June 12, 2023
Most claims in a multicount class suit seeking damages from a take-public deal for special purpose acquisition company XL Fleet Holdings and its principals moved forward Friday after a Delaware Court of Chancery bench ruling that noted similarities to other recent SPAC disputes that survived dismissal.
Chancellor Kathaleen St. J. McCormick sent all but one count in the six-count case toward trial, in a decision that also dismissed a breach of fiduciary duty claim against James H.R. Brady, the SPAC’s chief financial officer. Also dismissed, without prejudice to refiling, were aiding and abetting fiduciary breach claims against two top officers of the target company, electric car startup XL Hybrids.
The consolidated suit challenged the fairness and terms for a more than $1 billion take-public transaction that merged “blank check” company Pivotal Investment Holdings II LLC and XL Hybrids, forming XL Fleet Corp.
Class attorneys argued that the SPAC target’s stock has fallen below a dollar per share amid a U.S. Securities and Exchange Commission investigation into “the very issues” raised in a March 2021 report by Muddy Waters Research LLC, an online investment research and due-diligence publication that covers a variety of markets.
The class complaint said Muddy Waters’ report found the deal proxy “false and misleading,” and said that it lacked needed information for stockholder decisions on supporting the merger or redeeming their shares for the original value. The online publication also reported that it had shorted the stock involved based on its findings.
“I find that the plaintiff adequately pleaded that the proxy was materially deficient,” the chancellor ruled. “By sending the stockholder on scavenger hunts, the disclosures obfuscated information” that was available and should have been shared with stockholders.
Instead, she added, investors were left with information “scavenger hunts,” a “type of game of Clue that we don’t countenance” in disclosures.
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The stockholders are represented by Michael J. Barry and Michael D. Bell of Grant & Eisenhofer PA, Richard A. Speirs and Amy Miller of Cohen Milstein Sellers & Toll PLLC and Peretz Bronstein and Eitan Kimelman of Bronstein Gewirtz & Grossman LLC.
Read Del. Chancellor Denies XL Fleet Class SPAC Suit Dismissal.