SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 17, 2020
DPW HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
|(State or other jurisdiction of
incorporation or organization)
|(Commission File Number)||(I.R.S. Employer Identification No.)|
201 Shipyard Way, Suite E, Newport Beach, CA 92663
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
|o||Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)|
|o||Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)|
|o||Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))|
|o||Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))|
Securities registered pursuant to Section 12(b) of the Act:
|Title of each class||
|Name of each exchange on which registered|
|Common Stock, $0.001 par value||DPW||NYSE American|
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
|ITEM 7.01||REGULATION FD DISCLOSURE|
On July 17, 2020, DPW Holdings, Inc., a Delaware corporation (the “Company”), issued a press release announcing a final order (the “Final Order”) issued on July 16, 2020, by the United States District Court in the Central District of California (the “Court”), which approved a Motion for Final Approval of Settlement with respect to the derivative litigation captioned Ethan Young and Greg Young, Derivatively on Behalf of Nominal Defendant, DPW Holdings, Inc. v. Milton C. Ault, III, Amos Kohn, William B. Horne, Jeff Bentz, Mordechai Rosenberg, Robert O. Smith, and Kristine Ault and DPW Holdings, Inc., as the nominal defendant (Case No. 18-cv-6587) (the “Derivative Action”). On July 16, 2020, the Court entered a Judgment based upon the Final Order (the “Judgement”).
A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated by reference herein. Copies of the Final Order and Judgement are furnished herewith as Exhibit 99.2 and Exhibit 99.3, respectively, and are incorporated by reference herein.
In accordance with General Instruction B.2 of Form 8-K, the information under this item, Exhibit 99.1, Exhibit 99.2, and Exhibit 99.3 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing. This report will not be deemed an admission as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD.
The Securities and Exchange Commission encourages registrants to disclose forward-looking information so that investors can better understand the future prospects of a registrant and make informed investment decisions. This Current Report on Form 8-K and exhibits may contain these types of statements, which are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and which involve risks, uncertainties and reflect the Registrant’s judgment as of the date of this Current Report on Form 8-K. Forward-looking statements may relate to, among other things, operating results and are indicated by words or phrases such as “expects,” “should,” “will,” and similar words or phrases. These statements are subject to inherent uncertainties and risks that could cause actual results to differ materially from those anticipated at the date of this Current Report on Form 8-K. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented within.
|ITEM 8.01||OTHER EVENTS|
Settlement of Derivative Litigation
As previously reported in the Current Report on Form 8-K filed by the Company on April 20, 2020, the Court issued a preliminary order on April 15, 2020 (the “Preliminary Order”) approving a Motion for Preliminary Approval of Settlement in the Derivative Action filed on July 31, 2018. The Preliminary Order approved a definitive settlement agreement dated February 24, 2020, that was intended to settle the Derivative Action (the “Settlement Agreement”). The Derivative Action is more fully described in the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2020.
Order Approving a Motion for Final Approval of Settlement in the Derivative Action
On July 16, 2020, the Court issued the Final Order approving a Motion for Final Approval of Settlement in the Derivative Action. In connection thereto, Court entered a Judgment based upon the Final Order.
Under the terms of the Final Order approving the Settlement Agreement, the Company’s Board of Directors (the “Board”) will implement certain reforms to the Company’s bylaws, committee charters, corporate governance policies, and the composition of the Board, including the resignation of a current director and the appointment of two new independent directors (collectively, the “Reforms”), one of whom has been appointed to the Board. In addition, the parties have agreed upon a payment of attorneys’ fees in the amount of $600,000 payable by the Company’s Director & Officer liability insurance.
The Settlement Agreement contains no admission of wrongdoing. The Company has always maintained and continues to believe that neither it nor any of its directors engaged in any wrongdoing or otherwise committed any violation of federal or state securities laws or other laws.
In its Final Order, the Court noted that the Company had complied with its filing requirements as set forth in the Preliminary Order and that no stockholder had objected to the Settlement Agreement as of the date of its issuance and further found that the Settlement Agreement was “fundamentally fair, adequate, and reasonable.” As a result, the Court granted plaintiff’s Motion for Final Approval and issued a judgment consistent with the Final Order.
Where You Can Find Additional Information
Investors and security holders will be able to obtain documents filed with the Securities and Exchange Commission free of charge at the Commission’s website, www.sec.gov. Security holders may also read and copy any reports, statements and other information filed by the Company with the Commission, at the SEC public reference room at 100 F Street, N.E., Washington D.C. 20549. Please call the Commission at 1-800-SEC-0330 or visit the Commission’s website for further information on its public reference room.
|ITEM 9.01||FINANCIAL STATEMENTS AND EXHIBITS|
|99.1||Press Release issued on July 17, 2020.|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|DPW HOLDINGS, INC.|
|Dated: July 17, 2020||
/s/ Henry Nisser
Executive Vice President and General Counsel
DPW Holdings Announces that a Court has Issued a Final Order and Judgment Approving a Motion for Approval of Settlement in the Derivative Action Filed Against It as a Nominal Defendant and Its Directors
Newport Beach, CA, July 17, 2020 – On February 25, 2020, DPW Holdings, Inc. (NYSE American: DPW) a diversified holding company (“DPW,” or the “Company”) announced that on February 19, 2020, DPW entered into a definitive settlement agreement (the “Agreement”) between Plaintiffs Ethan Young and Greg Young, derivatively on behalf of Nominal Defendant DPW against the Company’s then directors and DPW itself, Case No. 2:18-cv-06578, filed in the United States District Court (the “Court”) in the Central District of California on July 31, 2018.
On April 15, 2020, the Court issued an Order (the “Preliminary Order”) approving a Motion for Preliminary Approval of Settlement in the Derivative Action filed against DPW as a Nominal Defendant and its directors who served on its board of directors on July 31, 2018.
On July 16, 2020, the Court issued an Order (the “Final Order”) approving a Motion for Final Approval of Settlement in the Derivative Action filed against DPW as a Nominal Defendant and its directors who served on its board of directors on July 31, 2018.
On July 16, 2020, the Court entered a Judgment based upon the Final Order.
Under the terms of the Final Order approving the Agreement, the Company’s Board of Directors (the “Board”) will implement certain reforms to the Company’s bylaws, committee charters, corporate governance policies, and the composition of the Board, including the resignation of a current director and the appointment of two new independent directors (collectively, the “Reforms”), one of whom has been appointed to the Board. In addition, the parties have agreed upon a payment of attorneys’ fees in the amount of $600,000 payable by the Company’s Director & Officer liability insurance.
The Agreement contains no admission of wrongdoing. The Company has always maintained and continues to believe that neither it nor any of its directors engaged in any wrongdoing or otherwise committed any violation of federal or state securities laws or other laws. In deciding to settle the matter, the Company believed resolution of the matter was more beneficial option versus a drawn out litigation of the issues raised in the lawsuit.
In its Final Order, the Court noted that the Company had complied with its filing requirements as set forth in the Preliminary Order and that no stockholder had objected to the Agreement as of the date of its issuance and further found that the Agreement was “fundamentally fair, adequate, and reasonable.” As a result, the Court granted Plaintiff’s Motion for Final Approval and issued a Judgment consistent with the Final Order.
“As we have stated from the outset of this litigation, DPW has always believed and continues to maintain that both it and its named directors acted appropriately despite the claims made against us. We look forward to moving forward and growing our business unimpeded by the distraction defending ourselves against this action has caused,” said Milton “Todd” Ault, III, the Company’s CEO and Chairman.
The Final Order can be found on the Company’s website under the Investor Relations tab here: http://ir.dpwholdings.com/static-files/b294ca1f-de43-4601-9122-233cbbbb6675
The Judgment can be found on the Company’s website under the Investor Relations tab here: http://ir.dpwholdings.com/static-files/b7ddd4d9-a908-48b3-9b7c-1a456568b5da
The Company recommends that stockholders, investors and any other interested parties read the Company’s public filings and press releases available on its website at www.DPWHoldings.com under the Investor Relations section or available at www.sec.gov
About DPW Holdings, Inc.
DPW Holdings, Inc. is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through its wholly and majority-owned subsidiaries and strategic investments, the Company provides mission-critical products that support a diverse range of industries, including defense/aerospace, industrial, telecommunications, medical, crypto-mining, and textiles. In addition, the Company owns a select portfolio of commercial hospitality properties and extends credit to select entrepreneurial businesses through a licensed lending subsidiary. DPW’s headquarters are located at 201 Shipyard Way, Suite E, Newport Beach, CA 92663; www.DPWHoldings.com.
This press release contains “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “believes,” “plans,” “anticipates,” “projects,” “estimates,” “expects,” “intends,” “strategy,” “future,” “opportunity,” “may,” “will,” “should,” “could,” “potential,” or similar expressions. Statements that are not historical facts are forward-looking statements. Forward-looking statements are based on current beliefs and assumptions that are subject to risks and uncertainties. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update any of them publicly in light of new information or future events. Actual results could differ materially from those contained in any forward-looking statement as a result of various factors. More information, including potential risk factors, that could affect the Company’s business and financial results are included in the Company’s filings with the U.S. Securities and Exchange Commission, including, but not limited to, the Company’s Forms 10-K, 10-Q and 8-K. All filings are available at www.sec.gov and on the Company’s website at www.DPWHoldings.com.
IR@DPWHoldings.com or 1-888-753-2235
CENTRAL DISTRICT OF CALIFORNIA
ETHAN YOUNG and GREG YOUNG,
Derivatively on Behalf of Nominal Defendant,
DPW HOLDINGS, INC.,
C. AULT III, AMOS KOHN,
DPW HOLDINGS, INC.,
Case No. 2:18-cv-06587-SJO-PLA
SUMMARY NOTICE OF PROPOSED SETTLEMENT
|TO:||ALL CURRENT RECORD HOLDERS AND BENEFICIAL OWNERS OF COMMON STOCK OF DPW HOLDINGS, INC. (“DPW”) AS OF FEBRUARY 24, 2020|
PLEASE READ THIS SUMMARY NOTICE CAREFULLY AND IN ITS ENTIRETY AS YOUR RIGHTS MAY BE AFFECTED BY PROCEEDINGS IN THE LITIGATION.
YOU ARE HEREBY NOTIFIED that the above-captioned consolidated shareholder derivative action (the “Action”), is being settled on the terms set forth in the Stipulation and Agreement of Settlement dated February 24, 2020 (the “Stipulation”). This Summary Notice is provided by order of the United States District Court for the Central District of California (the “Court”).
The Action alleges claims against each of the Individual Defendants1 for breach of fiduciary duty and unjust enrichment. Pursuant to the terms of the Settlement set forth in the Stipulation, DPW agrees to adopt and/or maintain certain corporate governance measures and procedures, as outlined in Exhibit A to the Stipulation, within thirty (30) days of issuance of the Judgment. The Reforms shall be maintained for at least five (5) years following the issuance of the Judgment, subject to certain terms and conditions set forth in the Stipulation. The Defendants also agreed to cause an award of attorneys’ fees and expenses to be paid by Defendants’ insurance carrier to Plaintiffs’ Counsel in the total amount of $600,000 (the “Fee and Expense Award”), subject to approval of the Court. Defendants have denied and continue to deny each and all of the claims and allegations of wrongdoing asserted in the Action. This summary should be read in conjunction with, and is qualified in its entirety by reference to, the text of the Stipulation.2
On _________, 2020, at _____ _.m., a hearing (the “Settlement Hearing”) will be held before the Honorable S. James Otero in Courtroom 10C of the United States District Court for the Central District of California, 350 W. 1st Street, Los Angeles, California 90012, pursuant to Federal Rule of Civil Procedure 23.1, to, among other things: (i) determine whether the proposed Settlement is fair, reasonable, adequate, and in the best interests of the Company and its shareholders; (ii) consider any objections to the Settlement submitted in accordance with the Notice; (iii) determine whether a Judgment substantially in the form attached as Exhibit E to the Stipulation should be entered dismissing all claims in the Action with prejudice and releasing the Released Claims against the Released Persons; (iv) consider the Fee and Expense Award; (v) consider the payment to the two Plaintiffs in the Action of Service Awards in an amount not to exceed $2,500.00 each, which will be funded from the Fee and Expense Award; and (vi) consider any other matters that may properly be brought before the Federal Court in connection with the Settlement.
This Summary Notice provides a condensed overview of certain provisions of the Stipulation and the full Notice of Proposed Settlement (the “Notice”). It is not a complete statement of the events of the Action, or the terms set forth in the Stipulation. For additional information about the claims asserted in the Action and the terms of the proposed Settlement, you may inspect the Stipulation and other papers filed in the Action at the U.S. District Court Clerk’s office at any time during regular business hours. In addition, copies of the Stipulation and the Notice are available on the Investor Relations section of the Company’s website. Inquiries regarding the proposed Settlement also may be made to counsel for the Plaintiffs: Alex B. Heller, Esq., Faruqi & Faruqi, LLP, 1617 John F. Kennedy Boulevard, Suite 1550, Philadelphia, PA 19103, Telephone: (215) 277-5770, Email: firstname.lastname@example.org.
1 Unless otherwise defined, all capitalized terms used herein shall have the meanings set forth in the Stipulation.
2 A copy of the Stipulation has been filed with the Court and may also be viewed on the Investor Relations portion of DPW’s website.
You may enter an appearance before the Court, at your own expense, individually or through counsel of your choice. If you want to object at the Settlement Hearing, you must be a Current DPW Stockholder and you must first comply with the procedures for objecting, which are set forth in the Stipulation and its accompanying exhibits, including the Notice. Any objection to any aspect of the Settlement must be filed with the Clerk of the Court no later than ___[21 days before the Final Hearing], in accordance with the procedures set forth in the Stipulation and the Notice. Any Current DPW Stockholder who fails to object in accordance with such procedures will be bound by the Judgment of the Court granting final approval to the Settlement and the releases of claims therein, and shall be deemed to have waived the right to object (including the right to appeal) and forever shall be barred, in this proceeding or in any other proceeding, from raising such objection.
PLEASE DO NOT CONTACT THE COURT OR THE CLERK’S OFFICE REGARDING THIS SUMMARY NOTICE.
The foregoing is only a summary of the Litigation and the proposed settlement. For complete information, you may review the Court’s publicly available filings, which may be obtained from the Records Department of the Clerk’s Office for the United States District Court, Central District of California. More information is available at http://www.cacd.uscourts.gov/records.
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES - GENERAL Case No. CV 18-6587 PA (PLAx) Date July 14, 2020 Title Ethan Young et al. v. Milton C. Ault, III et al. Present: The Honorable PERCY ANDERSON, UNITED STATES DISTRICT JUDGE T. Jackson N/A N/A Deputy Clerk Court Reporter Tape No. Attorneys Present for Plaintiffs: Attorneys Present for Defendants: None None Proceedings: IN CHAMBERS - COURT ORDER Before the Court is an unopposed Motion for Final Approval of Settlement filed by plaintiffs Ethan Young and Greg Young (“Plaintiffs”). (Dkt. 83 (“Mot.”).) Pursuant to Rule 78 of the Federal Rules of Civil Procedure and Local Rule 7-15, the Court finds this matter appropriate for decision without oral argument. I. Background Plaintiffs are stockholders of DPW Holdings, Inc. (“DPW”) who have brought this shareholder derivative action. Defendants Milton C. Ault III and Kristine Ault acquired a controlling interest in DPW in September 2016. Subsequently, DPW devolved from having a positive working capital to being insolvent. Plaintiffs allege the losses incurred by DPW stemmed from Defendants’ mismanagement of the Company and breaches of their fiduciary duty to their investors. On March 11, 2019, Plaintiffs filed a First Amended Complaint asserting various claims for breach of fiduciary duty and unjust enrichment. On March 25, 2019, Defendants filed a Motion to Dismiss the First Amended Complaint. On May 21, 2019, the Court issued an order granting in part and denying in part the Motion to Dismiss. The Court dismissed the causes of action against Committee Member Directors Jeff Bentz, Robert O. Smith, and Mordechai Rosenberg without leave to amend. The Court also held that, with respect to the other named defendants, Plaintiffs sufficiently alleged claims for breach of fiduciary duty related to certain transactions, and adequately pled a claim for unjust enrichment. The Court allowed the following breach of fiduciary duty claims to proceed: (1) claims based on transactions with AVLP, a related party, (2) claims based on future receipt agreements, and (3) claims based on stock issuances. On June 27, 2019, Defendants filed an Answer. On October 21, 2019, the parties and Defendants’ liability insurance carrier participated in mediation with Jed D. Melnick, Esq. of JAMS. The parties reached an agreement with respect to the material terms of the corporate governance reforms that DPW will implement. On October 28, 2019, the Parties reached an agreement on Plaintiffs’ attorneys’ fees and expenses. CV-90 (06/04) CIVIL MINUTES - GENERAL Page 1 of 7 Case 2:18-cv-06587-PA-PLA Document 86 Filed 07/14/20 Page 1 of 7 Page ID #:1292 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES - GENERAL Case No. CV 18-6587 PA (PLAx) Date July 14, 2020 Title Ethan Young et al. v. Milton C. Ault, III et al. On April 15, 2020, the Court entered an order preliminarily approving the Settlement and directing that a final settlement hearing be held on June 29, 2020 to determine the fairness, reasonableness, and adequacy of the Settlement, the Fee and Expense Award, and the Service Awards. (Dkt. 82.) Pursuant to the terms of the Preliminary Approval Order, on April 20, 2020, the Summary Notice was published via a Company press release; the Summary Notice was filed in a “Current Report” on a Form 8-K with the United States Securities and Exchange Commission (“SEC”); and the Notice and Stipulation were posted on the Investor Relations portion of DPW’s website. (Mot. at 13.) Plaintiffs filed a Notice of No Objections to Settlement on June 9, 2020. (Dkt. 84.) As of today’s date, the Court has not received any objections from any shareholders. Plaintiffs now request the Court: (i) grant final approval of the proposed Settlement on the terms set forth in the Stipulation, and (ii) approve the mutually agreed upon Fee and Expense Award for Plaintiffs’ counsel and the Service Awards for Plaintiffs. II. Fairness of the Proposed Settlement Under Rule 23.1, a shareholder derivative action “may be settled, voluntarily dismissed, or compromised only with the court’s approval.” Fed. R. Civ. P. 23.1(c). Approval of a derivative action involves a two-step process that is similar to that employed for approving class action settlements. See In re MRV Communs., Inc. Derivative Litig., 2013 U.S. Dist. LEXIS 86295, at *7 (C.D. Cal. June 6, 2013). First, the Court determines whether the proposed settlement deserves preliminary approval—which this Court has already done. See id.; In re Tableware Antitrust Litig., 484 F. Supp. 2d 1078, 1079-80 (N.D. Cal. 2007) (“The preliminary determination establishes an initial presumption of fairness.”) (citation omitted). Now, after notice of the settlement has been provided to the shareholders, the Court must determine whether final approval is warranted. Id. A court should approve a settlement pursuant to Rule 23.1(c) only if the settlement “is fundamentally fair, adequate and reasonable.” Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370, 1375 (9th Cir. 1993). The Court must balance the following factors to make this determination: the strength of the plaintiff’s case; the risk, expense, complexity, and likely duration of further litigation; the risk of maintaining class action status throughout the trial; the amount offered in settlement; the extent of discovery completed and the stage of the proceedings; the experience and views of counsel; the presence of a governmental participant; and the reaction of the class members to the proposed settlement. See Mego Financial Corp. Sec. Litig., 213 F.3d 454, 459 (9th Cir. 2000) (quoting Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998)); Officers for Justice v. Civil Service Comm’n, 688 F.2d 615, 625 (9th Cir. 1982)); Fed. R. Civ. P. 23(e). Here, there was no governmental participant in this action. With respect to the final factor, the Court will examine the reaction of the shareholders to the proposed settlement rather than the reaction of “class members.” See In re MRV Communs., 2013 U.S. Dist. LEXIS 86295, at *8-9. “[T]he court’s intrusion upon what is otherwise a private consensual agreement negotiated between the parties to a lawsuit must be limited to the extent necessary to reach a reasoned judgment CV-90 (06/04) CIVIL MINUTES - GENERAL Page 2 of 7 Case 2:18-cv-06587-PA-PLA Document 86 Filed 07/14/20 Page 2 of 7 Page ID #:1293 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES - GENERAL Case No. CV 18-6587 PA (PLAx) Date July 14, 2020 Title Ethan Young et al. v. Milton C. Ault, III et al. that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement, taken as a whole, is fair, reasonable and adequate to all concerned.” Hanlon, 150 F.3d at 1027 (quoting Officers for Justice, 688 F.2d at 625)). In some instances, “one factor alone may prove determinative in finding sufficient grounds for court approval.” Nat’l Rural Telecomms. Coop. v. DIRECTV, Inc., 221 F.R.D. 523, 525-26 (C.D. Cal. Jan. 5, 2004). In addition, “[t]he involvement of experienced  counsel and the fact that the settlement agreement was reached in arm’s length negotiations, after relevant discovery ha[s] taken place create a presumption that the agreement is fair.” Linney v. Cellular Alaska P’ship, 1997 WL 450064, *5 (N.D. Cal. July 18, 1997), aff’d, Linney v. Cellular Alaska P’ship, 151 F.3d 1234, 1234 (9th Cir. 1998). A. Benefit Derived From the Settlement Agreement “The principal factor to be considered in determining the fairness of a settlement concluding a shareholders’ derivative action is the extent of the benefit to be derived from the proposed settlement by the corporation, the real party in interest.” In re Atmel Corp. Derivative Litig., 2010 WL 9525643, at *12 (N.D. Cal. Mar. 31, 2010) (citation omitted). “[S]trong corporate governance is fundamental to the economic well-being and success of a corporation. Indeed, [c]ourts have recognized that corporate governance reforms such as those achieved here provide valuable benefits to public companies.’” In re NVIDIA Corp. Derivative Litig., 2008 WL 5382544, at *3 (N.D. Cal. Dec. 22, 2008) (citation omitted). As part of the Settlement Agreement, DPW’s Board of Directors will adopt several corporate governance reforms. The parties believe these proposed Reforms “directly address the allegations made in the Action that this Court sustained pursuant to the May 21, 2019 Order.” (Mot. at 17.) The Reforms include the following institutional changes: (1) removal of a non-independent director from the Board and appointment of two new independent directors, so that the board is composed of five independent directors and two non-independent directors; (2) instituting heightened independence requirements for Board members to qualify as independent; (3) appointing two new independent directors to a three-member Governance Committee, which will be charged with reviewing related party transactions subject to a newly created related party transaction policy; (4) instituting an enhanced definition for identifying related parties; (5) tasking the Governance Committee with reviewing the Company’s issuance of stock; (6) requiring the Company’s Audit Committee to review all debt financing, including loans and future receipts agreements, and (7) amending the Company’s Bylaws, Audit Committee Charter, whistle-blower policy, and compensation clawback policy. (Id.) For these reasons, the Court finds this factor weighs in favor of final approval of the Settlement Agreement. B. Strength of Plaintiff’s Case; Risk, Expense, Complexity, and Likely Duration of Further Litigation “[T]he odds of winning [a] derivative lawsuit [are] extremely small” because “derivative lawsuits are rarely successful.” In re Pac. Enters. Sec. Litig., 47 F.3d 373, 378 (9th Cir. 1995). The parties acknowledge that continued litigation would be extremely complex, costly, and of substantial duration. CV-90 (06/04) CIVIL MINUTES - GENERAL Page 3 of 7 Case 2:18-cv-06587-PA-PLA Document 86 Filed 07/14/20 Page 3 of 7 Page ID #:1294 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES - GENERAL Case No. CV 18-6587 PA (PLAx) Date July 14, 2020 Title Ethan Young et al. v. Milton C. Ault, III et al. Although Plaintiffs “adequately established demand futility, they still would have had to overcome protections afforded under the business judgment rule”—a “difficult hurdle for derivative plaintiffs to overcome, up through and including trial.” (Mot. at 23.) In addition, Plaintiffs “faced a formidable challenge establishing and collecting monetary damages in the Action.” (Id.) Plaintiffs may have ultimately proved their claims, but the individual defendants may have been off the hook because DPW’s bylaws contained an exculpatory clause. (Id.) If the case went to trial, a battle of the experts may result in a jury being swayed by defense experts’ testimony that minimizes DPW’s damages. (Id. at 24.) Finally, Plaintiffs’ counsel anticipates that trial would have lasted several weeks, and “it is likely that any judgment in favor of Plaintiffs would have been the subject of extensive post-trial motions and appeals.” (Id. at 25.) The Court finds that settlement will eliminate these expenses and risks associated with continued litigation. These factors therefore favor final approval of the Settlement Agreement. C. Experience and Views of Counsel “The opinion and judgment of experienced counsel, whose labors produced the settlement, should also receive due consideration.” In re Nat’l Student Mktg. Litig., 68 F.R.D. 151, 155 (D.D.C. 1974). Here, Plaintiffs’ counsel “have litigated scores of shareholder class and derivative actions and have well-known national reputations of pursuing their cases to a successful resolution, whether by trial or settlement.” (Mot. at 27.) Counsel believe that, based on their extensive experience, the Settlement Agreement is in the best interests of DPW and its shareholders. Counsel believe the Settlement “is an excellent achievement under all the circumstances.” (Id.) The Court finds that counsels’ belief that the Settlement Agreement is both fair and adequate also weighs in favor of final approval. D. Lack of Collusion Between the Parties “[T]he settlement may not be the product of collusion among the negotiating parties.” Mego, 213 F.3d at 458. Here, there is no evidence of overt misconduct. On the contrary, it appears that the Settlement Agreement was the product of informed, arms-length negotiations between the parties. (Mot. at 16, 27.) In addition, “[t]he assistance of an experienced mediator in the settlement process confirms that the settlement is non-collusive.” Satchell v. Fed. Express Corp., 2007 WL 1114010, at *4 (N.D. Cal. Apr. 13, 2007); see also Hefler v. Wells Fargo & Co., 2018 WL 4207245, at *9 (N.D. Cal. Sept. 4, 2018) (“in light of the fact that the Settlement was reached after the parties engaged in motion practice and participated in multiple days of formal mediation, the Court concludes that the negotiations and agreement were non-collusive.”). The Fee and Expense Award, and the Plaintiffs’ requested Service Awards, all appear to be proper. Therefore, the Court finds that the Settlement Agreement is the product of non-collusive negotiations. E. Reaction of DPW Shareholders As mentioned above, the Summary Notice regarding the Settlement was published via a Company press release; the Summary Notice was filed in a “Current Report” on a Form 8-K with the CV-90 (06/04) CIVIL MINUTES - GENERAL Page 4 of 7 Case 2:18-cv-06587-PA-PLA Document 86 Filed 07/14/20 Page 4 of 7 Page ID #:1295 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES - GENERAL Case No. CV 18-6587 PA (PLAx) Date July 14, 2020 Title Ethan Young et al. v. Milton C. Ault, III et al. SEC; and the Notice and Stipulation were posted on the Investor Relations portion of DPW’s website. (Mot. at 26.) The notice period was 50 days, which the Court finds sufficient to satisfy any due process concerns. Compare United States v. Alabama, 271 Fed. Appx. 896, 901 (11th Cir. 2008) (two week notice period was sufficient). DPW has approximately 5.77 million shares outstanding, held by thousands of stockholders, but Plaintiff and this Court did not receive any objections to the Settlement as of today’s date. The Court finds that the lack of opposition from DPW shareholders weighs in favor of final approval of the Settlement Agreement. III. Fee and Expense Award and Plaintiffs’ Service Award Plaintiffs’ counsel seek approval of the mutually agreed upon Fee and Expense Award of $600,000.00. (Mot. at 28.) The Fee and Expense Award will cover Plaintiffs’ attorney’s fees and costs for their efforts in prosecuting this action on a contingent basis. The Award was negotiated at arm’s-length with the assistance of the Mediator, and after the parties agreed to the material terms of the corporate governance reforms. (Id.) “Derivative counsel are entitled to compensation so long as two requirements are satisfied: (1) the derivative suit creates a substantial benefit to the corporation; and (2) the derivative complaint was ‘meritorious.’” In re Oracle Sec. Litig., 852 F. Supp. 1437, 1445 (N.D. Cal. 1994) (citing Lewis v. Anderson, 692 F.2d 1267, 1270-71 (9th Cir. 1982).1/ Both requirements are satisfied here. First, the Settlement Agreement confers a substantial benefit to DPW in light of the agreed upon corporate governance reforms. See Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 395-96 (1970) (“an increasing number of lower courts have acknowledged that a corporation may receive a ‘substantial benefit’ from a derivative suit, justifying an award of counsel fees, regardless of whether the benefit is pecuniary in nature”). Second, the complaint was ‘meritorious’ because “it would have survived a motion to dismiss on the pleadings.” In re Oracle Sec. Litig., 852 F. Supp. at 1445 (“On its face, the complaint alleges facts that sufficiently support claims of insider trading and breach of fiduciary duty”). Defendants moved to dismiss Plaintiff’s First Amended Complaint and several of Plaintiffs’ claims survived that motion. 1/ Plaintiff’s counsel asks the Court to apply Delaware substantive law when considering the fairness of the Settlement Agreement and the Fee and Expense Award because Defendant is a Delaware corporation. However, other courts have “analyzed state and federal law governing derivative counsel fees and  found no substantial differences between Delaware and federal law.” In re Oracle Sec. Litig., 852 F. Supp. 1437, 1445 (N.D. Cal. 1994). Therefore, the Court “simply notes that it need not determine which law governs the fee determination because Delaware and federal law are in accord on the issue of derivative counsel fees.” Id.; see also In re BEA Sys., Inc. Derivative Litig., 2009 WL 815452, at *2 (N.D. Cal. Mar. 27, 2009) (“The parties begin by disputing whether the law of Delaware (BEA’s state of incorporation) or federal common law govern the Plaintiffs’ request for attorneys’ fees. . . .. Absent a conflict between Delaware and federal law, this court will not address the issue.”). CV-90 (06/04) CIVIL MINUTES - GENERAL Page 5 of 7 Case 2:18-cv-06587-PA-PLA Document 86 Filed 07/14/20 Page 5 of 7 Page ID #:1296 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES - GENERAL Case No. CV 18-6587 PA (PLAx) Date July 14, 2020 Title Ethan Young et al. v. Milton C. Ault, III et al. Other pertinent factors also weigh in favor of approving the Fee and Expense Award. A negotiated fee is entitled to deference because, as Plaintiffs point out, “Plaintiffs’ Counsel would have little incentive to attempt to negotiate a fee to which Defendants would not object.” (Mot. at 29.); see also In re Apple Computer, Inc. Derivative Litig., 2008 WL 4820784, at *3 (N.D. Cal. Nov. 5, 2008) (“A court should refrain from substituting its own value for a properly bargained-for agreement.”). Here, the Fee and Expense Award was “negotiated under market conditions” and “[a]ll counsel were able to consider and utilize as precedent fee decisions from other actions of a similar nature.” (Mot. at 29.) Both sides agree that $600,000 is a fair and reasonable sum. (Id.) In addition, the Fee and Expense Award is reasonable in light of the contingent nature of Plaintiffs’ counsel’s undertaking. When Plaintiffs’ counsel took on this case, they were aware they would devote extensive time and resources to prosecute this difficult case without any assurance of receiving fees or reimbursement for litigation costs. “The Court is well aware that there are numerous contingent cases such as this where plaintiff’s counsel, after investing thousands of hours of time and effort, have received no compensation whatsoever. Numerous cases recognize that the attorney’s contingent fee risk is an important factor in determining the fee award.” Ressler v. Jacobson, 149 F.R.D. 651, 656 (M.D. Fla. 1992) (citations omitted). The Fee and Expense Award is also appropriate in light of the time, effort, and expense expended by Plaintiffs’ counsel. Plaintiffs’ counsel collectively have expended approximately 1,231 hours in the prosecution and settlement of the Action for a cumulative lodestar of $791,086.25 (number of hours expended x hourly rate). (Mot. at 34.) And Plaintiffs’ counsel incurred $19,084.06 in expenses in the prosecution and settlement of the Action (Id.) Thus, the agreed-upon $600,000 Award means that Plaintiffs’ counsel will only receive 73% of their lodestar amount. The Court finds that the cumulative lodestar serves as a useful cross-check that demonstrates the Fee and Expense Award is reasonable and appropriate. Finally, the Settlement Agreement provides for Service Awards for Plaintiffs in the amount of $2,500.00 each. Plaintiffs’ counsel believes these nominal awards should be approved in light of the substantial benefit that Plaintiffs secured for all DPW shareholders. (Id. at 35.) These awards will be funded from the Fee and Expense Award. (Dkt. 83-4 at 5.) Other courts have routinely approved similar incentive awards to compensate plaintiffs for their services and the potential risks incurred by participating in the litigation. See, e.g., In re McKesson HBOC, Inc. ERISA Litig., 391 F. Supp. 2d 844, 851 (N.D. Cal. 2005) (approving $5,000 incentive awards); In re PayPal Litig., 2004 WL 2445244, at *2 (N.D. Cal. Oct. 13, 2004) (approving $2,500 incentive awards). Conclusion The Court finds that the Settlement Agreement is fundamentally fair, adequate, and reasonable. The Court also finds that the Fee and Expense Award of $600,000 and Service Awards for Plaintiffs of CV-90 (06/04) CIVIL MINUTES - GENERAL Page 6 of 7 Case 2:18-cv-06587-PA-PLA Document 86 Filed 07/14/20 Page 6 of 7 Page ID #:1297 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES - GENERAL Case No. CV 18-6587 PA (PLAx) Date July 14, 2020 Title Ethan Young et al. v. Milton C. Ault, III et al. $2,500 each are fair and reasonable. The Court therefore grants Plaintiff’s Motion for Final Approval of Settlement. The Court will issue a Judgment consistent with this Order. IT IS SO ORDERED. CV-90 (06/04) CIVIL MINUTES - GENERAL Page 7 of 7 Case 2:18-cv-06587-PA-PLA Document 86 Filed 07/14/20 Page 7 of 7 Page ID #:1298
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA ETHAN YOUNG and GREG YOUNG, Derivatively on Behalf of Nominal Defendant, DPW HOLDINGS, INC., Plaintiffs, vs. MILTON C. AULT III, AMOS KOHN, WILLIAM B. HORNE, and KRISTINE AULT, Defendants, and DPW HOLDINGS, INC., Nominal Defendant. Case No. 2:18-cv-06587-PA-PLA JUDGMENT Hon. Percy Anderson Pursuant to the Court's July 14, 2020 Order granting Plaintiffs' Motion for Final Approval of Derivative Action Settlement, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that: 1. This Court has jurisdiction over the subject matter of the Action, Case 2:18-cv-06587-PA-PLA Document 87 Filed 07/16/20 Page 1 of 6 PageJ SID-6 #:1299 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 including the terms and conditions of the Stipulation and all exhibits thereto, and over the Parties to the Stipulation. 2. The Court finds that the Notice and Summary Notice was disseminated according to this Court’s Preliminary Approval Order. This Court further finds that the form and content of the Notice and Summary Notice, as previously preliminarily approved by the Court, complied with the requirements of Federal Rule of Civil Procedure 23.1, satisfied the requirements of due process, and constituted due and sufficient notice of the matters set forth therein. 3. A full opportunity has been offered to DPW Shareholders to object to the proposed Settlement and to participate in the hearing thereon, and as such, all current and former DPW Shareholders are bound by this Order. 4. The Court finds that the Settlement is fair, reasonable, adequate, and in the best interests of DPW and DPW Shareholders. 5. The Court finds, for settlement purposes only, that: (1) the Action was properly brought as a shareholder derivative suit pursuant to Federal Rule of Civil Procedure 23.1; and (2) Plaintiffs Ethan Young and Greg Young have adequately represented the interests of DPW Shareholders in enforcing the rights of DPW. 6. The Stipulation and the terms of the proposed Settlement set forth therein are, in all respects, hereby finally approved. The Parties to the Stipulation are directed to consummate the Settlement in accordance with the terms and provisions of the Stipulation. 7. This Action and all claims contained therein, as well as all Released Claims, are hereby dismissed with prejudice, released, and discharged in their entirety, on the merits, as against all Released Persons. Each Party shall bear its own fees and costs, except as set forth herein. 8. Upon the Effective Date, Plaintiffs, DPW, and all current and former DPW Shareholders, on behalf of themselves and each of their respective personal representatives, Immediate Family members, trustees, heirs, executors, Case 2:18-cv-06587-PA-PLA Document 87 Filed 07/16/20 Page 2 of 6 Page ID #:1300 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 administrators, parent entities, associates, affiliates, predecessors, successors, and assigns, and any other Person claiming (now or in the future) to be acting for, through, or on behalf of any of them, shall be deemed to have, and by operation of this Judgment shall have, fully, finally, and forever released, relinquished, settled, and discharged all Released Claims against the Released Persons and shall be permanently barred and enjoined from instituting, commencing, participating in, continuing, maintaining, asserting, or prosecuting any Released Claims against any of the Released Persons, or assisting any Person in instituting, commencing, participating in, continuing, maintaining, asserting, or prosecuting any Released Claims against any of the Released Persons. Nothing herein shall in any way impair or restrict the rights of any of the Parties to enforce the terms of the Stipulation. 9. Plaintiffs’ Counsel in the Action are hereby awarded attorneys’ fees and a reimbursement of expenses collectively totaling $600,000.00 (“Fee and Expense Award”). This Court finds that this amount is fair and reasonable under the facts and circumstances of this case. Payment of the Fee and Expense Award shall be made in accordance with the provisions of the Stipulation. 10. Plaintiffs are each awarded Service Awards in the amount of $2,500.00, which shall be funded from the Fee and Expense Award. Defendants and Defendants’ Counsel shall have no responsibility for the allocation or distribution of the Service Awards. 11. This Judgment, the Stipulation and all of its provisions, and any negotiations, proceedings, or agreements relating to the Stipulation and the Settlement, and any matters arising in connection with such negotiations, proceedings or agreements, and any acts performed or documents executed pursuant to or in furtherance of this Judgment or the Stipulation: Case 2:18-cv-06587-PA-PLA Document 87 Filed 07/16/20 Page 3 of 6 Page ID #:1301 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 a) shall not be offered or received against any of the Released Persons as evidence of a presumption, concession, or admission of any kind; b) shall not be offered or received against any of the Released Persons as evidence of an admission by any of those Released Persons with respect to the truth of any fact alleged in the Action or the validity of any Released Claims, or the deficiency of any defense that has been or could have been asserted, or of any liability, negligence, fault, or wrongdoing of the Released Persons; c) shall not be offered or received against the Released Persons as evidence of any fault, misrepresentation, omission, or other actionable conduct with respect to any statement or written document approved or made by any of the Released Persons; d) shall not be offered or received against the Released Persons as evidence of any liability, negligence, fault, or wrongdoing, or in any way referred to for any other reason as evidence against any of the Released Persons, in any other civil, criminal, or administrative action or proceeding, other than such proceedings as may be necessary to effectuate the provisions of this Stipulation; provided, however, that if this Stipulation is approved by the Court, the Released Persons may refer to it to effectuate the release of Released Claims and other liability protections granted them hereunder; e) shall not be construed against any of the Released Persons as an admission, concession, or presumption that the consideration to be given hereunder represents the amount that could be or would have been recovered after trial; f) shall not be construed as or received in evidence as an admission, concession, or presumption against Plaintiffs that any of their claims are without merit, or that any defenses asserted by the Defendants have any merit, or that damages recoverable in the Action would not have exceeded the settlement amount; and g) shall not, in the event of a Termination, be used by any Party for any purpose in any trial in any of the Action. Case 2:18-cv-06587-PA-PLA Document 87 Filed 07/16/20 Page 4 of 6 Page ID #:1302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 Notwithstanding anything else in this Judgment to the contrary, any Party may file or introduce the Stipulation and/or this Judgment in any action or proceeding that may be brought to enforce the terms of the Stipulation and/or the Judgment (including in support of a defense or counterclaim based on principles of res judicata, collateral estoppel, release, good faith settlement, judgment bar, or reduction, or any other theory of claim preclusion or issue preclusion or similar defense or counterclaim), or any action or proceeding related to rights or claims of Defendants relating to indemnification and/or advancement in connection with the Action. 12. The Settlement shall be a final and complete resolution of all disputes among the Parties. No party to the Stipulation may assert that the Action was brought, commenced, or prosecuted by the Plaintiffs or Plaintiffs’ Counsel in bad faith or that the Action was not filed or raised in good faith or was not settled voluntarily after negotiating at arm’s-length and in good faith after consultation with competent legal counsel. 13. Nothing in this Judgment constitutes or reflects a waiver, release, or discharge of any rights or claims of Defendants against their insurers, or their insurers’ subsidiaries, predecessors, successors, assigns, affiliates, or representatives. 14. The Parties are hereby authorized, without further approval of the Court, to unanimously agree to and adopt in writing such amendments, modifications, and expansions of the Stipulation and all exhibits attached thereto, provided that such amendments, modifications, and expansions of the Stipulation are done in accordance with the terms of Paragraph 24 of the Stipulation, are not materially inconsistent with this Judgment and do not materially limit the rights of DPW Shareholders or the Released Persons under the Stipulation. Case 2:18-cv-06587-PA-PLA Document 87 Filed 07/16/20 Page 5 of 6 Page ID #:1303 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 15. In the event that the Settlement does not become effective in accordance with the terms of the Stipulation, then this Judgment shall be rendered null and void to the extent provided by and in accordance with the Stipulation and shall be vacated, and in such event, all orders entered and releases delivered in connection herewith shall be null and void to the extent provided by and in accordance with the Stipulation, and the provisions of Paragraph 18 of the Stipulation shall apply. 16. The provisions of this Judgment constitute a full and complete adjudication of the matters considered and adjudged herein, and the Court determines that there is no just reason for delay in the entry of judgment. The Clerk is hereby directed to immediately enter this Judgment. SO ORDERED this 15th day of July, 2020. ____________________________ Percy Anderson United States District Judge Case 2:18-cv-06587-PA-PLA Document 87 Filed 07/16/20 Page 6 of 6 Page ID #:1304