In Re Aqua Metals, Inc. Securities Litigation

Background

Plaintiffs brought this securities class action against Aqua Metals, Inc., and some of its officers and directors. They alleged that the defendants misled investors about the viability and profitability of Aqua Metals’s lead-acid battery recycling technology, artificially inflating the company’s stock price. Plaintiffs alleged that the price later fell when the truth was revealed.

The operative amended complaint asserted claims under the Securities Exchange Act of 1934 against Aqua Metals and the individual defendants. Earlier in the case, the court dismissed some claims and allowed others to proceed; in November 2020, it dismissed the remaining scheme-liability and related control-person claims concerning Count One. The opinion addresses settlement approval and related payments, not a trial decision on the truth of the allegations.

After formal discovery and mediation, the parties entered a settlement agreement in July 2021. The court had preliminarily approved the proposed settlement on October 5, 2021, and held a final fairness hearing on February 24, 2022.

Settlement Terms

The settlement class consists of people and entities that purchased or otherwise acquired Aqua Metals common stock or options to purchase common stock between May 19, 2016, and November 9, 2017, inclusive, and were damaged as a result. Defendants and specified related persons and entities are excluded, as are people who submitted valid and timely exclusion requests.

Aqua Metals will provide a non-reversionary $7 million settlement fund. The fund consists of $6.5 million in cash funded by Aqua Metals’s directors’ and officers’ liability insurers and $500,000 in Aqua Metals common stock or cash, at Aqua Metals’s option. After approved deductions, the remaining money will be distributed under a plan based on each authorized claimant’s recognized loss. The estimated average distribution was $0.49 per damaged share before approved fees and expenses, although the actual distribution depends on participation and other factors.

Any remaining amount that Class Counsel determines is not cost-effective to redistribute may be donated, after specified expenses, to Loyola University School of Law’s Institute for Investor Protection. Class members who do not timely opt out will be bound by the settlement and its release of specified claims; those who opt out will not receive settlement money or be bound by the settlement.

Notice and Fairness Analysis

The settlement administrator mailed 21,670 notice packets to potential class members. Of those, 126 were undeliverable and remailed. The administrator also posted documents on a settlement website, published a summary notice in Investor’s Business Daily and PR Newswire, and operated a toll-free telephone number. As of February 23, 2022, it had received no objections and one request for exclusion.

Under Federal Rule of Civil Procedure 23, a class settlement requires court approval. The court must determine that the settlement is fair, adequate, and reasonable and that class members received adequate notice. The court incorporated its earlier class-certification analysis and found the notice plan sufficient.

The court approved the settlement after considering the strength of plaintiffs’ case, the risks and expense of continued litigation, the risks of maintaining class certification, the settlement amount, the discovery completed, Class Counsel’s experience and views, and the class’s reaction. The court found that the settlement was fair, adequate, and reasonable. It noted risks involving proof of fraud, the cause of the stock-price decline, the proposed class-period start date, class certification, and possible appeals and delay.

Fees, Costs, and Incentive Award

Class Counsel requested $1,750,000 in attorneys’ fees, $95,634.04 in litigation expenses, and a $5,000 incentive award for Plymouth County Group, the court-appointed lead plaintiff.

The court found the fee request reasonable. It represented 25 percent of the settlement fund, the benchmark percentage for a common-fund fee award in the Ninth Circuit. As a cross-check, the court noted that Class Counsel had spent 5,966.75 hours and calculated an anticipated lodestar of approximately $4,354,590.75. The court found the lawyers’ billing rates consistent with prevailing rates in the district and awarded $1,750,000 in fees.

The court also found the requested litigation expenses reasonable and awarded $95,634.04. The expenses included damages-consultant, mediation, filing, service-of-process, electronic-research, postage, and travel costs.

The court approved the $5,000 incentive award after finding that the lead plaintiff had spent more than 120 hours protecting the class’s interests, including helping investigate and substantiate the claims, preparing and editing litigation documents, and attending mediation and settlement negotiations.

Disposition

The court GRANTED the motion for final approval of the class action settlement and GRANTED the motion for attorneys’ fees, costs, and incentive awards. It approved the $7,000,000 settlement, $1,750,000 in attorneys’ fees, $95,634.04 in costs, and the $5,000 award for the lead plaintiff. The parties and settlement administrator were directed to implement the settlement, file a short stipulated final judgment within 14 days, and file a post-distribution accounting within 21 days after distributing the settlement funds.