SPAC-RELATED LITIGATION
CD: Reflecting on the last 12-18 months, how would you describe litigation activity arising in connection with special purpose acquisition companies (SPACs)?
Blake: There has been a significant volume of special purpose acquisition company (SPAC)-related litigation over the last 12 to 18 months, with a large number of securities and derivative lawsuits brought in federal courts as well as breach of fiduciary duty cases brought in Delaware or other state courts. SPAC litigation activity has slowed somewhat since the second half of 2021, as SPAC stockholder redemption rates have increased, and SPAC business combination volume has declined.
Loseman: With the proliferation of SPACs and de-SPAC transactions in the last few years, we are seeing not only an increase in related litigations but also creativity in the framing of claims. For example, many federal securities cases in 2021 and 2022 have asserted strict liability claims under the Securities Act based on registration statements filed in advance of the de-SPAC transaction. But that approach raises some interesting standing questions because SPACs are already public companies. For that reason, no stockholder who purchases on the open market following the de-SPAC transaction is likely to be able to trace their shares to the prospectus. Plaintiffs are also increasingly pursuing what amount to false statement theories in state court. For example, we have seen plaintiffs bring direct fiduciary duty claims against SPAC directors for alleged failures to disclose negative information causing the SPAC stockholders to not exercise their redemption rights.
Oct-Dec 2022 issue
Cleary Gottlieb Steen & Hamilton LLP
Gibson DunnL
oyens & Loeff N.V.
Seward & Kissel LLP
Simpson Thacher