## Facts

- Apple disclosed an internal investigation indicating that certain executives had engaged in illegal stock-option backdating.
- Shareholders filed 16 derivative actions alleging that officers and directors engaged in, authorized, or failed to prevent backdating, resulting in misstated financials, investigation and restatement costs, and reputational harm.
- The alleged value of backdated options to executives was approximately $58 million.
- The derivative actions were consolidated in federal court; defendants filed motions to dismiss, including challenges to demand-futility allegations.
- While a motion to dismiss was pending, the parties negotiated a settlement and sought court approval.
- Notice of the proposed settlement was mailed to more than 1.4 million shareholders; four objections were filed.
- The settlement required (1) a $14 million payment to Apple funded by insurers for certain defendants and (2) corporate-governance reforms related to equity-compensation controls and oversight.
- The settlement contemplated $8.85 million in attorneys’ fees and expenses for plaintiffs’ counsel, leaving a net payment to Apple of $5.15 million.

## Issues

1. Whether the proposed shareholder-derivative settlement was fair, reasonable, and adequate to Apple and its shareholders given the claims, risks, and relief obtained.
2. Whether the requested $8.85 million attorneys’ fee and expense award was reasonable in light of the monetary recovery and the non-monetary governance reforms.

## Decision

- The court granted final approval of the derivative settlement.
- The court approved the requested $8.85 million attorneys’ fees and expenses.
- The court dismissed the consolidated derivative actions with prejudice as to the settled claims, binding shareholders following notice and opportunity to object.

## Legal Principles

- A federal court may approve a shareholder-derivative settlement if, viewed as a whole, it is fair, reasonable, and adequate in light of litigation risks, costs, delays, and likely recovery.
- In assessing settlement value, courts may consider both monetary relief and non-monetary corporate-governance reforms designed to prevent recurrence of the challenged conduct.
- Comparative metrics, such as the net recovery as a percentage of estimated damages and benchmarks from similar derivative settlements, may inform (but do not control) the fairness analysis.
- Shareholder reaction after adequate notice, including a low number of objections, is probative of settlement fairness.
- Attorneys’ fees in derivative settlements may reflect the overall benefit conferred on the corporation, including structural relief that is difficult to quantify, and may account for contingency risk and case complexity.

## Conclusion

The court approved a negotiated resolution of consolidated derivative claims arising from alleged stock-option backdating at Apple, finding the insurance-funded cash payment, significant governance reforms, and the requested fee award collectively fair, reasonable, and adequate given the risks and uncertainties of continued litigation.


In re Apple Comput., Inc. Derivative Litig., No. C 06-4128 JF, 2008 WL 4820784 (N.D. Cal. Nov. 5, 2008)