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Resideo Technologies, Inc.

Case Details

Date Filed: September 01, 2021
Case Number: 0:21-cv-1965
Jurisdiction: District of Minnesota
icon-casetype Case Type: Derivative Shareholder Case

Case Summary

On September 1, 2021, Saxena White filed a shareholder derivative action on behalf of its clients Riviera Beach Police Pension Fund and City of Hialeah Employees Retirement System, for the benefit of Resideo Technologies Inc., and its shareholders. The Complaint charged Resideo’s Board of Directors and certain officers with breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and violations of Section 14(a) of the Securities Exchange Act, in connection with a multitude of serious supply-chain and operational problems and related misstatements to Resideo’s stockholders.

In October 2017, Honeywell International, Inc. announced its intention to spin off several of its business segments into a standalone company. One of the newly formed entities resulting from the spin-off was Resideo, which manufactures and sells comfort, thermal, and security solutions to the commercial and residential markets. The Complaint alleged that the spin-off caused serious issues for Resideo, including difficulties in controlling costs and impairment of its supply chains, which led to backorders, inventory shortages, and loss of customers. In addition to cost control issues, Plaintiffs alleged that Resideo faced problems with older technology, while the new technology that the Company had developed faced setbacks caused by technical problems. Plaintiffs further alleged that the Company had difficulty remedying these issues due, among other things, to a shortage of engineering expertise. In addition, the Complaint alleged that the Company’s executives made false and misleading public statements related to the Company’s ability to meet its reported financial guidance.

The truth began to emerge in early 2019 when Resideo announced disappointing financial results over several quarters including: (1) reduced financial guidance for 2019; (2) a 20% decrease in profit from its Product & Solutions segment; (3) declining sales of its non-connected thermostats; and (4) the sudden resignation of the Company’s CFO.

From the time Resideo spun off from Honeywell in late 2018 until November 12, 2019, the Company’s stock price plummeted a staggering 66%, costing investors over $2 billion in market capitalization.

Over the course of the next several months after the Complaint was filed, the Parties engaged in extensive arms-length negotiations regarding a potential resolution of the claims. To assist in crafting corporate governance reforms, Plaintiffs engaged a corporate governance expert.

On February 3, 2023, after years of hard-fought litigation, the Parties entered into a settlement stipulation that provided for the implementation of corporate governance reforms designed to, among other things, improve Board oversight, ensure the accurate disclosure of information to the markets, and reduce the risk of legal and regulatory exposure. These reforms bring needed oversight to the Company’s risk management, particularly focusing on supply chain, manufacturing, and product quality issues, and will stay in effect for a period of at least five years.

The corporate governance reforms in the settlement agreement include: (1) enhancing Board-level oversight of supply-chain efficiency and optimization; (2) facilitating the Company’s continuous improvement of its governance oversight, risk management, and supply-chain areas of focus, including $1.5 million in spending on these areas; (3) ensuring the accurate and timely disclosure of information to the SEC and other public disclosures related to the Company’s financial condition; (4) enhancing the independence and diversity of the Company’s Board and leadership structure; (5) improving the Company’s strategic planning; (6) strengthening the Company’s internal controls and accounting procedures; and (7) providing enhanced training and technical guidance for employees with respect to integrity and compliance with the Company’s Code of Business Conduct.

On February 13, 2023, the Court entered an order granting Plaintiffs’ motion for preliminary approval of the settlement. On May 3, 2023, Plaintiffs filed a motion for final approval of the settlement. On November 7, 2023, the Court entered an order granting final approval of the class action settlement.