Jaszczyszyn v. SunPower Corporation

Background

This putative securities class action concerns allegations that SunPower Corporation and executives Peter Faricy and Manavendra S. Sial misled investors about problems affecting connectors and other components in SunPower’s commercial solar businesses. The complaint challenged statements made during SunPower’s 2021 financial announcements and earnings calls, as well as risk disclosures in its quarterly reports.

SunPower announced on January 20, 2022, that it would miss financial guidance because of cracking problems in products used across its commercial businesses and would take a $31 million charge to replace affected connectors. The complaint alleged that the defendants had known about the defects and related costs earlier, but had described those risks as hypothetical. The complaint also alleged a claim under Section 20(a) of the Securities Exchange Act against Faricy and Sial based on their alleged control of a person liable under the securities laws.

Judicial notice and incorporation by reference

The court granted defendants’ requests for judicial notice and incorporation by reference. It considered the submitted materials for the limited purpose of determining what information SunPower had disclosed to the market and evaluating the challenged statements in context.

Section 10(b) claim

The court applied Federal Rule of Civil Procedure 12(b)(6), which requires dismissal when a complaint does not adequately state a claim for relief. Because the complaint alleged securities fraud, it also had to satisfy the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act. Those requirements called for particularized facts supporting both falsity and a strong inference that the defendants acted with the required fraudulent state of mind, known as scienter.

The court held that the complaint failed to allege falsity. It did not adequately identify when the defendants learned of the connector defects, how broadly they understood the problem to extend, or when they knew the company would face millions of dollars in replacement costs. The court rejected the theory that the existence of defects in products manufactured since 2019 showed that SunPower knew about those defects since 2019. The analyst reports cited in the complaint instead suggested that SunPower discovered the problem during due diligence connected to a possible sale of its commercial business, after October 5, 2021.

The court also found that the complaint lacked sufficient facts supporting scienter. Faricy’s statement that he would conduct a “deep dive” into the company’s businesses did not show that he knew about the connector defects. The commercial business’s contribution to SunPower’s revenue did not, by itself, establish that Faricy or Sial had specific information about the defect. The timing of the challenged statements and later disclosures also did not establish scienter without facts showing that the defendants knew of the defect when they spoke. The complaint did not allege confidential-witness accounts, contradictory internal reports, red flags, post-class-period admissions, or insider stock sales supporting the required inference.

Puffery and forward-looking statements

The court separately concluded that several statements were inactionable corporate puffery, meaning generalized optimism that would not reasonably induce investor reliance. These included statements that SunPower had achieved “solid” results, was “on track” to meet its financial outlook, was “well positioned” for future growth, and had “found our footing.”

The court also held that several statements were forward-looking and protected by the Private Securities Litigation Reform Act’s safe-harbor provision. The statements concerned SunPower’s financial guidance, future profitability, and future business performance. The court found that SunPower had provided meaningful cautionary language warning about supplier failures, product defects, repair and replacement costs, warranty issues, and possible effects on the company’s finances and operations. Because the complaint did not adequately allege that SunPower already knew those risks had materialized when the warnings were issued, the court held that the safe harbor applied to the identified forward-looking statements.

Section 20(a) claim

The court dismissed the Section 20(a) claim against Faricy and Sial because a control-person claim cannot proceed without a primary securities-law violation.

Disposition

The court granted defendants’ motion to dismiss with leave to amend. Any amended complaint had to be filed by August 15, 2024. The court further ordered that no additional parties or claims could be added without the court’s permission or a stipulation by defendants.