In re Luckin Coffee Inc. Securities Litigation

Background

The plaintiffs alleged that Luckin Coffee Inc. and other defendants violated federal securities laws by making material misstatements and omissions concerning Luckin’s revenues, expenses, financial reports, internal controls, legal compliance, related-party transactions, and other matters. The complaint asserted claims under Section 10(b) of the Securities Exchange Act of 1934 and Section 11 of the Securities Act of 1933. The proposed settlement covered a class of persons and entities, and their beneficiaries, that purchased or otherwise acquired Luckin American Depository Shares between May 17, 2019, and July 15, 2020, inclusive.

The class had previously been certified for settlement purposes, and the court-appointed class representatives were Sjunde AP-Fonden and Louisiana Sheriffs’ Pension & Relief Fund. Luckin had entered provisional liquidation proceedings, and its joint provisional liquidators had begun a U.S. bankruptcy proceeding under Chapter 15. Motions to dismiss were pending when the parties reached the settlement. The class representatives said the settlement offered a substantial and certain recovery while avoiding the risks, expense, delay, and collection difficulties of continued litigation. Luckin denied the allegations and denied liability.

Preliminary Approval

The court preliminarily approved the proposed settlement under Federal Rule of Civil Procedure 23(e)(1)(B)(i). It found that the settlement was likely capable of receiving final approval under Rule 23(e)(2) as fair, reasonable, and adequate to the class, subject to further consideration. The proposed settlement amount was $175,000,000 in cash. If finally approved and effective, the net settlement fund would be distributed under a court-approved plan of allocation after deductions for taxes, notice and administration costs, attorneys’ fees, litigation expenses, and other approved costs.

The order did not finally approve the settlement, the plan of allocation, the requested attorneys’ fees, or litigation expenses. Instead, it scheduled a settlement hearing for July 22, 2022, at 11:00 a.m., subject to adjournment or a change to a telephone hearing. The hearing was to address final approval of the settlement, dismissal of the action with prejudice, approval of the plan of allocation, and class counsel’s request for fees and expenses.

Notice and Claims Procedures

The court approved the form and content of the settlement notice, claim form, and summary notice. It authorized Epiq Class Action & Claims Solutions, Inc. to administer the notice and claims process. Notice was to be mailed or emailed to potential class members, posted online, and summarized through publication in The Wall Street Journal and transmission over PR Newswire.

Class members seeking payment generally had to submit a completed claim form with supporting transaction or holdings records, such as brokerage confirmations or account statements. The order provided that claim forms were due 120 calendar days after the notice date unless the court ordered otherwise, while also allowing class counsel discretion to process late claims if doing so would not delay distribution. The proposed allocation plan used transaction information and alleged artificial inflation in Luckin’s share price to calculate recognized losses, then distributed the net fund pro rata among eligible claimants whose calculated distribution was at least $10.

The court did not allow a second opportunity to exclude oneself from the class because class members had previously received notice and an opportunity to request exclusion. Class members could object to the settlement, plan of allocation, or fee request, but they had to comply with the order’s written-objection and notice-of-appearance procedures. A class member who failed to submit a valid claim would not receive a distribution but could still remain bound by the settlement and its releases if the settlement became effective.

Other Provisions and Effect of the Order

Until further order, the court stayed proceedings other than those needed to carry out or enforce the settlement. It also temporarily barred and enjoined the class representatives and class members from bringing or prosecuting the released claims against the defendants’ released parties while final approval was pending. The order provided that if the settlement were terminated, not approved, or failed to become effective, the order would be vacated and the parties would return to their prior positions as specified in the settlement agreement.

Judge John P. Cronan therefore entered a preliminary approval order and authorized settlement notice and related procedures; the opinion did not decide whether the alleged securities-law violations occurred or whether any defendant was liable.