Court Dismisses Post-SPAC Class Action For Lack Of Standing

• Jurisdiction: United States,Federal
• Law Firm: Goodwin Procter LLP
• Subject Matter: Corporate/Commercial Law, Directors and Officers, Securities
• Author: Jennifer Burns Luz, Jonathan Shapiro, Angela Berkowitz, Lauren Jackson, Maria Massimo, Ian Q. Rogers, Zoe Bellars, Brendan Blake, Roland Chang and Dorothy Hazan
• Published date: 29 May 2023

Court Dismisses Post-SPAC Class Action for Lack of Standing; Southern District of Florida Denies Crypto Firm's Motion to Dismiss, Holding Cryptocurrency Is a Security; Court Dismisses Stockholder Suit Against Silverback Therapeutics; Ninth Circuit Reverses Dismissal of Class Action as Time-Barred, Applying More Generous Second Circuit Application of Statute of Limitations; SEC Wins Partial Summary Judgment Against Investment Firm for Failing to Disclose Conflicts of Interest

On March 31, 2023, U.S. District Judge Ronnie Abrams of the Southern District of New York dismissed a putative securities class action against CarLotz, Inc. (CarLotz), and certain of its officers and directors on the grounds that plaintiffs lacked standing to sue for losses allegedly arising from false and misleading statements defendants made about CarLotz while it was still a private company.

In 2021, CarLotz became a publicly traded corporation through a de-SPAC transaction whereby it merged with, and assumed the public registration of, the special purpose acquisition company (SPAC) Acamar Partners Acquisition Corporation (Acamar). Plaintiffs had purchased shares of Acamar prior to the de-SPAC transaction and later purchased shares of the post-merger, public CarLotz following the de-SPAC. They asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the Exchange Act) and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the Securities Act), alleging that prior to the de-SPAC transaction, defendants had made false and misleading statements about CartLotz's then-current business model and inventory. Defendants moved to dismiss on multiple grounds, including that plaintiffs lacked standing to sue.

The court dismissed plaintiffs' Exchange Act claims for lack of standing, rejecting plaintiffs' theory that the pre-merger, private CarLotz should be treated as no different than the post-merger, public CarLotz entity. The court ruled that the private right of action under Section 10(b) should be narrowly construed, and for this reason applied the Second Circuit's "purchaser-seller rule" rigidly such that plaintiffs could have standing only if they were purchasers or sellers of the precise security that was the subject of the alleged fraud. The court also dismissed plaintiffs' Securities Act claims on standing grounds, rejecting plaintiffs' argument that the court should treat the de-SPAC transaction as the "real IPO." The court thus ruled that plaintiffs' purchases were not traceable to a challenged registration statement (as required for a Section 11 claim) or that they had purchased directly in a public offering (as required for a Section 12(a)(2) claim), again because they either purchased Acamar shares prior to the de-SPAC or purchased CarLotz shares after the de-SPAC transaction.

The question of the proper application of standing requirements - whether the rigid approach favored by this court or the more...