IN RE RH SHAREHOLDER DERIVATIVE LITIGATION, No. 4:2018cv02452 - Document 82 (N.D. Cal. 2020)
Court Description: ORDER GRANTING MOTION FOR FINAL APPROVAL OF DERIVATIVE SETTLEMENT AND APPLICATION FOR AN AWARD OF ATTORNEYS' FEES AND EXPENSES 74 AND FINAL JUDGMENT by Judge Yvonne Gonzalez Rogers. (ygrlc2, COURT STAFF) (Filed on 12/18/2020)
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IN RE RH SHAREHOLDER DERIVATIVE LITIGATION Doc. 82 Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 1 of 33 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 OAKLAND DIVISION 11 IN RE RH SHAREHOLDER DERIVATIVE LITIGATION Lead Case No.: 4:18-cv-02452-YGR (Consolidated with: 4:18-cv-3930-YGR) 12 This Document Relates To: 13 [PROPOSED] ORDER AND FINAL JUDGMENT ALL ACTIONS. 14 *AS MODIFIED BY THE COURT* 15 Hearing Date: October 6, 2020 Hearing Time: 2 p.m. Judge: Hon. Yvonne Gonzalez Rogers 16 17 18 19 20 21 22 23 24 25 26 27 28 [PROPOSED] ORDER AND FINAL JUDGMENT Dockets.Justia.com Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 2 of 33 1 This matter came before the Court for hearing on October 6, 2020 pursuant to the Order of 2 this Court, dated August 3, 2020 (“Order”), on the motion of the parties for approval of the proposed 3 settlement (“Settlement”) set forth in the Stipulation of Settlement dated June 17, 2020, and attached 4 hereto as Exhibit 1 (the “Stipulation”). 5 The Court has reviewed and considered all documents, evidence, objections (if any), and 6 arguments presented in support of or against the Settlement; the Court being fully advised of the 7 premises and good cause appearing therefor, the Court enters this Judgment. 8 IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that: 9 1. This Order and Final Judgment incorporates by reference the definitions in the 10 Stipulation, and all terms used herein shall have the same meanings as set forth in the Stipulation, 11 unless otherwise set forth herein. 12 2. This Court has jurisdiction over the subject matter of the Action, including all matters 13 necessary to effectuate the Settlement, and over all Settling Parties. 14 3. Based on evidence submitted, the Court finds that notice was published and 15 disseminated in accordance with this Court’s Preliminary Approval Order. This Court further finds 16 that the forms and contents of the Notice and Summary Notice, as previously preliminarily approved 17 by the Court, complied with the requirements of Federal Rule of Civil Procedure 23.1, satisfied the 18 requirements of due process of the United States Constitution, and constituted due and sufficient 19 notice of the matters set forth therein. 20 4. The Court finds that the terms of the Stipulation and Settlement are fair, reasonable, 21 and adequate as to each of the Settling Parties, and hereby finally approves the Stipulation and 22 Settlement in all respects, and orders the Settling Parties to perform its terms to the extent the Settling 23 Parties have not already done so. 24 5. Pursuant to entry of this Judgment, the Action and all claims contained therein against 25 Defendants, as well as all of the Released Claims against each of the Defendants and their Related 26 Persons, are hereby dismissed with prejudice. As among the Plaintiffs and Defendants, the parties 27 are to bear their own costs, except as otherwise provided in the Stipulation. 28 -1ORDER AND FINAL JUDGMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 3 of 33 1 6. Upon the Effective Date, RH, Plaintiffs (acting on their own behalf and derivatively 2 on behalf of RH), and each of RH’s shareholders (solely in their capacity as RH shareholders) shall 3 be deemed to have, and by operation of the Judgment shall have, fully, finally, and forever released, 4 relinquished, and discharged the Released Claims against the Released Persons and any and all claims 5 (including Unknown Claims) arising out of, relating to, or in connection with the defense, settlement 6 or resolution of the Action against the Released Persons, provided that nothing herein shall in any 7 way impair or restrict the rights of any Settling Party to enforce the terms of the Stipulation or this 8 Judgment. 9 7. Upon the Effective Date, RH, Plaintiffs (acting on their own behalf and derivatively 10 on behalf of RH), and each of RH’s shareholders (solely in their capacity as RH shareholders) will be 11 forever barred and enjoined from commencing, instituting or prosecuting any of the Released Claims 12 or any action or other proceeding against any of the Released Persons based on the Released Claims 13 or any action or proceeding arising out of, related to, or in connection with the settlement or resolution 14 of the Action, provided that nothing herein shall in any way impair or restrict the rights of any Settling 15 Party to enforce the terms of the Stipulation or this Judgment. 16 8. Upon the Effective Date, each of the Released Persons shall be deemed to have, and 17 by operation of the Judgment shall have, fully, finally, and forever released, relinquished, and 18 discharged each and all of the Plaintiffs, Plaintiffs’ Counsel, RH, and all of the RH shareholders 19 (solely in their capacity as RH shareholders) from all claims (including Unknown Claims) arising out 20 of, relating to, or in connection with the institution, prosecution, assertion, settlement or resolution of 21 the Action or the Released Claims. Nothing herein shall in any way impair or restrict the rights of 22 any Settling Party to enforce the terms of the Stipulation or this Judgment. 23 9. Nothing in the Stipulation constitutes or reflects a waiver or release of any rights or 24 claims of Defendants and/or RH against their insurers, or their insurers’ subsidiaries, predecessors, 25 successors, assigns, affiliates, or representatives, including, but not limited to, any rights or claims by 26 the Defendants under any directors’ and officers’ liability insurance or other applicable insurance 27 coverage maintained by the Company. Nothing in the Stipulation constitutes or reflects a waiver or 28 release of any rights or claims of the Defendants relating in any way to indemnification or -2ORDER AND FINAL JUDGMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 4 of 33 1 advancement of attorneys’ fees relating to the Action or the Released Claims, whether under any 2 written indemnification or advancement agreement, or under the Company’s charter, by-laws or 3 operating agreement, or under applicable law. 4 10. The Court hereby approves the Fee and Expense Amount in accordance with the 5 Stipulation and finds that such fee is fair and reasonable. Generally, having high expectations for 6 plaintiffs’ counsel to act professionally and with the duty of loyalty to their clients, the Court rarely 7 comments on counsel’s performance. Here, such commentary is appropriate. The case at hand 8 presented corporate acts which illustrated why the class action tool is a necessary device to implement 9 change. Good corporate governance can serve to disciple so that litigation is not necessary. However, 10 where, as here, those controls either did not exist or did not work, litigation is sometimes the only 11 option. Counsel performed excellent work in not only investigating and analyzing the core of the 12 issues, but in negotiating and demanding the necessary reforms to prevent malfeasance for the benefit 13 of the shareholders and the consumers. The Court complements counsel for its excellence. 14 11. Plaintiffs are hereby each awarded a service award in the amount of $5,000, which 15 sum shall be paid out of counsel for Plaintiffs’ Fee and Expense Amount. 16 12. Neither the Stipulation (including any Exhibits attached thereto) nor the Settlement, 17 nor any act performed or document executed pursuant to or in furtherance of the Stipulation or the 18 Settlement: (a) is or may be deemed to be, or may be offered, attempted to be offered, or used in any 19 way by the Settling Parties as a presumption, a concession, or an admission of, or evidence of, any 20 fault, wrongdoing, or liability of the Settling Parties or of the validity of any Released Claims; or 21 (b) is intended by the Settling Parties to be offered or received as evidence, or used by any other 22 person in any other actions or proceedings, whether civil, criminal, or administrative. The Released 23 Persons may file the Stipulation and/or the Judgment in any action that may be brought against them 24 in order to support a defense or counterclaim based on principles of claim preclusion, collateral 25 estoppel, full faith and credit, release, standing, good faith settlement, judgment bar or reduction or 26 any other theory of claim preclusion or issue preclusion or similar defense or counterclaim, and any 27 of the Settling Parties may file the Stipulation and documents executed pursuant, and in furtherance 28 thereof in any action to enforce the Settlement. -3ORDER AND FINAL JUDGMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 5 of 33 1 13. Without affecting the finality of this Judgment in any way, this Court hereby retains 2 continuing jurisdiction with respect to implementation and enforcement of the terms of the Stipulation 3 and the Settlement. 4 14. During the course of the Action, the parties and their respective counsel at all times 5 complied with the requirements of Federal Rule of Civil Procedure 11 and all other similar rules. 6 15. This Order and Final Judgment is a final, appealable judgment and should be entered 7 forthwith by the Clerk in accordance with Federal Rule of Civil Procedure 58 and all other similar 8 rules. 9 Accordingly, the motion for final approval of derivative settlement and application for an 10 award of attorneys’ fees and expenses is GRANTED. This Order terminates Docket Number 74. 11 The Clerk of the Court is directed to close this case. 12 IT IS SO ORDERED. 13 14 15 DATED: December 18, 2020 YVONNE GONZALEZ ROGERS UNITED STATES DISTRICT JUDGE 16 17 18 19 20 21 22 23 24 25 26 27 28 -4ORDER AND FINAL JUDGMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 6 of 33 EXHIBIT 1 Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 7 of 33 1 5 JOHNSON FISTEL, LLP Frank J. Johnson (SBN 174882) frankj@johnsonfistel.com Kristen O’Connor (SBN 305113) kristeno@johnsonfistel.com 655 West Broadway, Suite 1400 San Diego, CA 92101 Telephone: (619) 230-0063 Facsimile: (619) 255-1856 6 Lead Counsel for Plaintiffs 7 [Additional counsel appear on signature page] 2 3 4 8 UNITED STATES DISTRICT COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 OAKLAND DIVISION 11 IN RE RH SHAREHOLDER DERIVATIVE LITIGATION 12 Lead Case No.: 4:18-cv-02452-YGR (Consolidated with: 3:18-cv-3930-YGR) This Document Relates To: 13 STIPULATION OF SETTLEMENT ALL ACTIONS. 14 15 16 Assigned for all purposes to Hon. Yvonne Gonzalez Rogers 17 18 19 20 21 22 23 24 25 26 27 28 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 8 of 33 1 This Stipulation of Settlement dated June 17, 2020 (the “Stipulation”), is made and 2 entered into by and among the following Settling Parties,1 each by and through their respective 3 counsel: (i) Plaintiffs David Magnani and Hosrof Izmirliyan (“Plaintiffs”) (on behalf of 4 themselves and derivatively on behalf of RH Inc. (“RH” or the “Company”); (ii) Individual 5 Defendants; and (iii) nominal defendant RH. The Individual Defendants and nominal defendant 6 RH are collectively referred to as “Defendants.” The Stipulation is intended by the Settling 7 Parties to fully, finally, and forever resolve, discharge, and settle the Released Claims, upon and 8 subject to the terms and conditions hereof. 9 I. TERMS OF STIPULATION AND SETTLEMENT AGREEMENT 10 NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among 11 the undersigned counsel for the Settling Parties herein, in consideration of the benefits flowing 12 to the Settling Parties from the Settlement, and subject to the approval of the Court pursuant to 13 Federal Rule of Civil Procedure 23.1, that the claims asserted in the Action and the Released 14 Claims shall be finally and fully compromised, settled, and released, and the Action shall be 15 dismissed with prejudice and with full preclusive effect, upon and subject to the terms and 16 conditions of this Stipulation, as follows: 17 1. 18 As used in the Stipulation, the following terms have the meanings specified below: 19 1.1 Definitions “Action” means the consolidated action pending in the U.S. District Court for the 20 Northern District of California entitled In re RH Shareholder Derivative Litigation, Lead Case 21 No. 4:18-cv-02452-YGR (consolidated with Izmirliyan v. Friedman, et al., Case No. 3:18-cv- 22 3930-YGR). 23 1.2 “Class Action” means the securities class action captioned In re RH, Inc. 24 Securities Litigation, Case No. 4:17-cv-00554-YGR (N.D. Cal.), which was ordered related to 25 the Action by order of the Court dated July 16, 2018. 26 1.3 “Complaint” means the verified consolidated shareholder derivative complaint 27 28 1 All capitalized terms not otherwise defined are defined in § I, at ¶1, “Definitions.” -1STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 9 of 33 1 filed in the Action (ECF No. 25). 2 1.4 “Court” means the U.S. District Court for the Northern District of California. 3 1.5 “Defendants” means the Individual Defendants and nominal defendant RH. 4 1.6 “Effective Date” means the first date by which all of the events and conditions 5 6 specified in ¶9.1 of this Stipulation have been met and have occurred. 1.7 “Final” means when the last of the following with respect to the Judgment (as 7 defined below in ¶1.9) shall have occurred: (i) either no appeal has been filed and the time has 8 passed for any notice of appeal to be timely filed in the Action; or (ii) an appeal has been filed 9 and the court of appeal has either affirmed the Judgment/dismissal or dismissed that appeal and 10 the time for any reconsideration or further appellate review has passed; or (iii) a higher court has 11 granted further appellate review and that court has either affirmed the underlying 12 Judgment/dismissal or affirmed the court of appeals’ decision affirming the Judgment/dismissal 13 or dismissing the appeal. 14 1.8 “Individual Defendants” means defendants Gary Friedman, Karen Boone, Carlos 15 Alberini, Keith Belling, Eri Chaya, Mark Demilio, Katie Mitic, Ali Rowghani, and Leonard 16 Schlesinger. 17 18 1.9 “Judgment” means the Order and Final Judgment to be rendered by the Court, substantially in the form attached hereto as Exhibit B hereto. 19 1.10 “Lead Counsel” means Johnson Fistel, LLP. 20 1.11 “Person” means an individual, corporation, limited liability corporation, 21 professional corporation, partnership, limited partnership, limited liability partnership, 22 association, joint stock company, estate, legal representative, trust, unincorporated association, 23 government, or any political subdivision or agency thereof, and any business or legal entity and 24 their spouses, heirs, predecessors, successors, representatives, or assignees. 25 26 27 28 1.12 “Plaintiffs” means David Magnani and Hosrof Izmirliyan, and their respective agents, heirs, and/or successors. 1.13 “Plaintiffs’ Counsel” means any counsel that has appeared of record or rendered legal services to any Plaintiffs in connection with the Action. -2STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 10 of 33 1 1.14 “RH Board” means the RH Board of Directors. 2 1.15 “Related Persons” means each of the Defendants’ past or present agents, officers, 3 directors, attorneys, accountants, auditors, advisors, insurers, co-insurers, reinsurers, spouses, 4 immediate family members, heirs, executors, personal or legal representatives, estates, 5 administrators, trusts, predecessors, successors, and assigns, or other individual or entity in 6 which any Defendant has or had a controlling interest, and each and all of their respective past 7 and present officers, directors, employees, agents, affiliates, parents, subsidiaries, divisions, 8 attorneys, accountants, auditors, advisors, insurers, co-insurers, re-insurers, heirs, executors, 9 personal or legal representatives, estates, administrators, trusts, predecessors, successors, and 10 11 assigns. 1.16 “Released Claims” shall collectively mean any and all claims for relief (including 12 Unknown Claims), debts, rights, demands, suits, matters, liabilities, or causes of action, known 13 or unknown, whether or not concealed or hidden, asserted or unasserted (including, without 14 limitation, claims for damages, interest, attorneys’ fees, costs, expert or consulting fees and any 15 other costs, expenses or liability, disgorgement, constructive trust, breach of duty of care and/or 16 breach of duty of loyalty or good faith, breach of contract, fraud, misrepresentation, negligence, 17 negligent supervision, gross negligence, negligent misrepresentation, professional negligence, 18 intentional conduct, indemnification, insider trading, mismanagement, misconduct, waste of 19 corporate assets, abuse of control, unjust enrichment, or violations of statutes, rules, or 20 regulations, whether based on federal, state, local, statutory, or common law or any other law, 21 rule, or regulation), that have been and could have been asserted in the Action by Plaintiffs, RH, 22 or by any RH shareholder derivatively on behalf of RH, against each and every Defendant and 23 the Released Persons arising out of and based upon the facts, transactions, events, occurrences, 24 acts, disclosures, statements, omissions, or failures to act that were or could have been alleged 25 in the Action, or any claims in connection with, based upon, arising out of, or relating to the 26 Settlement, but excluding any claims to enforce the Settlement set forth in this Stipulation. 27 1.17 “Released Persons” means each of the Defendants and their Related Persons. 28 -3STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 11 of 33 1 2 3 4 5 1.18 “RH” or the “Company” means nominal defendant RH Inc., and its predecessors, successors, subsidiaries, affiliates, divisions, and assigns. 1.19 “Settling Parties” means, collectively, each of the Defendants, Plaintiffs (on behalf of themselves and derivatively on behalf of RH), RH, and RH’s shareholders. 1.20 “Unknown Claims” means any of the Released Claims which Plaintiffs, RH, or 6 RH shareholders do not know or suspect to exist in his, her, or its favor at the time of the release 7 of the Released Persons, including claims which, if known by him, her, or it, might have affected 8 his, her, or its settlement with and release of the Released Persons, or might have affected his, 9 her, or its decision not to object to this Settlement. With respect to any and all Released Claims, 10 the Settling Parties stipulate and agree that, upon the Effective Date, the Plaintiffs, Defendants, 11 and RH shall expressly waive and each of the RH shareholders shall be deemed to have, and by 12 operation of the Judgment shall have, expressly waived, the provisions, rights, and benefits of 13 California Civil Code Section 1542, which provides: 14 15 16 A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY. 17 18 Upon the Effective Date, Plaintiffs and Defendants shall expressly waive, and each of the RH 19 shareholders shall be deemed to have, and by operation of the Judgment shall have, expressly 20 waived any and all provisions, rights, and benefits conferred by any law of any jurisdiction or 21 any state or territory of the United States or any foreign jurisdiction, or principle of common 22 law, which is similar, comparable, or equivalent to California Civil Code Section 1542. 23 Plaintiffs, Defendants, and RH shareholders may hereafter discover facts in addition to or 24 different from those which he, she, or it now knows or believes to be true with respect to the 25 subject matter of the Released Claims, but, upon the Effective Date, each Plaintiff and Defendant 26 shall expressly settle and release, and each RH shareholder shall be deemed to have, and by 27 operation of the Judgment shall have, fully, finally, and forever settled and released, any and all 28 Released Claims, known or unknown, suspected or unsuspected, contingent or non-contingent, -4STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 12 of 33 1 whether or not concealed or hidden, which now exist, or heretofore have existed upon any theory 2 of law or equity now existing or coming into existence in the future, including, but not limited 3 to, conduct which is negligent, intentional, with or without malice, or a breach of any duty, law 4 or rule, without regard to the subsequent discovery or existence of such different or additional 5 facts. The Settling Parties acknowledge, and the RH shareholders shall be deemed by operation 6 of the Judgment to have acknowledged, that the foregoing waiver was separately bargained for 7 and is a key element of the Settlement of which this release is a part. 8 2. 9 On April 24, 2018 and June 29, 2018 respectively, Plaintiffs David Magnani and Hosrof 10 Izmirliyan filed shareholder derivative complaints in the U.S. District Court for the Northern 11 District of California (the “Court”): Magnani v. Friedman, et al., Case No. 4:18-cv-02452-YGR 12 (the “Magnani Action”) and Izmirliyan v. Friedman, et al., Case No. 3:18-cv-3930-YGR (the 13 “Izmirliyan Action”). Thereafter, on July 19, 2018, the Court consolidated the Magnani and 14 Izmirliyan Actions, and designated In re RH Shareholder Derivative Litigation, Lead Case 15 No. 4:18-cv-02452-YGR, as the lead case (the “Action”). Description of the Action and Settlement 16 The operative Complaint in the Action asserts derivative claims on behalf of RH against 17 the Individual Defendants for allegedly issuing false and misleading proxy statements in 18 violation of Section 14(a) of the Securities Exchange Act of 1934, and for breaches of fiduciary 19 duties, unjust enrichment, corporate waste, and insider selling in connection with the launch of 20 the Company’s RH Modern line. The Complaint alleges that the Individual Defendants allowed 21 RH to make alleged misstatements regarding the roll out of the RH Modern product line and the 22 company’s inventory levels. The Complaint further alleges that while the Company’s stock 23 price was artificially inflated, two of the officers and directors of RH breached their fiduciary 24 duties while selling RH stock for personal gain. The Complaint alleges that pre-suit demand on 25 the RH Board would be futile. 26 On September 28, 2018, Defendants filed a motion to dismiss the Consolidated 27 Complaint, and RH filed a motion to stay the Action, pending the resolution of the Class Action. 28 In their motion to dismiss, Defendants argued that Plaintiffs failed to make a demand on RH’s -5STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 13 of 33 1 Board to pursue litigation, as required by controlling Delaware law. Defendants further argued 2 that Plaintiffs have not fulfilled their burden to plead particularized facts showing that any pre- 3 suit demand would have been futile. Defendants also invoked RH’s forum selection clause, 4 which designates Delaware courts as the exclusive fora for the breach of fiduciary duty claims 5 asserted in the Action. 6 On January 23, 2019, the Court entered an Order granting RH’s motion staying the 7 Action pending the resolution of the Class Action. The Court declined to rule on the motion to 8 dismiss at that time. 9 Plaintiffs sent a settlement demand to Defendants on May 22, 2019, outlining the terms 10 upon which Plaintiffs would be willing to explore a resolution of the Action. Thereafter, the 11 Settling Parties engaged in months of arms-length settlement negotiations. In January 2020, in 12 order to facilitate further settlement negotiations, the Settling Parties agreed to participate in a 13 mediation session before Michelle Yoshida, Esq. of Phillips ADR Enterprises, P.C. 14 Ms. Yoshida is an experienced mediator with extensive experience in handling complex 15 representative actions, including shareholder derivative actions. The mediation session was 16 preceded by submission of detailed mediation statements and relevant exhibits by the Settling 17 Parties. On March 12, 2020, the Settling Parties engaged in an all-day mediation session with 18 Ms. Yoshida but were unable to reach an agreement at the mediation. However, the Settling 19 Parties, with the substantial assistance of Ms. Yoshida, continued settlement discussions in the 20 days following the March 12, 2020 mediation, culminating in a mediator’s proposal by 21 Ms. Yoshida on March 18, 2020. The Settling Parties accepted the mediator’s proposal on 22 March 19, 2020. The RH Board has, in an exercise of its independent business judgment, 23 approved the Settlement, and each of its terms, as fair, reasonable, and adequate, and in the best 24 interest of RH and its shareholders. 25 3. Plaintiffs’ Claims and the Benefits of the Settlement 26 3.1 Plaintiffs believe that the claims asserted in the Action have merit, and Plaintiffs’ 27 entry into this Stipulation and Settlement is not intended to be and shall not be construed as an 28 admission or concession concerning the relative strength or merit of the claims alleged in the -6STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 14 of 33 1 Action. However, the Plaintiffs recognize and acknowledge the expense and length of continued 2 legal proceedings necessary to prosecute the Action through trial and the appeals process. 3 Plaintiffs’ Counsel have taken into account the uncertain outcome and the risk of any litigation, 4 especially in complex litigations such as the Action, as well as the difficulties and delays 5 inherent in such litigation. Plaintiffs’ Counsel are also mindful of the problems of proof and 6 possible defenses to the claims asserted in the Action. 7 3.2 Plaintiffs’ Counsel have conducted extensive investigation, including, inter alia: 8 (i) reviewing RH’s press releases, public statements, SEC filings, and securities analysts’ 9 reports, and advisories about the Company; (ii) reviewing media reports about the Company; 10 (iii) researching the applicable law with respect to the claims alleged in the Action and the 11 potential defenses thereto; (iv) preparing and filing derivative complaints, including the 12 Consolidated Complaint; (v) conducting preliminary damages analyses; (vi) participating in 13 informal conferences with Defendants’ counsel regarding the specific facts of the cases, the 14 perceived strengths and weaknesses of the cases, and other issues in an effort to facilitate 15 negotiations and conducting research into the Company’s corporate governance structure in 16 order to make a settlement demand; (vii) participating in mediation and other conferences before 17 Michelle Yoshida of Phillips ADR Enterprises, P.C; and (viii) negotiating this Settlement with 18 Defendants. Based on Plaintiffs’ Counsel’s thorough review and analysis of the relevant facts, 19 allegations, defenses, and controlling legal principles, Plaintiffs’ Counsel believe that the 20 Settlement set forth in this Stipulation is fair, reasonable, and adequate, and confers substantial 21 benefits upon RH and its shareholders. Based upon Plaintiffs’ Counsel's evaluation, Plaintiffs 22 have determined that the Settlement is in the best interests of RH and its shareholders and have 23 agreed to settle the Action upon the terms and subject to the conditions set forth herein. Defendants’ Denials of Wrongdoing and Liability 24 4. 25 Defendants have denied and continue to deny each and every one of the claims, 26 contentions, and allegations made against them or that could have been made against them in 27 the Action, and expressly deny all charges of wrongdoing or liability against them arising out of 28 any of the conduct, statements, acts, or omissions alleged, or that could have been alleged in the -7STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 15 of 33 1 Action. Defendants have denied and continue to believe that Plaintiffs lack standing to assert 2 claims on RH’s behalf. Defendants assert that they have satisfied their fiduciary duties at all 3 relevant times, have acted in good faith and in the best interests of RH and its shareholders, have 4 meritorious defenses to Plaintiffs’ claims, and that judgment should be entered dismissing all 5 claims against them with prejudice. Defendants also have denied and continue to deny, among 6 other things, the allegations that Plaintiffs, RH, or its shareholders have suffered damage, or that 7 Plaintiffs, RH, or its shareholders were harmed by the conduct alleged in Action. Nevertheless, 8 Defendants acknowledge that continuation of the Action would be lengthy and expensive, and 9 recognize that it is desirable that the Action be fully and finally settled in the manner and upon 10 the terms and conditions set forth in this Stipulation. Defendants have thus entered into the 11 Stipulation solely to avoid the continuing additional expense, inconvenience, and distraction of 12 the Action and to avoid the risks inherent in litigation, and without admitting any wrongdoing 13 or liability whatsoever. 14 5. Corporate Governance Reforms 15 5.1 In connection with the Settlement of the Action, within ninety (90) days after 16 final approval of the Settlement, the RH Board shall adopt such resolutions and amend 17 appropriate committee charters to the extent applicable to ensure adherence to the Corporate 18 Governance Measures ("Measures"). The Measures shall be maintained for a minimum of four 19 (4) years from the Effective Date of this Stipulation. These Measures constitute part of the 20 consideration for this Stipulation, and RH acknowledges and agrees that the Measures confer 21 substantial benefits upon RH and its shareholders. RH also acknowledges and agrees that the 22 Action precipitated and was the cause for the adoption of the Measures set forth below. 23 24 25 I. MEETINGS OF INDEPENDENT DIRECTORS IN EXECUTIVE SESSION 5.2 The Company’s executive session practices of the RH Board shall be formalized and enhanced in accordance with the following specific terms and conditions: 26 a) 27 members of management or management directors. 28 b) The outside directors shall regularly meet in executive session without any The overall frequency of such “executive session” meetings of the RH -8STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 16 of 33 1 Board shall be not less than one-half of the number of all regularly scheduled RH 2 Board meetings. 3 4 II. 5.3 DISCLOSURE COMMITTEE CHARTER The RH Board shall adopt a Disclosure Committee Charter (the form of which 5 has been reviewed by Plaintiffs’ Counsel) setting forth the certain enumerated powers and 6 responsibilities for the Disclosure Committee consistent with the following: 7 a) 8 reviewing the (i) Company’s principal SEC disclosures consisting of its SEC 9 filings of quarterly and annual reports on Forms 10-Q and 10-K, respectively, as 10 well as its proxy statements, disclosures that include risk factors and registration 11 statements under the Securities Act of 1933, as amended, (ii) material 12 correspondence with the Staff of the Division of Corporate Finance of the SEC 13 including responses to SEC comment letters and requests for no action relief, and 14 (iii) other material investor disclosures as the Disclosure Committee may 15 determine from time to time. The Disclosure Committee shall review any such 16 investor disclosures and public filings with the objective of providing accurate 17 and timely disclosures to investors of material information when and to the extent 18 there is a duty to disclose such information under applicable laws and regulations. 19 b) 20 filings, the objective of the Disclosure Committee will be to solicit the review and 21 comment on the Company’s public disclosures by key Company personnel to the 22 extent the disclosures concern subject matters pertaining to those individuals’ 23 areas of responsibility or expertise. 24 c) 25 resource to assist the Company both in meeting its disclosure obligations in a 26 timely manner and in supporting the CFO and CEO in the discharge of their 27 obligations in connection with certification of SEC filings as required under 28 applicable laws and regulations. Among other things, the Disclosure Committee shall be charged with In connection with its review of such investor disclosures and public One of the objectives of the Disclosure Committee shall be to serve as a -9STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 17 of 33 1 d) The Disclosure Committee will report regularly to the Audit Committee 2 regarding material disclosure items in the context of the Audit Committee’s 3 review of SEC filings and other investor disclosures and will provide comments 4 with respect to any disclosures in such filings related to the Company’s disclosure 5 controls and procedures as of the end of each fiscal quarter and year-end. 6 e) 7 representing key areas of the Company’s operations that may be relevant to SEC 8 filings and other investor disclosures including senior representatives from the 9 following key functional areas of the Company (but not to the exclusion of other 10 members being included from these or other functional areas) as applicable: (i) the 11 finance and accounting organization including the Principal Accounting Officer 12 and the Principal Financial Officer, (ii) legal including the Chief Legal Officer; 13 (iii) tax including the head of tax; (iv) compliance including the Chief Compliance 14 Officer; (v) risk including the senior leader of any risk function; (vi) investor 15 relations; and (vii) internal audit, including the senior representative of the 16 internal audit function. 17 Committee. 18 f) 19 the Company’s annual and quarterly financial statements with the SEC, as well as 20 ad-hoc meetings from time to time as necessary in the performance of the duties 21 and responsibilities of the Disclosure Committee. 22 g) 23 advisors, and other individuals as deemed necessary or appropriate by the 24 Disclosure Committee in performing its duties and responsibilities. 25 h) 26 in the charter shall not be in limitation of any other representation on or 27 participation in the Disclosure Committee. 28 i) The membership of the Disclosure Committee shall include executives No Board member shall serve on the Disclosure The Disclosure Committee shall hold regular meetings before the filing of The Disclosure Committee shall extend invitations to employees, The specific listing of membership of the Disclosure Committee set forth The existence of the Disclosure Committee shall not in any way limit the - 10 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 18 of 33 1 participation of other Company personnel in investor disclosures and public 2 filings by the Company. 3 j) 4 disclosure controls (“Disclosure Controls”), but the Disclosure Committee shall 5 not itself be responsible for the overall design and/or implementation of the 6 Company’s Disclosure Controls or the Company’s internal controls over financial 7 reporting (“ICOFR”). The Disclosure Committee may provide comments and 8 recommendations to the Audit Committee or members of the Company’s 9 management team concerning the Company’s Disclosure Controls or ICOFR The Disclosure Committee shall be a component of the Company’s 10 from time to time. 11 k) 12 CFO with respect to the certifications they must provide for the Company’s 13 quarterly and annual reports. The Disclosure Committee may provide comments 14 and recommendations to the CEO and/or CFO concerning the Company’s 15 Disclosure Controls or ICOFR from time to time. 16 l) 17 responsibilities as may be prescribed from time to time by any of (i) the CFO; 18 (ii) the CEO; or (iii) the Audit Committee and, in the event of any conflict in such 19 directions, the Audit Committee shall have the ultimate authority to resolve any 20 such conflict. 21 III. 22 23 5.4 The Disclosure Committee shall also report to and advise the CEO and The Disclosure Committee shall undertake any other duties or AMENDMENTS TO AUDIT COMMITTEE CHARTER The Audit Committee Charter shall be amended to delineate the following specific additional rights and responsibilities. 24 a) 25 Committee in the context of the Audit Committee’s review of SEC filings and 26 other investor disclosures. Such reporting may take the form of interviews and 27 feedback to the Audit Committee by key members of the Disclosure Committee 28 including, without limitation, the CFO and the Principal Accounting Officer. The Audit Committee shall receive regular reporting from the Disclosure - 11 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 19 of 33 1 b) The Audit Committee may direct the Disclosure Committee to undertake 2 such other actions and responsibilities as the Audit Committee may determine 3 from time to time. 4 c) 5 with respect to the Disclosure Committee or otherwise may be performed by the 6 Chair of the Audit Committee (as necessary or appropriate for the Audit 7 Committee to perform its functions) and the Audit Committee may also delegate 8 plenary authority to any other member of the Audit Committee from time to time 9 as necessary or appropriate for the Audit Committee to perform its functions with Any action or responsibility of the Audit Committee that is undertaken 10 respect to the Disclosure Committee. 11 d) 12 meetings before (i) filing each quarterly or annual report with the SEC; 13 (ii) commencement of the annual audit; and (iii) completion of the annual audit. 14 e) 15 executive session at which sessions any representatives of management as well as 16 any management Board members shall not be present. The Audit Committee shall meet at least five (5) times annually, including The Audit Committee shall meet at least four (4) times annually in 17 18 19 IV. 5.5 CHIEF COMPLIANCE OFFICER The responsibilities and duties of the Company’s Chief Compliance Officer position shall be delineated in accordance with the following specific terms and conditions: 20 a) 21 responsibilities of the Chief Compliance Officer which shall include: 22 A charter document shall be created setting forth the duties and i. The Audit Committee working in consultation with the CEO may 23 revise the duties and responsibilities of the Chief Compliance 24 Officer position from time to time, which changes in such duties 25 and responsibilities shall be reflected in the charter document. 26 ii. The duties and responsibilities of the Chief Compliance Officer 27 shall include (but not be limited to) the oversight and 28 administration of the Company’s corporate governance and - 12 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 20 of 33 1 compliance policies, with the objective of (i) fostering a culture 2 that integrates compliance and ethics into business processes and 3 practices, and (ii) maintaining and monitoring a system for 4 reporting and investigating potential compliance and ethics 5 concerns. Such duties shall be delineated in the charter document. 6 iii. The Chief Compliance Officer shall report regularly to the Audit 7 Committee and/or the Nominating and Governance Committee as 8 appropriate with regard to (i) the Company’s compliance with 9 applicable laws and regulations, (ii) relevant topics concerning the 10 Company’s corporate governance, and (iii) any other material 11 matters within the responsibility of the Chief Compliance Officer. 12 iv. Any functional areas within the responsibility and authority of the 13 Chief Compliance Officer may be performed by other Company 14 personnel under the direction and supervision of the Chief 15 Compliance Officer as may be determined from time to time by 16 the Chief Compliance Officer. 17 V. DIRECTOR TRAINING, CONTINUING EDUCATION, EVALUATION AND REPORTING, AND ANNUAL SELF-ASSESSMENT 18 5.6 The practices of the RH Board regarding continuing education and self- 19 assessment shall be enhanced in accordance with the following specific terms and conditions: 20 a) Each member of the RH Board shall be reimbursed for attending approved 21 programs for continuing education which shall include the Stanford Law School 22 23 Directors’ College and other similar program(s) for continuing education. b) The Company shall provide other support to directors in the areas of 24 continuing education which may include compliance and other forms of refresher 25 training. 26 c) The RH Board shall engage in an annual self-assessment concerning the 27 operation and functioning of the RH Board and its various committees. 28 - 13 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 21 of 33 1 2 3 VI. 5.7 ENHANCEMENTS TO INSIDER TRADING COMPLIANCE The Company’s insider trading compliance programs and practices shall be enhanced in conformity with the following specific terms and conditions: 4 a) 5 benefits of utilizing 10b5-1 trading plans in connection with transactions in RH 6 stock; 7 b) 8 directors of the corporation are encouraged, where and to the extent practicable, 9 to adopt such 10b5-1 plans in connection with transactions in RH stock; Officers and directors of the corporation shall be educated on the potential The Company’s insider trading policy shall make clear that officers and 10 c) 11 and/or Chief Compliance Officer or such other compliance personnel as 12 designated under the Company’s Insider Trading Policy; 13 d) 14 responsibility for implementing and overseeing compliance with the Insider 15 Trading Policy and reporting any material non-compliance and disciplinary 16 determinations to the Audit Committee and/or the RH Board; 17 e) 18 appropriate steps to facilitate compliance with the Insider Trading Policy 19 including by making available to covered personnel training programs and other 20 educational materials, and in the event of material violations, by taking 21 appropriate remedial actions and recommending appropriate sanctions for 22 noncompliance; and 23 f) 24 appropriate and timely reports to the Audit Committee and/or RH Board in the 25 event of any applicable waivers or other exceptions to compliance. 26 27 28 Any 10b5-1 trading plans shall be pre-cleared by the General Counsel The General Counsel and/or Chief Compliance Officer will have The General Counsel and/or Chief Compliance Officer shall take other The General Counsel and/or Chief Compliance Officer will provide VII. 5.8 CONFIDENTIAL WHISTLEBLOWER PROGRAM The Company’s confidential whistleblower policy under Sarbanes-Oxley (the “SOX Whistleblower Program”) shall be enhanced with the following specific terms and - 14 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 22 of 33 1 conditions: 2 a) 3 questionable accounting or auditing matters concerning the Company to the Audit 4 Committee through the SOX Whistleblower Program. 5 b) 6 Whistleblower Program that the Company is not permitted to engage in retaliation 7 with respect to confidential whistleblower tips through the SOX Whistleblower 8 Program and that the employee is entitled to anonymity in submitting any 9 whistleblower reports to the SOX Whistleblower Program. Employees shall be advised that they may report matters concerning any Employees shall be advised by the terms and conditions of the SOX 10 c) 11 direction of the Audit Committee with separate contact information and 12 administration from other hotlines and complaint procedures directed to 13 employees so as to maintain the integrity of the SOX Whistleblower Program. 14 d) 15 through the SOX Whistleblower Program will be handled under the SOX 16 Whistleblower Program in a manner that is designed to preserve the anonymity of 17 the party submitting the complaint. 18 e) 19 whistleblower options and the whistleblower protections provided to employees 20 through the SOX Whistleblower Program. 21 22 The SOX Whistleblower Program shall be administered under the Whistleblower complaints that are directed to the Audit Committee The Company’s intranet shall provide employees with information about VIII. ENHANCEMENTS FOR BOARD INDEPENDENCE 5.9 The Company shall adopt enhanced standards for director independence as set 23 forth herein such that in addition to the standards required by the New York Stock Exchange, a 24 director will be deemed independent of corporate management only if he or she: 25 a) 26 indirect subsidiaries in any capacity within the last five (5) calendar years; 27 b) 28 immediately preceding calendar years, remuneration, directly or indirectly, other has neither been employed by the Company or by any of its direct or has not received, during the current calendar year or any of the three (3) - 15 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 23 of 33 1 than de minimis remuneration (less than $35,000) as a result of service as (or being 2 affiliated with an entity that serves as): (i) an advisor, consultant, or legal counsel 3 to the Company or to a member of the Company’s senior management; or (ii) a 4 significant supplier of the Company; 5 c) 6 Company’s senior management; 7 d) 8 from the Company or the Company’s executive officers totaling the lesser of 9 $100,000 or 1% of the charity’s total contribution in the preceding two (2) years; has no personal service contracts with the Company, or any member of the is not an employee of a not-for-profit entity that receives contributions 10 e) is not employed by a private or public company at which an executive 11 officer of the Company serves as a director; 12 f) 13 (a) through (e) above, with any affiliate of the Company; 14 g) 15 Section’s subsections (a) through (e) above; and 16 h) 17 remuneration as a director, including remuneration for serving as non-executive 18 Chairperson of the RH Board, as a Committee Chair, as a member of a RH Board 19 committee or as Lead Independent Director), directly or indirectly, if 20 remuneration, other than de minimis remuneration, was paid by RH, its 21 subsidiaries, or affiliates, to any entity in which the director has a beneficial 22 ownership interest of 10% or more. 23 remuneration if such remuneration is $35,000 or less in any calendar year, or if 24 such remuneration is paid to an entity, it (i) did not for the calendar year exceed 25 the lesser of $1 million, or 5% of the gross revenues of the entity; and (ii) did not 26 directly result in a material increase in the compensation received by the director 27 from that entity. 28 i) has not had any of the relationships described in this Section’s subsections is not a member of the immediate family of any person described in this a director is deemed to have received remuneration (other than Remuneration is deemed de minimis The service of any director in an interim capacity as an officer of the - 16 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 24 of 33 1 Company, its subsidiaries, or affiliates (where the RH Board determines that 2 appointment of a RH Board member to serve as an officer in such an interim 3 capacity is necessary or advisable to assure the Company’s compliance with 4 requirements under applicable law or under any listing rules of the New York 5 Stock Exchange) shall not in and of itself trigger a conclusion of such director not 6 being independent under any of the relationships described in ¶5.09(a)–(i) above. 7 8 IX. 5.10 MODIFICATION MEASURES Nothing in this Stipulation will require the Company to implement or maintain 9 any of the requirements listed herein, if, in the opinion of Company counsel and supported by 10 the opinion of outside counsel to the Company, such act or failure to act would result in a 11 reasonably foreseeable risk that the Company, or the RH Board or any of its committees, or any 12 affiliate of the Company, or any executive, director, officer, agent, or employee, of the Company 13 or any affiliate, would be in violation of any federal or state law, statute, rule, or regulation, or 14 any fiduciary or other duty that now exists or applies in the future (collectively, the “Laws and 15 Duties”). 16 5.11 In the event of such a determination, Defendants’ counsel shall notify Plaintiffs’ 17 Counsel in writing of any changes or modifications to the corporate governance measure at issue 18 (the “Changes”) that the Company so determines to be necessary and appropriate. If Plaintiffs 19 object to the Changes or request modifications to the Changes, and the Company and Plaintiffs 20 are able to reach an agreement regarding modifications to the Changes, then such agreed upon 21 modifications shall be adopted as promptly as practicable after there is a signed agreement by 22 the parties regarding such modifications. In the event the Company and Plaintiffs are unable to 23 reach an agreement on such modifications, the parties hereby agree to submit any such dispute 24 to confidential arbitration using a single arbitrator in San Francisco under the arbitration rules 25 of JAMS/ENDispute pertaining to commercial controversies. Such arbitrator shall have power 26 and authorization to render a binding decision on such matters. Such dispute shall be determined 27 as rapidly as possible, with the arbitrator being advised that the process and decision shall be 28 undertaken on an expedited basis with the expectation that the arbitration shall occur not later - 17 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 25 of 33 1 than thirty (30) days from the date the arbitrator is retained and a decision shall be rendered 2 within thirty (30) days from the date of the arbitration. The decision shall not be appealable and 3 shall be subject to the then existing rules of the Judicial Arbitration and Mediation Services as 4 may be modified by agreement of the parties. 5 6 5.12 Defendants hereby represent that they are not currently aware of any risk that would trigger the application of ¶5.11. 7 6. Procedure for Implementing the Settlement 8 6.1 Promptly after execution of this Stipulation, Plaintiffs shall submit the 9 Stipulation and its Exhibits to the Court and shall apply for an order substantially in the form of 10 Exhibit A hereto, requesting the preliminary approval of the Settlement set forth in this 11 Stipulation (the “Preliminary Approval Order”), and approval for the publication of the Notice 12 of Proposed Settlement and of Settlement Hearing (the “Notice”) and the Summary Notice of 13 Proposed Settlement and of Settlement Hearing (the “Summary Notice”) substantially in the 14 form of Exhibits A-1 and A-2 hereto, requesting: (i) preliminary approval of the Settlement set 15 forth in this Stipulation; (ii) approval of the form and manner of providing notice of the 16 Settlement to current RH shareholders; and (iii) a date for a final hearing at which the Court will 17 determine, among other matters, whether the terms of the Settlement should be approved, 18 whether a final judgment should be entered, and whether to approve the separately negotiated 19 Fee and Expense Amount (the “Settlement Hearing”), pursuant to Federal Rule of Civil 20 Procedure 23.1. 21 6.2 Within ten (10) business days of the issuance of the Preliminary Approval Order, 22 RH (i) shall cause the Stipulation and Notice to be filed with the SEC via a Form 8-K, (ii) shall 23 publish the Summary Notice substantially in the form of Exhibit A-2 hereto, for one day in 24 Investor’s Business Daily, and (iii) shall post a link to the Stipulation and Notice on RH’s 25 website such that visitors to the “Investor Relations” section of the website will readily find a 26 hyperlink to the Notice, which shall be maintained as an active link until such time as the Court 27 grants final approval of the settlement. All costs in providing notice will be paid by RH. The 28 Settling Parties believe the content and manner of the notice, as set forth in this paragraph, - 18 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 26 of 33 1 constitutes adequate and reasonable notice to current RH shareholders pursuant to applicable 2 law and due process. At least seven (7) calendar days before the Settlement Hearing, RH’s 3 Counsel shall file with the Court an appropriate affidavit or declaration with respect to filing and 4 posting the Notice and Summary Notice. 5 7. Releases 6 7.1 Upon the Effective Date, RH, Plaintiffs (acting on their own behalf and 7 derivatively on behalf of RH), and each of RH’s shareholders (solely in their capacity as RH 8 shareholders) shall be deemed to have, and by operation of the Judgment shall have, fully, 9 finally, and forever released, relinquished, and discharged the Released Claims against the 10 Released Persons and any and all claims (including Unknown Claims) arising out of, relating 11 to, or in connection with the defense, settlement, or resolution of the Action against the Released 12 Persons, provided that nothing herein shall in any way impair or restrict the rights of any Settling 13 Party to enforce the terms of this Stipulation or the Judgment. 14 7.2 Upon the Effective Date, RH, Plaintiffs (acting on their own behalf and 15 derivatively on behalf of RH), and each of RH’s shareholders (solely in their capacity as RH 16 shareholders) will be forever barred and enjoined from commencing, instituting or prosecuting 17 any of the Released Claims or any action or other proceeding against any of the Released Persons 18 based on the Released Claims or any action or proceeding arising out of, related to, or in 19 connection with the settlement or resolution of the Action, provided that nothing herein shall in 20 any way impair or restrict the rights of any Settling Party to enforce the terms of this Stipulation 21 or the Judgment. 22 7.3 Upon the Effective Date, each of the Released Persons shall be deemed to have, 23 and by operation of the Judgment shall have, fully, finally, and forever released, relinquished, 24 and discharged each and all of the Plaintiffs, Plaintiffs’ Counsel, RH, and all of the RH 25 shareholders (solely in their capacity as RH shareholders) from all claims (including Unknown 26 Claims) arising out of, relating to, or in connection with the institution, prosecution, assertion, 27 settlement, or resolution of the Action or the Released Claims. Nothing herein shall in any way 28 impair or restrict the rights of any Settling Party to enforce the terms of this Stipulation or the - 19 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 27 of 33 1 Judgment. 2 7.4 Nothing in this Stipulation constitutes or reflects a waiver or release of any rights 3 or claims of Defendants and/or RH against their insurers, or their insurers’ subsidiaries, 4 predecessors, successors, assigns, affiliates, or representatives, including, but not limited to, any 5 rights or claims by the Defendants under any directors’ and officers’ liability insurance or other 6 applicable insurance coverage maintained by the Company. 7 constitutes or reflects a waiver or release of any rights or claims of the Defendants relating in 8 any way to indemnification or advancement of attorneys’ fees relating to the Action or the 9 Released Claims, whether under any written indemnification or advancement agreement, or 10 Nothing in this Stipulation under the Company’s charter, by-laws or operating agreement, or under applicable law. 11 8. Plaintiffs’ Counsel’s Attorneys’ Fees and Expenses 12 8.1 As a result of arm’s-length negotiations and with the substantial assistance of the 13 Mediator, and in light of the substantial benefits conferred upon RH by Plaintiffs’ Counsel’s 14 efforts, RH shall cause its insurance carriers to pay Plaintiffs’ Counsel the amount of $1,000,000, 15 subject to Court approval (the “Fee and Expense Amount”). This agreement was reached in 16 connection with the parties’ mediation and after the Settling Parties had substantially negotiated 17 the Measures. The Fee and Expense Amount shall constitute final and complete payment for 18 Plaintiffs’ attorneys’ fees and expenses that have been incurred or will be incurred in connection 19 with the Action. 20 8.2 In full and final settlement of the claims asserted in the Action against the 21 Defendants and in consideration of the releases specified herein, Defendants’ shall cause the Fee 22 and Expense Amount to be deposited by their insurance carriers into an escrow account 23 controlled by Plaintiffs’ Counsel within thirty (30) calendar days of (i) the entry of the 24 Preliminary Approval Order, as defined in ¶6.1 herein, and (ii) the date on which Plaintiffs’ 25 Counsel provides sufficient written payment instructions to Defendants’ Counsel, whichever is 26 later, and shall be immediately releasable upon entry of the Judgment and an order approving 27 the Fee and Expense Amount, notwithstanding the existence of any collateral attacks on the 28 Settlement, including, without limitation, any objections or appeals. In the event that the - 20 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 28 of 33 1 Judgment fails to become Final, then it shall be the several obligation of Plaintiffs’ Counsel to 2 make appropriate refunds or repayments of any attorneys’ fees and expenses previously paid 3 within thirty (30) calendar days from receiving notice from Defendants’ Counsel or from a court 4 of appropriate jurisdiction. Other than the obligation to pay or cause to be paid the Fee and 5 Expense Amount, neither the Defendants nor any other Released Person shall have any 6 obligations to make any other payment pursuant to this Stipulation, and shall have any 7 responsibility, obligation, or liability with respect to the escrow account or the monies 8 maintained therein or the administration related to the Fee and Expense Amount, including, 9 without limitation, any responsibility or liability related to allocation of the Fee and Expense 10 Amount among Plaintiffs’ Counsel, any fees, taxes, investment decisions, maintenance, 11 supervision or distribution of any portion of the Fee and Expense Amount. The Fee and Expense 12 Amount shall constitute full, complete, and exclusive compensation for Plaintiffs’ Counsel’s 13 efforts, fees, services, and expenses. 14 Plaintiffs may apply to the Court for service awards in the amount of $5,000.00 8.3 15 per Plaintiff (“Service Awards”), to be paid out of such Fee and Expense Amount awarded by 16 the Court. Defendants will take no position on this application. 17 9. Conditions of Settlement, Effect of Disapproval, Cancellation or Termination 9.1 The Effective Date is conditioned on the occurrence of all of the following 18 19 20 events, and is the first date by which all of the following events and conditions have been met 21 and have occurred: 22 a) Approval of the Settlement, and each of its terms, by the RH Board; 23 b) Entry by the Court of the Judgment and an order approving the Settlement; 24 c) Payment of the Fee and Expense Amount; and 25 d) the Judgment has become Final. 26 9.2 If any of the conditions specified in ¶9.1 are not met, then the Stipulation shall 27 be canceled and terminated subject to ¶9.4, unless the Settling Parties mutually agree in writing 28 to proceed with the Stipulation. - 21 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 29 of 33 1 9.3 Any proceeding, appeal, or petition pertaining solely to the Fee and Expense 2 Amount or reversal or modification thereof, shall not operate to terminate, modify, or cancel this 3 Stipulation, or affect or delay the Effective Date or the finality of the Judgment approving this 4 Stipulation and the Settlement of the Action. 5 9.4 If for any reason the Effective Date does not occur, or if this Stipulation is in any 6 way canceled, terminated, or fails to become Final in accordance with its terms: (i) the payments 7 to Plaintiffs’ Counsel pursuant to ¶8 shall be returned and repaid to the payor within thirty (30) 8 calendar days of the event that triggered the repayment obligation; (ii) the Settling Parties shall 9 be restored to their respective positions as of the date immediately preceding the full execution 10 of this Stipulation; and (iii) all negotiations, proceedings, documents prepared, and statements 11 made in connection herewith shall be without prejudice to the Settling Parties, shall not be 12 deemed or construed to be an admission by a Settling Party of any act, matter, or proposition 13 and shall not be used in any manner for any purpose in the Action or in any other action or 14 proceeding. In such event, the terms and provisions of this Stipulation shall have no further 15 force and effect with respect to the Settling Parties and shall not be used in the Action or in any 16 other proceedings for any purpose, and any Judgment or other order entered in accordance with 17 the terms of this Stipulation shall be treated as vacated, nunc pro tunc. 18 10. Additional Provisions 19 10.1 The Settling Parties (i) acknowledge that it is their intent to consummate this 20 Stipulation and Settlement; and (ii) agree to cooperate to the extent reasonably necessary to 21 effectuate and implement all terms and conditions of the Stipulation and the Settlement and to 22 exercise their best efforts to accomplish the foregoing terms and conditions of the Stipulation 23 and the Settlement. 24 10.2 The Settling Parties intend this Settlement to be a final and complete resolution 25 of all disputes between Plaintiffs, Defendants, and RH with respect to the Action. The 26 Settlement compromises claims that are contested and shall not be deemed an admission by any 27 Settling Party as to the merits of any claim, allegation, or defense. The Settling Parties agree 28 that the parties and their respective counsel at all times during the course of the Action complied - 22 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 30 of 33 1 with the applicable rules, including, without limitation, Federal Rule of Civil Procedure 11. The 2 Settling Parties further agree that the claims are being settled voluntarily after consultation with 3 competent legal counsel. 4 10.3 Neither the Stipulation (including any Exhibits attached hereto) nor the 5 Settlement, nor any act performed or document executed pursuant to or in furtherance of the 6 Stipulation or the Settlement: (a) is or may be deemed to be, or may be offered, attempted to be 7 offered, or used in any way by the Settling Parties as a presumption, a concession, or an 8 admission of, or evidence of, any fault, wrongdoing, or liability of the Settling Parties or of the 9 validity of any Released Claims; or (b) is intended by the Settling Parties to be offered or 10 received as evidence, or used by any other person in any other actions or proceedings, whether 11 civil, criminal, or administrative. The Released Persons may file the Stipulation and/or the 12 Judgment in any action that may be brought against them in order to support a defense or 13 counterclaim based on principles of res judicata, collateral estoppel, full faith and credit, release, 14 standing, good faith settlement, judgment bar or reduction or any other theory of claim 15 preclusion or issue preclusion or similar defense or counterclaim, and any of the Settling Parties 16 may file the Stipulation and documents executed pursuant and in furtherance thereto in any 17 action to enforce the Settlement. 18 19 20 21 22 10.4 The Exhibits to this Stipulation are material and integral parts hereof and are fully incorporated herein by this reference. 10.5 The Stipulation may be amended or modified only by a written instrument signed by or on behalf of all Settling Parties or their respective successors-in-interest. 10.6 This Stipulation and the Exhibits attached hereto constitute the entire agreement 23 among the Settling Parties and no representations, warranties, or inducements have been made 24 to any Settling Party concerning the Stipulation or any of its Exhibits other than the 25 representations, warranties, and covenants contained and memorialized in such documents. 26 10.7 Each counsel or other Person executing the Stipulation and/or the Exhibits 27 attached hereto on behalf of any Settling Party hereby warrants that such Person has the full 28 authority to do so. - 23 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 31 of 33 1 10.8 Except as otherwise provided herein, each Settling Party shall bear its own costs. 2 10.9 The Stipulation may be executed in one or more counterparts. A faxed signature 3 or electronically scanned (in .pdf format) signature shall be deemed an original signature for the 4 purposes of this Stipulation. All executed counterparts and each of them shall be deemed to be 5 one and the same instrument. A complete set of counterparts, either originally executed or 6 copies thereof, shall be filed with the Court. 7 8 10.10 The Stipulation and the Settlement shall be binding upon, and inure to the benefit of, the successors and assigns of the Settling Parties and the Released Persons. 9 10.11 The Court shall retain jurisdiction with respect to implementation and 10 enforcement of the terms of the Stipulation and the Settlement, and the Settling Parties submit 11 to the jurisdiction of the Court for purposes of implementing and enforcing the Stipulation and 12 the Settlement. 13 10.12 This Stipulation and the Exhibits attached hereto shall be considered to have been 14 negotiated, executed, and delivered, and to be wholly performed, in the State of California, and 15 the rights and obligations of the parties to the Stipulation shall be construed and enforced in 16 accordance with, and governed by, the internal, substantive laws of the State of California 17 without giving effect to that state’s choice-of-law principles. 18 10.13 The Settling Parties hereby represent and warrant that they have not assigned any 19 rights, claims, or causes of action that were asserted or could have been asserted in connection 20 with, under, or arising out of the Released Claims. 21 22 23 24 25 26 10.14 All agreements made and orders entered during the course of the Action relating to the confidentiality of information shall survive this Stipulation. 10.15 Without further order of the Court, the Settling Parties may agree to reasonable extensions of time to carry out any of the provisions of this Stipulation. IN WITNESS WHEREOF, the parties have caused the Stipulation to be executed, by their duly authorized attorneys, dated June 17, 2020. 27 28 - 24 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 32 of 33 1 2 Respectfully submitted, Dated: June 17, 2020 JOHNSON FISTEL, LLP FRANK J. JOHNSON KRISTEN O’CONNOR 3 4 By: 5 FRANK J. JOHNSON 6 655 West Broadway, Suite 1400 San Diego, CA 92101 Telephone: (619) 230-0063 Facsimile: (619) 255-1856 frankj@johnsonfistel.com kristeno@johnsonfistel.com 7 8 9 10 11 12 13 Lead Counsel and Counsel for Plaintiffs David Magnani and Hosrof Izmirliyan THE WEISER LAW FIRM, P.C. JAMES M. FICARO 22 Cassatt Avenue Berwyn. PA 19312 Telephone: (610) 225-2677 jmf@weiserlawfirm.com 14 Counsel for Hosrof Izmirliyan 15 20 ROBBINS GELLER RUDMAN & DOWD LLP TRAVIS E. DOWNS III BENNY C. GOODMAN III 655 West Broadway, Suite 1900 San Diego, CA 92101 Telephone: (619) 231-1058 Facsimile: (619) 231-7423 travisd@rgrdlaw.com bennyg@rgrdlaw.com 21 Additional Counsel for Plaintiffs 16 17 18 19 22 23 24 25 26 27 28 - 25 STIPULATION OF SETTLEMENT Case 4:18-cv-02452-YGR Document 82 Filed 12/18/20 Page 33 of 33 6/ 1::,.,2020 Datcd: MORRISON & FOERSTER LLP JORDAN ETH (SBN 121617) ANNA ERICKSON WHITE (SBN 16 1385) MARK R.S. FOSTER SBN 223682) ROBER ~ 2 3 4 Bv: 5 6 7 8 9 10 "- MARK R.S. FO ER 425 Market Street San Francisco, CA 94 105 Telephone: (4 15) 268-7682 Facsim ile: (4 15) 268-7522 JEth(a),mofo.com AWhitc@mofo.com Mfostcr@),mofo.com RMay@mofo.com Counsel for the Individual Defendants and Nominal Defendant RH 11 12 13 14 15 16 17 I8 19 20 21 22 23 24 25 26 27 28 - 26 STIPULATION OF SETTLEMENT
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