Lloyd v. Gupta

          ORDER GRANTING PRELIMINARY APPROVAL OF SETTLEMENT

          MARIA-ELENA JAMES United States Magistrate Judge

         INTRODUCTION

         Plaintiff Elizabeth Lloyd (“Plaintiff”) brought this action on behalf of herself and derivatively on behalf of Nominal Defendant^[1] 9Global, Inc. (“9Global” or the “Company”). She now asks the Court to grant preliminary approval of the parties' proposed settlement pursuant to Federal Rule of Civil Procedure (“Rule”) 23.1. Mot., Dkt. No. 44. In doing so, Plaintiff asks the Court to allow notice of the proposed settlement to be directed to the two non-party 9Global shareholders and to set a date for a final approval hearing. Id. The Court held a hearing on this matter on July 21, 2016. Dkt. No. 51. Having considered Plaintiff's Motion, the relevant legal authority, and the record in this case, the Court GRANTS PRELIMINARY APPROVAL of the parties' settlement as set forth below.

         BACKGROUND

         A. Case Background

         Plaintiff has owned shares of 9Global^[2] common stock since February 2008. Compl. ¶ 8. She also worked as an employee of 9Global and served as a member of its Board of Directors from February 2008 until August 12, 2015, when she resigned from both positions. Id.

         Plaintiff filed this case the same day, asserting both direct and derivative claims against the Chief Executive Officer of 9Global (Defendant Vipul Gupta), certain of his relatives, and another corporate entity owned by Gupta, Defendant 60MonthLoans, Inc. (collectively, the “Gupta Defendants, ” and together with 9Global, “Defendants”). See Compl. Some of the direct claims also named 9Global as a Defendant. Id. Altogether, Plaintiff asserts 21 claims, with ten (10) derivative claims on behalf of 9Global (Counts 12 -21) (“Plaintiff's Derivative Claims”).^[3] Id. The Complaint alleges, among other things, that Gupta caused 9Global to fail to pay Plaintiff's agreed-upon wages and to repay loans made by Plaintiff to 9Global; misled Plaintiff about the 9Global's financial position; redirected monies from 9Global to, and for the benefit of, himself, his wife, and his other family members; used 9Global resources to set up a competing business; and committed securities fraud by purchasing Plaintiffs 9Global stock while misrepresenting the Company's financial position. See Id . As stated by Plaintiff, “[t]he core of [the] Derivative Claims is the alleged improper use of 9Global assets by Defendant Vipul Gupta for the benefit of himself and his family.” Mot. at 4.

         On September 14, 2015, Defendants removed this action based on federal question jurisdiction. Not. of Removal, Dkt. No. 1. On December 1, 2015, 9Global filed counterclaims (the “Counterclaims”) against Plaintiff Countercls., Dkt. No. 17. The four Counterclaims against Plaintiff are for: (1) Breach of Fiduciary Duty; (2) Corporate Waste; (3) Conversion and/or Embezzlement; and (4) Accounting. Id. The Counterclaims allege, among other things, that Plaintiff redirected monies from 9Global for her own benefit. Id. Plaintiff denies liability as to 9Global's Counterclaims. Mot. at 3; see also Answer to Countercls., Dkt. No. 20.

         On February 2, 2016, Plaintiff filed a motion for partial summary judgment derivatively on behalf of 9Global on Counts 15 (Unjust Enrichment) and 17 (Conversion) against Defendant Nandita Gupta (Dkt. No. 33), but Plaintiff subsequently withdrew that motion without prejudice in light of the parties' agreement to settle this action (Dkt. No. 42).

         The parties attended mediation before the Honorable James Larson (Ret.) on April 28, 2016, and while the mediation did not immediately produce a settlement, the parties continued to engage in extensive, arm's-length settlement negotiations. Mot. at 4. On May 25, 2016, the parties agreed to a Memorandum of Understanding setting forth the material terms of an agreement-in-principle to settle Plaintiffs claims, as well as 9Global's Counterclaims. Id

         Plaintiff filed this Motion for Preliminary Approval on June 16, 2016 (Dkt. No. 44), and the Gupta Defendants filed a statement of non-opposition on June 28, 2016 (Dkt. No. 47). Counsel for Plaintiff, 9Global, and the Gupta Defendants appeared at the hearing on Plaintiffs Motion. Plaintiffs counsel clarified that 9Global is a closely-held company, with Plaintiff and Vipul Gupta currently holding the vast majority of the Company's shares; the other shareholders evidently account for only approximately six percent of 9Global's other shares.

         B. The Proposed Settlement

         Plaintiff contends the Settlement provides substantial benefits to 9Global and its shareholders. Mot. at 2. The terms of the Settlement Agreement are as follows:

         In exchange for the settlement of the Derivative Claims (Counts 12- 21), 1. Vipul Gupta will pay $200, 000 to ONE LLP (“9Global's Counsel”), due no later than seven (7) days after final Court approval of this Settlement Agreement. Upon the Effective Date, defined in Section VI of the Settlement Agreement, 9Global's Counsel shall release the $200, 000 payment to 9Global. Settlement Agreement (“Settl. Agmt.”), Sec. II.1.a.i.1 & II.1.a.ii, Dkt. No. 45-1 (Ex. A to Seyedin-Noor Decl., Dkt. No. 45).

         2. Vipul Gupta further agrees that the loans payable to him by 9Global, which total over $700, 000, will be reduced by $200, 000. Id., Sec. II.1.a.i.2.

         3. Additionally, “[g]oing forward, 9Global will provide to all shareholders of record, on a quarterly basis, written reports that will summarize the Company's: (1) balance sheets; (2) profits and/or losses; and (3) significant activities for that quarter.” Id., Sec. II.1.a.iii.

         Plaintiff also has agreed to settle her Individual Claims against Defendants, including 9Global. The Settlement Agreement requires the following compensation to Plaintiff in settlement of her direct claims (Counts 1-11 and 21):

         1. Vipul Gupta will purchase all 1, 690 shares of 9Global stock presently owned by Plaintiff for $50, 000 in cash. Id., Sec. II.1.b.i.

         2. 9Global, Vipul Gupta, and Nandita Gupta will be jointly and severally liable to pay Plaintiff $745, 000 in cash, allocated as follows:

a. $150, 000 in settlement of Plaintiff's claims regarding her un-repaid loans to the Company (Counts 7-8) (id., Sec. II.1.b.ii.1);

b. $120, 000 in settlement of Plaintiff's claims regarding unpaid wages (Counts 4-5) (id., Sec. II.1.b.ii.2);

c. $475, 000 to settle the remainder of Plaintiff's Individual Claims and related legal fees and costs ...