Wong v. Arlo Technologies, Inc.

Background

This putative securities-fraud class action concerned Arlo Technologies, Inc.’s August 2018 initial public offering. The opinion states that Arlo sold more than 11 million shares at $16 per share. The lead plaintiff alleged that Arlo’s registration statement and prospectus contained material misstatements or omissions about Arlo’s ability to innovate, release new products, maintain its market position, and meet financial expectations. The complaint also challenged statements made after the offering concerning product delays and revised financial guidance. The 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 opinion identifies Matis Nayman as the lead plaintiff, while the case caption identifies Spencer Wong as the plaintiff. The court had previously dismissed the amended claims with permission to amend, finding pleading problems concerning allegedly intentional false statements and, among other issues, the allegations of knowledge required for certain claims. The parties then negotiated and signed a settlement agreement on June 11, 2020. The court had preliminarily approved the settlement and the proposed notice process.

Notice and Class Participation

The claims administrator and settlement administrator sent approximately 24,719 notice packets to potential class members and nominees. The notice described the settlement, the claims process, the allocation plan, the attorneys’ fee request, and class members’ rights to object or request exclusion. At the settlement hearing, counsel reported that 6,084 claims had been submitted, representing approximately 28 percent of potential class members. Three requests for exclusion were received. One shareholder objected, criticizing both the amount paid to class members and the attorneys’ fees. The court found the objection unpersuasive.

Class Certification and Settlement Approval

For purposes of approving the settlement, the court concluded that the proposed class satisfied Federal Rule of Civil Procedure 23. The court found numerosity because the class had thousands of members; commonality because class members’ claims involved common questions about alleged misstatements and omissions; typicality because the lead plaintiff purchased Arlo stock at allegedly inflated prices and suffered losses; and adequacy because the lead plaintiff and counsel had no conflicts and had prosecuted the case diligently. The court also found that common questions predominated and that a class action was the superior method for resolving the dispute.

The court applied Rule 23(e), which requires a class settlement to be fair, reasonable, and adequate. It considered the strength and risks of the claims, the stage of the litigation, the settlement amount, the proposed distribution method, counsel’s experience, the reaction of class members, and whether the negotiations showed signs of improper cooperation. The court found that the parties negotiated at arm’s length, that there was no evidence of collusion, that the notice was adequate, and that the allocation plan treated class members equitably.

The settlement required defendants to pay $1,250,000 in cash. The court noted that this represented 2.35 percent of the lead plaintiff’s estimated potential class damages of $53,200,000, but found the amount fair in light of the litigation risks and comparable settlements. The court therefore found the settlement fair, adequate, and reasonable and granted the motion for final approval of the class settlement and plan of allocation.

Attorneys’ Fees, Expenses, and Awards

The court granted the request for $312,500 in attorneys’ fees, equal to 25 percent of the settlement fund, using the percentage-of-recovery method. The court described 25 percent as a customary benchmark in the relevant federal appellate circuit and found the request reasonable based on the results achieved, the risks and difficulty of the securities litigation, and counsel’s work. As a cross-check, the court noted that counsel had recorded 881.7 hours and that the requested fee was 0.43 times the stated lodestar amount of $732,342.50.

The court also approved $21,345.03 in litigation costs and expenses after reviewing an itemized list. It approved the requested $5,000 service award to the lead plaintiff, finding that he had spent 150 hours participating in and supervising the litigation. Finally, the court approved settlement-administrator costs in an amount not exceeding $104,171.40.

Disposition

The court granted the motion for final approval of the class-action settlement and granted the motion for attorneys’ fees and payment of expenses. It awarded $312,500 in attorneys’ fees, $21,345.03 in costs and expenses, and $5,000 as a service award. The court retained jurisdiction to implement and enforce the settlement and required a post-distribution accounting. Any cy pres distribution required court approval.