DealLawyers.com Blog

In September 2022, the 2nd Cir. adopted a bright line rule holding that only target stockholders have standing to assert Rule 10b-5 claims based on the target’s disclosures relating to a merger.  Last week, in Max Royal LLC v. Atieva, Inc. (9th. Cir.; 8/24), a 9th Cir. panel endorsed the 2nd Cir.’s position.  Here’s an excerpt from the opinion’s summary:

Plaintiff-investors alleged that electric car company Atieva, Inc., d/b/a Lucid Motors, and Lucid CEO Peter Rawlinson made misrepresentations about Lucid that affected the stock price of Churchill Capital Corp. IV, or CCIV, a special purpose acquisition company in which plaintiffs were shareholders and that later acquired Lucid. The district court held that plaintiffs had statutory standing but dismissed the action for failure to allege a material misrepresentation.

The panel affirmed on the ground that plaintiffs lacked Section 10(b) standing under the Birnbaum Rule, which confines standing to “purchasers or sellers of the stock in question.” Agreeing with the Second Circuit, the panel held that, in a case of alleged misstatements made in advance of  an anticipated merger, purchasers of a security of an acquiring company do not have standing under § 10(b) to sue the target company for alleged misstatements that the target company made about itself prior to the merger between the two companies.

Over on the Business Law Prof Blog, Ann Lipton observes that in reaching this decision – which involved a deSPAC transaction – the 9th Cir. overlooked the implications of the SEC’s recent SPAC rulemaking, which treats the target and the SPAC as co-registrants of the securities being offered in the deal.

– John Jenkins