United States District Court, D. Delaware
VINH DU, derivatively on behalf of ENTEROMEDICS, INC. and individually and on behalf of himself and all other similarly situated stockholders of ENTEROMEDICS, INC., Plaintiff,
GARY BLACKFORD, DAN W. GLADNEY, CARL GOLDFISCHER, BOBBY I. GRIFFIN, LORI C. MCDOUGAL, NICHOLAS L. TETI JR., JON T. TREMMEL, NAGEEB A. ANSARI, PETER M. DELANGE, PAUL F. HICKEY, SCOTT YOUNGSTROM, and ENTEROMEDICS, INC. Defendants, and ENTEROMEDICS, INC., Nominal Defendant.
TRIAL DEMANDED CLASS ACTION
EDUARDO C. ROBRENO, J.
before the Court is the parties' “Joint Motion for
Preliminary Approval of Class Action and Derivative
Settlement and Notice to Stockholders.” If approved,
the settlement will resolve the instant matter, in which
Plaintiff alleges that the Defendants, executive officers and
members of the board of directors of Enteromedics, Inc.
(“Enteromedics” or the “Company”),
breached their fiduciary duties to the stockholders. For the
reasons that follow, the Court will grant the motion,
conditionally certify the class, preliminarily approve the
proposed class action settlement, and approve the form,
content, and manner of giving notice to the class.
Factual Background and Procedural History
February 24, 2017, Plaintiff filed a derivative class action
complaint on behalf of EnteroMedics, alleging claims for
breach of fiduciary duty and unjust enrichment against
Defendants. Plaintiff alleged that Defendants breached their
fiduciary duties by: (1) making false and misleading
statements in connection with soliciting stockholder approval
of: (a) an amendment to EnteroMedics's Certificate of
Incorporation to effect a reverse stock split of the
Company's outstanding and issued shares of common stock
(the “Reverse Stock Split”); and (b) an amendment
to the Company's Second Amended and Restated 2003 Stock
Incentive Plan (the “Stock Plan”) that increased
the No. of shares available for issuance under the Stock
Plan; and (2) granting and receiving stock options in
February 2017 after the Reverse Stock Split and Stock Plan
were approved by stockholders.
moved to dismiss, and after a hearing, the Court denied the
motion. The parties then engaged in significant discovery.
Towards the end of discovery, after more fully understanding
the strengths and weaknesses of their positions, the parties
began settlement discussions and negotiated the current
proposed settlement agreement. The Court held a hearing on
the motion for preliminary approval of the settlement on
September 24, 2018.
Proposed Class Action Settlement
terms of the proposed class action settlement agreement are
set forth in the Stipulation of Settlement and Compromise
(the “Settlement Agreement”). Mot. Ex. A, ECF No.
36-1. The basic terms are outlined below.
class is defined as:
a non-opt-out class for settlement purposes of all record
holders and beneficial owners of common stock of EnteroMedics
who held or owned such stock during the Class Period (defined
below), including any and all of their respective
successors-in-interest, successors, predecessors-in-interest,
predecessors, representatives, trustees, executors,
administrators, estates, heirs, legatees, devisees, assigns
and transferees, immediate and remote, and any other person
or entity acting for or on behalf of any of the foregoing.
Excluded from the Class are Defendants and their immediate
family, any entity in which any Defendant has a controlling
interest, and any successors-in-interest thereto.
Id. at 5. The class period is defined “the
period of November 3, 2016 through February 24, 2017,
Proposed Settlement Terms
Settlement Agreement provides for the cancellation and
rescission of the stock options at issue, and stockholders
will have the opportunity to vote on any additional stock
options for Defendants made in connection with the
rescission. Second, the board of directors is required to
make proportional adjustments to the Stock Plan and other
Company equity plans to account for any changes in
EnteroMedics's capitalization, thus protecting
stockholders from unanticipated dilution. Third, the board of
directors is amending the Company's equity plan to add a
specific provision imposing an annual cap on equity
compensation for non-employee directors and will seek
stockholder approval of this amendment.
costs associated with notice to the class will be borne by
EnteroMedics. The Settlement Agreement also provides for an
award of attorneys' fees and expenses of $190, 000,
a $4, 000 incentive award for Plaintiff which will be paid
out of the attorneys' fees.
exchange for the benefits provided by the settlement, class
members agree to release all claims that they alleged or
could have alleged in the action.
Federal Rule of Civil Procedure 23(e), the settlement of a
class action requires court approval. Fed.R.Civ.P. 23(e)(2).
A district court may approve a settlement agreement only
“after a hearing and on finding that it is fair,
reasonable, and adequate.” Id. When a court is
presented with a class settlement agreement before the
district court has issued a class certification order - a
procedural posture that results in what is often termed a
“settlement class” - the Advisory Committee's
notes to the 2003 ...