In re Lyft Inc. Securities Litigation

Background

Plaintiffs purchased Lyft common stock issued and traceable to Lyft’s March 28, 2019 initial public offering. They brought securities claims against Lyft and certain officers and directors under Sections 11 and 15 of the Securities Act of 1933. The alleged misrepresentations or omissions concerned potential reputational damage and legal liability arising from sexual-assault allegations against drivers, Lyft’s declining market share during a price war with Uber, and safety issues involving Lyft’s bike-sharing program.

The court had previously certified a class consisting of people and entities who purchased or otherwise acquired Lyft common stock issued and traceable to the IPO registration statement between March 28, 2019, and August 19, 2019. Rick Keiner was the class representative, and Block & Leviton LLP was appointed class counsel.

Settlement Terms

The parties agreed to a non-reversionary $25 million payment by Lyft. The settlement fund will cover notice and administration expenses, taxes, court-approved attorneys’ fees and costs, any court-approved award to the lead plaintiff, and other approved expenses. Authorized claimants will receive pro rata payments based on recognized losses calculated using a method tracking the statutory formula under Section 11 of the Securities Act. The estimated average recovery is 77 cents per share, and authorized claimants will receive at least $10.

Class members must submit a proof of claim and release form within 90 days of the notice date to be eligible for payment. Any remaining balance will first be distributed further to authorized claimants until the balance is minimal; any balance still remaining will be donated to the Bluhm Legal Clinic Center for Litigation and Investor Protection at Northwestern University Pritzker School of Law.

The release covers claims arising from or relating to the allegations and events involved in the action, including claims concerning the purchase, acquisition, holding, sale, or disposition of Lyft securities acquired under or traceable to the registration statement. The agreement also includes a waiver of rights comparable to those under California Civil Code section 1542.

Class notice will be mailed to shareholders previously identified during the class-certification notice period, posted on the settlement administrator’s website, and published once in the national edition of The Wall Street Journal and once through a national newswire service. Class members may opt out or object before the final approval hearing. Lyft retained a right to withdraw if opt-outs reach a threshold contained in a confidential supplemental agreement filed provisionally under seal.

Class counsel intends to seek attorneys’ fees of no more than 25 percent of the settlement fund, or $6,250,000, and costs of no more than $550,000. The lead plaintiff may seek reimbursement of reasonable costs and expenses related to representing the class, up to $10,000.

Preliminary Class Certification

Because the proposed settlement class was identical to the class previously certified under Federal Rule of Civil Procedure 23(b)(3), the court provisionally certified the settlement class without revisiting its earlier class-certification analysis. The court found that later-added allegations did not change that analysis.

Preliminary Approval Analysis

Under Rule 23(e), a court must approve a class settlement and determine that it is fundamentally fair, adequate, and reasonable. At the preliminary stage, the settlement need only appear potentially fair. The court considered whether the agreement resulted from informed, non-collusive negotiations; whether it improperly favored class representatives or other class members; whether it fell within the range of possible approval; and whether it had obvious deficiencies.

The court found no indication of collusion. The settlement followed mediation, extensive discovery and motion practice, and months of negotiations. The court noted that it would scrutinize any request for attorneys’ fees at the final-approval stage.

The court also found a sufficient connection between the proposed cy pres recipient and the class. The recipient’s investor-protection work was consistent with the objectives of the federal securities laws and the interests of class members.

The court concluded that the lead plaintiff’s proposed reimbursement request was not inherently improper, although the lead plaintiff would need meaningful evidence of actual costs and expenses directly caused by the litigation. The agreement otherwise provided pro rata treatment and a $10 minimum for authorized claimants.

The court found the $25 million settlement within the possible range of approval despite the parties’ estimates that the maximum trial recovery could be $535 million or $777 million, depending on the damages formula. The court considered the litigation risks, including potentially strong defenses concerning whether the alleged conduct caused the losses. It also found that the revised release language and the termination provision in the confidential supplemental agreement did not prevent preliminary approval.

Allocation and Notice

The court preliminarily approved the allocation plan because it distributed the fund pro rata according to recognized losses, considering factors including the timing of purchases or sales and the number of shares involved. The calculations will use the damages formula in Section 11(e) of the Securities Act.

The court found that the revised notice satisfied Rule 23(c)(2)(B) and the notice requirements of the Private Securities Litigation Reform Act. It concluded that the notice adequately described the case, settlement terms, State Action, and options available to class members.

Disposition

The court GRANTED the motion for preliminary approval. It preliminarily found the settlement fair, reasonable, and adequate; preliminarily approved the settlement class, allocation plan, and notice plan; directed the parties to implement the notice plan; and directed them to meet and confer on a schedule for the remaining settlement events, including the final approval motion and final fairness hearing. The order was not a final approval of the settlement.