Wendy’s Shareholder Loses Challenge to Data Breach Settlement (1)

A Wendy’s Co. shareholder lost his bid to appeal a district court’s approval of a settlement with the fast-food giant over claims that the board and executives didn’t uphold their fiduciary duties following a 2015 data breach of its payment card system.

Thomas Caracci claimed that the settlement, which he hadn’t participated in, “dramatically reduced” his entitlement to an attorneys’ fees award despite his participation in a related derivative case.

The US Court of Appeals for the Sixth Circuit affirmed the district court’s decision Thursday, saying the lower court “acted within the bounds of its wide discretion to manage shareholder litigation.”

Caracci argued that the district court erred in appointing James Graham, another shareholder’s, attorneys as lead counsel.

Graham’s counsel had litigated one of the first cyber breach related derivative lawsuits in federal court, while Caracci’s counsel “refused to work on an equal footing with other interested parties” and sought up to 90% of the attorneys’ fees, Judge Chad A. Readler said for the court.

Caracci’s objections to the decision were insufficient, the judge said.

Caracci also argued that the district court should have allowed him to make a more robust objection with information from the mediation and settlement negotiations, but the court said that nondisclosure agreements required him to maintain the confidentiality of the settlement discussions.

The district court allowed Caracci to conduct discovery on a range of issues regarding the settlement, but “Caracci came home empty handed,” Readler wrote.

Readler was joined by Circuit Judges Helene N. White and John K. Bush.

James Graham is represented by Strauss Troy, Evangelista Worley LLC, and Faruqi & Faruqi LLP. Caracci is represented by The Law Office of Daniel L. Abrams PLLC and Kahn Swick & Foti. The Wendy’s Co. is represented by Dinsmore & Shohl LLP and Alston & Bird Law Firm.

The case is In re Wendy’s Co. S’holder Deriv. Action, 6th Cir., No. 21-3975, 8/11/22.