Northern District of California Dismisses Securities Acts Claims Alleging Offering Materials Misled Investors Of A Solar Panel Company
02/21/2017On February 9, 2017, Judge Charles Breyer of the United States District Court for the Northern District of California dismissed a putative class action lawsuit against Sunrun Inc. (“Sunrun” or the “Company”), its officers and directors, and the underwriters of its initial public offering (“IPO”). Greenberg v. Sunrun Inc., No. 16 Civ. 2480 (N.D. Cal. Feb. 9, 2017). Plaintiffs alleged that the offering documents for Sunrun’s IPO contained misleading representations and omissions in violation of sections 11, 12(a)(2), and 15 of the Securities Act of 1933. In granting defendants’ motion to dismiss, Judge Breyer found that the offering materials were not misleading, stating that “at worst the Prospectus warned that the devil is in the details without describing precisely where in the details the devil might lurk.”
Sunrun, a company that leases rooftop solar panels, allegedly was impacted by various regulatory policies, including a policy known as “net metering,” which is designed to encourage investment in renewable energy by allowing homeowners to sell excess solar energy generated during the day to utility companies. Shortly after the Sunrun’s IPO, several states in which Sunrun operated allegedly made or considered changes to their net metering policies. Plaintiffs subsequently brought suit alleging that Sunrun misled investors by, among other things, stating that the Company focused its business in “favorable policy environments,” which allegedly omitted details about a bill in Nevada related to net metering, and allegedly boasted about pricing advantages offered to Sunrun customers. Plaintiffs also alleged Sunrun failed to disclose information about certain legal proceedings.
In dismissing the complaint with prejudice, Judge Breyer rejected each claim. The Court found that Sunrun sufficiently informed investors that its business model relied on favorable regulations, and that there was no duty to disclose more information about the possibility of regulatory changes, including because Sunrun did not represent that existing markets were guaranteed to keep favorable regulations in place. Noting that the “securities laws do not exist to combat sales puffery,” the Court also held that Sunrun sufficiently described its high growth rate and the extent of its business in Nevada. The Court also held that plaintiffs could not base a claim on alleged misrepresentations regarding pricing given the general nature of the alleged misstatements, observing: “Plaintiffs might as well go after Olive Garden for promising customers a pasta bowl that never ends.” Finally, Judge Breyer rejected claims that Sunrun failed to disclose ongoing legal proceedings related to the various regulatory changes, finding these proceedings were “ordinary routine litigation incidental to the business.”