We secured a complete victory for Lucid

On August 8, 2024, Davis Polk secured a significant, precedent-setting decision from the Ninth Circuit in affirming the dismissal with prejudice of a putative securities class action in the Northern District of California for its clients, Lucid Motors and Lucid’s CEO, Peter Rawlinson. In its opinion, the Ninth Circuit expressly held for the first time that under the purchaser-seller rule, as set forth in the U.S. Supreme Court’s decision in Blue Chip Stamps v. Manor Drug Stores, a securities plaintiff does not have standing under Section 10(b) of the Securities Exchange Act of 1934 unless the plaintiff purchased or sold the securities about which the alleged misrepresentations were made.

Lucid Motors is a U.S. electric vehicle manufacturer that produces the Lucid Air, the longest-range, fastest-charging luxury electric car in the world and the 2022 MotorTrend Car of the Year. On February 22, 2021, Lucid announced a merger with Churchill Capital Corp IV (CCIV), a special purpose acquisition company. After the merger, plaintiffs, who had invested in CCIV stock, brought claims against Lucid and Mr. Rawlinson under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5, alleging that, prior to the merger announcement, defendants made false or misleading statements in certain media interviews about the timing for the start of production of the Lucid Air and the number of vehicles Lucid expected to produce in 2021.

Davis Polk moved to dismiss the complaint on February 14, 2022, arguing, among other things, that plaintiffs lacked statutory standing to bring a Section 10(b) claim against Lucid because they did not purchase Lucid stock, and that the alleged misstatements, made before the announcement of the merger, were immaterial as a matter of law to investors in CCIV, then a wholly separate company. On January 11, 2023, the district court (Judge Gonzalez Rogers) held that plaintiffs had standing to bring suit under Section 10(b) but dismissed the complaint on materiality grounds. At the invitation of the district court, plaintiffs subsequently sought leave to amend their complaint to address their pleading deficiencies with respect to materiality, but the district court ultimately denied leave to amend and dismissed the complaint with prejudice. Plaintiffs appealed.

On appeal, Davis Polk argued, among other things, that dismissal should be affirmed not only because, as the district court held, Lucid’s statements about its own business were immaterial to investors in CCIV, a different company, but also for the additional, independent ground that plaintiffs lacked statutory standing under Section 10(b) and Rule 10b-5–an argument that the district court had rejected. Specifically, Davis Polk argued that plaintiffs could not sue Lucid because they did not purchase or sell Lucid stock and, thus, did not deal in the security to which the alleged misrepresentations related, as required by Blue Chips Stamps’ purchaser-seller rule. On August 8, 2024, the Ninth Circuit affirmed dismissal on this alternative ground and held that plaintiffs lacked standing under Section 10(b) because they did not purchase or sell Lucid stock, the securities about which the alleged misrepresentations were made. The Ninth Circuit is only the second federal court of appeals to reach this issue, joining the Second Circuit in holding that the purchaser-seller rule is not limited to plaintiffs who did not transact in any security at all, but also precludes Section 10(b) claims even by plaintiffs who purchased or sold securities that are not the subject of the alleged misrepresentations.

The Davis Polk litigation team includes partner Brian M. Burnovski (who argued the appeal), counsel Daniel J. Schwartz, and associates Chui-Lai Cheung, Andrei Gribakov Jaffe, Brendan Eng, Micayla Hardisty, Alyssa Metcalf and Claire Creighton. Partner Neal Potischman also provided advice. The members of the Davis Polk team are based in the Northern California and the New York offices.

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