Northern District Of California Grants In Part And Denies In Part Motion To Dismiss A Putative Securities Fraud Class Action Against Rideshare Company
On September 8, 2020, Judge Haywood S. Gilliam, Jr. of the United States District Court for the Northern District of California granted in part and denied in part a motion to dismiss a putative securities fraud class action against a ridesharing company (the “Company”) and certain of its directors under Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”). In re Lyft Inc. Securities Litigation, No. 19 Civ. 2690 (HSG), 2020 WL 5366325 (N.D. Cal. Sept. 8, 2020). Plaintiff alleged that the Company’s prospectus and registration statement (the “Registration Statement”) contained numerous false or misleading statements and omissions, including those concerning reported sexual assaults by the Company’s drivers and defects with bicycles that were part of the Company’s bikeshare fleet. Although the Court found that certain statements and omissions regarding rider safety were actionable, the Court dismissed plaintiff’s remaining claims for failure to allege falsity or because the statements constituted non-actionable puffery.
In March 2019, the Company filed its Registration Statement in connection with its initial public offering (“IPO”). Plaintiff alleged that the Registration Statement failed to adequately disclose the potential for “severe reputational damage and legal liability due to rampant sexual assaults” committed by its drivers and safety defects relating to its bikeshare program. Plaintiff alleged that the Company also misled investors with respect to its market share nationwide, its decision to abandon key metrics that have previously been used to determine its financial performance, the “massive loss[es]” that would be reported at the close of its first quarter, and ongoing labor conflicts with its drivers.
With respect to alleged misstatements and omissions regarding rider safety and sexual assaults, plaintiff argued that the Company “cultivated an image of . . . trust [and] safety” for its riders and emphasized the importance of rider safety in its Registration Statement, yet omitted any mention of the sexual assaults that had taken place. Although the Company argued that these omissions were non-actionable because of news reports that made the assaults public knowledge, the Court disagreed because the Company had not demonstrated that the “individual complaints and litigation” had been disclosed to the public. The Court agreed, however, with the Company’s argument that other “generalized assertions about [the Company’s] commitment to safety, its safety measures, and the role safety plays in the rideshare market” constituted non-actionable puffery.
With respect to the Company’s bikeshare program, plaintiff argued that the Registration Statement omitted mention of “severe and pervasive safety issues,” including bicycle defects and improper repairs, and misleadingly assured investors that factors that could prevent the successful growth of the bikeshare program, such as public skepticism and safety concerns, were hypothetical rather than actual. The Court held the alleged omissions regarding the bicycle defects and improper repairs were actionable because these issues were, in fact, “present realities,” but held that the Company’s statements about the potential growth of the program and the Company’s optimism were non-actionable puffery.
With respect to plaintiff’s other claims (concerning the Company’s market share, key performance metrics that the Company abandoned, first quarter financial performance, and labor disputes with drivers), the Court granted the Company’s motion to dismiss with leave to amend, finding that plaintiff had failed to adequately allege falsity of the misstatements.