Judicial Review Of The Fairness Of A Derivative Lawsuit Settlement Is Much Like Review Of The Settlement Of A Class Action.

        Norman v. Strateman, A170356 (1/3 6/20/25) (Petrou, Fujisaki, Rodriguez), involved a cryptocurrency exchange dispute requiring judicial approval of derivative settlements. Donald Norman, Patrick Strateman, and Amir Taaki established Intersango, a cryptocurrency exchange that Patrick eventually shuttered. Norman filed a derivative action alleging Patrick excluded partners from operations, closed the exchange without consent, and retained assets while refusing to return customer bitcoins. 

        During trial, parties reached a settlement before Judge Harold Kahn, who memorialized terms on the record. Over a year later, Norman moved to set aside the settlement, claiming it lacked required judicial approval for derivative actions. The Stratemans moved to enforce the settlement. Judge Rochelle East granted enforcement and denied Norman's motion, finding all shareholders were parties and the settlement protected their interests.

        The Court of Appeal reversed, holding that derivative settlements require independent judicial review to ensure fairness and reasonableness, not mere memorialization. Neither Judge Kahn nor Judge East conducted the necessary analysis considering factors like case strength, litigation risks, settlement adequacy, and discovery completeness. The court remanded for proper judicial review, emphasizing that derivative settlements protect absent shareholders and corporate interests, requiring more than party consent.

COMMENT: Approval of a derivative action lawsuit requires more than a handshake. The process, requiring judicial oversight and evaluation of fairness and reasonableness, entails review much like what is required when a court reviews a class action settlement.