In re Astra Space Inc. f/k/a Holicity Inc. Securities Litigation

Background

Astra Space, Inc. merged with Holicity Inc., a special purpose acquisition company, in 2021. Astra described goals of reaching a near-daily launch cadence of 300 launches by 2025 and increasing its rocket’s payload capacity to as much as 500 kilograms by late 2023. Astra also licensed intellectual property for the Reaver rocket engine from competitor Firefly. The complaint alleged that the Firefly agreement limited Astra to two engines per rocket and that Astra should have disclosed the agreement when discussing its payload-capacity goal.

A market researcher and short-seller, Kerrisdale, published a December 29, 2021 report criticizing Astra’s launch projections, its addressable market, its rocket’s payload capacity, and the Firefly agreement. Astra’s share price fell 14 percent that day. Lead plaintiffs Marcos Luis Molins Garcia and Qingping Deng alleged that Astra, its officers, and board members violated Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act. Their theories were that Astra’s 300-launch projection was misleading because the market could not support it and that Astra’s 500-kilogram payload statements were misleading because of the undisclosed Firefly agreement.

Legal standard

A motion to dismiss for failure to state a claim tests whether the complaint contains enough factual allegations to make liability facially plausible. Because the complaint alleged fraud, it also had to describe the alleged misconduct with particularity, including who made the statements, what was said, when and where it was said, and how it was misleading.

The Private Securities Litigation Reform Act provides a safe harbor for identified forward-looking statements accompanied by meaningful cautionary language, or for forward-looking statements made without actual knowledge of falsity. Meaningful cautionary language must address risks related directly to the challenged projections rather than merely provide a general warning that investments involve risk.

Court’s analysis

The court held that the challenged statements were forward-looking. The launch-cadence statements concerned a future goal for 2025, and the payload-capacity statements concerned a future target for late 2023. The alleged two-engine limit in the Firefly agreement did not change the future-oriented nature of the payload-capacity statements.

The court also held that Astra’s risk disclosures were meaningful. Astra warned that the market for commercial launch services was still emerging, that its market estimates might be incorrect, and that achieving its launch goals depended on obtaining launch sites, regulatory approvals, manufacturing capacity, and other conditions. The court found these warnings directly related to the launch-cadence projections. Astra also warned about intense competition, larger competitors, rideshare services, and the possibility that competitors could be better positioned to serve the market for small satellite payloads. Those warnings addressed the competitive risks that the plaintiffs said made the 500-kilogram goal misleading.

The court rejected the plaintiffs’ argument that the Firefly agreement and its two-engine limit had to be disclosed. The complaint did not allege that Astra said it intended to exceed a 500-kilogram payload, so the agreement did not conflict with Astra’s stated goal. The plaintiffs also did not adequately explain why the statements were misleading rather than simply incomplete.

Because the safe harbor issue was dispositive, the court did not decide whether the defendants actually knew their statements were false.

The court separately held that Garcia and Deng lacked standing to assert the Section 14(a) proxy claim because they purchased Holicity stock after the June 30, 2021 merger vote and therefore did not have voting rights in that merger. The court stated that the related Section 20(a) control-person claim also failed because the primary Sections 10(b) and 14(a) claims failed.

Disposition

Judge Charles R. Breyer granted the defendants’ motion to dismiss with leave to amend. The plaintiffs were given 21 days to file an amended complaint addressing the deficiencies identified in the order. The order stated that failure to meet the deadline or cure the deficiencies would result in dismissal with prejudice.