On January 6, 2020, solar panel company First Solar announced that it had settled the securities class action lawsuit pending against the company and certain of its executive officers for a payment of $350 million. During the long course of this matter, the case made its way to the Ninth Circuit a couple of times; the case even involved an unsuccessful petition to the U.S. Supreme Court for a writ of certiorari. In addition to its sheer size, there are a number of other interesting aspects to this settlement, as discussed below. The settlement is subject to court approval. The company’s January 6, 2020 press release can be found here.
In February 2012, the company announced that a decrease in fourth quarter 2011 sales purportedly due to revenue recognition timing, and also announced certain charges, including a $164 million charge for warranty payments to replace certain panels that were experiencing power loss.
As discussed here, in March 2012, plaintiff lawyers filed a securities class action lawsuit in the District of Arizona against the company and certain of its directors and officers. The complaint alleged among other things that during the class period the defendants made false or misleading statements or failed to disclose the full impact of certain manufacturing flaws on the company’s earnings; that the company was improperly recognizing revenue concerning certain products in its systems business; and that the company lacked adequate internal controls and financial controls. In August 2012, the plaintiffs filed an amended consolidated complaint. The defendants eventually moved for summary judgment.
In an interesting August 11, 2015 opinion (here), District of Arizona Judge David G. Campbell denied most of the defendants’ summary judgment motion. In doing so, Judge Campbell made a very interesting observation and conclusion. Judge Campbell said that in deciding the summary judgment motion, he had discerned two competing lines of authority in the Ninth Circuit on the loss causation issue. One of the lines of authority, he said, would result in complete summary judgment for the defendants, while the other would result in the denial of summary judgment and a “lengthy and expensive trial.” In ruling on the motion before him, Judge Campbell followed the line of authority that resulted in the denial of summary judgment. However, because of the split of Circuit authority on the issue and the stark effect the split had on the outcome of the case, he certified the issue for immediate interlocutory appeal.
In a unanimous January 31, 2018 per curiam opinion, the Ninth Circuit, ruling on the interlocutory appeal, affirmed the district court’s conclusion, holding that the authority the district court applied (rather than the conflicting authority that would have, as the district court said, resulted in complete summary judgment for the defendants) was the correct authority. The Ninth Circuit’s opinion can be found here.
In August 2018, the defendants filed a petition to the U.S. Supreme Court seeking a writ of certiorari. In their petition, the defendants argued that the split of authority that the district court had identified was not merely an intra-circuit split within the Ninth Circuit, but rather that the split was inter-circuit as well. Unfortunately for the defendants, in a June 24, 2019 order (here), the Supreme Court denied the petition, and the case returned to the district court for further proceedings.
While not directly relevant to the overall story here, the case made a separate trip to the Ninth Circuit on procedural issues, as reflected in the Ninth Circuit’s February 24, 2018 order (here).
With the case back in the district court following the lower courts now-affirmed summary judgment denial, the case headed toward trial. According to news reports, trial in the case was scheduled to begin on January 7, 2020. Instead, on January 6, 2020, the company announced that the case had settled.
Obviously, the most striking thing about the settlement is its sheer size. $350 million is a lot of money. The company’s press release is not specific on this issue, but it sounds like the settlement will be funded entirely by the company. It does not appear that the settlement is to be funded even in part by D&O insurance. Among other things, the press release states that “the Company expects that the above-referenced $350 million will be incorporated into the results of operations and financial condition of the Company for the fiscal year ended December 31, 2019.”
While the settlement is unquestionably massive, it is far from record-setting. As far as I can tell based on data from ISS Securities Class Action Services (about which refer here), a $350 million settlement would rank only as about the 46th largest U.S. securities class action settlement. Big, but not necessarily among the very biggest settlements.
What struck me about this settlement is not just its size. It was the fact that the case could easily have gone the other way entirely. As Judge Campbell said in this order denying summary judgment, the line of authority on loss causation that he did not follow would have resulted in “complete summary judgment for the Defendants.”
The fact that the defendants, faced this week with the daunting prospect of trial, were compelled to pay hundreds of millions of dollars to settle a case that, were different authority applied, would have been snuffed, is truly astonishing.
This case, and in particular its outcome, is a stark reminder that subtle legal issues a case presents can have an enormous impact. All the way between complete eradication of the lawsuit and a courthouse steps agreement to pay hundreds of millions of dollars. Even looking at it from the plaintiffs’ perspective, the contrast is stark – all the way from getting goose egged to securing a massive settlement for the plaintiff class.
Every now and then, our legal system — or at least some of its manifestations — seems very weird to me.
One other very interesting thing about this settlement is that it does not resolve all of the litigation pending against the company on the related factual issues. The company’s January 6 press release expressly states that the class action settlement does not resolve the factually related derivative lawsuit pending in Arizona state court. In addition the class settlement does not resolve a factually related opt-out action that remains pending in the District of Arizona.
In other words, as expensive as this settlement was, the full costs have not yet been fully tallied. Things could get more expensive before all is said and done.