Graham v. Peltz et al
Filing
49
ORDER granting 18 Plaintiff Graham's Motion to Appoint Lead Counsel and denying 17 Plaintiff Caracci's Motion to Appoint Lead Counsel. Defendants' Motion to Dismiss Plaintiff Graham's Complaint 9 is DENIED AS MOOT. Pla intiff Graham's motion for settlement approval 41 is DENIED as premature. Plaintiff Caracci's motion to file under seal and for relief from the mediation privilege is DENIED as moot. Signed by Judge Timothy S. Black on 12/17/18. (sct)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
____________________________________
)
IN RE THE WENDY’S COMPANY
)
SHAREHOLDER DERIVATIVE ACTION )
____________________________________ )
Case No. 1:16-cv-1153
Judge Timothy S. Black
ORDER GRANTING PLAINTIFF GRAHAM’S MOTION
TO APPOINT LEAD COUNSEL (Doc. 18) and
DENYING PLAINTIFF CARACCI’S MOTION
TO APPOINT LEAD COUNSEL (Doc. 17)
I.
INTRODUCTION
Before the Court are competing motions to appoint lead counsel, and to
consolidate related cases, filed by Plaintiffs James Graham (Doc. 18) and Thomas
Caracci (Doc. 17).
Plaintiffs Graham and Caracci—shareholders of Nominal Defendant The Wendy’s
Company (“Wendy’s”)—both filed separate shareholder derivative lawsuits alleging that
the Individual Defendants—various current and former officers and directors of
Wendy’s—breached their fiduciary duties to the company and its shareholders with
regard to credit card data breaches that occurred at Wendy’s franchised restaurants.1
Graham and Caracci then filed competing motions asking the Court to consolidate the
1
Graham’s Complaint is filed in this action at Doc. 1 (“Graham Complaint”). Caracci’s
Complaint was filed under seal in Case No. 1:17-cv-192 at Doc. 3 (“Caracci Complaint”).
Graham and Caracci actions and appoint their respective attorneys as lead counsel.
(Docs. 17, 18).2
After the Individual Defendants moved to dismiss the Graham Complaint, the
parties agreed that the actions should be consolidated and requested that the Court
suspend all deadlines in both cases and enter a consolidated briefing schedule. (Doc. 28).
The Court granted the parties’ request and entered an Order suspending (1) the Individual
Defendants’ deadline to file a motion to dismiss the Caracci Complaint, and (2) Graham’s
deadline to respond to the Individual Defendants’ motion to dismiss the Graham
Complaint. (Doc. 23 at 2). The Order provided the following schedule:
i)
within forty-five (45) days after entry of an Order consolidating the
Graham Action and appointing lead counsel, lead counsel for the
consolidated action shall either file a consolidated complaint on
behalf of Plaintiffs (the “Consolidated Complaint”) or designate
either the Graham Complaint or the Caracci Complaint as the
operative complaint for the consolidated derivative action;
ii)
the Individual Defendants and Wendy’s shall answer, plead, or
otherwise respond to the Consolidated Complaint or designated
operative complaint within forty-five (45) days after it is filed;
iii)
Plaintiffs’ opposition to any motion by Defendants directed at the
Consolidated Complaint shall be done within forty-five (45) days
after the filing of that motion; and
iv)
any reply to Plaintiffs’ opposition shall be due within thirty (30)
days after Plaintiffs’ opposition is filed.
(Doc. 23 at 2-3).
2
Graham requests appointment of the law firms Strauss & Troy and Faruqi & Faruqi (“Graham’s
Counsel”). Caracci requests appointment of attorney Richard Norton and the law firms Kahn
Swick & Foti, LLC and Newman Ferrara LLP (“Caracci’s Counsel”).
2
The Court has already granted the parties’ motions to the extent they requested
consolidating the Graham and Caracci Actions. (See Dkt. 3/30/18 Notation Order).
At this juncture, the Court must decide whether to appoint Graham’s Counsel or
Caracci’s Counsel as lead counsel in this shareholder derivative litigation.
Also before the Court is Graham’s motion for preliminary approval of a settlement
agreement. In August, 2017, counsel for Nelson Coahn (“Coahn’s Counsel”)—another
shareholder who had previously issued a shareholder demand pursuant to Del. Ch. Ct. R.
23.1—contacted Graham’s Counsel and Caracci’s Counsel to propose an arrangement
whereby their respective law firms would coordinate and work together as equals, in
connection with efforts to explore the potential for, and possibly reach, a settlement on
terms that would benefit the company. (Doc. 40-2 at ¶ 6). Graham’s Counsel agreed
with Coahn’s Counsel to work together as equals; Caracci’s Counsel did not. (Id. at ¶ 7).
On February 12, 2018, Graham’s Counsel and Coahn’s Counsel participated in a
mediation in Atlanta, Georgia. (Doc. 37 at 1). Graham and Coahn eventually reached an
agreement to settle the litigation on behalf of the shareholders and Defendants. (Id.; Doc.
38). Graham has moved for preliminary approval of that settlement (Doc. 41); Caracci
opposes preliminary approval and has requested to be relieved from the mediation
privilege in order to explain his opposition (Doc. 42).
II.
STANDARD
It is well established that the Court may appoint a leadership structure of
plaintiffs’ counsel to coordinate the prosecution of complex litigation. In re Bendectin
Litigation, 857 F. 2d 290, 297 (6th Cir. 1988). The decision regarding appointment of
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lead counsel is within the discretion of the Court. In re Gas Natural Inc., No. 1:13-cv02805, 2014 U.S. Dist. LEXIS 191536, at * 5 (N.D. Ohio March 7, 2014). The principle
that guides the Court in selecting lead counsel is who “will best serve the interest of the
plaintiffs.” Id. (citation omitted). Some factors that courts traditionally consider when
appointing a leadership structure in shareholder derivative actions include: (1) the quality
of the pleadings; (ii) the vigorousness of the prosecution; (iii) the shareholder plaintiffs
that have the largest economic stake in the litigation; and (iv) the competence of counsel.
Id. (citing Fed. R. Civ. P. 23(g)).
Courts have outlined additional factors to consider when ruling on competing
motions for lead counsel, including:
the quality of the pleading that appears best able to represent
the interests of the shareholder class and derivative plaintiffs;
the relative economic stakes of the competing litigations in
the outcome of the lawsuit (to be accorded “great weight”);
the willingness and ability of all contestants to litigate
vigorously on behalf of an entire class of shareholders; the
absence of any conflict between larger, often institutional,
stockholders and smaller stockholders; the enthusiasm or
vigor with which the various contestants have prosecuted the
lawsuit; competence of counsel and their access to resources
necessary to prosecute the claims at issue.
Kubiak v. Barbas, Case No. 3:11-cv-141, 2011 U.S. Dist. LEXIS 65903, at ** 5-6
(S.D. Ohio June 14, 2011) (citing Hirt v. United States Timberlands Serv. Co., No.
19575, 2002 Del. Ch. LEXIS 89, at * 5 (Del. Ch. July 3, 2002)).
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III.
A.
ANALYSIS
Lead Counsel.
The majority of factors the Court is to consider do not favor any particular
attorney or law firm. All of the attorneys seeking appointment have exceptional
credentials and extensive experience litigating complex civil cases. All of the attorneys
seeking appointment have impressive resumes, experience in prosecuting derivative
lawsuits, access to the resources necessary to prosecute the claims at issue, and possess
the desire, and ability, to litigate this case on behalf of the plaintiffs. However, the
parties have requested the Court to choose, so it must do so.
The Court finds that the circumstances of this case narrowly favor appointing
Graham’s Counsel.
First, Graham’s Counsel has made an effort to be inclusive in this litigation by
working together with Coahn’s Counsel (and agreeing to work Caracci’s Counsel). This
Court has previously recognized counsel’s ability to make inclusive efforts on behalf of
all plaintiffs is an “essential attribute” for lead counsel. Kubiak, 2011 U.S. Dist. LEXIS
65903 at * 9.
Second, the Court is particularly impressed with the Faruqi firm because of its
experience in In re The Home Depot, Inc. Shareholder Derivative Litigation, Lead Case
No. 1:15-cv-2999-TWT (N.D. Ga.) (“Home Depot Derivative Action”). In the Home
Depot Derivative Action, the Faruqi firm, as co-lead counsel, reached an agreement-inprinciple with the defendants whereby Home Depot will adopt and/or maintain various
corporate governance reforms pertaining to data security. (Doc. 18 at 14). Graham’s
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Counsel represents this was the first settlement ever achieved in a data breach
shareholder derivative lawsuit. (Doc. 40 at 7). One news organization has recognized
that the settlement in the Home Depot Derivative Action “may be a good corporate
security governance improvement blueprint for other companies.” (See Doc. 18-3 at 2).
The Court finds the Faruqi firm’s experience in the Home Depot Derivative Action to be
relevant and helpful to this case in light of the fact that both the Graham Complaint and
the Caracci Complaint request an Order directing Wendy’s to reform its corporate
governance.
Third, and similarly, the Court is impressed with the expert retained by Graham’s
Counsel. Specifically, Graham’s Counsel retained Robert E. Anderson, Jr., a
cybersecurity expert, for the purpose of assisting the parties in navigating the issues
involved in this case as well as devising crucial corporate governance reforms intended to
improve Wendy’s data security policies and procedures. (Doc. 18 at 16; Doc. 18-4). The
Court is impressed by Mr. Anderson’s experience as a former national security executive
with the FBI, and finds that this experience will be helpful to the corporate governance
relief requested by both plaintiffs.
The main argument in support of appointing Caracci’s Counsel is that Caracci’s
Counsel served a pre-lawsuit Section 220 demand for records on Wendy’s prior to filing
its complaint, whereas Graham’s Counsel did not.3 Caracci’s Counsel argues that their
3
A “Section 220 demand” refers to 8 Delaware Code Ann. § 220(b), which provides, “[a]ny
stockholder, in person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business to inspect for any
proper purpose,” inter alia, the corporation’s “books and records.”
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ability to review Wendy’s books and records while preparing the Caracci Complaint
gives their pleading a meaningful advantage over the Graham Complaint. (See Doc. 17-1
at PID # 225-228). Specifically, Caracci’s Counsel argues the Caracci Complaint more
adequately pleads demand futility.4 (Id.) This argument is not availing. The Court
acknowledges that, in some instances, a complaint that recites facts obtained from a
Section 220 demand may be superior to a complaint that does not. See In re CytRx Corp.
Stockholder Derivative Litig., Case No. 11800-VCMR, 2017 Del. Ch. LEXIS 27, at * 1112 (Del. Ch. Feb. 22, 2017). However, the Court does not put great weight in any
differences between the Caracci Complaint and the Graham Complaint at this stage,
because the Court’s prior order—requested by all parties—allows whoever is designated
as lead counsel to file a new, consolidated pleading on behalf of the Plaintiffs. (Doc. 23
at 2-3).
B.
Settlement Approval.
Also pending before the Court is the motion for preliminary settlement approval
filed by Graham’s Counsel. (Doc. 41). The motion asks the Court to preliminarily
approve the settlement negotiated by Graham’s Counsel, Coahn’s Counsel, and the
Defendants, to provide notice to other shareholders, and to schedule a settlement hearing.
4
Under Delaware law, a stockholder plaintiff asserting derivative claims must plead that he or
she made a demand on the board to investigate potential wrongdoing prior to filing the derivative
action, or show that such demand should be excused as futile. Del. Ct. Ch. R. 23.1(a). The
Federal Rules of Civil Procedure require a plaintiff to “state with particularity” the reasons
demand would be futile. Fed. R. Civ. P. 23.1(b)(3).
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The Court finds the motion for settlement approval to be premature and DENIES
the motion without prejudice. Specifically, the Court’s June 12, 2017 Order, which was
agreed to by the parties, requires the attorneys appointed as lead counsel to “file a
consolidated complaint on behalf of Plaintiffs (the ‘Consolidated Complaint’) or
designate either the Graham Complaint or the Caracci Complaint as the operative
complaint for the consolidated derivative action.” (Doc. 23 at 2). The Court finds that
having one operative complaint would assist the Court in determining whether the
proposed settlement merits preliminary and/or final approval. The Court additionally
finds that having one operative complaint would assist the shareholders receiving notice
of proposed settlement in evaluating the agreement and deciding whether or not to object.
Accordingly, as required by this Court’s prior order, within 45 days Graham’s
Counsel shall file (or designate) the operative complaint. Within 14 days of that filing or
designation, Graham shall file an amended motion for preliminary settlement approval to
reflect the filing of the operative complaint.
Finally, before the Court is Caracci’s motion for leave to file a response to Mr.
Graham’s motion for preliminary approval of settlement under seal and for relief from
the mediation privilege. (Doc. 42). Caracci argues that, based on his counsel’s
participation in a mediation process with Graham’s Counsel and counsel for the
Defendants, he has reason to believe the settlement reached between Graham and
Defendants is the product of collusion. (Doc. 42-1 at 5).
Caracci’s motion (Doc. 42) is DENIED as moot in light of the Court’s denial of
Graham’s motion for preliminary approval. The Court notes, however, that Caracci is
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entitled to present his arguments regarding collusion to the Court so that the Court may
properly determine whether the proposed settlement is appropriate for preliminary
approval. Because the Court cannot conclude from the parties’ briefings whether the
information Caracci seeks to submit is covered by the mediation privilege, and whether
the privilege should apply, the Court will review Caracci’s opposition in camera.
Pursuant to S.D. Ohio Civ. R. 7.2(a)(2), Caracci shall submit his opposition to the Court
under seal for in camera review 21 days after service of Graham’s amended motion for
preliminary approval (and Caracci shall contemporaneously file a notice that he has done
so).
IV.
CONCLUSION
For the foregoing reasons:
(1)
Plaintiff Graham’s motion to appoint lead counsel (Doc. 18) is
GRANTED;
(2)
Plaintiff Caracci’s motion to appoint lead counsel (Doc. 17) is DENIED;
(3)
The law firms Strauss Troy and Faruqi and Faruqi are appointed as lead
counsel;
(4)
Within forty-five (45) days, lead counsel shall either file a consolidated
complaint or designate the Graham Complaint as the operative pleading for
this consolidated derivative action;
(5)
The Individual Defendants and Wendy’s shall answer, plead, or otherwise
respond to the consolidated complaint within forty-five (45) days after it is
filed (or designated);
(6)
Plaintiffs’ opposition to any motion by Defendants directed at the
consolidated complaint shall be due within forty-five (45) days after filing
of that motion;
(7)
Any reply to Plaintiffs’ opposition shall be due within thirty (30) days after
Plaintiffs’ opposition is filed;
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(8)
Defendants’ Motion to Dismiss Plaintiff Graham’s Complaint (Doc. 9) is
DENIED AS MOOT;
(9)
Plaintiff Graham’s motion for settlement approval (Doc. 41) is DENIED
as premature; Plaintiff Graham shall file an amended motion for settlement
approval within 14 days of filing or designating the operative pleading in
this consolidated action; and
(10)
Plaintiff Caracci’s motion to file under seal and for relief from the
mediation privilege is DENIED as moot. If and when Plaintiff Graham
files an amended motion for preliminary settlement approval, Plaintiff
Caracci shall submit his opposition to the Court for in camera review and
file a notice that he has done so.
IT IS SO ORDERED.
Date:
12/17/18
/s/ Timothy S. Black
Timothy S. Black
United States District Judge
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