corporate Compliance Officer. Plaintiff represents that these

corporate governance reforms will provide structural changes to ensure greater supervision over

energy trading risks and reporting. The Court finds that these structural reforms will benefit PGE

and therefore favors approval.

4. Extent of Discovery Completed

Formal discovery is not required before a class action settlement. Linney v. Cellular

Alaska P’ship, 151 F.3d 1234, 1239-40 (9th Cir. 1998). Rather, “[a]pproval of a class action

settlement is proper as long as discovery allowed the parties to form a clear view of the strengths

and weaknesses of their cases.” Monterrubio v. Best Buy Stores, L.P., 291 F.R.D. 443, 454 (E.D.

Cal. 2013). The parties assert that although this case settled before formal discovery, they

nevertheless exchanged sufficient information adequately to determine the strengths and

weaknesses of their positions. The parties exchanged information during negotiations, during

mediation sessions, in mediation statements, and in briefing Defendants’ motion to dismiss.

Further, Plaintiffs conducted extensive investigation before filing their Complaint. Thus, this

factor does not weigh against approval. See Zepeda v. PayPal, Inc., 2017 WL 1113293, at *14

(N.D. Cal. Mar. 24, 2017) (concluding that although the parties had not engaged in formal

discovery, “the parties informally exchanged information and documents in connection with the

three prior mediations conducted in this action,” which favored approval of the settlement).

PAGE 6 — OPINION AND ORDER

5. Experience and Views of Counsel

“Parties represented by competent counsel are better positioned than courts to produce a

settlement that fairly reflects each party’s expected outcome in litigation.” Jn re Pac. Enters. Sec.

Litig., 47 F.3d at 378. Although counsel’s views are instructive, they do not entitle the settlement

to a presumption of fairness. See Roes, 1-2 v. SFBSC Mgmt., LLC, 944 F.3d 1035, 1049 (9th

Cir. 2019). The Court is satisfied that Plaintiff's counsel has extensive experience litigating

derivative actions and that Defendants’ counsel are experienced litigators. Thus, the

recommendation from the parties’ counsel that the Settlement is fair, reasonable, and adequate

favors approval.

6. Reaction of the PGE Stockholders to the Settlement

Plaintiffs published notice of the pending settlement and agreed-upon attorney’s fees and

costs on April 4, 2022. See ECF 37. No PGE stockholder has objected to the Settlement. This

factor favors approval.

7. Evidence of Collusion

Courts must scrutinize fee arrangements for signs of collusion before approving a class

action or derivative settlement. Briseno v. Henderson, 998 F.3d 1014, 1026 (9th Cir. 2021)

(holding that courts must look for signs of collusion in pre- and post-class certification

settlements); In re Pac. Enters. Sec. Litig., 47 F.3d at 378 (stating that courts may not approve a

derivative settlement that “is the product of... collusion among[] the negotiating parties”). The

Ninth Circuit has identified three signs of collusion: (1) class counsel receives a disproportionate

distribution of the settlement, or when the class receives no monetary distribution but counsel is

amply awarded; (2) the parties negotiate a “clear sailing” arrangement providing for the payment

of attorneys’ fees separate and apart from class funds without objection by a defendant; or (3) the

PAGE 7 — OPINION AND ORDER

parties arrange for payments not awarded to revert to a defendant rather than to be added to the

class fund. Jn re Bluetooth, 654 F.3d at 947.

The Settlement contains a clear sailing provision, which is a sign of potential collusion.

See ECF 32-1, ¥ 14. Under that provision, Defendant agreed not to object to Plaintiffs request

for up to $750,000 in attorney’s fees and costs. Jd. The arm’s length nature of the parties’

negotiation, however, shows that despite the clear sailing provision, the parties engaged in no

collusion. The parties reached a Settlement after undergoing a day-long mediation session with

an experienced mediator followed by months of negotiations. Further, the parties reached

agreement on fees using double-blind mediator proposals and only after they had agreed to the

substantive terms of the Settlement. Thus, the Court finds the Settlement is not a product of

collusion.

8. Conclusion

The above factors support approval. The Court therefore finds that the Settlement is fair,

reasonable, and adequate.

B. Attorney’s Fees

Plaintiffs may be awarded attorney’s fees in derivative suits if the resolution of the claim

confers a “substantial benefit” on the corporation. See Mills v. Elec. Auto-Lite Co., 396 U.S. 375,

393-95 (1970); In re Taronis Techs., Inc. S’*holder Derivative Litig., 2021 WL 842137, at *3 (D.

Ariz. Mar. 5, 2021) (“Courts have consistently approved attorneys’ fees and expenses in

shareholder actions where the plaintiffs’ efforts resulted in corporate governance reforms but no

monetary relief.”). In determining the appropriate measure of attorney’s fees, the court must

exercise its discretion to achieve a “reasonable” result. In re Bluetooth, 654 F.3d at 942. The

lodestar method “is especially appropriate in class actions ‘where the relief sought—and

obtained—is . . . primarily injunctive.’” Kim vy. Allison, 8 F.4th 1170, 1181 (9th Cir. 2021); see

PAGE 8 — OPINION AND ORDER

also Osher v. SCA Realty I, Inc., 945 F. Supp. 298, 307 (D.D.C. 1996) (“Courts generally regard

the lodestar method, which uses the number of hours reasonably expended, as the best approach

in cases where the nature of the settlement evades the precise evaluation needed for the

percentage of recovery method.”).

The lodestar amount is the product of the number of hours reasonably spent on the

litigation multiplied by a reasonable hourly rate. McCown v. City of Fontana, 565 F.3d 1097,

1102 (9th Cir. 2009). In making this calculation, the district court should take into consideration

various factors of reasonableness, including the quality of an attorney’s performance, the results

obtained, the novelty and complexity of a case, and the special skill and experience of counsel.

See Perdue, 559 U.S. at 553-54; Gonzalez v. City of Maywood, 729 F.3d 1196, 1209 n.11 (9th

Cir. 2013).

The Court is satisfied that the Settlement’s corporate governance reforms confer a

substantial benefit on PGE because they are designed to prevent the conduct at issue in this

litigation from happening again. To determine whether Plaintiffs request for $721,564.48 in

attorney’s fees is reasonable, the Court will calculate Plaintiffs lodestar. Plaintiff's counsel

submits that it reasonably expended 1,053.45 hours in litigating this case and reaching a

settlement. Plaintiff's counsel expended these hours inspecting and analyzing PGE’s Securities

and Exchange Committee filings, reviewing documents obtained under Oregon Revised Statues

§ 60.774, drafting the complaint, drafting an extensive mediation statement, attending a

mediation session, and engaging in negotiations with Defendant during the months following the

mediation. Plaintiff's counsel represents that it deducted some time and expense in exercise of

their judgment before submitting billing information to the Court for a lodestar calculation. See

PAGE 9 — OPINION AND ORDER

ECF 36-8, 4 6; 36-10, J 6; 36-13, 4 6. The court finds that 1,053.45 hours is a reasonable number

of hours to achieve these results.

Plaintiffs counsel’s billing rates for attorneys ranged from $220 to $1,050 and $70 to

$375 for paralegals. Plaintiffs counsel represents that these billing rates are customary for

attorneys and paralegals in their fields. The Court is satisfied that these are reasonable hourly

rates for complex federal litigation in the relevant communities. See Barjon v. Dalton, 132

F.3d 496 (9th Cir. 1997) (“Generally, the relevant community is the forum in which the district

court sits. However, rates outside the forum may be used ‘if local counsel was unavailable, either

because they are unwilling or unable to perform because they lack the degree of experience,

expertise, or specialization required to handle properly the case.’” (citation omitted)

(quoting Gates v. Deukmejian, 987 F.2d 1392, 1405 (9th Cir. 1992)); United Steelworkers of Am.

v. Phelps Dodge Corp., 896 F.2d 403, 407 (9th Cir. 1990) (stating that in determining reasonable

hourly rates, “[a]ffidavits of the plaintiffs’ attorney and other attorneys regarding prevailing fees

in the community, and rate determinations in other cases, particularly those setting a rate for the

plaintiffs’ attorney, are satisfactory evidence of the prevailing market rate”).

The Court finds that the information provided is sufficient to conclude that Plaintiff's

lodestar is $794,164.25. Plaintiff seeks $721,564.48 in attorney’s fees, which constitutes a 0.91

multiplier. The Court finds that the attorney’s fee award of $721,564.48 is reasonable. See

Littlejohn v. Copland, 819 F. App’x 491, 494 (9th Cir. 2020) (affirming a 1.5 lodestar multiplier

for a settlement providing only injunctive relief).

C. Expenses

Plaintiffs also seek recovery of $28,435.52 in expenses. These costs include expenses for

mediation, travel, factual and legal research, filing fees, photocopying, and pro hac vice costs.

Court finds that these expenses have been reasonably and necessarily incurred in this case. See,

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e.g., Wininger v. SI Mgmt., L.P., 301 F.3d 1115, 1120-21 (9th Cir. 2002) (“[J]urisdiction over a

fund allows for the district court to spread the costs of the litigation among the recipients of the

common benefit.”); Jn re Media Vision Tech. Sec. Litig., 913 F. Supp. 1362, 1366 (N.D.

Cal. 1996) (“Reasonable costs and expenses incurred by an attorney who creates or preserves a

common fund are reimbursed proportionately by those class members who benefit by the

settlement.”). The Court therefore approves the award of $28,435.52 in the Settlement for

expenses.

D. Service (or Incentive) Award

Plaintiffs seek approval of four service (or inventive) awards of $2,000 each to be

deducted from the attorney’s fees and cost award and paid to the four representative plaintiffs in

the four cases comprising the Actions. “Incentive awards are payments to class representatives

for their service to the class in bringing the lawsuit.” Radcliffe, 715 F.3d at 1163.

“An incentive payment to come from the attorneys’ fees awarded to plaintiff's counsel need not

be subject to intensive scrutiny, as the interests of the corporation, the public, and the defendants

are not directly affected.” In re OSI Sys., Inc. Derivative Litig., 2017 WL 5642304, at *5 (C.D.

Cal. May 2, 2017) (quoting Cendant, 232 F. Supp. 2d 327, 344 (D.N.J. 2002)). The Court finds

that the requested incentive award is reasonable.

CONCLUSION

The Court GRANTS Plaintiffs unopposed motion for final approval of the proposed

settlement, ECF 35. The Court awards Plaintiffs counsel $721,564.48 in attorney’s fees and

$28,435.52 in expenses. The Court also authorizes $8,000 in total service (or incentive) awards,

3 Those plaintiffs are JS Halberstam Irrevocable Grantor Trust, Michael Shimberg,

Melisa Ashabraner, and Jason Berning. See n.1, supra.

PAGE 11 —OPINION AND ORDER

payable $2,000 each to JS Halberstam Irrevocable Grantor Trust, Michael Shimberg, Melisa

Ashabraner, and Jason Berning and to be deducted from the attorney’s fee and expense award.

The Court retains jurisdiction over the parties and all matters relating to the Settlement, including

the administration, interpretation, construction, effectuation, enforcement, and consummation of

the Settlement and this Opinion and Order.

IT ISSO ORDERED.

DATED this 9th day of May, 2022.

United States District Judge

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