----oo0oo---- In re ORIGIN MATERIALS, INC., No. 2:25-cv-777-WBS-JDP STOCKHOLDER DERIVATIVE LITIGATION (Consolidated) MEMORANDUM AND ORDER RE: PLAINTIFF’S UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF DERIVATIVE ACTION SETTLEMENT
----oo0oo---- Plaintiffs brought this shareholder derivative action against defendant Origin Materials, Inc., alleging violations of section 14(a) of the Securities Exchange Act of 1934 (15 U.S.C. § 78n(a)) and Rule 14a-9 (17 C.F.R. § 240.14a-9). (See Docket No. 1 at 5.) Plaintiffs have filed an unopposed motion for preliminary approval of derivative action settlement. (See Docket No. 25-1.) I. Background and Proposed Settlement This is one of four related cases assigned to the undersigned judge that involve claims under the Securities Exchange Act of 1934 against several of the same defendants based on the same subject matter, namely the development and construction of the Origin 2 plant. Origin, which is headquartered in West Sacramento, California, is a Delaware corporation “specializing in developing and commercializing sustainable materials to replace traditional petroleum-based materials used in various industries.” (Docket No. 25-1 at 10.) On February 21, 2021, Origin announced a new capital projects plan that involved the construction of “two commercial-style plants”: Origin 1 and Origin 2. (Id.) “Origin 1 was expected to be operational by the end of 2022. Origin 2, a significantly larger manufacturing plant, was expected to be operational by mid-2025, and to supply the majority of the Company’s products from 2025 until 2027.” (Id.) Plaintiffs’ derivative claims “arise from allegations that the Individual Defendants breached their fiduciary duties as officers and directors of Origin by making and/or permitting the issuance of materially false and misleading statements” and failures to disclose certain problems in Origin’s technological processes and production capabilities. (Id. at 10—11.) Specifically, plaintiffs alleged that Origin failed to disclose that: (1) “the Company was experiencing chemical fouling issues ‘at every step’ of the process of converting CMF to PX at commercial scale”; (2) “fouling issues were causing substantial delays during the FEL 2 phase of the Origin 2 project”; (3) “the Individual Defendants had been planning internally to scale down production of PX at Origin 2 or to shift focus toward another product”; (4) “the Individual Defendants had been planning internally to split construction of Origin 2 into two phases”; (5) “the Company entered into a deal with Avantium N.V. (‘Avantium’) to produce FDCA at Origin 2 to compensate for the Company’s difficulties associated with producing PX at scale”; (6) “contrary to the timeline repeatedly disseminated by the Individual Defendants, Avantium advised that it would take several years before Origin 2 could become operational with respect to production of FDCA”; (7) “despite representations concerning the oversight responsibilities of Board and its committees, neither adequately monitored the accuracy of the public statements issued on behalf of, or concerning, the Company”; (8) “Origin’s internal controls over legal compliance, including all laws and regulations governing the content of the Company’s public disclosures, were inadequate”; and (9) “as a result, the positive statements concerning the Company’s business, operations, and prospects were materially misleading and lacked a reasonable basis at all relevant times.” (Id.) According to plaintiffs:
When it was finally disclosed that Origin 2 would no longer produce PET derived from PX, instead focusing on producing PEF derived from FDCA, and that construction of Origin 2 would be broken up into two phases, with phase 1 expected to be operational by late-2026 or 2027 and phase 2 expected to be operational by 2028, on August 9, 2023, the price of Origin stock declined significantly. (Id. at 11.) Thereafter, litigation commenced. The parties propose settlement terms that include nine areas of reform to Origin’s corporate governance structures and practices: (1) “Enhancement of the Board’s Oversight functions” (Id. at 14); (2) “Creation of a Board Operational Excellence Committee” (Id. at 15); (3) “Amendments to Audit Committee Responsibilities” ( Id. at 15—16); (4) “Maintaining a Management Disclosure Committee” ( Id. at 16—17); (5) “Creation of a Chief Compliance Officer” (Id. at 17); (6) “Creation of a Management Product and Technology Committee” (Id. at 17—19); (7) “Executive Reports” (Id. at 19); (8) “Cost Reduction Initiatives” ( Id. at 19); and (9) “Enhancements to the Whistleblower Policy” (Id. at 20—21). According to plaintiffs, “the Reforms directly target the alleged governance deficiencies that enabled the wrongdoing alleged in the Derivative Matters” and , if approved, they “will not only prevent recurrence of the wrongs alleged . . . but will . . . generally strengthen Origin’s corporate governance, oversight, and internal controls.” (Id. at 13.) Moreover, Origin agrees to “adopt, implement, and maintain the Reforms within sixty days of an Order granting final approval of the settlement” and has further agreed to “maintain the Reforms for at least three (3) years.” (Id.) II. Discussion Federal Rule of Civil Procedure 23.1 provides that a shareholder “derivative action may be settled, voluntarily dismissed, or compromised only with the court’s approval.” Fed. R. Civ. P. 23.1(c). “Rule 23 requires courts to employ a two- step process in evaluating a class action or derivative action settlement.” In re Wells Fargo & Co. Shareholder Derivative Litig., No. 16-cv-05541-JST, 2019 WL 13020734, at *4 (N.D. Cal. May 14, 2019). Under Rule 23(e)(2), the court at step one “must make a preliminary determination that the settlement is fair, reasonable, and adequate.” Id. (internal citation and quotations omitted). The court may approve the settlement only if it is found to be “fundamentally fair, adequate, and reasonable.” In re Hewlett-Packard Co. S'holder Derivative Litig., No. 3:12-cv- 06003-CRB, 2015 WL 1153864, at *3 (N.D. Cal. Mar. 13, 2015) (internal citation and quotations omitted). “[I]f the court preliminarily approves a derivative action settlement, notice ‘must be given to shareholders or members in the manner that the court orders.’” In re Wells, 2019 WL 13020734, at *4 (quoting Fed. R. Civ. P. 23.1(c)). Only then will the court hold a hearing in order to “make a final determination whether the settlement is ‘fair, reasonable, and adequate.’” Id. (quoting Fed. R. Civ. P. 23(e)(2)). Courts consider a broad range of factors when evaluating the “fairness, reasonableness, and adequacy” of a proposed settlement in the context of a derivative action. In re Lyft, Inc. Derivative Litig., No. 20-cv-09257-HSG, 2024 WL 4505474, at *4 (N.D. Cal. Oct. 16, 2024). Such factors include, “the strength of the plaintiffs' case; the risk, expense, complexity, and likely duration of further litigation; ... the amount offered in settlement; the extent of discovery completed and the stage of the proceedings; [and] the experience and views of counsel ....” In re Wells Fargo, 2019 WL 13020734, at *4 (internal citation and quotations omitted). In addition, courts consider “the extent of the benefit to be derived from the proposed settlement by the corporation, the real party in interest.” In re Pinterest Derivative Litig., No. 20-cv-08331- WHA, 2022 WL 484961, *3 (N.D. Cal. Feb. 16, 2022) (internal citation and quotations omitted). Importantly, the court must ensure that the proposed settlement is not “the product of fraud or overreaching by, or collusion between, the negotiating parties.” In re Hewlett-Packard, 2015 WL 1153864, at *3 (internal citation and quotation omitted); see also Lloyd v. Gupta, No. 15-cv-04183-MEJ, 2016 WL 3951652, at *4 (N.D. Cal. July 22, 2016) (internal citation and quotations omitted) (explaining that a court will take into account whether “the settlement is the result of arm's-length negotiations in which plaintiffs' counsel has effectively represented the interest of the shareholder class, and whether the substantive terms of the settlement are in the interests of [the company] and its shareholders relative to the likely rewards of litigation.”). At this preliminary approval stage, the court only needs to determine whether or not the proposed settlement is “within the range of possible approval.” In re Tableware Antitrust Litig., 484 F. Supp. 2d 1078, 1080 (N.D. Cal. 2007) (internal citation and quotations omitted); see In re Wells Fargo, 2019 WL 13020734, at *4. A. Benefits to the Corporation “The principal factor to be considered in determining the fairness of a settlement concluding a shareholders' derivative action is the extent of the benefit to be derived from the proposed settlement by the corporation, the real party in interest.” In re Apple Computer, Inc. Derivative Litig., No. 06- cv-4128-JF-(HRL), 2008 WL 4820784, at *2 (N.D. Cal. Nov. 5, 2008) (internal citation and quotation omitted); see also Mego Financial Corp. Sec. Litig., 213 F.3d 454, 459 (9th Cir. 2000). Here, the proposed settlement consists primarily of corporate governance reforms that the parties agree are designed to achieve the following ends:
(1) “[I]mprove Origin’s risk oversight functions through updates to the Board’s oversight functions;”
(2) “[E]nsure that the Company’s manufacturing capabilities and processes conform to its target production goals as expressed in public statements;”
(3) “[E]nhance the Audit Committees’ risk oversight responsibilities and capabilities;” (4) “[E]nsure that the Company’s significant public statements are reviewed for accuracy, integrity, and compliance with applicable laws and regulations as well as GAAP and non-GAAP requirements, protocols, and procedures through the maintenance of a management- level Disclosure Committee;”
(5) “[E]nhance oversight of the Company’s corporate governance policies through the creation of a CCO position;”
(6) “[I]mprove oversight of key technological initiatives through the creation of a management-level Product and Technology Committee;” (7) “[P]rovide regular executive reports to the Board regarding the Company’s financial condition and business prospects;”
(8) “[M]inimize costs to the Company in the near term through cost reduction initiatives; and”
(9) “[P]rotect and incentivize employees with legitimate concerns regarding the Company’s management to voice their concerns through updates to the Company’s Whistleblower Policy.” (Docket No. 25-1 at 24.) “[C]ourts have recognized that corporate governance reforms ... provide valuable benefits to public companies.” In re NVIDIA Corp. Derivative Litig., No. 06- cv-06110-SBA-(JCS), 2008 WL 5382544, at *3 (N.D. Cal. Dec. 22, 2008) (internal citation and quotations omitted). The settlement here also fixes the proposed corporate governance reforms in place for three years. (Docket No. 25-1 at 24 n. 3). In Cohn v. Nelson, the court found that corporate governance measures included in a proposed settlement, when held in place for at least three years, tend to “provide meaningful ways of avoiding the problems [the company] experienced in the recent past.” 375 F.Supp.2d 844, 850 (E.D. Mo. 2005). Courts have also found that a “three-year commitment should enhance consumer, investor, and employee trust in [the Corporation’s] corporate governance.” In re Lyft, 2024 WL 4505474 at *4. “The reaction of shareholders also factors into assessing the fairness of a settlement.” In re Pinterest Derivative Litig., No. 20-cv-08331-WHA, 2022 WL 2079712, at *1 (N.D. Cal. June 9, 2022). Consequently, “because potential buyers of [the Corporation’s] stock likely will view [the] reforms as an additional reason to purchase the stock, this three-year period should confer financial benefits to [the Corporation].” In re Lyft, 2024 WL 4505474 at *4 (internal citation and quotation marks omitted); see also In re Rambus Inc. Derivative Litig., No. 06-cv-3513-JF-(HRL), 2009 WL 166689 (N.D. Cal. Jan. 20, 2009) (“The Settlement provides long term remedial measures that are specifically designed to protect the shareholders.”). Additionally, “without a settlement, Plaintiffs face[ ] the prospect of additional or collateral litigation ... further prolonging any resolution beneficial to [Origin].” In re Wells Fargo, 2019 WL 13020734, at *6; see In re Apple Computer, Inc., 2008 WL 4820784, at *3 (internal citation and quotations omitted) (“[T]he risk, expense, complexity, and likely duration of further litigation are additional factors that should be considered in determining the fairness of a proposed settlement.”). Plaintiffs here acknowledge “the significant risk that continued litigation may not lead to any recovery for Origin.” (Docket No. 25-1 at 25); see Basaraba v. Greenberg, No. 13-cv- 5061-PSG-(SHX), 2014 WL 12591677, at *3 (C.D. Cal. Nov. 10, 2014) (“In the context of shareholder derivative litigation, even the strongest cases have a very low likelihood of success due to the myriad legal, procedural, and discovery protections afforded director and officer defendants.”); see also In re Pac. Enter. Sec. Litig., 47 F.3d 373, 378 (9th Cir. 1995) (“[T]he odds of winning a derivative lawsuit [are] extremely small.”) They argue that “the uncertainties of further litigation demonstrate that the proposed Settlement is within the range of approval and warrants Court approval.” (Docket No. 25-1 at 25.) In particular, plaintiffs recognize the difficulties imposed by the heightened pleading standards in Rule 23.1 and state that they were “mindful of the inherent challenges of establishing demand futility.” (Id.); see In re Fab Universal Corp. S'holder Derivative Litig., 148 F. Supp. 3d 277, 281–82 (S.D.N.Y. 2015) (“The doctrine of demand futility, the business judgment rule, and the generally uncertain prospect of establishing a breach of fiduciary duties combine to make shareholder derivative suits an infamously uphill battle for plaintiffs.”); see also Kamen v. Kemper Fin. Servs. Inc., 500 U.S. 90, 96 (1991) (holding that “extraordinary conditions” are required in order for a plaintiff to establish demand futility.”). The proposed settlement bypasses these hurdles, aiming to ensure that Origin does not miss out on the opportunity to receive a benefit. See In re AOL Time Warner S'holder Derivative Litig., No. 02-cv-6302-(SWK), 2006 WL 2572114, at *5 (S.D.N.Y. Sept. 6, 2006) (“Termination of the litigation at this stage of the proceedings ‘obviate[es] the expenditure of any future time and expense in connection with this action,’ and will allow the Company to direct its full attention to its substantive business.”) (citation omitted). At the step-one preliminary approval stage, then, the court is persuaded that the benefits of the proposed settlement are sufficient to justify granting of the preliminary approval. B. Adequacy of Negotiation Courts are required to “ensure that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties.” In re NVIDIA, 2008 WL 5382544 at *2 (internal citation and quotations omitted). However, “[a]n initial presumption of fairness is usually involved if the settlement is recommended by class counsel after arm’s length bargaining.” Urena v. Cent. California Almond Growers Assn., No. 1:18-cv-517-NONE-EPG, 2020 WL 3483280, at *11 (E.D. Cal. June 26, 2020), report and recommendation adopted, No. 1:18-cv-517-NONE- EPG, 2020 WL 4593824 (E.D. Cal. Aug. 11, 2020) (quotation omitted). Additionally, “[t]he involvement of counsel with significant experience in derivative litigation, who appear ‘on behalf of all parties,’ weighs in favor of a non-collusive settlement.” In re Lyft, 2024 WL 4505474 at *5 (citation omitted). Here, “Defendants were represented by esteemed counsel from Freshfields US LLP.” (Docket No. 25-1 at 28.) Plaintiffs were likewise represented by counsel with significant experience in derivative litigation. (Docket No. 25-2 at 87—130.) Plaintiffs assert that “counsel on both sides possessed a firm understanding of the strengths and weaknesses of the claims and defenses in the Derivative Matters.” (Docket No. 25-1 at 28—29 (“Specifically, prior to the Settlement, Settling Stockholders’ Counsel was well-informed about the legal and factual issues the litigation posed as they conducted extensive research and investigation into the claims and underlying issues in their investigation.”).) This included, among other things, significant research and investigation, preparation of a settlement demand, “extensive settlement discussions with [opposing] counsel,” “the exchange of corporate governance reform proposals and counteroffers,” and “negotiating and drafting the term sheet and subsequent settlement documentation for presentment to the Court.” (Id. at 29.) Here counsel assert that “[o]nly after reaching an agreement in principle on the Reforms did the Settling Parties discuss attorneys’ fees.” (Id.) Plaintiffs argue that the proposed “Fee and Expense Amount of $700,000.00 . . . represents a fair, reasonable, beneficial, and practical resolution of highly uncertain litigation,” and that the terms of the settlement “fairly account for the risks and potential rewards of the claims being settled.” (Id.) “[T]he Parties agree that the Settlement ‘confers substantial benefits upon the Company and its stockholders and that the adoption, implementation, and maintenance of the Reforms are in the best interests of the Company and its stockholders.” (Id.) “‘Great weight’ is accorded to the recommendation of counsel, who are most closely acquainted with the facts of the underlying litigation.” Nat'l Rural Telecommunications Coop. v. DIRECTV, Inc., 221 F.R.D. 523, 528 (C.D. Cal. 2004) (citing In re Painewebber Ltd. P'ships Litig., 171 F.R.D. 104, 125 (S.D.N.Y.1997)); see also Pac. Enters. Sec. Litig., 47 F.3d at 378 (“Parties represented by competent counsel are better positioned than courts to produce a settlement that fairly reflects each party's expected outcome in the litigation.”). Therefore, “the trial judge, absent fraud, collusion, or the like, should be hesitant to substitute its own judgment for that of counsel.” Nat'l Rural Telecommunications Coop., 221 F.R.D. at 528 (citing Cotton v. Hinton, 559 F.2d 1326, 1330 (5th Cir.1977)); see also Griffin v. Consol. Commc'ns, No. 2:21-cv- 885-WBS-KJN, 2023 WL 3853643, at *4 (E.D. Cal. June 6, 2023) (Shubb, J.) (“Given counsel's representation that the settlement reached was the product of arms-length bargaining following extensive informal discovery and with the help of an experienced mediator, this factor weighs in favor of final approval.”); see La Fleur v. Med. Mgmt. Int'l, Inc., No. 5:13-cv-00398, 2014 WL 2967475, at *4 (N.D. Cal. June 25, 2014) (“Settlements reached with the help of a mediator are likely non-collusive.”). The court is therefore satisfied that the proposed settlement falls within the range that may be approved. III. Notice Plan Once the court preliminarily approves the proposed settlement in a derivative action, notice “must be given to shareholders or members in the manner that the court orders.” Fed. R. Civ. P. 23.1(c). “The Court considers whether such notice would be sufficient to reach the majority of interested stockholders” when determining an appropriate method of notice as part of its separate evaluation of the proposed notice procedure. Bushansky v. Armacost, No. 12-cv-01597-JST, 2014 WL 2905143, at *6 (N.D. Cal. June 25, 2014) (citation omitted). Here, the parties agree to provide notice as follows:
Within fourteen (14) days after the Court’s entry of the Preliminary Approval Order, the Notice shall be provided through: (i) the filing of a Current Report on Form 8-K with the SEC by the Company, which shall include as attachments the approved Settlement Notice and the Stipulation and exhibits thereto; (ii) the publication of the Settlement Notice one time in Investor’s Business Daily or www.investors.com; and (iii) the posting of the SEC Form 8-K with the Settlement Notice, Stipulation and exhibits thereto on the Investor Relations portion of the Company’s website through the date of the Settlement Hearing.” (Docket No. 25-1 at 30—31.) Courts have found that procedures similar to the ones proposed here are sufficient to satisfy the requirements of both Rule 23.1 and due process. See In re Lyft, 2024 WL 4505474 at *7; see In re Hewlett-Packard Co. S'holder Derivative Litig., 716 F. App'x 603, 608 (9th Cir. 2017) (upholding a district court's approval of notice procedures that included the parties placing notice in prominent publications and where the parties posted the notice on the company's website); Bushansky, 2014 WL 2905143, at *6 (collecting cases). Here, the court reaches the same conclusion. Here, the court finds that the notice proposed by the parties “describes the terms of the settlement in sufficient detail to alert those with adverse viewpoints to investigate and to come forward and be heard.” In re Hewlett-Packard, 716 F. App'x at 609 (quoting Churchill Vill., L.L.C. v. Gen. Elec., 361 F.3d 566, 575 (9th Cir. 2004)). The Notice summarizes and explains in plain language the: (1) “facts and considerations that caused the Parties and their respective counsel to conclude that the proposed Settlement is fair, reasonable, adequate, and in Origin’s best interests”; (2) “procedure for objecting to the proposed Settlement”; and (3) “date, place, and time of the Settlement Hearing.” (Docket No. 25-1 at 30; see Docket No. 25-2 at 68—80.) As such, the court is satisfied that the notice process proposed in this settlement agreement is “reasonably calculated, under all the circumstances, to apprise all [shareholders] of the proposed settlement.” See Roes, 1-2 v. SFBSC Mgmt., LLC, 944 F.3d 1035, 1045 (9th Cir. 2019) (internal citation and quotations omitted). IV. Attorney’s Fees “[B]ecause of the danger that parties will overestimate the value of injunctive relief in order to inflate fees, courts must be particularly careful when ascribing value to injunctive relief for purposes of determining attorneys' fees, and avoid doing so altogether if the value of the injunctive relief is not easily measurable.” Roes, 944 F.3d at 1055. Here, the terms of the proposed settlement provide for a fee and expense amount totaling $700,000.00. (Docket No. 25-1 at 13.) That said, “the Court need not—and does not—decide the issue of attorneys' fees now.” In re Lyft, 2024 WL 4505474 at *7. “Preliminary approval of the settlement is not an endorsement or pre-approval of any future fee request.” Id. V. Conclusion IT IS THEREFORE ORDERED that plaintiffs’ unopposed motion for preliminary approval of derivative settlement (Docket No. 25-1) be, and the same hereby is, GRANTED. IT IS FURTHER ORDERED THAT: (1) Within 14 days following the entry of this Order, Origin must (i) file with the SEC the Settlement Notice and Stipulation (and exhibits thereto) as exhibits to a Current Report on Form 8-K; (ii) publish the Settlement Notice in Investor’s Business Daily or www.investors.com; and (iii) post the SEC Form 8-K with the Settlement Notice, Stipulation and exhibits thereto on the Company’s Investor Relations website through the date of the Settlement Hearing. (2) At least 14 days before the Settlement Hearing, Origin must file proof that it complied with disseminating Notice. (3) At least 28 days before the Settlement Hearing, em EE EEE NO RE IS IS IE OD
plaintiffs must file their motion in support of final approval of the settlement, application for the fee and expense award, and service award for plaintiffs. (4) Current Origin stockholders must file any objections to the settlement at least 21 days prior to the Settlement Hearing. (5) Any attorney retained by a current Origin stockholder for the purpose of objecting must file a notice of appearance at least 21 days prior to the Settlement Hearing. (6) Any current Origin stockholder who intends to make an appearance at the settlement hearing must file notice with the court at least 21 days prior to the Settlement Hearing. (7) At least 14 days prior to the Settlement Hearing: Deadline for Settling Parties to file and serve responses to any objection from Origin stockholders. (8) The Settlement Hearing is set for January 20, 2026, at 1:30 p.m. in Courtroom No. 5. Dated: November 24, 2025 fd. be—~ WILLIAM B. SHUBB UNITED STATES DISTRICT JUDGE 16