The opinion
Unitepd States District Court
District of Massachusetts
)
Val Kay, )
)
Plaintiff, )
)
v. )
) Civil Action No.
Deb Frodl et al., ) 22-10977-NMG
)
Defendants. )
)
MEMORANDUM & ORDER
GORTON, J.
Plaintiff Val Kay (“Kay” or “plaintiff”) brought a
shareholder derivative action, on behalf on XL Fleet Corp.
(“Company”) against current and former directors and officers
(“defendants”) of the Company and Pivotal Investment Corporation
II (“Pivotal”). After a comprehensive settlement of the case,
she now seeks approval of attorneys’ fees which defendant
opposes (Docket No. 76).
I. Background
XL Hybrids is a Delaware corporation founded in 2009, which
provides electrification solutions for light and medium
commercial vehicles in North America. In 2020, XL Hybrids
entered into a merger agreement with the special purpose
acquisition company (“SPAC”) Pivotal. The resulting company was
renamed XL Fleet Corp. (“the Company”).
Plaintiff, a shareholder of the Company, contends that the
individual defendants induced Pivotal shareholders to approve
the merger with XL Hybrids through a series of false and
misleading statements about the Company’s pipeline figures,
supply chain problems, active and returning customers and
ability to provide the purported technological benefit. As a
result of those alleged omissions and misrepresentations,
defendant’s assessment of the Company’s prospects and future
revenue projections was overstated.
In December, 2020, the merger was completed. Thereafter,
defendants purportedly issued a series of false or misleading
press releases concerning adverse material facts about the
Company’s revenue forecasts, logistics and the due diligence
conducted by the defendants prior to the merger’s completion.
In 2021, a report was published by Muddy Waters, a due diligence
research company, which detailed the alleged misrepresentations
and the actual condition of the Company. As a result of the
report, the stock price of the Company declined significantly.
In June, 2022, plaintiff filed a verified stockholder
derivative complaint in this Court against defendants asserting
violation of the Exchange Act and claims against the individual
defendants for breach of fiduciary duty and abuse of corporate
assts among other things. In January, 2023 the parties filed
and received approval of a joint stipulation to stay this action
until the conclusion of discovery in the related Federal
Securities Action. In March, 2024, the parties reached a
settlement and moved for preliminary approval which the Court
allowed.
Under the terms of the proposed settlement, the Company’s
Board of Directors will address the core wrongdoing addressed in
this action and strengthen the Company’s governance by adopting
immediate reforms which include, but are not limited to: (1)
improvements to the Audit and Compensation Committees; (2)
recoupment of certain incentive-based and performance-based
compensation wrongfully paid to Company officers upon
determination of serious misconduct; (3) creation of an
Investment Committee; and (4) appointment of an additional
independent director. The reforms are to remain in effect for
four years.
In addition to moving for approval of the settlement,
counsel for plaintiff moved for attorney’s fees in the amount of
$2,500,000. Defendants oppose the motion for fees and counter
that no more than $200,000 in fees should be awarded.
In early August, 2024, the Court approved the settlement,
and heard oral argument on the attorneys’ fees matter and took
the latter under advisement.
II. Motion for Attorneys’ Fees
In deciding a motion for an award of attorney’s fees, the
Court may consider the following factors: 1) the benefits
achieved in the action, 2) the presence or absence of
substantial objections, 3) counsel’s skill, standing and
ability, 4) the complexities of the litigation, 5) the financial
risks of non-payment 5) the time devoted by counsel 6) and the
awards made in similar cases. See, e.g., Ford v. Takeda
Pharmaceuticals U.S.A., Inc., 2023 WL 3679031, at * 1 (D. Mass.
Mar. 31, 2023).
A. Benefits of the Reforms
The settlement in this case includes several reforms
including, inter alia, creation of a new independent director to
serve on the Board, empowering the Audit Committee to monitor
internal risk and public reporting compliance, retention of an
independent consultant for compensation related matters, the
formalization of the Investment Committee and appointment of a
lead independent director in the event that the Chair of the
Board and CEO are the same person.
Plaintiff contends that each reform confers substantial
benefit on the Company and justifies the award of substantial
attorneys’ fees. The settlement also commits the Company to
adopt and maintain the reforms for at least four years, a time
frame which plaintiff contends will ensure their endurance.
Defendants respond that the reforms were not nearly as
significant as plaintiff suggests. Specifically, as to the
independent director, defendants insist that the Company had
already appointed a new independent director before the
settlement and that, furthermore the Board was already a
majority independent.
At oral argument, plaintiff clarified that, while a
majority of directors prior to the settlement were “independent”
as defined by the New York Stock Exchange guidelines, the Board
was not majority independent in practical terms because three of
the six directors were allegedly involved with the purported
misrepresentations at the heart of the derivative action. The
Court agrees that to the extent several of the reforms are
redundant of preexisting conditions at the Company, the
formalization of good governance practices is essential to
maintaining compliance with the security laws on a permanent
basis.
B. Comparable Cases
The Court also considers comparable cases when determining
an appropriate award. Plaintiff cites cases in which courts
have awarded substantial attorneys’ fees where the appointment
of an independent director was the primary benefit achieved by
the litigation. See, e.g., Hollywood Firefighters’ Pension Fund
v. Malone, 2021 WL 5179219 (Del. Ch. Nov. 8, 2021). She also
cites purportedly similar derivative actions that were settled
at the pleading stage and resulted in awards of attorneys’ fees
in excess of $3,500,000. See In re CoreCivic, Inc. S’holder
Derivative Litig., No. 3:16-CV-03040 (M.D. Tenn. Dec. 2, 2022).
Defendants rejoin that other cases cited by plaintiff are
distinguishable because 1) most of the attorneys’ fees awarded
were negotiated and agreed-to by all parties and 2) the
settlements included both significant monetary payments and
governance reforms. The Court agrees with defendant and finds
that most of the cases cited by plaintiff are distinguishable
from the case at bar.
Furthermore, plaintiff does not adequately take into
account the lodestar calculations in the allegedly analogous
cases. For instance, in In re Southern Co. S’holder Derivative
Litig., 2022 WL 4545614 (N.D. Ga. 2022), the settlement included
only corporate governance reforms and the parties had agreed to
a fee award of $4.16M, which represented a lodestar multiplier
of 0.84.
C. Complexity
The parties dispute the degree of complexity involved in
the litigation. Defendant contends that plaintiff primarily
“piggybacked” off the related securities litigation. At oral
argument, plaintiff asserted that all the related litigation
concerning XL Fleet stemmed from the same Muddy Waters report on
misrepresentations by the Company.
The Court also acknowledges defendant’s contention that the
litigation in this case did not reach dispositive motions or
discovery. See In re Oclaro, Inc. Derivative Litig., No. C-11-
3176 EMC, 2014 WL 4684993, at *6 (reducing fees where plaintiffs
“essentially piggybacked” on related securities class actions).
Unlike some of the cases cited by defendant, however, this case
was not settled immediately and the Court gives credence to
plaintiff’s effort to facilitate a global resolution.
D. Quality of Representation and Risk of Non-payment
Plaintiff contends that counsel provided high caliber
representation and pursued the action on a fully contingent
basis, without any assurance of receiving any fees or
reimbursement for their out-of-pocket expenses. While there is
nothing unusual about plaintiff’s counsel taking cases such as
this one on a contingency basis, the Court acknowledges that
fact in plaintiff’s favor.
E. Hours Expended and Lodestar
Plaintiff explains that
in the First Circuit, a lodestar calculation is not
required. Nonetheless, one may be performed as a
cross-check to ensure that the [fee] award is fair and
reasonable.
Ford, 2023 WL 3679031, at *2 (citing In re Thirteen Appeals
Arising out of the San Juan Dupont Plana Hotel Fire Litig., 56
F.3d 296, 307 (1st Cir. 1995)). Not including litigation
expenses, which this Court has already allowed, plaintiff has
calculated her lodestar fee at just under $1 million.
Plaintiff contends that a multiplier of approximately 2.5
is reasonable, given the substantial benefits received and the
range of multipliers approved in other security and stockholder
derivative actions.
Defendants reply that the mean multiplier in other follow-
on derivative suits is around 0.94. The related Securities
Class Action, which was initiated prior to this stockholder
derivative actions, used a multiplier of 1.33 and imposed a
larger risk on counsel.
F. Conclusion
An analysis of the factors above demonstrates that both
parties make persuasive arguments in different respects.
Defendant understates the impact of the independent director and
plaintiff overstates the comparability of the cases she cites as
analogous. The appropriate award is in between the divergent
poles suggested by the parties. The lodestar is a helpful
indicator as to the reasonableness of the request and the Court
is convinced that a multiplier of 1 is suitable in this case
which did result in substantial reforms but also was resolved
without resort to dispositive motions and with the assistance of
other litigation. The 1.33 lodestar multiplier awarded in the
related Securities Class Action is similarly instructive. The
Court will award plaintiff, $1,000,000 in attorneys’ fees, i.e.
his approximate lodestar with no upward or downward multiplier.
ORDER
For the foregoing reasons, the motion of plaintiff, Val
Kay, for attorneys’ fees (Docket No. 76) is ALLOWED, in part,
and DENIED, in part. Plaintiff is awarded attorneys’ fees in
the amount of One Million Dollars ($1,000,000).
So ordered.
_/s/ Nathaniel M. Gorton__
Nathaniel M. Gorton
United States District Judge
Dated: August 14, 2024