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In a dramatic resolution to a heated legal battle, QuantumScape Corp., its top executives, and the special-purpose acquisition company (SPAC) that took the lithium-metal battery innovator public have agreed to an $8.75 million settlement to close a shareholder derivative lawsuit. The case, which alleged breaches of fiduciary duty surrounding the QuantumScape-Kensington Capital Acquisition Corp. merger, reached a resolution in Delaware’s Chancery Court on Wednesday.

Settlement Without Admission of Guilt

According to the settlement filing, the agreement was reached to eliminate further litigation risks and costs, while firmly denying any wrongdoing. Kensington and QuantumScape leaders maintained they did nothing improper but opted for settlement to put the matter to rest once and for all.

The lawsuit was originally brought by QuantumScape shareholder Sheadrick Richards, who claimed that Kensington’s leadership put their financial interests ahead of stockholders by rushing the merger through without due diligence.

A Merger Under Fire

Kensington Capital, a SPAC, went public in June 2020, and just a few months later, in September 2020, it announced plans to acquire QuantumScape. By November 25, 2020, the deal had closed, and Kensington had rebranded as QuantumScape.

Richards’ lawsuit, filed in August 2022, contended that Kensington’s board members had personal stakes in the deal through “founder shares”—a lucrative setup where insiders acquired 20% of Kensington’s stock for just $25,000. This, Richards argued, created a conflict of interest, making the merger more about self-enrichment than stockholder value.

Deceptive Dealings?

Richards alleged that the merger proxy statement was misleading, painting Kensington’s board as impartial when, in reality, board members stood to gain financially. He further claimed that they failed to negotiate fair terms, ignored third-party valuations, and misrepresented the level of due diligence conducted on QuantumScape.

The fallout from the merger did not stop there. QuantumScape found itself embroiled in multiple lawsuits, including a high-profile shareholder suit in California federal court over claims that it misrepresented its battery technology’s progress. That case ended in a $47.5 million settlement in January.

Attorneys and Legal Fees

The recent $8.75 million settlement still requires court approval. If finalized, Richards' legal team plans to seek attorney fees not exceeding 20% of the settlement amount.

Richards was represented by a powerhouse team, including lawyers from Robbins Geller Rudman & Dowd LLP, Andrews & Springer LLC, Robbins LLP, and Herman Jones LLP. The Kensington parties were defended by Morris Nichols Arsht & Tunnell LLP and Hughes Hubbard & Reed LLP, while QuantumScape’s legal representation came from Wilson Sonsini Goodrich & Rosati PC.

What This Means for SPAC Investors

The case underscores the ongoing scrutiny of SPAC transactions, where investors often worry about transparency and conflicts of interest. With regulators increasingly focused on SPAC accountability, settlements like this one serve as a cautionary tale for future deals.

As QuantumScape moves forward, the settlement marks the end of another high-profile SPAC litigation, leaving investors and industry observers questioning: Is this the beginning of a new era of accountability for SPAC mergers?