SUPERIOR COURT OF CALIFORNIA
COUNTY OF SANTA CLARA

ROBERT SHAFFER, derivatively and on behalf of EXTREME NETWORKS, INC.,

Plaintiff,

vs.

JOHN H. KISPERT, EDWARD B. MEYERCORD, III, CHARLES CARINALLI, EDWARD H. KENNEDY, JOHN C. SHOEMAKER, RAJ KHANNA, RANDI PAIKOFF FEIGIN, MAURY AUSTIN, CHARLES W. BERGER, JOHN T. KURZWEIL, and KEN AROLA,

Defendants,

and

EXTREME NETWORKS, INC.,

Nominal Defendant.
Case No. 2016-1-CV-291726

TENTATIVE RULING RE: MOTION FOR FINAL APPROVAL OF DERIVATIVE SETTLEMENT

The above-entitled action comes on for hearing before the Honorable Thomas E. Kuhnle on May 3, 2019, at 9:00 a.m. in Department 5. The Court now issues its tentative ruling as follows:

I. INTRODUCTION

This is a shareholder derivative action. According to the allegations of the Verified Shareholder Derivative Complaint (“Complaint”), filed on February 18, 2016, on October 31, 2013, Extreme Networks completed the acquisition of Enterasys Networks, Inc. (Complaint, ¶ 3.) Extreme Networks also entered into strategic partnerships, one of which was with Lenovo Group Ltd. (Complaint, ¶ 4.) Plaintiff alleges a number of statements made with regard to the acquisition and strategic partnerships were materially false and/or misleading and/or failed to disclose certain information. (Complaint, ¶ 7.) When the market learned of Extreme Networks’ undisclosed operational and financial difficulties, on April 20, 2015, the stock price dropped 25%. (Complaint, ¶ 8.)
The Complaint sets forth the following causes of action: (1) Breach of Fiduciary Duty; (2) Abuse of Control; (3) Gross Mismanagement; and (4) Unjust Enrichment.

The parties have reached a settlement. On January 11, 2019, the Court granted preliminary approval of the settlement. Plaintiff Robert Shaffer (“Plaintiff”) now moves for final approval of the settlement.

II. LEGAL STANDARD

A court reviews the settlement of a derivative suit as a means of protecting the interests of those who are not directly represented in the settlement negotiations. (Robbins v. Alibrandi (2005) 127 Cal.App.4th 438, 449.) A court must therefore scrutinize the proposed settlement agreement to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement, taken as a whole, is fair, reasonable and adequate to all concerned. (Ibid.) “The duty of a court reviewing a settlement of a class action provides a useful analogy because the court in such cases seeks to protect the members of the class who, like the corporation and non-named shareholders in a derivative suit, may have no independent representation and little control over the action.” (Id. at p. 449, fn. 2.)

III. DISCUSSION

As discussed in connection with the motion for preliminary approval, the settlement provides for several corporate governance reforms. These include the employment of a deputy general counsel whose most significant area of responsibility includes overseeing and coordinating SEC reporting and review of public disclosures; the implementation of a process for public disclosures related to the integration of an acquired business; the formalization of a process for financial modeling related to acquired business; and education and training regarding the reforms. The settlement also provides for a payment of attorneys’ fees and expenses in the amount of $200,000, to be paid by Extreme Networks’ insurer, and a $1,500 service award to Plaintiff, paid out of the fee and expense award.

Notice of the settlement was provided by posting on the investor relations portion of Extreme Networks’ corporate website. (Declaration of David Priebe regarding Shareholder Notice, ¶ 3.) The notice was also issued as a press release on January 25, 2019 and filed with the SEC on Form 8-K. (Id. at ¶¶ 4-5.) As of April 12, 2019, no objections to the settlement were received by Plaintiff’s counsel. (Declaration of Laurence M. Rosen in Support of Plaintiff’s Motion for Final Approval of Derivative Settlement and for an Award of Attorneys’ Fees and Reimbursement of Expenses, ¶ 29.) Plaintiff has filed a Notice of Non-Objection in Further Support of Motion for Final Approval of Derivative Settlement dated April 26, 2019, stating the deadline to object has passed and no objections have been filed.

The Court previously found the settlement is fair because it eliminates the risk and expense of further litigation and provides corporate governance changes that can protect shareholders in the future. The Court continues to make that finding for purposes of final approval.

Plaintiff requests a service award of $1,500 for class representative Robert Shaffer.

The rationale for making enhancement or incentive awards to named plaintiffs is that they should be compensated for the expense or risk they have incurred in conferring a benefit on other members of the class. An incentive award is appropriate if it is necessary to induce an individual to participate in the suit. Criteria courts may consider in determining whether to make an incentive award include: 1) the risk to the class representative in commencing suit, both financial and otherwise; 2) the notoriety and personal difficulties encountered by the class representative; 3) the amount of time and effort spent by the class representative; 4) the duration of the litigation and; 5) the personal benefit (or lack thereof) enjoyed by the class representative as a result of the litigation. These “incentive awards” to class representatives must not be disproportionate to the amount of time and energy expended in pursuit of the lawsuit.

(Cellphone Termination Fee Cases (2010) 186 Cal.App.4th 1380, 1394-1395, quotation marks, brackets, ellipses, and citations omitted.)

The class representative has submitted a declaration in which he states he regularly communicated with class counsel and evaluated and approved the proposed settlement of this case. (Declaration of Plaintiff Robert Shaffer in Support of his Motion for Final Approval of Derivative Settlement and Reimbursement of Expenses and for a Service Award, ¶ 7.) He estimates he spent about 20 hours on the case. (Id. at ¶ 9.) The Court finds the service award is warranted.

The Court also has an independent right and responsibility to review the requested attorneys’ fees and only award so much as it determines reasonable. (See Garabedian v. Los Angeles Cellular Telephone Co. (2004) 118 Cal.App.4th 123, 127-128.) Plaintiff’s counsel requests attorneys’ fees and costs in the amount of $200,000. This is comprised of a lodestar figure for attorneys’ fees of $248,959.50 and costs of $11,226.99. (Declaration of Timothy Brown in Support of Plaintiff’s Motion for Final Approval of Derivative Settlement and for an Award of Attorneys’ Fees and Reimbursement of Expenses, ¶ 7; Declaration of Laurence M. Rosen in Support of Plaintiff’s Motion for Final Approval of Derivative Settlement and for an Award of Attorneys’ Fees and Reimbursement of Expenses, ¶ 61) This results in a negative multiplier for the requested fees when compared to the lodestar. The Court finds the requested fees and costs to be reasonable and they are approved.

The Court will sign the proposed final order and judgment submitted by Plaintiff if this tentative ruling is not contested.

The Court will set a compliance hearing for September 20, 2019 at 10:00 a.m. in Department 5. At least ten court days before the hearing, class counsel and the settlement administrator shall submit a summary accounting of the net settlement fund identifying distributions made as ordered herein, the number and value of any uncashed checks, amounts remitted to Defendant, the status of any unresolved issues, and any other matters appropriate to bring to the court’s attention. Counsel shall also submit an amended judgment as described in Code of Civil Procedure section 384, subdivision (b). Counsel may appear at the compliance hearing telephonically.

NOTICE: The Court does not provide court reporters for proceedings in the complex civil litigation departments. Parties may arrange for a private court reporter to provide services, but those arrangements must be consistent with the local rules and policies posted on the Court’s website.