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

Background

Plaintiffs brought a proposed securities class action under Sections 11 and 15 of the Securities Act of 1933 and Sections 14(a) and 20(a) of the Securities Exchange Act of 1934. The proposed classes consisted of people and entities who owned or held stock during the relevant Exchange Act period or purchased Embark common stock connected to the relevant Securities Act registration statement. The parties reached a settlement while defendants’ motion to dismiss was pending. The court had previously granted preliminary approval.

Settlement Terms and Notice

The settlement established a $2.5 million fund. After taxes, notice and administration costs, attorney’s fees, litigation expenses, and any court-approved payments to the class representatives, the remaining amount would be distributed pro rata according to class members’ alleged economic losses. The settlement released claims arising from the purchase, acquisition, sale, disposition, or holding of Northern Genesis or Embark common stock during the class periods for class members who did not timely exclude themselves.

The settlement administrator reported that 12,402 potential class members were mailed a notice packet or emailed a link to the notice. It also reported 1,497 claims, three exclusion requests, and one objection to the requested attorney’s fees and costs. The court found that the notice plan provided the best practicable notice required by Federal Rule of Civil Procedure 23.

Final Approval of the Settlement

The court found that the settlement was fair, adequate, and reasonable under Rule 23. It relied on the risks, expense, and likely duration of continued litigation; Embark’s reported financial difficulties; the investigation performed by class counsel; the experience and support of counsel; and the class members’ limited objections and exclusions. The settlement amount was approximately 1% of the estimated aggregate damages, but the court found it reasonable in light of the litigation risks and Embark’s financial situation.

The court also examined possible collusion, including whether counsel received a disproportionate share, whether the agreement contained a provision preventing defendants from objecting to fees, and whether unawarded fees would return to defendants. The court found one warning sign because the requested fee percentage was high, but concluded that the settlement was not the product of collusion and resulted from arms-length negotiations.

The court approved the plan of allocation, which used recognized losses tied to the timing and number of shares involved in each claim. It also approved Bay Area Legal Aid as the recipient of any remaining funds if redistribution was not cost-effective. The court denied Eric Jarva’s objection as moot after class counsel withdrew their position that he lacked standing; his objection concerned only fees and costs, not the settlement as a whole.

Attorney’s Fees, Costs, and Representative Payments

Plaintiffs requested $835,000 in attorney’s fees, or 33.4% of the settlement fund. The court applied the Ninth Circuit’s 25% common-fund benchmark and found that plaintiffs had not shown unusual circumstances justifying a higher percentage. The court also found that the lodestar cross-check—the calculation of reasonable hourly rates multiplied by reasonably expended hours—did not support the request because counsel provided an inadequate summary rather than the detailed billing records the court had ordered, and the claimed hours were excessive. The court therefore awarded $625,000 in attorney’s fees.

The court granted the request for $120,456.77 in litigation costs, finding the expenses reasonable. It noted that settlement-administration costs were now estimated at no more than $105,000, rather than the previously approved amount of up to $250,000.

Tyler Hardy and Danny Rocherfort each requested a $2,500 service award. The court denied those requests because the Private Securities Litigation Reform Act permits representatives to recover reasonable costs and expenses directly related to representing the class, including lost wages, but does not authorize the type of incentive awards requested here. The court noted that neither representative showed out-of-pocket costs or lost wages.

Disposition

Judge Jacquelyn Scott Corley granted plaintiffs’ motion for final approval of the class action settlement. The court granted in part and denied in part plaintiffs’ motion for attorney’s fees and costs, awarding $625,000 in fees, $120,456.77 in litigation costs, and settlement-administration costs of no more than $105,000. The order disposed of Docket Nos. 95 and 101 and required class counsel to file a post-distribution accounting within 21 days after distribution of the settlement funds and payment of attorney’s fees.