In re Lyft Inc. Securities Litigation

Background

The case involved proposed securities class actions by people who acquired Lyft, Inc. common stock traceable to Lyft’s March 28, 2019 initial public offering. The complaint asserted a claim under Section 11 of the Securities Act of 1933, alleging that Lyft’s registration statement and prospectus contained materially false, misleading, or incomplete statements. The alleged omissions concerned Lyft’s claimed market position, safety problems involving bicycles in its rideshare program, driver incentives, and the possibility that a labor disruption would affect operations.

Four motions sought appointment as lead plaintiff, approval of lead counsel, and consolidation of related actions. Rick Keiner filed one motion; Harold Tholen, Danilo Nunez, and Rakesh Khanna filed another as the Lyft Investor Group; Deep Dinesh Patel filed a third; and Terry S. Bradford filed a fourth. Patel later withdrew his motion, leaving Keiner’s, the Lyft Investor Group’s, and Bradford’s motions for decision.

Lead Plaintiff Standard

The Private Securities Litigation Reform Act requires the court to select the plaintiff most capable of adequately representing the class. The Ninth Circuit’s process first requires proper notice, then identifies the movant with the largest financial interest, and finally considers whether that movant satisfies the adequacy and typicality requirements of Federal Rule of Civil Procedure 23.

The court found that the required notice had been published in Globe Newswire on the same day the complaint was filed and that the notice described the action, the Securities Act claim, the proposed class, and the deadline for seeking lead-plaintiff status. The notice requirement was therefore satisfied.

Financial Interest

Keiner asserted total losses of $223,049.76. The Lyft Investor Group argued that only $50,407.90 of Keiner’s losses should count because some shares were sold before corrective disclosures. The Lyft Investor Group reported losses of $163,481.24, and Bradford reported a loss of $8,335.

The court chose an economic-loss method using the Lax-Olsten factors: shares purchased, net shares purchased, net funds expended, and approximate loss. It rejected the Lyft Investor Group’s proposed retained-shares approach because the complaints alleged several partial disclosures during the class period, making it unlikely that the alleged fraud-related price effect stayed constant. Using the economic-loss method, the court found that Keiner had the largest financial interest, with an approximate loss of $223,049—nearly $60,000 more than the Lyft Investor Group’s loss and more than twice Harold Tholen’s individual loss.

Typicality and Adequacy

The court found that Keiner made a preliminary showing that his claims were typical and that he could adequately represent the proposed class. His alleged injuries arose from purchasing Lyft shares at artificially high prices after the alleged misstatements in the offering documents.

The Lyft Investor Group argued that Keiner’s sales could expose him to a Section 11 affirmative defense called negative causation. That defense requires a defendant to show that a stock’s decline resulted from factors other than the alleged misstatement. The court held that the possibility of this fact-intensive defense did not make Keiner atypical or inadequate at the lead-plaintiff stage. The court also rejected arguments based on possible day-trading concerns, explaining that reliance is not an element of a Section 11 claim.

The court further found that Keiner’s amended certification corrected clerical errors and could be considered. It rejected the argument that he failed to report a sale occurring after the class period and disregarded other inadequacy arguments as trivial. Because the Lyft Investor Group did not show a reasonable basis to find Keiner incapable of representing the class, the court denied its request for limited discovery into his adequacy.

Lead Counsel and Disposition

The court deferred to Keiner’s selection of Block & Leviton LLP as lead counsel because the firm had extensive securities class-action experience and the choice was not irrational or tainted by self-dealing or a conflict of interest. The court approved that selection.

The court granted Keiner’s motion, appointed him lead plaintiff for the proposed class, and approved Block & Leviton LLP as lead counsel. It denied the remaining unwithdrawn motions, including the motions filed by the Lyft Investor Group and Bradford. The consolidation aspect of Keiner’s motion was moot in light of the court’s July 25, 2019 order. The order did not decide whether Lyft or the other defendants violated Section 11.