Wong v. Arlo Technologies, Inc.

Background

This putative securities-fraud class action concerned Arlo Technologies, Inc.’s August 2018 initial public offering. The opinion describes allegations that Arlo’s registration statement and prospectus failed to disclose problems with product innovation and delays in releasing new products, and that later public statements were materially false or misleading. The asserted claims arose under Sections 11 and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act, including Securities and Exchange Commission Rule 10b-5.

The court had previously dismissed an amended complaint because the lead plaintiff had not sufficiently alleged that the defendants made intentionally false statements, but it allowed amendment. The parties later negotiated a settlement after investigation, motion-to-dismiss proceedings, and mediation. The defendants agreed to pay $1,250,000 in cash to resolve the action and related released claims.

Class Notice and Settlement Class

The court had preliminarily approved the settlement, the proposed settlement class, and the notice plan. The claims administrator sent approximately 24,719 notice packets to potential class members and nominees and created a settlement website. Approximately 6,084 claims were submitted, which counsel represented was about a 28% response rate. Three people requested exclusion, and one shareholder objected. The court found the objection unpersuasive.

For settlement purposes, the court found the requirements of Federal Rule of Civil Procedure 23 satisfied. The class had thousands of members, common issues concerning alleged misrepresentations and omissions, and claims that were typical of the lead plaintiff’s claims. The court also found that the lead plaintiff and class counsel adequately represented the class and had prosecuted the case vigorously. Under Rule 23(b)(3), the court found that common questions predominated and that a class action was the superior method for resolving the dispute.

Final Settlement Approval

The court applied Rule 23(e), which requires a class settlement to be fair, reasonable, and adequate. It considered the adequacy of representation, the arm’s-length nature of negotiations, the risks and likely costs of continued litigation, the proposed distribution method, the treatment of class members, the settlement amount, counsel’s experience, and the class’s reaction.

The court found no evidence of collusion. It concluded that continued litigation presented significant risks, including challenges concerning what the defendants knew about product delays and innovation problems and whether the claims adequately alleged the required state of mind for certain Exchange Act claims. The court found that the $1,250,000 settlement, although a fraction of the lead plaintiff’s estimated potential damages of $53,200,000, was fair and reasonable in light of those risks and the other settlement factors.

The court therefore granted the lead plaintiff’s Motion for Final Approval of Class Action Settlement and Plan of Allocation. This ruling approved the settlement; it did not decide whether the defendants actually violated the securities laws.

Attorneys’ Fees, Expenses, and Service Award

The court also granted the lead plaintiff’s Motion for an Award of Attorneys’ Fees and Payment of Expenses. It awarded $312,500 in attorneys’ fees, equal to 25% of the settlement fund, and $21,345.03 in litigation costs and expenses. The court found the fee request reasonable under the percentage-of-recovery method and noted that a lodestar cross-check produced a negative multiplier of 0.43.

The court also approved the requested $5,000 service award for the lead plaintiff, citing his substantial participation and 150 hours spent supervising and assisting with the litigation. In addition, it approved settlement-administrator costs in an amount not exceeding $104,171.40.

Order and Continuing Jurisdiction

The court retained jurisdiction to implement and enforce the settlement agreement, administer and interpret it, monitor compliance, and oversee any necessary further actions. The parties were required to file a post-distribution accounting within 21 days after distributing settlement funds and paying attorneys’ fees. Any cy pres distribution required court approval.

The opinion’s caption names Spencer Wong, but the body identifies Matis Nayman as the lead plaintiff and states that the motions were filed and argued by Matis Nayman. The supplied metadata also lists a filing date of March 25, 2021, while the signed order is dated March 24, 2021.