Tag: "litigation"

05/07/13

  11:04:00 am, by Jim Jenal - Founder & CEO   , 856 words  
Categories: Solar Economics, Solar News, Commercial Solar, Ranting

SolarCity Litigation Update

As SolarCity prepares to release its financial statement for the first quarter of 2013 next Monday, we came across a couple of interesting items - actually one is interesting the other is more sickening - about litigation involving SolarCity.  The first of these was discussed in their last filing - it will be interesting to see how the second is treated in Monday’s.

SunPower v. SolarCity

We wrote back in February 2012 about a lawsuit filed against SolarCity by SunPower.  In that suit SunPower alleged that a number of its former employees were hired by SolarCity and that they took SunPower’s trade secrets to their new employer.  In addition to naming SolarCity as a Defendant, SunPower also sued the former employees, including Tom Leyden.  According to the Complaint:

35. LEYDEN connected at least three personal USB storage devices within days of leaving SUNPOWER. At least one of these devices was a portable external hard drive with 2 terabytes of storage capacity.

36. The forensic evidence indicated that LEYDEN copied at least thousands of files containing SUNPOWER confidential information and non-confidential proprietary information to these devices. These files included hundreds of quotes, proposals, and contracts, as well as files containing market analysis, forecast analysis, and business analysis.

37. LEYDEN also copied highly confidential data from the SUNPOWER database on www.salesforce.com. This data included information about major SUNPOWER customers accounting for over $100 million of sales throughout 201 I. The data also contained the name of the SUNPOWER employee that was responsible for these major sales. SUNPOWER is informed and believes, and thereon alleges, that this information allowed LEYDEN to recruit SunPower employees, including [others].

We wrote at the time that this sounded like pretty damning evidence against the individual defendants, but far less clear the degree to which SolarCity was liable, if at all.

SolarCity’s 10K, filed in March, in the section concerning Legal Proceedings, provides the conclusion to this saga:

On February 13, 2012, SunPower Corporation filed an action in the United States District Court for the Northern District of California (Civil Action No. 12-00694). The complaint asserts 12 causes of action against six defendants: SolarCity, Thomas Leyden, [others], although only the following six causes of action are asserted against SolarCity: trade secret misappropriation; conversion; trespass to chattels; interference with prospective business advantage; unfair competition; and statutory unfair competition.

Each of Messrs. Leyden, [others], or the Individual Defendants, are former SunPower employees, and at the time SunPower filed the complaint, each was a SolarCity employee…

In September 2011, we hired Mr. Leyden as our vice president of commercial sales; subsequently, his title was changed to vice president, project development. Mr. Leyden’s employment with us ceased on March 2, 2012.

The parties reached a confidential agreement to settle the action on December 31, 2012, and the lawsuit was dismissed with prejudice on January 28, 2013. The terms and amount of the settlement are not material to the Company’s financial position or results of operation.

(SolarCity 10K, filed March 27, 2013 at 36-37; emphasis added.)

Interestingly, while it is easy to find a SolarCity press release announcing Mr. Leyden’s hiring in September 2011, his subseqent departure - less than three weeks after the SunPower suit was filed - appears to have gone unreported.  As for the lawsuit itself, it dragged on for nine more months - until shortly after SolarCity’s IPO on December 13, 2012.

SolarCity v. The United States

So much for the interesting update.  The far more troubling story appears in today’s Wall Street Journal under the title: Solar Installer Sues for U.S. Grant Funds. While we had written before about how the U.S. Treasury was investigating SolarCity’s accounting practices - particularly as to how it was valuing its leased systems for purpose of claiming federal tax benefits - this was the first that we had heard that SolarCity had filed a suit of its own, claiming that the grant payments that it had received were not big enough!

Wow!  Proof of the old adage that the best defense is a good offense.  Let it never be said that the folks running SolarCity - and their lawyers - are timid.  Confronted with an existential threat to their business model - a well deserved threat in the eyes of some observers - SolarCity is turning the tables and suing to get even more money from the Treasury.

Curiously, there is no press release regarding this lawsuit to be found on the SolarCity website.  But there can be no dispute that the outcome of this suit - as opposed to the hushed-up settlement with SunPower - is material to the Company’s ongoing operations. As we reported last October, in its IPO filing SolarCity acknowledged as much, saying:

If it [i.e., the U.S. Treasury] were successful in asserting this action [i.e., that SolarCity was overstating the value of its systems], we could then be required to pay damages and penalties for any funds received based on such misrepresentations (which, in turn, could require us to make indemnity payments to certain of our fund investors). Such consequences could have a material adverse effect on our business, liquidity, financial condition and prospects.

This means that Monday’s filing of quarterly financial results will have to comment on this litigation and it will be interesting to see if the subsequent investor conference call extracts more information from management.  Should make for an interesting news day.

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02/20/12

  10:08:00 am, by Jim Jenal - Founder & CEO   , 419 words  
Categories: Solar Economics

SunPower Sues SolarCity - UPDATED

UPDATE - 5/7/2013 - Read our post detailing how SolarCity and SunPower have settled this litigation.


Just in time for Valentine’s Day, solar powerhouse SunPower sued SolarCity and five of its employees in federal court on Februrary 13.  Alleging violations of the federal Computer Fraud and Abuse Act as well as various state law claims including theft of trade secrets, the Complaint is less of a Valentine and more of an existential threat to SolarCity’s commercial solar division.

The suit alleges that the five employees - all of whom previously worked for SunPower before being employed by SolarCity - illegally accessed SunPower computers and stole tens of thousands of computer files.  Indeed, it appears from the documents filed with the court, that SunPower has some fairly extensive forensic evidence of the theft, noting the specific types of USB drives that were used to acquire the stolen files and where and when the downloading occurred.  Assuming that evidence holds up to review by computer experts, it could be pretty damning against the five former employees.

Far less clear, however, is whether there is actually any case to be made against SolarCity.  Having lititgated a number of corporate espionage cases (in one of my earlier lifetimes), I know that it can be difficult to connect the dots between the illicit conduct of the former employees and their new employer.  It is the classic question of “What did SolarCity know, and when did it know it?“  Interestingly, SolarCity put out a statement regarding the suit, but did not expressly deny any of the allegations. Instead, it simply noted that:

SolarCity upholds high standards in operational integrity for itself and its employees. SolarCity takes trade secret issues very seriously and we will ensure that we act in accordance with the law.

(Curiously, that statement does not appear on the SolarCity website’s list of press releases, but you can find the entirety of the statement here.)

It is unfortunate to see two well-known solar companies involved in such a dispute, but it was probably inevitable.  Indeed, the history of Silicon Valley is replete with similar lawsuits and as the financial stakes in the solar industry increase, the potential for such actions will also increase.

Of course, the public is unlikely to ever learn the whole truth behind this story - as common as such lawsuits are, public trials are a rarity.  Factor in SolarCity’s rumored desire to go forward with an IPO this year and the likelihood of a settlement increases dramatically.

We will keep you posted as new developments unfold.

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Jim Jenal is the Founder & CEO of Run on Sun, Pasadena's premier installer and integrator of top-of-the-line solar power installations.
Run on Sun also offers solar consulting services, working with consumers, utilities, and municipalities to help them make solar power affordable and reliable.

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