Jakubiak v. QuantumScape Corporation

Background

The plaintiffs—Jeffrey Jakubiak, BJI Financial Group Inc., Brian Walsh, Michael Assante, and Headwaters Holdings LLC—purchased warrants issued by Kensington Capital Acquisition Corporation. Kensington later merged with QuantumScape Corporation, changed its name to QuantumScape, and converted Kensington’s stock and warrants into QuantumScape stock and warrants.

The June 25, 2020, warrant agreement stated that the warrants could be exercised beginning on the later of (1) 30 days after completion of the business combination or (2) 12 months after the June 30, 2020, initial public offering. Those dates were December 25, 2020, and June 30, 2021. Several Kensington public filings, however, stated that the warrants would become exercisable 30 days after the business combination. QuantumScape later stated on its website that the warrants would be exercisable on June 30, 2021, and in February 2021 it amended the warrant agreement to accelerate the exercise date to March 5, 2021.

The plaintiffs’ complaint asserted three breach-of-contract theories—waiver, amendment, and promissory estoppel—along with common-law fraud and federal securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Both sides moved for partial summary judgment, which asks the court to decide issues without a trial when there is no genuine dispute over a material fact and the moving party is entitled to judgment as a matter of law.

QuantumScape’s Motion

QuantumScape sought summary judgment on the fraud claims and the contract claims based on amendment and promissory estoppel. The court denied the motion as to the common-law fraud and federal securities-fraud claims. It held that those claims were not merely duplicate versions of the contract claims because the securities laws imposed an independent duty to make accurate public disclosures about material features of the warrants, including their exercise date. The court also noted that the fraud claims were based on allegedly false statements in public filings.

The court denied summary judgment on the contract-amendment claim. It held that a reasonable jury could find that Kensington’s conduct—including the differing statements in its public filings and communications involving the warrant agent—modified the “later of” condition to allow exercise 30 days after the merger. The court concluded that the warrant agreement did not require amendments to be made only in a particular written and signed form, and that the Form S-4 filings could qualify as writings signed by Kensington for purposes of modifying the agreement.

The court granted summary judgment on the promissory-estoppel claim. It explained that promissory estoppel is generally unavailable when a valid written contract governs the same subject. The parties agreed that the warrant agreement established the warrant holders’ contractual rights, and their dispute concerned the meaning or modification of the exercise-period term, not the agreement’s existence, scope, or enforceability. The court stated that the alleged facts might support equitable estoppel, which can modify an existing contract, but the complaint did not assert that claim. The plaintiffs’ attempt to add that theory in opposition papers was denied as procedurally improper. The court directed that any request to add an equitable-estoppel claim would have to be made through a motion under Federal Rule of Civil Procedure 15.

The Investors’ Motion

The investors sought a ruling that QuantumScape’s 30-day statements were an express waiver of the “later of” condition. The court denied that request because factual disputes existed about whether Kensington knowingly, voluntarily, and intentionally abandoned its contractual right. A reasonable jury could find that the “30-day” language resulted from oversight or a drafting mistake rather than an intentional waiver.

The court granted the investors’ request for a declaration concerning the date and time of any contract breach. It ruled that the date and time were December 31, 2020, at 4:00 p.m. Under the 30-day formulation, the exercise period would have begun on December 25, 2020. But QuantumScape’s obligation to issue shares depended on an effective registration statement, and the Securities and Exchange Commission declared the relevant registration statement effective on December 31, 2020, at 4:00 p.m. The court therefore held that this was the date and time of the alleged breach. It stated that the investors’ ability actually to exercise the warrants was irrelevant to determining the breach date.

Disposition

The court stated that both motions were granted in part and denied in part. The surviving claims are common-law fraud, federal securities fraud, breach of contract based on waiver, and breach of contract based on amendment. The promissory-estoppel claim was dismissed through the grant of QuantumScape’s motion. The court denied QuantumScape’s motion for oral argument as moot. It denied QuantumScape’s objection to the Osborn Declaration without prejudice to renewal before trial as a motion to exclude the evidence, noting that the declaration was not relied on in the decision.