As I have noted on this site (most recently here), plaintiffs’ lawyers have launched a plethora of lawsuits against companies whose prospects soared during the initial government shut-down phase of the pandemic, but whose fortunes waned as the pandemic moved into the return-to-work phase. While plaintiffs’ lawyers have been quick to file these kinds of pandemic-related suits, the cases have not always fared particularly well.

Last week, in the latest example of one of these kinds of suits stalling at the initial pleading stage, a federal district court granted the defendants’ motion to dismiss – albeit without prejudice – in a pandemic-related lawsuits that had been filed against the portable energy generation company, Generac Holdings. The court’s February 7, 2025, decision, which can be found here, makes for interesting reading and arguably has important implications for other lawsuits of this type.

Background

Generac Holdings sells a variety of energy-related products, including power generators, solar power storage systems, and other products. At the outset of the pandemic and as government stay-at-home orders went into effect, Generac reported increased product sales, driven largely by orders for its home standby (HSB) generators. Demand for the HSB generators surged, leading to substantial increases in the company’s orders and sales. The company’s share price climbed.

However, as the pandemic progressed, Generac had trouble keeping up with orders, and despite efforts in increase capacity, its sales stalled. As government stay-at-home orders lapsed, its orders decreased and demand for its HSB generators waned. The company’s stock price dropped, ultimately losing almost 80% of its peak value.

The Lawsuit

In December 2022, plaintiff shareholders filed the first of several securities class action lawsuits against Generac and certain of its directors and officers. The cases ultimately were consolidated and the lead plaintiffs filed a 139-page, 316-paragraph consolidated amended complaint.

As later summarized by the Court, the amended complaint alleged that the defendants “defrauded investors by accurately reporting Generac’s historic sales and orders for its products, while failing to disclose three negative ‘trends’: (1) the weakening demand for Generac’s HSB generators; (2) a major defect in Generac’s SnapRS solar energy products; and (3) the ‘overconcentration’ of Generac’s sales of solar energy products through a single distributor, Pink Energy.” The defendants filed a motion to dismiss, arguing that the lead plaintiffs failed to state an actionable claim under any of the three theories.

The Court’s February 7, 2025, Order

In a lengthy and detailed 31-page opinion, Eastern District of Wisconsin Judge Brett H. Ludwig granted the defendants’ motions to dismiss, albeit with leave for the plaintiffs to file an amended complaint. In granting the motion, the Court held that the plaintiffs have not adequately pled falsity and scienter on their primary theory (that is, the theory that the company failed to adequately disclose weakening demand for the HSB generators), and also failed to satisfy the pleading requirements for falsity, scienter, and materiality on their remaining theories.

The Court began its analysis by noting that the plaintiffs’ amended complaint was “unnecessarily lengthy,” citing “virtually every public disclosure Defendants made during the relevant period.” The plaintiffs, the Court said, “appear to be throwing everything at the wall in the hopes they can convince the Court that they have support for their fraudulent nondisclosure theories.” The plaintiffs’ approach, the Court said, “serves only to highlight Lead Plaintiffs’ remarkable failure to identify any statement that was actually false.” But the Court declined to dismiss the Amended Complaint as an improper “puzzle pleading”; rather, the Court was dismissing the Amended Complaint based on its “failure, despite its lengthy and repetitiveness, to offer specific plausible allegations of falsity, scienter, and materiality.”

In holding that the plaintiffs’ had failed to plead falsity with respect to the the HSB generator demand issue, the Court said that the plaintiffs “utterly fail to plausibly suggest that Defendants knew that demand was declining or that they were intentionally misleading investors about customers’ demand for their product,” adding that “given the multitude of accurate statements indicating that demand remained high, Lead Plaintiff’s conclusory assertions to the contrary fail to satisfy their heavy burden.”

With respect to the scienter issue, the Court said “As Defendants repeatedly disclosed to investors, the COVID-19 pandemic created unprecedented and unpredictable demand for HSB generators. [The Defendants] all made public statements to that effect. Without particularized allegations supporting a ‘strong’ inference that [the individual defendants] knew in advance when that demand was waning and deliberately withheld that information from investors, Lead Plaintiffs’ allegations amount to little more than ‘fraud by hindsight’.”

Finally, with respect to the plaintiffs’ “secondary” fraud allegations (concerning the SnapRS product defect and the alleged dependency on Pink Energy), the court also found that the plaintiffs had failed to provide specific, particularized support that defendants were aware of the supposed problems and shortcomings at the time the allegedly misleading statements were made.

In the opinion’s final section, the Court summarizes the case and his conclusions in a way that is worth setting out at length here:

Generac’s stock price skyrocketed during the COVID-19 pandemic as customer interest in HSB generators exploded and investors flocked to Generac as a bright spot in an otherwise troubled economy. As the pandemic waned, and the company was unable to keep up with order, demand dissipated, despite the company’s demonstrated efforts to boost its production capacity…. This led investors to abandon the company, and Generac’s stock price fell. Perhaps unsurprisingly, Lead Plaintiffs and others filed suit against the company and its executive officers, accusing them of securities fraud. But misfortune does not necessarily equate with fraud. Lead Plaintiffs’ overly long Consolidated Amended Complaint is heavy in the sheer number of allegations and in its conclusory accusations of fraud. But the pleading is light on specific plausible factual allegations supporting a claim of actual securities fraud against any of the three Defendants. (Emphasis added.)

Discussion

Judge Ludwig’s opinion is lengthy and detailed. It is worth reading in full and at length. Within the opinion, there are several commonsense propositions stated that are worth highlighting.

First, in an observation that I think should be a requisite guiding principle for any court being asked to consider fraud allegations in a COVID-related securities suit, Judge Ludwig observed that “no reasonable investor would have believed that the surge in demand from the pandemic would continue indefinitely.” This observation seems particularly apt in cases, like this one, brought against companies whose fortunes soared at the outset of the pandemic but whose results slumped as the pandemic evolved.

Second, in his concluding remarks, Judge Ludwig makes an observation that arguably is relevant to just about every securities class action lawsuit; that is, he said that “misfortune does not necessarily equate with fraud.” Merely because a company’s financial results have declined, and/or merely because a company’s share price has resultingly declined, does not mean that the federal securities laws were violated. This statement is a relevant observation with respect to the allegations in a surprising number of securities class action lawsuits.

Some readers may think that this discussion of a pandemic-related lawsuit basically is just old news. And it is true that so far in 2025, there have been no further pandemic-related securities class action lawsuits filed. But according to the Stanford Law School Securities Class Action Clearinghouse website (here), there were 16 pandemic-related securities suits filed in 2024, with another 11 filed in 2023.

Many of the cases filed in the last two years now have or soon will have motions to dismiss pending. In connection with the courts’ consideration of these motions, Judge Ludwig’s observations – and, in particular, his observation that “no reasonable investor would have believed that the surge in demand from the pandemic would continue indefinitely” – will in many instances be relevant, arguably highly relevant.

I would be remiss if I did not note here that Judge Ludwig’s dismissal was without prejudice. The plaintiffs will now have the opportunity to amend their complaint to seek to address the Court’s concerns. Their amended pleading may well be able to survive a renewed dismissal motion. However, given that the amended complaint that Judge Ludwig already considered was very much of a “kitchen sink” complaint, they may face an uphill battle in seeking to address the pleading shortcomings that Judge Ludwig identified.

One final observation about this case. Judge Ludwig was appointed to the federal district court bench by Donald Trump during his first term. I mention this because I have read a lot of speculation about what the implications may be from Trump’s anticipated judicial appointments during his second term. Whatever the implications may be with respect to, say, civil rights or environmental law, the implications with respect to securities law cases, if Judge Ludwig’s approach is any way representative, are likely to be favorable for corporate defendants (and, from a liability standpoint, for their insurers, as well).