Case Name: In re Yahoo! Inc. Shareholder Litigation
Case No.: 17-CV-307054 (lead case)

These consolidated shareholder and derivative actions arise from the sale of the operating assets of Yahoo! Inc. (now Altaba Inc.) to Verizon Communications Inc., and from undisclosed security breaches that preceded the sale. The parties have reached a settlement, which the Court preliminarily approved on October 26, 2018. The factual and procedural background of the action and the Court’s analysis of the settlement are set forth in the order granting preliminary approval.

Before the Court are plaintiffs’ motions for final approval of the settlement and for approval of their attorney fees, costs, and service awards. Plaintiffs’ motions are unopposed.

I. Legal Standard for Approving a Derivative Settlement

“A court reviewing a settlement agreement considers whether the proposed settlement is fair and reasonable in light of all relevant factors. [Citations.] 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, 445.) “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.) Thus, in evaluating the fairness of the derivative aspects of this settlement, the Court’s analysis is guided by relevant legal authorities regarding the approval of class action settlements.

Generally, “questions whether a settlement was fair and reasonable, whether notice to the class was adequate, … and whether the attorney fee award was proper are matters addressed to the trial court’s broad discretion.” (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 234-235, citing Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, disapproved of on other grounds by Hernandez v. Restoration Hardware, Inc. (2018) 4 Cal.5th 260.)

In determining whether a class settlement is fair, adequate and reasonable, the trial court should consider relevant factors, such as the strength of plaintiffs’ case, the risk, expense, complexity and likely duration of further litigation, … the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of the class members to the proposed settlement.

(Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at pp. 244-245, internal citations and quotations omitted.)

The list of factors is not exclusive and the court is free to engage in a balancing and weighing of factors depending on the circumstances of each case. (Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at p. 245.) The court must examine 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., quoting Dunk v. Ford Motor Co., supra, 48 Cal.App.4th at p. 1801, internal quotation marks omitted.)

The burden is on the proponent of the settlement to show that it is fair and reasonable. However “a presumption of fairness exists where: (1) the settlement is reached through arm’s-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small.”

(Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at p. 245, citing Dunk v. Ford Motor Co., supra, 48 Cal.App.4th at p. 1802.)

The presumption does not permit the Court to “give rubber-stamp approval” to a settlement; in all cases, it must “independently and objectively analyze the evidence and circumstances before it in order to determine whether the settlement is in the best interests of those whose claims will be extinguished,” based on a sufficiently developed factual record. (Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 130.)

II. Terms and Notice of the Settlement

The parties’ agreement provides that $29 million will be paid by the insurance carriers of the individual defendants and Verizon, as separately agreed by them, in settlement of this consolidated action, as well as the Delaware Action and the Federal Derivative Action (which are discussed in the Court’s order granting preliminary approval). Plaintiffs’ counsel’s fees and expenses, along with service awards to the named plaintiffs, will be deducted before the remaining funds are paid to Altaba. Pursuant to the settlement, the Delaware Action, the Federal Derivative Action, and the Writ Action (also discussed in the Court’s prior order) will all be dismissed with prejudice. The putative class claims in this action will also be dismissed.

Plaintiffs’ counsel will seek a fee award of up to 30 percent of the settlement, as well as up to $250,000 in litigation expenses. Service awards of $10,000 to plaintiff Spain and $5,000 to the other named plaintiffs herein will also be requested. Altaba has further agreed to pay plaintiffs’ counsel an additional $2 million in fees for their work on the Proxy Litigation, in recognition of the benefits to Altaba and its shareholders that resulted from those efforts in the form of supplemental disclosures associated with the sale to Verizon.

In exchange for these benefits, the named plaintiffs have agreed to release, on behalf of themselves and derivatively on behalf of Altaba, all claims, rights, etc. that (i) they asserted in this action or (ii) that they or any other shareholder could have asserted derivatively, that Altaba could have asserted directly, or that the named plaintiffs could have asserted directly in any forum and that relate to a settling plaintiff’s status as a Yahoo! stockholder and arise out of or are based upon the facts, matters, etc. alleged herein. Expressly excluded from the release are claims alleged in the Federal Customer and Securities Class Actions, and the claims in Yahoo! Inc. Private Information Disclosure Cases (Super. Ct. Orange County, JCCP 4895).

The notice process has now been completed, and there are no objections to the settlement. Defendants’ counsel has submitted a declaration confirming that on October 31, 2018, the long-form notice approved by the Court was posted to Altaba’s web site and the summary notice was filed with the SEC. The summary notice was also published twice in Investor’s Business Daily, on November 5 and November 12.

At preliminary approval, the Court found that the proposed settlement provides a fair and reasonable compromise to plaintiffs’ claims. It finds no reason to deviate from this finding now, especially considering that there are no objections. The Court consequently finds that the settlement is fair and reasonable for purposes of final approval.

III. Attorney Fees, Costs, and Incentive Awards

There are two aspects to the attorney fee award requested by plaintiffs, which defendants have agreed not to oppose. First, plaintiffs request an award of $8,645,244, around thirty percent of the $29 million monetary settlement. Second, they seek an additional $2 million in fees for their efforts in the Proxy Litigation, which resulted in the provision of supplemental disclosures to shareholders before they voted to approve the sale to Verizon. Such a dual-pronged fee award is appropriate in a derivative case where the plaintiffs achieved both the creation of a common fund and a substantial non-monetary benefit for the corporation and its shareholders. (See Cziraki v. Thunder Cats, Inc. (2003) 111 Cal.App.4th 552, 554.)

“[A] court approving a negotiated fee in a derivative suit must determine if the fee is fair and reasonable ….” (Robbins v. Alibrandi, supra, 127 Cal.App.4th at pp. 448-449.) The court should “review the circumstances leading up to the settlement to ensure that the process was fair and free from fraud or collusion” and “consider whether the negotiated fee will result in unwarranted harm to the corporation and the shareholders, such as would be the situation if the cost of the settlement to the corporation [considering, inter alia, increased insurance premiums] far exceeded its value to the corporation and shareholders.” (Id. at pp. 449-450.) Here, the process preceding the settlement, described in the Court’s preliminary approval order, was robust and appears to have been fair and free from fraud or collusion. Counsel’s fee was negotiated separately from the substantive terms of the settlement with the assistance of Judge Weinstein. These circumstances support approval of the negotiated fee, but the Court must still independently evaluate its fairness in light of the value of the settlement to Altaba and its shareholders.

The first aspect of the fee award is properly evaluated under the common fund doctrine. In California, fee awards of twenty-five to thirty-three percent are routinely approved under this doctrine (see Consumer Privacy Cases (2009) 175 Cal.App.4th 545, 55 fn. 13); in Delaware, derivative actions settled after “meaningful litigation efforts” often yield a twenty-five percent award (see Americas Mining Corp. v. Theriault (Del. 2012) 51 A.3d 1213, 1259-1260). Here, plaintiffs’ fee request is supported by a lodestar figure of $5,836,627, based on 9,510 hours spent on the case by attorneys and other professionals with billing rates ranging from $175 to $1,250 per hour. The fee request results in a multiplier of 1.83, accounting for the additional $2 million award requested in connection with the Proxy Litigation. As a cross-check, the lodestar supports the fees requested, particularly given the lack of objections to the attorney fee request. (See Laffitte v. Robert Half Intern. Inc. (Cal. 2016) 1 Cal.5th 480, 488, 503-504 [trial court did not abuse its discretion in approving fee award of 1/3 of the common fund, cross-checked against a lodestar resulting in a multiplier of 2.03 to 2.13].) While the thirty percent requested is on the high side of percentage awards in derivative cases, here, the award is justified given the substantial time expended by counsel on the case, the significant risk of no recovery, and the good result achieved for the shareholders. A monetary recovery is particularly beneficial here, where Altaba is in the process of winding up its affairs and terminating its existence.

The second aspect of plaintiffs’ fee request is analyzed under the substantial benefit doctrine. “Although [a] negotiated fee need not be perfectly consistent with the fees the court would award under the ‘substantial benefit doctrine,’ it must be in the same range.” (Robbins v. Alibrandi, supra, 127 Cal.App.4th at p. 451.) The court may evaluate the value of the attorneys’ work “in a number of ways, depending on factors such as the nature of the case, the nature of the settlement and court’s familiarity with the litigation. The means of making this determination are best left to the trial court….” (Id. at p. 452.)

Here, Yahoo! agreed to issue several supplemental disclosures in response to plaintiffs’ motion for a preliminary injunction in the Proxy Litigation. Several of these disclosures were material and support the $2 million requested.

Plaintiffs also request $182,520 in litigation expenses, below the $250,000 estimate provided at preliminary approval. The costs are reasonable based on the summaries provided and are approved.

Finally, plaintiffs request service awards of $10,000 to plaintiff Spain and $5,000 to the other named plaintiffs. To support her request, plaintiff Spain submits a declaration in which she describes her efforts on the case, estimating she spent 95 hours on the matter. The two other named California plaintiffs also submit declarations, which reflect that they spent significantly less time on the case than Spain. The Court finds that the class representatives are entitled to an enhancement award and the amounts requested are reasonable.

IV. Conclusion and Order

Plaintiffs’ motion for final approval of the settlement is GRANTED. Plaintiffs’ motion for an award of attorney fees, expenses, and service awards is also GRANTED.

The Court will prepare the order.