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Class Counsel Seek $5M in Fees in $50M Pinterest Derivative Action

April 22, 2022 | Posted in : Contingency Fees / POF, Expenses / Costs, Fee Benchmark / Standard, Fee Request, Lodestar, Lodestar Multiplier, Practice Area: Class Action / Mass Tort / MDL, Settlement Data / Terms

A recent Law 360 story by Dorothy Atkins, “Pinterest Investors Seek $5M in Fees for $50M Derivative Deal” reports that Pinterest investors asked U.S. District Judge William Alsup to approve a $5.37 million attorney fee award — which the judge has said should be paid in installments — for cutting a $50 million deal to end derivative claims alleging the social media company fostered a culture of race and sex discrimination.  In a 33-page motion, investors argued class counsel should receive 10.75% of the settlement fund, or $5.37 million in fees, and roughly $47,000 in litigation costs for securing "substantial corporate governance and workplace reforms" and a $50 million fund to implement the reforms.

The investors noted that even if they were to proceed to trial on their claims, at best, they would likely only win half of the $50 million agreed to under the settlement, and there would be no guarantee the reforms would occur.  "Faced with this trade-off, plaintiffs felt strongly that swifter progress for employees, backed by a meaningful financial obligation, warranted settling rather than continuing to litigate through judgment," the motion says.

If approved, the deal would end a derivative shareholder lawsuit filed in November 2020, alleging the San Francisco-based, image-sharing company has had a "systematic culture, policy and practice of illegal discrimination on the basis of race and sex" since at least February 2018.  The investors claimed the company's executives and board facilitated or "knowingly ignored the discrimination and retaliation against those who spoke up and challenged the company's white, male leadership clique," harming the company financially and its reputation among its largely female user base.

Under the proposed settlement, Pinterest agreed to undergo third-party race, gender and equity assessments to ensure workers are being paid, promoted and leveled appropriately, and that there is no adverse impact on women and people of color.  The deal also creates a requirement for a report to shareholders on progress made toward diversity, equity and inclusion goals, including hiring.

During a hearing in January, Judge Alsup repeatedly said he was concerned the deal was merely a "cosmetic settlement" and that the attorneys would "all go off into the sunset" with attorney fees, with nothing meaningful coming of the settlement.  Despite his misgivings, the judge agreed to preliminarily sign off on the deal in February, but told the lawyers they could expect payout of their fee in installments, as counsel provide reports on "progress accomplishing the goals of the settlement agreement."

At the time, Judge Alsup also called class counsel's suggested $5.37 million fee request "disproportionate."  He pointed out the investors' lawyers had claimed their efforts had "contributed" to corporate governance changes the company implemented following recommendations by a special committee of Pinterest's board — even though the special committee made its recommendations months before the latest version of the investors' allegations was even filed.

Even so, the investors argued in their motion the expense and fee request is reasonable and fair, given that $5.37 million represents 10.75% of the funding commitment — well below the Ninth Circuit's 25% benchmark and which amounts to a 2.0 lodestar multiplier.  The investors also argued they should be credited for specifically obtaining significant governance reforms designed to improve board oversight and reduce the risk of future compliance failures through regular pay equity audits and other audits, while promoting confidence in Pinterest's workforce and customer base.