As I have chronicled on this blog (most recently, here), a wave of litigation has followed in the wake of the SPAC boom in late 2020 and early 2021. Since January 1, 2021, over 60 SPAC-related securities class actions have been filed, and there has also been a number of Delaware state court breach of fiduciary duty lawsuits, as well. Although many of these suits have only just been filed and therefore have not yet been subjected to judicial scrutiny, there have been several dismissal motion rulings in a number of these cases. A May 2023 memo from the Jones Day law firm entitled “SPAC Litigation: A Review of Recent Developments” (here) reviews the state of play in the various judicial rulings so far in the SPAC-related cases.  As the memo notes, “many high-profile suits have recently survived motions to dismiss (at least in part), and at least one has been resolved through a significant settlement.”

Continue Reading Key SPAC-Related Litigation Developments

One of the significant contributing factors to the total number of securities class action lawsuit filings in 2022 was the number of SPAC-related securities suits filed during the year. However, while there were a significant number of SPAC-related suits filed in 2022, the number of SPAC-related suit filings declined as the year progressed, to the point that it was not clear whether the phenomenon would continue into 2023. As it has turned out, the plaintiffs’ lawyers have continued to file SPAC-related suits this year. In the latest example, on May 12, 2023, a plaintiff shareholder filed a securities suit against energy storage services provider Stem, Inc., which merged with a SPAC in April 2021. This latest filing shows that the SPAC-related suits continue to be filed and that the suits continue to be a factor in the total overall number of securities suit filings.

Continue Reading Energy Services Company Hit with SPAC-Related Securities Suit

As readers of this blog know, in the last couple of years a significant number of SPAC-related securities lawsuits have been filed, often arising after the post-merger de-SPAC company stumbles following the SPAC merger. In many of these cases, the securities suit plaintiffs often allege that the pre-merger private company made misleading statements about its business or operations, the truth about which only became apparent after the merger with the SPAC was completed.

In an interesting decision in a securities suit involving the used car consignment company CarLotz, which merged with a SPAC in January 2021, the court held that the named plaintiffs, one who purchased shares of the pre-merger SPAC and another bought shares in the post-merger de-SPAC, did not have standing under the securities laws to sue for alleged misrepresentations made by the pre-merger private company. Because this issue often comes up in SPAC-related securities suits, the court’s ruling potentially could have important implications in other SPAC lawsuits. A copy of the Southern District of New York’s March 31, 2023, order can be found here.

Continue Reading Plaintiffs Lack Standing to Sue Over Pre-Merger Statements of SPAC Target Company

Earlier this year, when Vice Chancellor Lori Will sustained the plaintiff’s SPAC-related Delaware State Court direct breach of fiduciary duty action against the motion to dismiss of the former directors of Gig Capital3 (Gig3), there was some speculation that the court’s ruling would lead to a “deluge” of similar lawsuits. While no onslaught of new lawsuits has yet materialized, there was (as I noted in a recent post, here) a SPAC-related Delaware state court direct breach of fiduciary duty action filed late last week against the board of Adara Acquisition Corp. Now, a shareholder plaintiff has filed an additional SPAC-related Delaware State Court direct breach of fiduciary duty action, against the board of Trident Acquisition Corp. in connection with the SPAC’s merger with AutoLotto, to form As discussed below, the allegations against Trident’s board (as well as its sponsor and its financial underwriting advisor) more closely resemble those alleged in the Gig3 case, underscoring the possibility that plaintiffs’ attorneys may well seek to pursue the state court breach of fiduciary duty claim on similar theories. A copy of the April 3, 2023 complaint against the Trident board can be found here.

Continue Reading Shareholders Sue Former SPAC Execs in Delaware Direct Fiduciary Duty Breach Action

Though SPAC-related lawsuits were among the most important factors contributing to securities class action litigation filing volume in 2022, SPAC-related litigation has not yet been as significant of a factor so far in 2023. But while there have been relatively few SPAC related securities suits filed this year, there has been SPAC-related Delaware state court breach of fiduciary duty litigation. In the latest example of this Delaware state court litigation activity, plaintiff shareholders recently filed a Delaware Chancery Court lawsuit against the directors of a SPAC; the post-merger de-SPAC company, as successor in interest in the SPAC; and the SPAC’s sponsor, alleging that the defendants breached their fiduciary duties in connection with the merger. A copy of the plaintiff’s March 31, 2023, complaint can be found here.

Continue Reading SPAC Board and Sponsor Hit with Delaware State Court Breach of Fiduciary Duty Direct Action

As I have noted in prior posts (most recently here), many of the SPACs that completed IPOs during the SPAC frenzy in 2020 and 2021 are nearing the end of their two-year search period. Many of these SPACs have not identified suitable merger partners and the SPACs are liquidating. One question I have been asking as these SPACs liquidate is whether there might be litigation. One the one hand, in the liquidation, the investors get their money back. On the other hand, in our litigious society litigation is always possible when plans don’t work out. In the latest example of how litigation might arise in the SPAC liquidation context, investors in SPAC which has announced its plan to liquidate have brought an action against the SPAC, its directors and officers, and the SPAC sponsor, in a fight about how assets the SPAC holds beyond the IPO trust funds are to be distributed.

Continue Reading Liquidating SPAC Hit With Investor Suit Over Planned Asset Distribution

As I noted in my recent year-end round up of the top D&O stories of 2022, one of the important trends last year was the volume of SPAC-related D&O litigation. Now, in what is the first SPAC-related securities suit of 2023, a plaintiff shareholder has launched a SPAC-related securities suit against satellite company Terran Orbital, related to the company’s March 2022 merger with a publicly-traded SPAC. Although the new lawsuit reflects the ongoing trend of SPAC-related lawsuit filings, the new lawsuit also has some unusual features, as discussed below. The February 17, 2023, complaint in the lawsuit can be found here.

Continue Reading First SPAC-Related Securities Suit Filing of 2023

In yet another Delaware court D&O insurance coverage decision that is sure to set the D&O insurance industry spinning, a Delaware Superior Court Judge has held that a SPAC’s post-merger runoff policy provides coverage for the defense fees of former directors of the pre-Merger target company for alleged Wrongful Acts that the occurred prior to the merger – even though the former directors were not directors or officers of the SPAC at the time they allegedly committed the alleged Wrongful Acts. The court’s ruling could even further complicate the already fraught process of placing and structuring D&O insurance in the De-SPAC context. A copy of the Court’s February 6, 2023 opinion can be found here. (Please note that I have linked to the copy of the opinion on the Court’s website; the website copy to which I linked says that the opinion was filed under seal, but the seal reportedly was lifted by the court on February 16, 2023.)

Continue Reading Delaware Court: Pre-Merger Target Company Execs Are Insured Persons Under SPAC’S Post-Merger Tail Policy

In two dismissal motion grants last week in pending SPAC-related securities suits, the respective courts’ rulings could have potential significance for other pending or prospective SPAC-related cases. The January 10, 2023, ruling in the SPAC-related suit involving DraftKings has important implications for the many pending SPAC-related cases based on short seller reports, and the January 11, 2023, ruling in the Lucid case has potential implications for SPAC-related securities suits based on alleged pre-merger misrepresentations. The two rulings and their potential significance are discussed below.

Continue Reading SPAC-Related Securities Suit Dismissals Could Be Significant for Other Cases

On January 4, 2023, Delaware Vice Chancellor Lori Will denied the defendants’ motion to dismiss in the breach of fiduciary duty case a shareholder of the SPAC, Gig Capital3 Inc. (Gig3), against the SPAC’s sponsor and its board of directors in connection with the SPAC’s May 6, 2021, merger with Lightening eMotors. Essentially, the plaintiff alleged that the defendants withheld information about the dilutive impact of the transaction on the cash value of the investors’ shares, depriving the investors of the information they need to decide whether or not to redeem their shares.

In a ruling substantiating well-publicized contentions of Stanford Law Professor Michael Klausner about SPACs’ structural flaws (doubly noteworthy because Klausner acted as co-counsel for the plaintiff in the Gig3 case), Vice Chancellor Will denied the defendants’ dismissal motion, raising questions about whether similar allegations could be raised against a host of other SPACs, as discussed below. A copy of Vice Chancellor Will’s opinion can be found here.

Continue Reading Will Del. Court’s Ruling Mean a SPAC Lawsuit “Gold Rush”?