Zornoza v. Terraform Global, Inc.

• Decision Date: 09 December 2019
• Docket Number: 16-md-2742 (PKC),18-cv-11617 (PKC)
• Parties: Carlos Domenech ZORNOZA, Plaintiffs, v. TERRAFORM GLOBAL, INC., Terraform Power, Inc., Ahmad Chatila, Brian Wuebbels, Emmanuel Hernandez and Peter Blackmore, Defendants.
• Court: U.S. District Court — Southern District of New York

419 F.Supp.3d 715

Carlos Domenech ZORNOZA, Plaintiffs,

v.TERRAFORM GLOBAL, INC., Terraform Power, Inc., Ahmad Chatila, Brian Wuebbels, Emmanuel Hernandez and Peter Blackmore, Defendants.

16-md-2742 (PKC)

18-cv-11617 (PKC)

United States District Court, S.D. New York.

Signed December 9, 2019

Kevin J. O'Connor, James L. Tuxbury, Rhiannon A. Campbell, Hinckley, Allen & Snyder, LLP, Boston, MA, Nicholas Wyckoff Woodfield, Robert Scott Oswald, The Employment Law Group, P.C., Washington, DC, Victoria Pauline Lane, Greenberg Traurig, LLP, Albany, NY, for Plaintiffs.

Joel M. Cohen, Darcy Caitlyn Harris, Gabrielle Frances Levin, Gibson, Dunn & Crutcher, LLP, Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP, James H.R. Windels, Sheila Ruby Adams, Davis Polk & Wardwell LLP, Bradley Reid Wilson, Wachtell, Lipton, Rosen & Katz, New York, NY, Timothy J. Perla, Wilmer Cutler Pickering Hale and Dorr, Boston, MA, Jessica Reich Baril, Munger, Tolles & Olson, Los Angeles, CA, Skylar D. Brooks, Munger, Tolles & Olson LLP, San Francisco, CA, for Defendants.

OPINION AND ORDER

CASTEL, U.S.D.J.

Plaintiff Carlos Domenech Zornoza alleges that he was terminated because he disclosed what he believed were material misrepresentations about the liquidity of non-party SunEdison, Inc. ("SunEdison," or the "Company"). He brings a claim of whistleblower retaliation under the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1514A, and claims for breach of the implied covenant of good faith and fair dealing against defendants Terraform Global, Inc. ("Global") and Terraform Power, Inc. ("TERP").

Defendants Ahmad Chatila and Brian Wuebbels move to dismiss the retaliation claim against them for lack of personal jurisdiction under Rule 12(b)(2). They urge that the Complaint does not make out a prima facie case that the claim arises out of their activities in Maryland, where this case was originally filed prior to transfer by the Judicial Panel on Multidistrict Litigation.

Defendants TERP, Global, Wuebbels, Peter Blackmore and Emmanuel Hernandez separately move to dismiss the Complaint for failure to state a claim pursuant to Rule 12(b)(6), Fed. R. Civ. P. Blackmore and Hernandez argue that the text of section 1514A lists specific categories of persons who may be liable on a claim of whistleblower retaliation, and that because corporate directors are omitted from the list, Domenech fails to plausibly allege a claim against them. Wuebbels likewise urges that he cannot be liable in his capacity as a director, and also argues that any claim against him in his capacity as a SunEdison officer should be dismissed because he was a "peer" of Domenech. Separately, TERP and Global contend that due to certain contractual language, the Complaint does not plausibly allege causation and damages against them for the retaliation claim. They also urge that because the express terms of certain stock agreements govern Domenech's compensation in the event of termination, he has failed to plausibly allege claims for the breach of the implied covenant of good faith and fair dealing.

For the reasons that will be explained, the Rule 12(b)(2) motion will be denied. The Rule 12(b)(6) motion is granted as to the Sarbanes-Oxley claims against Hernandez and Blackmore and the claims asserting breaches of the covenant of good faith and fair dealing against TERP and Global. The remainder of the Rule 12(b)(6) motion is denied.

BACKGROUND.

A. SunEdison's Formation of TERP and Global, and Domenech's Position at the Two "Yieldcos."

Around 2013, non-party SunEdison transitioned from the manufacture of semiconductors toward a business model centered on developing renewable-energy projects. (Compl't ¶¶ 31-32.) It relied on short-term financing to develop renewable energy-power plants. (Compl't ¶ 32.) As part of this model, SunEdison sponsored "yieldcos" that purchased SunEdison's finished energy plants and then operated the plants to produce cash dividends to yieldco investors. (Compl't ¶ 33.)

Global and TERP were both formed by SunEdison to operate as yieldcos. (Compl't ¶¶ 34-35.) TERP bought and operated renewable energy projects in North America, Chile and the United Kingdom, whereas Global bought and operated renewable energy products in emerging markets. (Compl't ¶¶ 34-35.) SunEdison maintained "significant equity stakes" in Global and TERP, and held voting control over both. (Compl't ¶ 36.)

Domenech is the former President and CEO of Global and TERP, a former member of the boards of both companies, and a former executive vice-president of SunEdison. (Compl't ¶ 17.) In late 2013, Chatila, who was President and CEO of SunEdison and a member of its board, asked Domenech to act as CEO and president of TERP, with compensation to include specified grants of TERP shares. (Compl't ¶¶ 20, 38-39.) Under the arrangement, which was memorialized in a Restricted Stock Agreement of February 24, 2014, if Domenech's employment was terminated without cause, 50 percent of his unvested shares would immediately vest. (Compl't ¶ 40.) According to the Complaint, Chatila orally told Domenech multiple times that he would "ensure" that the SunEdison board would accelerate vesting 100% of Domenech's shares in the event Domenech was terminated for any reason. (Compl't ¶ 40.)

Domenech agreed to take the position. (Compl't ¶ 41.) He alleges that TERP's initial public offering was "a tremendous success" and the company thrived under his leadership. (Compl't ¶ 42.)

According to the Complaint, in light of TERP's success, SunEdison planned to launch Global, the second yieldco. (Compl't ¶ 43.) Chatila asked Domenech to sit on Global's board of directors and later asked him to be Global's president and CEO. (Compl't ¶¶ 44-45.) Chatila offered Domenech two grants of shares in Global through a long-term incentive plan. (Compl't ¶ 46.) The shares were to vest in tranches annually over a four-year period, but the committee overseeing Global's long-term incentive plan had authority to accelerate vesting at any time for any reason. (Compl't ¶ 47.) Chatila told Domenech that Global's board could accelerate vesting if his employment was terminated without cause, or if there was reason to believe that termination was being considered. (Compl't ¶ 48.) Domenech asserts that in light of Chatila's statements, he agreed to be Global's president and CEO. (Compl't ¶ 49.)

B. Domenech's Growing Alarm over Public Statements Concerning SunEdison's Liquidity.

The crux of Domenech's complaint is that, as SunEdison struggled to maintain adequate liquidity over the course of 2015, he became increasingly alarmed about the Company's public statements and internal understanding of a growing liquidity crisis. As described by Domenech, his concern was well-known within SunEdison, including by defendants Blackmore, Chatila, Hernandez and Wuebbels. Domenech alleges that instead of attempting to address the growing liquidity problem, defendants orchestrated a scheme to terminate him from his positions at the two yieldcos.

According to the Complaint, in mid-September 2015, Domenech first raised concerns with Chatila about the "coherence and transparency" of Chatila's recent presentations about SunEdison's liquidity, including a public statement predicting imminent positive cash flows, which was made shortly after internal reports predicted that SunEdison would lose $425 million in the fourth quarter of 2015 and $32 million in the first quarter of 2016. (Compl't ¶¶ 51-53.)

Chatila agreed that Domenech would "co-lead" a working group with defendant Wuebbels, which was to examine the "end-to-end cash cycle" to assess SunEdison's cash position and financing needs. (Compl't ¶ 54.) At that time, Wuebbels was SunEdison's CFO and executive vice president, as well as a director of both TERP and Global. (Compl't ¶ 21.) On October 5, 2015, Domenech told Chatila that SunEdison had an estimated $342 million in available, unrestricted cash, but cautioned that the figure was an approximation. (Compl't ¶ 56.)

According to Domenech, on the following day, Chatila and Wubbels made presentations to banks claiming that SunEdison had $1.38 billion in available cash. (Compl't ¶ 57.) He immediately told Chatila and Wuebbels that this was a misrepresentation, one that could potentially violate securities laws. (Compl't ¶ 58.) The Complaint alleges that on October 7, Wuebbels publicly stated that SunEdison had $1.4 billion in available cash. (Compl't ¶ 59.)

That same day, Domenech met with non-party Steve Tesoriere, who sat on the boards of SunEdison, TERP and Global. (Compl't ¶ 60.) Domenech alleges that he told Tesoriere that Chatila and Wuebbels were publicly misrepresenting SunEdison's liquidity, potentially in violation of securities law, and suggested that the SunEdison board should begin an independent review of company liquidity and the statements of Chatila and Wuebbels. (Compl't ¶ 60.) The next day, Domenech convened a call with Tesoriere, defendant Hernandez (then the chairman of the SunEdison board) and non-party Francisco Perez Gundin, the Chief Operating Officer of SunEdison, in which Domenech restated concerns about SunEdison's liquidity and public statements. (Compl't ¶¶ 61-62.)

According to the Complaint, the SunEdison board then directed Chatila and Wuebbels to make a presentation to the board about SunEdison's liquidity, but did not take other steps, like hiring independent financial and accounting advisors. (Compl't ¶¶ 62-64.) Domenech alleges that he continued to raise his concerns, but that no other actions were taken. (Compl't ¶¶ 64-65.)

The Complaint alleges that in mid-October 2015, Chatila and Wuebbels proposed a transaction wherein a Global subsidiary would purchase the project of a SunEdison subsidiary for $49 million. (Compl't ¶ 66.) Domenech alleges that he opposed the transaction for business reasons, including that the project would not have a high enough rate of return, was in early development and did not fit into Global's geographic criteria. (Compl't...