Chen v. Lyft: California federal court dismisses securities suit where misstatement was corrected within an hour

Chen v. Lyft concerned an alleged misstatement in an earnings release by corporate defendant Lyft, Inc. (Lyft), a ride-sharing company. The statement projected an “[a]djusted EBITDA margin expansion . . . of approximately 500 basis points year over year” for the 2024 fiscal year. Following issuance of the press release, Lyft's stock surged by 67% ($8.12/share). Forty-two minutes after Lyft issued the press release, however, Lyft's CFO corrected the statement on a conference call, noting that the press release should have said “50 basis points” and not “500 basis points.” Following this correction, Lyft's stock price immediately began to drop, reversing most of the gains following the erroneous press release. Within two hours of the original press release, Lyft issued an amended press release with the correct EBITDA project. 

The plaintiff initiated a class action lawsuit against Lyft and certain Lyft executives, alleging violations of federal securities laws. The proposed class covered “all persons who purchased or otherwise acquired Lyft common shares on a U.S. open market during the class period February 13, 2024 at 4:05 p.m. through February 13, 2024 at 4:51 p.m., inclusive.”  The alleged “class period” began at the time of the publication of the first press release and ended a few minutes after Lyft's CFO made the initial correction on the conference call.

The defendants moved to dismiss the complaint, and the Northern District of California (the Court) granted the motion.

First, the Court found that the alleged misstatement was subject to the Private Securities Litigation Reform Act of 1995's safe harbor for forward-looking statements because it concerned Lyft's anticipated financial growth. The Court also found that the statement was accompanied by meaningful cautionary language, including disclosures of risks relating to Lyft's ability to forecast performance due to its “limited operating history” and “the macroeconomic environment and impact of the COVID-19 pandemic.” In reaching this conclusion, the Court rejected the plaintiff's assertion that these cautionary statements were merely “generic.”

Second, the Court held that the plaintiff failed to adequately plead scienter. The plaintiff alleged three bases for scienter, all of which the Court rejected: (1) the plaintiff alleged, based on an expert opinion, that “analysts and investors would have been surprised by the Misstatement, making a strong inference that at least one analyst would contact Defendants immediately after the issuance of the Misstatement to obtain clarification,” (2) the plaintiff alleged that by means of their positions and the release's content, Lyft's CEO and CFO must have had access to the press release (and thus misstatement) prior to its release and recognized it was incorrect, and (3) the plaintiff alleged that a statement by the CFO that a team member “noticed pretty fast that [Lyft] [was] getting a lot of interest in the margin” demonstrates scienter.

The Court refused to rely on the plaintiff's alleged expert opinion, finding those allegations must satisfy the same standard as allegations based on a confidential informant, and the plaintiff failed to do so. The Court further rejected the plaintiff's allegations that Lyft's CEO and CFO “must have” seen the press release beforehand, analogizing it to the core operations doctrine and noting the complaint did not contain any specific allegations that the executives were involved “in the minutia of a company's [relevant] operations.” The Court rejected the third scienter argument as conclusory and also irrelevant, as it did not address the defendants' state of mind when the statement was made, but rather after it was made.

Third, the Court rejected the plaintiff's argument that the defendants breached a duty to correct the misstatement more quickly, both because the 9th Circuit had not recognized such a duty, and also the plaintiff had not alleged that the 42 minute “delay” between the misstatement and the correction was not a reasonable period of time.

The Court granted the plaintiff leave to amend through February 6, 2025, but the plaintiff failed to do so. 

This case dismissed a plaintiff's attempt to base a fraud claim on the prompt correction to a mistake, with the Court, among other things, rejecting the inference that a statement so promptly corrected must have been intended to mislead. This decision is helpful for issuers who might find themselves in similar circumstances and seek to make similar corrections. 

Authored by Allison M. Wuertz, Christopher Pickens, Jacey Gottlieb, and Daniel Whalen.