CURRENT MONTH (January 2023)
Lucid Motors: A Notable SPAC Litigation Win
In a January 11, 2023, opinion, the Northern District of California granted a motion to dismiss to Lucid Motors (Lucid), which went public via a combination with a special purpose acquisition company (SPAC) in 2021. The plaintiffs in the case claimed that Lucid and its CEO induced plaintiffs to buy the stock of Churchill Capital Corporation IV (Churchill), the SPAC, through misrepresentations and omissions about the value of Lucid. Additionally, they alleged that defendants used a scheme and fraud and violated Rule 10b-5 and Section 20(a) of the Securities Exchange Act. The securities class action allegations centered around a few statements that Lucid’s CEO made, prior to a merger announcement with Churchill, about Lucid’s future performance. The stock price of Churchill’s shares spiked after the statements were made but well before the merger was announced, presumably on rumors that Churchill and Lucid were approaching a deal. Defendants moved to dismiss the complaint based on plaintiffs’ lack of standing and failure to adequately allege actionable misrepresentations, materiality, and scienter.
The lack of standing argument—and the fact that it failed in this case—was interesting and is worth noting. Although SPACs and their targets are no strangers to all kinds of lawsuits and allegations, SPAC-related lawsuits are typically brought after the merger is completed or at least after the merger is announced. Lucid’s lawsuit is one among only a handful of pre-merger-announcement cases. The plaintiffs here were holders of shares in the SPAC, not the private company (Lucid) with which the SPAC ultimately merged. Yet the misrepresentations and securities law violations were alleged against Lucid and its CEO. The court went through a lengthy discussion of various precedent decisions and essentially concluded that although the plaintiffs do need to be holders of securities, those securities do not necessarily need to be of the entity against which harm is being alleged. The court found that plaintiffs had standing here because they had purchased securities, they had identified specific alleged misconduct, and their alleged loss was discernible.
Defendants ultimately prevailed in their argument that plaintiffs failed to “plead facts showing that statements and conduct related to Lucid’s business would be material to any reasonable purchaser” of Churchill’s stock “at a time when no merger between the companies had been announced and, indeed, when it remained unconfirmed that the parties were even engaged in discussions.” The court specified that to “show information regarding a potential merger is material plaintiffs must be able to allege that the merger was likely to occur at the time they relied on defendants’ misrepresentations.” The court was at a loss to see “how plaintiffs could reasonably think a merger was likely when Lucid and [Churchill] had not even publicly acknowledged that a merger was being considered.”
After the 2021 SPAC boom, SPAC decisions are now starting to come out in various cases. We will undoubtedly see more developments and the setting of new precedent in the next few months.
Hart-Scott-Rodino Filing Fees to Dramatically Increase for Larger Deals
By Kenneth S. Knox and Thomas A. Donovan, K&L Gates
The Consolidated Appropriations Act of 2023 recently passed by Congress and signed by President Biden will dramatically restructure the filing fees charged for the submission of Hart-Scott-Rodino (HSR) filings typically required for mergers and acquisitions meeting certain financial thresholds. For larger deals, the fees will increase significantly.
Currently, HSR filings require payment of the following fee, based upon the value of the transaction:
Transaction Value (Adjusted Annually)
More than US$101 million but less than US$202 million
At least US$202 million but less than US$1.0098 billion
US$1.0098 billion or more
Once published by the FTC’s Premerger Notification Office, the filing fees for HSR filings will be adjusted as follows:
Transaction Value (Adjusted Annually)
More than US$101 million but less than US$161.5 million
At least US$161.5 million but less than US$500 million
At least US$500 million but less than US$1 billion
At least US$1 billion but less than US$2 billion
At least US$2 billion but less than US$5 billion
At least US$5 billion
Thus, the filing fee will decrease for smaller transactions, but will increase substantially for larger deals. Implementation of the new fee structure is expected to occur in early 2023.
While payment of the filing fee is ultimately the responsibility of the buyer under HSR regulations, the fee may be allocated between the parties by agreement. For larger deals, it is expected that fee payment will increasingly be a negotiated item in the acquisition or merger agreement. Additionally, with the prospect of having three additional fee thresholds for reportable acquisitions and considerably higher filing fees, the determination of transaction value for HSR purposes will become increasingly important, and parties should consider consulting with HSR counsel earlier in the process.