United States District Court, N.D. California
CAROLE LEE GREENBERG, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
SUNRUN INC., et al., Defendants.
ORDER GRANTING MOTION TO DISMISS WITH
CHARLES R. BREYER UNITED STATES DISTRICT JUDGE.
Sunrun, Inc. (“Sunrun”) is a company that leases
rooftop solar panels to homeowners. When Sunrun conducted its
initial public offering (“IPO”) on August 5,
2015, its future looked bright. But with a series of
regulatory setbacks, things quickly went dark. After she and
other investors took heavy losses on Sunrun stock, Plaintiff
Carole Greenberg brought this class action against Sunrun,
its officers, directors, and underwriters for violations of
the Securities Act of 1933.
sources of conventional energy, like coal-fired power plants,
have traditionally dominated American energy markets. Class
Action Compl. (“CAC”) ¶ 34. These facilities
produce energy far from the point consumption and then
transmit it to households and business over an interconnected
network known as the electrical grid. CAC ¶ 34.
Centralized sources of renewable energy, like dams or solar
farms, have also played a role. CAC ¶ 34. More recently
decentralized sources of renewable energy, like rooftop solar
panels, have taken off. CAC ¶¶ 35-36.
utilities in general are highly regulated, solar energy
production of all stripes is also often heavily subsidized.
CAC ¶¶ 37-38. In addition to federal tax credits,
some states incentivize the installation of rooftop solar
panels through a policy called net metering. CAC ¶¶
37-38. Net metering allows homeowners to sell their excess
solar energy back to utility companies, often at full retail
rates. CAC ¶ 42. But because this arrangement imposes a
burden on utility companies, states often cap the number of
customers who may participate. See CAC ¶¶
42, 51-54, 60.
compete with utilities, companies that sell or lease solar
panels to homeowners often rely on net metering. CAC ¶
43. That means their fortunes depend on state regulatory
choices. CAC ¶¶ 44, 48. Defendant Sunrun, Inc.
(“Sunrun”) is no exception. The company does not,
and likely could not, operate in states without favorable net
metering rules. CAC ¶ 44. For that reason, in 2015
Sunrun operated only in Arizona, California, Colorado,
Connecticut, Delaware, Hawaii, Maryland, Massachusetts,
Nevada, New Hampshire, New Jersey, New York, Oregon,
Pennsylvania, South Carolina, and Washington, D.C. CAC ¶
44. Most of its business was in California but, over only a
few quarters, Nevada went from zero to 20% of Sunrun's
overall deployment. CAC ¶¶ 50, 59. Still, even in
friendlier markets regulatory fights do not always go
Sunrun's way. CAC ¶ 48.
the best efforts of Sunrun's lobbying arm, net metering
subsidies came under attack in Nevada, California, Arizona,
and Hawaii. See CAC ¶¶ 48-72. Nevada
historically allowed net metering subsidies but capped the
number of consumers who could take advantage of them. CAC
¶ 51. Nevada had raised the cap from 1% to 3% but
ultimately refused go up to 10%. CAC ¶ 52. It then
passed Nevada Senate Bill 374 (“SB 374”),
allegedly with “the aim of ending unreasonable
subsidies for rooftop solar customers.” CAC ¶ 54.
Among other things, the bill dictated that energy utilities
“shall . . . offer net metering to
customer-generators” but gave a state commission
discretion to iron out the details. SB 374 § 2.3(1)
(dkt. 62-2). For example, under SB 374 the commission
“[m]ay establish terms and conditions for the
participation by customer-generators in net metering,
including, without limitation, limitations on enrollment in
net metering” and “authorize a utility to
establish just and reasonable rates and charges to avoid,
reduce, or eliminate an unreasonable shifting of costs from
customer-generators to other customers.” Id.
§§ 2.3(2)(b), (d). The bill also made clear that
the commission “[s]hall not approve any
tariff”-which in this context means a document that
defines the relationship between a utility and its
customers-or “authorize any rates or charges
for net metering” that “unreasonably shift costs
from customer-generators to other customers.”
Id. § 2.3(2)(e). What is more, another
important subsidy in Nevada was scheduled to sunset at the
close of 2015. CAC ¶ 58.
were on the horizon in California as well. The state
legislature passed a bill that would have the state's net
metering regime lapse once certain caps were reached, which
was expected to be no later than July 2017. CAC ¶ 60. It
directed the state's utility commission to propose a
successor by the end of 2015, though this arrangement meant
that the final details of the new net metering regime could
not be known before that time. CAC ¶ 60. In April 2015,
an administrative judge noted that, in light of
“increased deployment of solar” in California,
“more cost-based rates are appropriate.” CAC
2013, Arizona approved a surcharge of $0.70 per kilowatt on
rooftop solar panel owners, which comes out to roughly
$5.00/month for an average user. CAC ¶ 63. In late 2014,
several members of Congress-many of whom represented
Arizona-publicly expressed concerns about deceptive sales
practices in the solar panel industry. CAC ¶¶
66-67. And in 2015, the Arizona legislature passed a consumer
protection law “aimed at curbing deceptive practices in
the market of residential solar leases.” CAC ¶ 69.
Later that year, many of the state's major utility
companies submitted proposals that challenged net metering
practices in the state. CAC ¶ 70. The state commission
deferred making any decisions on the proposals, but
Plaintiffs maintain that the message was clear: “solar
subsidies in Arizona were under attack.” CAC ¶ 70.
largest electric utility company submitted a proposal to end
net metering in 2015. CAC ¶ 71. A few months later, a
former chair of the energy committee in the state house of
representatives published a report urging the same. CAC
August 4, 2015, Sunrun's pre-IPO Registration Statement
and Prospectus (“Prospectus”) became
effective-one day before the company went public.
CAC ¶ 77. The Prospectus included few specifics about
these regulatory developments. See CAC ¶ 78. It
mentioned that Nevada would soon reach its net-metering cap
and that new legislation in Nevada (SB 374) required the
state commission to approve “an uncapped program”
by the end of 2015-but said nothing about the particular
provisions designed to curb unreasonable
cost-shifting. See Prospectus (dkt. 62-1) at 18;
CAC ¶¶ 81, 83.
Prospectus also said that Sunrun focused on markets with
“favorable policy environments, ” Prospectus at
5, 96; CAC ¶ 81, and noted that 58% of its customers
were in California, Prospectus at 23; CAC ¶ 84. It
therefore warned that its business was “particularly
susceptible” to adverse policy changes there, as well
as in “other markets that may become similarly
concentrated.” Prospectus at 23-24. It did not single
out high growth and increasing concentration of business
operations in Nevada. CAC ¶ 84.
graphic near the front of the Prospectus also boasted that
Sunrun customers “lock-in long term savings, ”
while its overview section touted “simple, predictable
pricing for solar energy that is insulated from rising retail
electricity prices.” Prospectus graphic #3; Prospectus
at 1; CAC ¶ 86. And as required by law, the Prospectus
alerted investors to ongoing legal proceedings in which
Sunrun was involved. CAC ¶ 87. Although it discussed
investigations by the Treasury and Justice Departments into a
2012 solar energy grant program, a 2013 California consumer
class action about contractor licensing laws, and
Sunrun's own effort to challenge a tax decision in
Arizona, the Prospectus did not discuss (1) Sunrun's
efforts to obtain information under Nevada public record laws
about Governor Brian Sandoval's “cronyism, ”
(2) interventions in several proceedings before state public
utility commissions, and (3) litigation conducted by its
lobbying arm in states in which Sunrun did not operate, like
Wisconsin. CAC ¶ 87.
the Prospectus warned that the “expiration, elimination
or reduction of . . . rebates and incentives could adversely
impact” Sunrun's business. Prospectus at 18.
Specifically, the Prospectus observed that “changes to
net metering policies may significantly reduce demand for
electricity from our solar service offerings, ” and
that utility companies and other special interests were
“currently challenging solar-related policies to reduce
the competitiveness of residential solar energy.”
Id. And, as a result, it warned that the market
price of Sunrun stock “may be volatile” and that
investors could “lose all of part” of their
investment. Id. at 37-38; see also id. at
8, 15-19, 63, 105-06 (further warnings about regulatory
risk). Nevertheless, investors bought 17.9 million shares of
Sunrun stock for some $250.6 million during the company's
IPO on August 5, 2015. CAC ¶ 89.
October 12, 2015, Hawaii did away with net metering. CAC
¶ 93. On December 22, Nevada's Public Utilities
Commission allowed utilities to buy back excess solar energy
for less, significantly reducing the incentive that net
metering had provided-even for existing
homeowners. CAC ¶ 94; NV Comm'n Order (dkt.
62-6) ¶ 108. Two weeks later, Sunrun ceased all Nevada
operations. CAC ¶ 95. And on January 28, California
changed its net metering scheme in a way that
“slashed” demand for the company's services.
CAC ¶ 96. Sunrun's stock plummeted, and now trades
at less than half its IPO value. CAC ¶ 99.
Carole Greenberg filed a class action lawsuit against Sunrun,
its officers, directors, and underwriters on May 6, 2016
under sections 11, 12(a)(2), and 15 of the Securities Act of
1933. See Compl. (dkt. 1) at 1-6 (listing parties);
32, 34-35 (causes of action). Several other related class
actions were filed in federal court and consolidated with
Greenberg's. See Order Relating Case (dkt.
23); Minute Order (dkt. 50). Plaintiffs filed a consolidated
class action complaint on October 21, 2016. See CAC.
The proposed class consists of “all those who purchased
Sunrun common stock pursuant or traceable to Sunrun's
August 5, 2015 initial public stock offering.” CAC
¶ 1. They maintain that Sunrun misled investors by (1)
telling them in its Prospectus that the company focused on
“favorable policy environments, ” (2) omitting
crucial details about Nevada's SB 374, (3) glossing over
high growth and increasing concentration in Nevada, (4)
boasting about “long term savings” and
“predictable pricing, ” and (5) failing to
disclose ongoing legal proceedings as required by law. CAC