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Judge Partially Grants Motion to Dismiss in Lyft Securities Litigation

Lyft's logo on a car windshield.

Dayton - Circa April 2018: Car for hire with a Lyft sticker. Lyft and Uber have replaced many Taxi cabs for transportation with a smart phone app I

Judge Haywood S. Gilliam, Jr. issued a mixed ruling in a securities class action brought against Lyft Inc. and several executives and board members on Tuesday. The Northern District of California court considered whether to dismiss the plaintiffs’ allegations that the ridesharing company violated several sections of the Securities Act of 1933 through misstatements and omissions made in filings connected with its 2019 Initial Public Offering (IPO).

According to the order, “Lyft is a rideshare company that ‘sought to revolutionize transportation by launching its peer-to-peer marketplace for on-demand ridesharing.’” The consolidated class action complaint accused the company of making untrue and misleading statements in its registration statement and prospectus submitted with its IPO.

Specifically, the stockholder plaintiffs took issue with statements concerning “‘(1) the potential for severe reputational damage and legal liability due to rampant sexual assaults committed by Lyft drivers; (2) the Company’s actual national market share; (3) the key metrics promoted by the Company to investors as important measurements of the Company’s financial performance and growth were about to be abandoned; (4) the Company was days away from closing its first quarter with a massive loss; (5) safety issues regarding the Company’s bike sharing business jeopardized the Company’s growth plans; and (6) labor conflicts with the Company’s drivers, all of which were known to, but concealed by Defendants at the time of the IPO.’”  The court considered each category of statements in turn.

The court held that certain allegations concerning passenger sexual assault survived the motion to dismiss. Judge Gilliam explained that the parties dispute “whether references to ‘assault’ and ‘trust and safety issues’ adequately disclosed the sexual assault litigation.” The debate, the court said, prevented it from disposing of the claim. However, it reasoned in dismissing the allegations that the plaintiffs’ contention that the existence of “‘scores of sexual assaults and lawsuits’ do not directly contradict Defendants’ generalized assertions about Lyft’s commitment to safety, its safety measures, and the role safety plays in the rideshare market.”

The plaintiffs further argued that the defendants’ failure to disclose a “bookings” metrics change and its “precise anticipated” first quarter losses prior to the IPO constituted improper, misleading or omitted statements. The court declined this argument, holding that Lyft had no legally imposed duty to disclose this information.

The plaintiffs also faulted the defendant for failing to disclose safety and maintenance issues with its bikeshare program, “that jeopardized the growth and success that Lyft hoped to achieve through the expansion of its bikeshare offering.” Similar to its sexual assault liability analysis, the court held that it “cannot resolve the parties’ materiality and adequacy disagreements at the pleading stage,” and denied the motion to dismiss as to these allegations. Other bikeshare program statements, the court concluded, “constitute non-actionable puffery,” because they did not directly address the status of the program, and instead, discussed the company’s business plans generally.

The court granted the defendants’ motion as to driver benefit statements, finding that they “make no representation about the classification of Lyft drivers as employees or contractors, and instead highlight attributes that Lyft believes are ‘key benefits’ to drivers.” Thus, the statements were too attenuated from “existing labor unrest” to survive the motion to dismiss. The court noted that the plaintiffs have leave to amend the dismissed portions of their complaint within 28 days.

The plaintiffs are represented by Block & Leviton, Levi & Korsinsky, The Rosen Law Firm, and Pomerantz LLP, and the defendants by Latham & Watkins.

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