In re Sunedison, Inc.
| Decision Date | 06 March 2018 |
| Docket Number | 16–mc–2742 (PKC),16–md–2742 (PKC),16–cv–7917 (PKC) |
| Citation | 300 F.Supp.3d 444 |
| Parties | IN RE: SUNEDISON, INC. SECURITIES LITIGATION |
| Court | U.S. District Court — Southern District of New York |
SunEdison, Inc. ("SunEdison," or the "Company") was briefly one of the world's largest renewable-energy companies. As described in the Second Amended Consolidated Securities Class Action Complaint (the "Complaint"), from 2014 to 2016, SunEdison's management made a series of disastrous and short-sighted business decisions, many of which grew out of urgent liquidity needs caused by the Company's expansion. It filed for Chapter 11 bankruptcy protection in 2016,
According to plaintiffs, while SunEdison scrambled to raise financing, defendants made a series of material misstatements and omissions about the true state of affairs. In August 2015, SunEdison raised $650 million through an offering of preferred shares (the "Preferred Offering"). Plaintiffs allege that in connection with the Preferred Offering, material misstatements and omissions were made or approved by management, board members and underwriters, thereby violating sections 11 and 12(a)(2) of the Securities Act of 1933, 15 U.S.C. §§ 77k, 77l (the "Securities Act").
Plaintiffs also allege that from August 7, 2014 through April 4, 2016 (the "relevant period"), Ahmad Chatila, who was SunEdison's Chief Executive Officer, and Brian Wuebbels, who was its Chief Financial Officer, knowingly made material misstatements and omissions about SunEdison's liquidity and financial strength, resulting in the artificial inflation of the Company's share price. They allege that Chatila and Wuebbels violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b–5 promulgated thereunder, 17 C.F.R. § 240.10b–5.
All defendants move to dismiss plaintiffs' Securities Act claims, on the basis that the Complaint fails to allege any material misstatement or omission in the offering documents connected to the Preferred Offering. Separately, Chatila and Wuebbels move to dismiss all claims brought under section 10(b) and Rule 10b–5, and urge both that the Complaint fails to allege that they made any material misstatements and omissions and that it fails to raise a cogent and compelling inference of scienter. Finally, defendant KPMG, LLP ("KPMG") moves to dismiss the Securities Act claim brought against it in its capacity as SunEdison's external auditor.
Plaintiffs have identified dozens of statements that they believe are actionable. As will be explained, in nearly every instance, the Complaint has failed to allege that these statements omitted or misstated material information. Corporate mismanagement is not a violation of the federal securities laws. Both the Securities Act and the Exchange Act require factual allegations that show a material misstatement or omission. The Private Securities Litigation Reform Act ("PSLRA") also requires claims under section 10(b) and Rule 10b–5 to be supported by facts that raise a cogent and compelling inference of scienter.
On plaintiffs' Securities Act claims, the Court concludes that the Complaint has alleged that defendants omitted material information about the existence of an August 2015 margin call on a margin loan by the Company, and omitted the existence of a high-interest loan that the Company allegedly took to from Goldman Sachs in order to pay down that margin call. The Court also concludes that, for the purposes of the Securities Act claims, the Company's descriptions of lender recourse available on certain debts owed by SunEdison were so contradictory and confusing that they amounted to a material misstatement.
As to plaintiffs' fraud claims under section 10(b) and Rule 10b–5 of the Exchange Act, the Complaint has adequately alleged that defendant Chatila recklessly misrepresented the projected point in time at which SunEdison expected to generate cash. The Complaint otherwise fails to identify a material misstatement or omission that was made with scienter. The Complaint repeatedly fails to connect allegations of corporate mismanagement, including the purported looting of a SunEdison subsidiary, with a reckless misstatement or omission made to investors. With the exception of Chatila's projection about cash generation, the motion to dismiss plaintiffs' claims under section 10(b) and Rule 10b–5 is therefore granted.
Lastly, KPMG's motion to dismiss is granted in full. The Complaint has failed to plausibly allege that KPMG misrepresented its compliance with relevant accounting standards when it audited the Company's financial reporting and opined on its financial controls, as set forth in its Form 10–K for fiscal year 2014.
The Municipal Employees' Retirement System of Michigan ("MERS") is lead plaintiff in this action. (Compl't ¶ 1.) MERS manages the retirement and employee-benefit plans of approximately 800 municipalities in Michigan. (Compl't ¶ 18.) It holds $9.3 billion in assets. (Compl't ¶ 18.) MERS purchased SunEdison's common stock during the relevant period. (Compl't ¶ 18.) The second named plaintiff, the Arkansas Teacher Retirement System ("ATRS"), manages retirement benefits for Arkansas's public-school employees, and has $15.5 billion in total assets. (Compl't ¶ 19.) ATRS purchased shares in SunEdison's Preferred Offering. (Compl't ¶ 19.) MERS and ATRS purport to bring claims on behalf of those who purchased common stock in SunEdison, sellers of publicly traded put options of SunEdison common stock, and purchasers of preferred SunEdison shares in the August 2015 Preferred Offering. (Compl't ¶ 1, 535.)
During the relevant period, defendant Ahmad Chatila was the president and CEO of SunEdison, as well as a director of the Company. (Compl't ¶ 21.) He was also chairman of the board of SunEdison's two "YieldCo" subsidiaries, Terraform Power ("TERP") and Terraform Global ("Global"). (Compl't ¶ 21.) Defendant Brian Wuebbels was Executive Vice President, Chief Administrative Officer and CFO of SunEdison. (Compl't ¶ 22.) Wuebbels also was president and CEO of both TERP and Global from November 2015 through March 30, 2016. (Compl't ¶ 22.) Plaintiffs' claims under section 10(b) and Rule 10b–5 are brought only against Chatila and Wuebbels.
Additional defendants are alleged to have violated the Securities Act. Plaintiffs bring Securities Act claims against members of SunEdison's board of directors at the time of the Preferred Offering (the "Director Defendants"),1 the underwriters of the preferred offering (the "Underwriter Defendants"),2 and KPMG, the Company's outside auditor. (Compl't ¶¶ 431–51.)
SunEdison itself is not a defendant in this case, and, as of the date of this Memorandum and Order, is covered by the Bankruptcy Code's automatic stay provision, 11 U.S.C. § 362. (Compl't ¶ 24.)
During the relevant period, SunEdison was one of the world's largest renewable energy companies. (Compl't ¶ 25.) It maintained two separate business segments. (Compl't ¶ 25.) The first segment, known as a "DevCo," developed new renewable energy projects. (Compl't ¶ 26.) The second segment is known as a "YieldCo." (Compl't ¶ 25.)
The YieldCos included two subsidiaries under SunEdison's control: Terraform Power ("TERP") and Terraform Global ("Global"). (Compl't ¶¶ 2, 25, 27.) SunEdison formed TERP in July 2014. (Compl't ¶ 28.) TERP's business focused on economically developed energy markets, including the United States. (Compl't ¶ 28.) SunEdison formed Global in July 2015, with the intent that its business would focus on developing markets including Brazil, India and China. (Compl't ¶ 28.)
The two YieldCos were publicly traded companies that owned completed energy facilities.3 (Compl't ¶ 27.) As the DevCo, SunEdison developed new energy projects, which, once completed, it sold to the YieldCos.
(Compl't ¶ 27.) SunEdison exercised control over TERP and Global through ownership of more than 90 percent of their voting shares and by carrying out day-to-day management, accounting and regulatory duties. (Compl't ¶ 28.)
SunEdison's separation of its DevCo business and its two YieldCo spinoffs was explained as a measure that would bring favorable returns to investors. (Compl't ¶ 30.) The Company's DevCo business expected to generate a steady cash flow from the sale of its completed projects to the YieldCos. (Compl't ¶ 30.) As public companies, the YieldCos would purchase the DevCo's developments using money raised in stock offerings. (Compl't ¶ 30.) SunEdison also believed that because the YieldCos functioned as captive buyers for its projects, it could reduce financing costs and "get superior value for those projects." (Compl't ¶ 30.) In addition, as a major shareholder of the YieldCos, SunEdison would profit from any dividends that they issued. (Compl't ¶ 30.)
Plaintiffs allege that after SunEdison adopted its two-tiered, DevCo and YieldCo business model, management undertook a series of disastrous measures that ultimately drove the Company to bankruptcy. The Court will discuss in detail the defendants' allegedly material misstatements and omissions below, but an overview of SunEdison's decline is useful context for plaintiffs' theories of liability.
From 2013 to 2015, SunEdison pursued an aggressive growth strategy, during which its debt ballooned from $2.6 billion to $10.7 billion. (Compl't ¶ 32.) The Company went on an acquisition spree. In the summer of 2015, SunEdison announced eleven major transactions, a partial list of which includes the purchase of companies such as Latin America Power Holding, B.V. ("Latin American Power") and Continuum Wind Energy Limited; acquisition of wind-power plants in Idaho and Oklahoma; acquisition of a solar-panel installer in the United Kingdom; and construction of a wind-power project in Maine. (Compl't ¶¶ 42–43.) Not all...
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