In my recent survey of key 2020 D&O developments I highlighted the surge of SPAC IPOs last year and conjectured about the possible increase in the number of D&O claims that might arise following the transactions in which private companies merge into the public traded SPACs ( the so-called de-SPAC transaction). A securities suit filing this week demonstrates how these claims might well arise and does suggest we could indeed be in for an influx of securities suits and other D&O claims filed following de-SPAC transactions.



QuantumScape Corporation because a publicly traded company as a result of its November 25, 2020 merger with Kensington Capital Acquisition Company, a special purpose acquisition company (SPAC). In the transaction – a de-SPAC transaction – QuantumScape merged into Kensington, and the surviving company took on QuantumScape’s name.


QuantumScape develops battery technology for electronic vehicles. On December 8, 2020, QuantumScape issued a press release announcing performance data for its solid-state battery technology. Among other things, the press release claimed that the data showed that the company’s technology “addresses fundamental issues holding back widespread adoption of high-energy density solid state batteries.” The press release contained data concerning charge time, cycle life, safety, and operating temperature.


On December 17, 2020, QuantumScape filed a registration statement for the sale of company securities held by insiders. Among other things, the registration statement contained a risk factor noting that the company faces “significant barriers to our attempts to produce a solid-state battery cell and may not be able to successfully develop our solid-state battery cell.” The risk factor goes on to detail the barriers and the consequences for the company if the barriers are not overcome. The registration statement elsewhere identifies the “significant benefits” that its battery technology could enable, including such issues as “battery capacity, life, safety, and fast charging.”


On January 4, 2021, before markets opened, Seeking Alpha published an article pointing to several risks with QuantumScape’s solid state batteries that make it “completely unacceptable for real world field electric vehicles,” stating among other things that the battery’s power means that it ‘will only last for 260 cycles or about 75,000 miles of aggressive driving” and that due to the batteries’ temperature sensitivity “the power and cycle tests at 30 and 45 degrees above would have been significantly worse if run even a few degrees lower.” The company’s share price fell more than 40% on the news.


The Lawsuit

On January 4, 2021, a plaintiff shareholder filed a securities class action lawsuit in the Northern District of California against QuantumScape and is CEO, Jagdeep Singh. A copy of the complaint can be found here. According to the complaint, Singh served as QuantumScape’s CEO both before and after the merger with Kensington. The complaint purports to be filed on behalf of a class of investors who purchased the companies shares between December 8, 2020 and December 31, 2020.


The complaint alleges that during the class period the defendants failed to disclose to investors: (1) that the Company’s purported success related to its solid-state battery power, battery life, and energy density were significantly overstated; (2) that the Company is unlikely to be able to scale its technology to the multi-layer cell necessary to power electric vehicles; and (3) that as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”


The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeks to recover damages on behalf of the plaintiff class.



In prior posts, I have previously noted earlier lawsuits that were filed against post-transaction operating companies following a de-SPAC transaction. For example, during 2020, there were lawsuits filed against Nikola (discussed here) and Triterras (here). Although those lawsuits related to post-transaction events at operating companies that had gone public though a merger with a publicly-traded SPAC, those lawsuits different from this one against QuantumScape.


For starters, in the lawsuits against Nikola and Triterras, the defendants included former directors or offices of the pre-transaction SPAC company. The alleged misrepresentations involved pre-transaction statements by the SPAC company as well. However, this lawsuit against QuantumScape is different in that it does not name as defendants any former executives of the SPAC company. The sole individual defendant, the CEO of the go-forward company, had prior to the merger been an executive of the acquired company, not of the SPAC.


Perhaps even more importantly, the allegations in this lawsuit do not involve pre-transaction statements or actions of or by the SPAC. Indeed, the complaint in this lawsuit does not contain any specific allegations in connection with the merger transaction itself. All of the alleged misrepresentations in which the plaintiff seeks to rely in his complaint allegedly took place after the merger transaction was completed. The alleged liability here, if indeed there is any at all, relates exclusively to activities of the post-transaction go-forward operating company.


However, while this lawsuit does not include the factors that that I though made the Nikola and Triterras lawsuits interesting, this lawsuit is still noteworthy in its own way.


The fact is that through a merger with a publicly traded SPAC, a previously private company becomes a publicly traded company, subject to all of the scrutiny, burdens, and responsibility that comes with a public listing. The alleged misstatements on which the plaintiff seeks to rely took place only days after the merger transaction was completed and QuantumScape became a public company. The statements were subjected to a level of scrutiny that doubtlessly was entirely new for the company and its management.


Throughout 2020, there was a wave of SPAC IPOs. Every one of these SPACs will be looking for private company candidates with which to merge, following which the previously private companies will become public companies. In most of these merger transactions, the go-forward operating companies will be successful. However, given the volume of SPAC IPO activity last year, and continuing into this year, there are going to be literally hundreds of private companies that will become public companies in the months ahead. One may well question whether there is a sufficient supply of attractive private company candidates that can prosper as public companies, and as time goes by the supply can only dwindle. Every single private company that merges with a publicly traded SPAC will face a test to see whether it can withstand the scrutiny and other burdens that go with a public listing.


As this lawsuit shows, the scrutiny that goes with a public listing can include the possibility of a securities class action lawsuit. This lawsuit shows that, in addition to all of the risks and uncertainties involved with the de-SPAC transaction that could give rise to D&O claims, the operations of the go-forward company itself also potentially can be the source of D&O claims exposure. Given how many private companies will be going public as a result of mergers with publicly traded SPACs, we could well be seeing more claims like this one, involving post-transaction operating companies, in the months ahead.