In re Lyft Inc. Securities Litigation

Background

This consolidated securities class action was brought by Plaintiff Rick Keiner against Lyft Inc. and several individual defendants, including Lyft officers and current or former board members. The complaint asserted claims under Sections 11 and 15 of the Securities Act of 1933. Section 11 addresses material misstatements or omissions in a registration statement, while Section 15 concerns control-person liability based on an underlying securities violation. The opinion states that Keiner no longer asserted a Section 12(a)(2) claim.

Lyft conducted an initial public offering after its registration statement became effective on March 28, 2019. The company offered 32.5 million shares at $72 per share. Keiner alleged that Lyft’s registration statement and prospectus were misleading because they did not adequately disclose risks involving sexual assaults by drivers, Lyft’s actual national market share, changes to key business metrics, anticipated first-quarter losses, safety and maintenance problems in its bikeshare business, and labor conflicts involving drivers.

Documents Considered by the Court

The defendants asked the court to take judicial notice of, or consider as part of the complaint, 15 documents. The court granted the request as to Lyft’s Form S-1 registration statement, which formed the basis of the claims and was extensively referenced in the complaint. The court also granted the request as to Keiner’s amended certification, which the court treated as part of the complaint because the Private Securities Litigation Reform Act requires the certification in a Section 11 case.

The court granted judicial notice of four additional documents: two news articles referenced in the complaint, Lyft’s May 14, 2019 Form 10-Q, and Uber’s Form S-1 registration statement. The court denied as moot the request concerning nine other exhibits because they were not specifically referenced in the complaint or relevant to the court’s analysis.

Legal Standard

The defendants moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. At this stage, the court generally accepts well-pleaded factual allegations as true and views them favorably to the plaintiff, but it does not accept conclusory allegations or unreasonable inferences.

For a Section 11 claim, the plaintiff must allege that the registration statement contained a misstatement or omission that was material—that is, important enough to mislead a reasonable investor about the investment. The court noted that Section 11 does not require proof that defendants acted intentionally or recklessly. The heightened pleading rules under the Private Securities Litigation Reform Act also do not apply to non-fraudulent Section 11 allegations.

Analysis

Rider Safety and Related Risk Factors

The court divided the rider-safety allegations into generalized safety and values statements, and related risk-factor disclosures.

The court held that the generalized statements about Lyft’s commitment to safety, trust, social responsibility, culture, and brand were non-actionable corporate optimism, sometimes called puffery. These statements did not make specific, objectively verifiable representations about rider safety. The court therefore granted the motion to dismiss the Section 11 claim based on those rider-safety statements.

The court reached a different conclusion about the risk-factor disclosures. Keiner alleged that Lyft presented the risks from driver-perpetrated sexual assaults as hypothetical or failed to mention the potential reputational damage and legal liability from those incidents, even though the problems had already occurred. The court found that the adequacy of Lyft’s disclosures could not be resolved at the motion-to-dismiss stage and that the allegations sufficiently stated a Section 11 claim. The court also found that Keiner adequately pleaded related disclosure violations under Items 105 and 303 of the Securities and Exchange Commission’s regulations.

The court rejected the defendants’ argument that the information was necessarily publicly available. It stated that the defendants had not established as a matter of law that the underlying complaints and litigation were specifically disclosed to the public. The court also held that the complaint did not clearly establish that Keiner could not prove Section 11 damages. Accordingly, the court denied the motion to dismiss the Section 11 claim based on the rider-safety risk-factor statements.

Market Share

Keiner alleged that Lyft overstated its United States ridesharing market share, alleging that Lyft reported a 39% share while other sources reported a lower figure. The court held that Lyft’s registration statement disclosed that third-party estimates could differ because of different methods and assumptions, identified the sources and limitations of its estimates, and stated that Lyft had not independently verified the source data. The court concluded that these disclosures made the alleged falsity clear and granted the motion to dismiss the Section 11 claim concerning market-share statements for failure to plead material falsity.

Bookings Metrics and First-Quarter Losses

Keiner alleged that Lyft failed to disclose that it would stop reporting Bookings and Revenue as a Percentage of Bookings, and failed to disclose that it was close to reporting unusually large first-quarter losses. The court held that these allegations did not identify a materially false or misleading statement in the registration statement. It found no pleaded basis for requiring Lyft to continue using the same metrics in later financial statements, and no pleaded basis for requiring disclosure of the precise anticipated losses for the quarter then in progress.

The court also noted that Lyft had disclosed its history of net losses and warned that expenses could increase. It therefore granted the motion to dismiss the Section 11 claims concerning the Bookings metrics and first-quarter losses.

Bikeshare Program and Related Risk Factors

Keiner alleged that Lyft’s registration statement failed to disclose that thousands of bikes had serious safety, maintenance, defect, and repair problems before the initial public offering. The court held that the allegations sufficiently stated a Section 11 claim based on the bikeshare risk-factor disclosures because Keiner alleged that the risks described as hypothetical were already present realities. The court also found that the allegations plausibly stated claims under Items 105 and 303 at the pleading stage.

The court dismissed the separate claims based on Lyft’s broader statements about its transportation strategy, growth, bikeshare program, and commitment to safety. It held that those statements were generalized and did not make specific representations about the condition or performance of the bikeshare program. The court therefore granted in part and denied in part the motion to dismiss the Section 11 claim concerning the bikeshare program and related risk-factor statements.

Driver Benefits

Keiner alleged that Lyft’s statements about benefits for drivers were misleading because Lyft treated drivers as independent contractors and faced labor unrest. The court held that the alleged omissions were not connected to the statements identified in the complaint. Those statements described benefits such as flexibility, income opportunities, insurance, and support, but did not make representations about whether drivers were employees or contractors or whether drivers were satisfied. The court granted the motion to dismiss the Section 11 claim concerning driver-benefit statements.

Section 15 Control-Person Claim

The Section 15 claim was expressly based on the Section 11 claim. Because the court found that Keiner adequately alleged Section 11 violations concerning the rider-safety risk-factor statements and the bikeshare risk-factor statements, and because the defendants did not dispute control, the court denied the motion to dismiss the Section 15 claim.

Disposition

The court granted in part and denied in part the defendants’ motion to dismiss the Consolidated Class Action Complaint. It denied the motion to dismiss the Section 11 claims concerning rider-safety risk-factor statements and bikeshare-program risk-factor statements, and denied the motion to dismiss the Section 15 claim.

The court granted the motion to dismiss the Section 11 claims concerning generalized rider-safety statements, market-share statements, Bookings metrics, first-quarter loss statements, generalized bikeshare-program statements, and driver-benefit statements for failure to plead falsity. The court granted those dismissals with leave to amend. Any amended complaint had to be filed within 28 days, and plaintiffs could not add new claims or parties without the court’s permission.