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Northern District Of California Dismisses Putative Class Action Against Solar Panel Manufacturer For Failure To Allege Falsity
05/13/2025On April 28, 2025, Judge Edward M. Chen of the United States District Court for the Northern District of California dismissed a putative securities fraud class action asserting claims against a solar panel manufacturer (the “Company”) and several of its executives under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5. Menon v. Maxeon Solar Techs., Ltd., et al., No. 24-cv-03869-EMC (N.D. Cal. Apr. 28, 2025). Plaintiff alleged that defendants made various false or misleading statements about the Company’s ability to implement a new business strategy and the Company’s liquidity after the Company lost one of its largest customers. The Court’s decision dismissing the action without prejudice highlights challenges plaintiffs face when seeking to rely on confidential witness statements and when challenging historically accurate financial statements.
The Company was part of a larger, publicly traded solar energy company before a strategic spinoff. A significant portion of the Company’s revenue came from an exclusive Master Supply Agreement (“MSA”) entered into with its former parent entity. The MSA made the Company the former parent’s exclusive provider of a particular model of solar panel used for residential application in the United States and Canada. The MSA contained a non-circumvention clause barring both parties from dealing with third parties. The relationship soured, and the MSA was terminated in mid-2023.
Plaintiff alleged that the Company misleadingly said it could successfully implement a direct-to-dealer business strategy of selling panels directly to its former parent’s dealers and that it had sufficient liquidity to meet its one-year obligations. The Court granted defendants’ motion to dismiss.
The Court assessed defendants’ alleged misstatements concerning the Company’s ability to ramp up its sales using a direct-to-dealer strategy. To support this claim, the complaint included allegations from two confidential witnesses who allegedly claimed that a previous attempt to engage its former parent’s dealers without success meant the Company lacked the ability to execute this plan. In addition to finding the confidential witness allegations vague and insufficiently detailed, the Court concluded the complaint failed to establish the reliability of plaintiff’s main witness because he was not involved in sales and his alleged statements relied on secondhand information. The Court further found it significant that plaintiff did not plead whether the non-circumvent clause was in effect at the time of the Company’s previously unsuccessful efforts. If it had been, the Court opined, the Company now sat in a much better position than before to engage directly with dealers in light of the MSA’s termination.
The Court next found that each of the challenged statements about the Company’s financial condition was either an accurate report of historical data or forward-looking opinions. The Court further rejected plaintiff’s argument that the accurate portrayal of historical financial information meant the Company had disclosed lender concerns about the Company’s liquidity in the absence of allegations about what specifically lenders were concerned with.
Having dismissed plaintiff’s predicate Exchange Act claim for failure to allege falsity, the Court also dismissed plaintiff’s Section 20(a) claim. The Court’s dismissal was without prejudice.
