Hardy v. Embark Technology, Inc. f/k/a Northern Genesis Acquisition Corp. II

Background

Tyler Hardy and Danny Rochefort brought a putative securities class action against Embark Technology, Inc., formerly Northern Genesis Acquisition Corp. II, and individual defendants. The operative complaint alleged violations of Section 11 and Section 15 of the Securities Act of 1933, Section 14(a) and Section 20(a) of the Securities Exchange Act of 1934, and Securities and Exchange Commission Rule 14a-9. Plaintiffs alleged that defendants made false or misleading statements by incorrectly classifying some redeemable shares as permanent equity in June 2021 financial statements and by making misleading statements in an October 2021 registration statement.

The parties reached a classwide settlement while defendants’ motions to dismiss were pending. Plaintiffs moved for preliminary approval, and the court requested supplemental briefing and revised settlement materials.

Conditional Settlement Class Certification

The court found that the proposed settlement classes met the requirements for provisional certification under Federal Rule of Civil Procedure 23. The court found that the classes were sufficiently numerous, that common legal and factual questions existed, and that Hardy’s and Rochefort’s claims were typical of the class claims. It also found that Hardy, Rochefort, and Pomerantz LLP appeared capable of adequately representing the class.

For settlement purposes, the court conditionally certified two classes. The Exchange Act class generally covers people and entities that beneficially owned or held the company’s common stock on October 6, 2021, were eligible to vote at the November 9, 2021 special meeting concerning the business combination, and were damaged as a result. The Securities Act class generally covers people and entities who purchased or acquired Embark common stock pursuant or traceable to the July 2, 2021 registration statement, including specified open-market purchases from November 11 through December 13, 2021, and were damaged as a result.

Settlement Terms and Preliminary Approval

The settlement requires Embark to establish a $2.5 million fund in escrow. Deductions may include taxes, notice and administration costs, attorneys’ fees, litigation expenses, and court-approved service awards. The remaining amount will be distributed pro rata based on class members’ recognized economic losses under the proposed allocation plan.

The court found that the settlement appeared to result from serious, informed, and non-collusive negotiations. The court considered the risks raised by defendants’ pending dismissal motion, including arguments that plaintiffs had not alleged materially false or misleading statements, had not met heightened pleading requirements for statements involving accounting judgment, and lacked statutory standing for the Section 11 claim. The court also considered evidence concerning Embark’s limited financial resources, including reported plans to explore strategic alternatives, reduce its headcount, and possibly dissolve or liquidate assets.

The court found no current indication that the proposed service awards created improper preferential treatment, but deferred deciding whether the requested awards were appropriate until final approval. The court concluded that the settlement was within the possible range of approval despite representing approximately 1.1% of plaintiffs’ estimated aggregate damages. The court also found no fairness problem in the confidential supplemental agreement’s termination provision and identified no obvious deficiency that would prevent preliminary approval.

The court noted that plaintiffs had not explained the required connection between the nationwide settlement class and proposed cy pres recipient Bay Area Legal Aid. It did not resolve that issue at the preliminary-approval stage and directed that it be addressed at final approval.

Allocation, Notice, and Fees

The court preliminarily approved the allocation plan because it uses recognized losses based on the timing of purchases and sales, the relevant class period, and the number of shares involved. It also approved the revised notices and claim form, finding that they described the claims, classes, settlement amount, allocation plan, and procedures for filing claims, requesting exclusion, and objecting. The notice plan includes direct mail or email where potential class members can be identified, notice to nominees such as brokerage firms, website publication, and publication in a national business publication and newswire.

Plaintiffs indicated they may request up to $835,000 in attorneys’ fees and up to $140,000 in litigation expenses. The court did not decide those requests. It ordered class counsel to submit a fee motion, declarations, detailed billing records, and supporting information for the expenses so class members could object and the court could assess reasonableness.

Order

Judge Corley granted preliminary approval of the class action settlement. The court provisionally certified the two classes, preliminarily appointed Pomerantz LLP as class counsel, appointed Hardy and Rochefort as class representatives, approved Huntington National Bank as escrow agent, and approved Strategic Claims Services as settlement administrator. The administrator’s costs were capped at $250,000 without further court approval before the settlement’s effective date.

The order required notice and claim forms to be sent and posted within 20 days. It set December 22, 2023, as the deadline for submitting claims, requesting exclusion, or objecting; January 11, 2024, as the deadline for plaintiffs’ final-approval motion; and February 8, 2024, at 9:00 a.m. for the final-approval hearing. The order did not itself grant final approval of the settlement or decide the ultimate merits of plaintiffs’ claims.