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Judge Waits on Attorney Fees in Pinterest Settlement

June 9, 2022 | Posted in : Practice Area: Class Action / Mass Tort / MDL

A recent Law 360 story by Dave Simpson, “Alsup To Wait and See on Atty Fees in Pinterest Deal” reports that U.S. District Judge William Alsup gave final approval Thursday to a deal to end derivative claims alleging Pinterest fostered a culture of race and sex discrimination, approving $2.5 million in attorney fees rather than the $5.37 million requested, with the possibility for more after two years of compliance monitoring.

The judge expressed concerns that the settlement, which involves the creation of a $50 million workplace reform budget, could "prove to be mainly aesthetic," noting that many of the reforms lauded in the deal are already in place and that the defendants are not bound to actually pay up.

"The settlement includes a commitment, for example, to not enforce NDAs, but does not require directly informing employees who signed NDAs that they may speak freely about their experiences," Judge Alsup's order said. "Counsel also repeatedly tout that Pinterest has allocated a 'budget' of $50 million over 10 years to carry out the reforms. But a budget is not a fund. The money is not already appropriated or in a bank account."

Attorneys had requested $5.37 million in fees, but on Thursday Judge Alsup cut the total to $2.5 million, with a chance for more in two years.

"Counsel want all of their fees now and to walk away, saying that they've achieved a benefit merely by reaching an agreement for future non-pecuniary reforms spread out over ten years," Judge Alsup said. "This is a recurring problem in derivative shareholder actions."

Judge Alsup noted that, after he raised this issue at a past hearing, the attorneys agreed to stay on for another two years to monitor compliance. He called this "helpful" but worried about the remaining eight "unpoliced" years. The parties were not able to agree on any additional monitoring, he noted.

"Nonetheless, this order accepts the parties' proposal to have plaintiffs' counsel monitor compliance for two years," the judge said. "Therefore, a portion of the attorney's fee award will be postponed and paid out after we see how much benefit really flows from the settlement over that time."

The plaintiffs' counsel had claimed a lodestar short of $2.7 million and sought a doubling multiplier. Judge Alsup called the lodestar "too high for the amount of work done" and knocked it down to $2.5 million.

"While counsel negotiated the settlement, much of the difficult work of gaining Pinterest's acknowledgment of the problem and establishing a plausible framework for achievable reforms was already accomplished through the special committee's efforts," he said. "The special committee, for example, interviewed 350 Pinterest employees. Derivative counsel interviewed only sixteen."

Further, Judge Alsup pointed to the work done by 21 attorneys from four law firms, calling it "too many timekeepers."

"More effort should have been made to streamline the representation," he said.

The deal ends a derivative shareholder lawsuit filed in November 2020 that claimed Pinterest 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.

The suit was filed in the wake of allegations by former and current female employees that they were marginalized, left out of company meetings and paid less than their male counterparts. It also came months after Pinterest's former Chief Operating Officer Françoise Brougher sued the company, claiming gender bias was to blame for her firing.

Pinterest eventually agreed to pay Brougher $22.5 million to end her claims.

Last year, the investors' counsel informed Judge Alsup they had struck a deal with Pinterest, under which the company agreed to spend $50 million on corporate reforms over the next decade to make it a more equitable place to work.

Pinterest agreed to undergo third-party race, gender and equity assessments to ensure workers are being paid, promoted and leveled appropriately, and that there were no adverse effects 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 in hiring.

Going forward, the executive leadership team will also be evaluated against the diversity, equity and inclusion goals, and the settlement funds will support unconscious bias training, make hiring more equitable, and support affiliation groups within Pinterest, according to court documents.

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 it 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."