In re Luckin Coffee Inc. Securities Litigation

Background

Lead Plaintiffs Sjunde AP-Fonden and Louisiana Sheriffs’ Pension & Relief Fund brought claims under the Securities Act of 1933 and the Securities Exchange Act of 1934. The court had previously provisionally certified a class for settlement purposes concerning claims against Luckin Coffee Inc.

Luckin filed a suggestion of bankruptcy and is a debtor in a provisional liquidation in the Cayman Islands. A United States Bankruptcy Court recognized that Cayman proceeding as a foreign main proceeding under Chapter 15 of the Bankruptcy Code, while modifying the automatic stay to allow the Lead Plaintiffs to participate in settlement negotiations and take actions concerning a possible Cayman scheme of arrangement. The parallel lawsuits of the proposed intervenors remained stayed as to Luckin.

The Lead Plaintiffs and Luckin filed a proposed order concerning distribution of class notices, along with a detailed notice and summary notice. The materials were intended to inform potential class members about their rights in this case and the Cayman proceeding and about their opportunity to opt out of the class.

The Winslow Funds, the State Class Plaintiffs, Kingstown, August Bequai, and Lai Ye moved to intervene. They had parallel lawsuits against Luckin or related claims and objected to aspects of the proposed notice.

Legal standard

Because no statute provided an automatic right to intervene, the court applied the usual Rule 24 intervention requirements. An applicant had to file on time, show a direct and legally protectable interest in the action, show that the interest could be impaired by the action’s resolution, and show that the existing parties did not adequately protect that interest. Failure to satisfy any one requirement was enough to deny intervention.

Court’s analysis

The court found that the motions were timely to the extent they concerned the proposed notice. But the proposed intervenors could not use these motions to renew objections to the earlier provisional certification order, because the court had already overruled those objections and they had not sought reconsideration.

The court held that the proposed intervenors’ planned decision to opt out of the class weighed against finding that they had a sufficient interest in the notice. Their desire to pursue separate lawsuits or limit the class’s recovery did not create an interest justifying intervention concerning a notice whose purpose was to inform class members and provide an opportunity to opt out.

The court also held that the proposed intervenors had not shown that the notice would impair their interests. The notice did not grant Lead Plaintiffs proxy voting power in the Cayman scheme. Instead, it described what might occur and stated that the Grand Court of the Cayman Islands would decide who could vote. The court said that objections concerning the mechanics of voting in the scheme should be presented to the Cayman court. The proposed intervenors would have opportunities to object during the Cayman proceeding, and any eventual scheme would still require recognition by the United States Bankruptcy Court to be enforced in the United States.

The court rejected the argument that the notice improperly permitted releases of claims against third parties. It interpreted the earlier provisional certification order as limiting certification to settlement discussions concerning claims against Luckin, not as prohibiting Lead Plaintiffs from addressing third-party claims in a settlement with Luckin. The court also found that the proposed intervenors’ concerns about possible future releases were speculative, particularly because they were participating in discussions with the joint provisional liquidators.

The court rejected the remaining objections as well. It found no reason for the notice to describe the State Class Plaintiffs’ separate claim based on Luckin’s January 2020 convertible-note offering. It also found that Lai Ye’s concerns about shareholder lawsuits and enforcement in China did not concern the notice. The proposed notice required first-class mail to identified purchasers or acquirers of Luckin American depositary shares during the class period, publication on a case website and in The Wall Street Journal, and distribution through PR Newswire. The court concluded that this process satisfied Rule 23’s notice requirements.

Finally, the court found that the proposed intervenors had not shown inadequate representation. Lead Plaintiffs were appointed to control the litigation for the class, and the proposed intervenors had not shown that Lead Plaintiffs would fail to protect the class’s interests. The court also found no basis to conclude that the notice would prevent the proposed intervenors from continuing independent discussions with the joint provisional liquidators.

Disposition

The court denied the motions to intervene and entered the Stipulation and Proposed Order. The Clerk was directed to terminate the motions pending at Docket Numbers 262, 278, and 284.