A recent Law 360 story by Leslie Pappas, “Del. Court Oks $30M Guess Settlement, Trims Fees to $5.3M”, reports that Guess Inc. shareholders got court approval of a $30 million cash settlement to end Delaware litigation over decades of alleged sexual misconduct by one of the company's co-founders, but the state's Court of Chancery trimmed a suggested $6.6 million fee award for shareholder attorneys to $5.3 million.
At a bench ruling after a hearing in Wilmington, Vice Chancellor Lori W. Will said various aspects of the settlement were "valuable," "creative and thoughtful," and "quite positive" for the company and its shareholders, but the proposed $3,555.89 hourly rate that attorneys had asked to recover was "a high rate overall."
"This is troubling to me," she said, given that the suit involved alleged victims of sexual assault. "I need to take great care to think about incentives." The settlement, announced in September 2023, includes both governance reforms and a $30 million cash award to the company, of which shareholders so far have secured $22 million.
The vice chancellor concluded that shareholder attorneys deserved $3 million for securing the governance reforms — down from the $3.5 million they sought — and just $2.3 million for the cash award, given that $8 million of it is still tied up in litigation. Attorneys had requested $3.12 million for their work on the cash portion of the settlement. The vice chancellor also approved an expense reimbursement of $147,212.52.
The settlement resolves a proposed class action, filed in September 2022 by stockholder Employees' Retirement System of Rhode Island, against the company's chief creative officer, director and co-founder Paul Marciano, his brother and company co-founder Maurice Marciano, and board directors Alex Yemenidjian, Carlos Alberini, Cynthia Livingston, Anthony Chidoni and Deborah Weinswig.
The suit accused the fashion company and its board of "continually ignoring an ongoing stream" of reports of "predatory behavior" and sexual misconduct by Paul Marciano. The derivative suit detailed numerous alleged incidents of sexual harassment and physical assaults against Guess employees and models, including Kate Upton.
At the hearing, shareholder attorney Ned Weinberger of Labaton Sucharow LLP said that Guess has been founder-controlled and family-controlled for more than four decades. That family control helped foster an environment in which inappropriate behavior could occur and continue, he said. The reforms in the settlement directly address the family's control and will "change the rules" in ways that will help mitigate similar problems in the future, he said.
Shareholders have secured $22 million of the $30 million cash settlement from insurers and the Marciano family, and $8 million is still being litigated with insurance companies in California state court, California, Weinberger said. Of the $22 million that shareholders have secured so far, $10 million has come from insurance and $12 million has come from Paul and Maurice Marciano, Weinberger said.