Jakubiak V. Quantumscape Corporation Et Al

Case Background

On December 22, 2020, a securities fraud complaint was filed against QuantumScape Corporation before the United States District Court, New York Southern (Foley Square) alleging breach of contract and common law fraud. On January 21, 2022, Plaintiffs Jeffrey Jakubiak, Michael Assante, John Wilschke, Headwaters Holdings LLC, BJI Financial Group Inc., and Brian Walsh (referred to as “Plaintiffs”) filed their consolidated amended complaint. They did this through their undersigned attorneys, following the Court’s order dated January 14, 2022.

This case was assigned to Judge Margaret M. Garnett and referred to Magistrate Judge Jennifer E. Willis. [Case number: 1:20cv10842]

Cause

Kensington Capital, a SPAC, was founded on April 27, 2020, to merge with automotive businesses. It conducted an IPO on June 30, 2020, offering 23 million units at $10 each, raising $230 million. Each unit included one share of Class A common stock and half a warrant to purchase shares at $11.50. The units began trading separately about 52 days later.

Advised by Hughes Hubbard & Reed LLP and UBS Securities LLC, Kensington held IPO proceeds in trust with Continental Stock Transfer & Trust Company. The funds would be returned to shareholders if a merger did not occur within two years.

Kensington signed a warrant agreement with Continental, governed by New York law. The agreement allowed warrant exercises at $11.50 per share, starting 30 days after the merger and ending five years later.

On September 2, 2020, Kensington agreed to merge with Legacy QuantumScape, which developed solid-state batteries. The merger, changing Kensington’s name to QuantumScape Corporation, was detailed in a Form S-4 Registration Statement. This Form S-4 stated that warrants would be exercisable 30 days after the merger’s closing, a detail consistent in all filings.

However, on December 10, 2020, QuantumScape informed investors that warrants would not be exercisable until June 30, 2021, contradicting Form S-4. Plaintiff Jakubiak, relying on Form S-4, faced substantial financial losses and filed a class action lawsuit on December 11, 2020. The case moved to federal court under SLUSA.

Eduardo Royes of ICR, Inc., stated that an FAQ on an investor relations website, launched after the deal, indicated a June 30, 2021, exercisable date. Despite the Form S-4’s clear 30-day period, the Company and its agents did not amend this statement before closing. Plaintiffs, including Jakubiak and others, suffered financial losses from relying on the inaccurate Form S-4 information.

Damages

The Plaintiff relied on the Defendant’s statement that warrants would be exercisable 30 days after the Closing. Based on this assurance, the Plaintiff engaged in buying and selling the company’s securities. However, Defendant later asserted that the warrants would not be exercisable until June 30, 2021, leading to financial losses for Plaintiff.

These actions breached Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. As a result, the Plaintiff is entitled to damages to cover all losses and harm resulting from this violation. The Plaintiff’s damages stemmed from QuantumScape’s refusal to honor the original exercise date of the warrants. Consequently, the Plaintiff seeks compensation for all lost profits and other damages caused by this breach.

Key Arguments and Proceedings

Legal Representation

  • Plaintiff(s): Jeffrey Jakubiak | BJI Financial Group | Brian Walsh | Headwaters Holdings LLC
    • Counsel for Plaintiff(s): Gregory E. Keller | Carol S. Shahmoon
  • Defendant(s): QuantumScape Corporation
    • Counsel for Defendant(s): David Spears | Cynthia Chen | Sheryl Shapiro Bassin | Rebecca L. Epstein

Claims

The Plaintiff claimed that a breach of contract had occurred. The warrant was a contract between the Company, the warrant agent, and warrant holders. During the period between September 21, 2020, and the QuantumScape business combination closing on November 25, 2020, the Company’s executives and advisors were aware of the original warrant agreement’s terms.

Despite this, the Company stated in Form S-4 that the warrants would be exercisable 30 days after the Closing, not one-year post-IPO.
The Form S-4’s exercise date information was knowingly provided by the Company’s CEO, CFO, and advisors. Knowing the original agreement’s terms, the Company intentionally set the exercise date to 30 days post-closing. The Company waived any 12-month condition extending the exercise date to June 30, 2021, and could not reimpose it after the Closing. The contract allowed warrant holders to exercise their warrants to buy Class A stock at $11.50 per share starting December 25, 2020, for five years.
Plaintiff incurred damages when QuantumScape refused to allow warrant exercise 30 days after the Closing.

They also claimed violation of Section 10(b) of the Exchange Act and Rule 10b-5, common law fraud and negligent misrepresentation

Defense

The Defendants denied allegations of breach of contract and fraud levied against them and asserted affirmative defenses stating Plaintiffs’ claims were partly or wholly barred because any injuries they sustained were caused by factors beyond the Defendant’s control. These factors included the actions or inactions of other parties, such as the Plaintiffs themselves, as well as economic events.

Jury Verdict

On April 12, 2024, the New York jury returned the verdict in favor of the Plaintiffs. The jury awarded the following damages for the breach of contract claim:

  • Jeffrey Jakubiak: $513,082.00
  • Brian Walsh and BJI Financial: $695,787.00
  • Headwater Holdings: $4,490,847.00

Thus, the total award came up to $5,699,716.00. However, the jury did not find for the Plaintiffs on the fraud and common law fraud causes of action.

Court Documents:

Available upon request