In re Solarcity Corporation Securities Litigation, 274 F. Supp. 3d 972

Background

Plaintiffs (lead plaintiff Fish and a putative class of SolarCity investors) allege SolarCity and four officers made materially false or misleading statements from Q1 2015–Q1 2016 about key operating metrics (Cumulative Customers, Cumulative Energy Contracts, MW Booked/Installed/Deployed, Nominal Contracted Payments), growth guidance, and demand, causing stock losses after corrective revelations.
Plaintiffs' theory: SolarCity inflated metrics by (1) deploying deceptive/over-aggressive sales practices and accepting low‑quality contracts and (2) retaining old/inactive contracts in its databases, so reported metrics were artificially high.
Defendants moved to dismiss under Rule 12(b)(6), arguing statements were (among other things) forward‑looking and protected by the PSLRA safe harbor, nonactionable puffery, or not pleaded false with particularity; they also disputed scienter and that certain individuals were “makers.”
The Court examined confidential witness allegations, SolarCity filings/transcripts (judicially noticed), and PSLRA/9(b) pleading requirements. Plaintiffs pleaded two claims: § 10(b)/Rule 10b‑5 and § 20(a).
The Court granted the motion to dismiss with leave to amend, concluding plaintiffs failed to plead actionable falsity and scienter, that many challenged statements were forward‑looking or puffery, and that Barnard was not alleged to be the “maker” of the challenged public statements.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether challenged statements were materially false or omitted material facts	Metrics and optimistic statements were false because backlog and bookings included contracts obtained by deception, low‑quality, or improperly retained, so metrics were inflated	Statements were forward‑looking guidance or non‑actionable corporate optimism; where present plaintiffs failed to plead specific contemporaneous facts showing falsity	Dismissed: plaintiffs failed to plead falsity with the particularity required by PSLRA/Rule 9(b); many statements fell in safe harbor or were puffery; other alleged misstated metrics lacked specific, contemporaneous support
Applicability of PSLRA forward‑looking safe harbor and adequacy of cautionary language	Guidance relied on reported metrics that were allegedly false, so safe harbor inapplicable	Guidance and demand projections were forward‑looking and accompanied by meaningful cautionary language disclosed in letters/calls	Held safe harbor applied to multiple guidance/demand statements (and plaintiffs abandoned some guidance claims); cautionary language was sufficiently similar to approved formulations
Scienter (mental state) — whether pleadings create a strong inference of fraudulent intent	Confidential witnesses and core operations theory show management knew backlog was inflated and demand declining	CW accounts were generalized, not tied to defendants' contemporaneous knowledge; lack of insider sales undermines motive inference	Dismissed: scienter not plead cogently; CW testimony too vague/non‑contemporaneous and core‑operations allegations insufficient to establish actual knowledge or deliberate recklessness
Whether Barnard and others are liable as makers or control persons	Barnard (as CRO) directed sales practices and assembled metrics so is liable; § 20(a) control liability follows	Janus: only the person with ultimate authority over content/communication is a “maker”; Barnard not alleged to have that authority or to have authored/chosen the public statements; no primary violation pleaded so § 20(a) fails	Barnard not a "maker" under Janus; § 20(a) claim dismissed because no adequately pleaded primary violation

Key Cases Cited

Daniels‑Hall v. Nat’l Educ. Ass’n, 629 F.3d 992 (9th Cir. 2010) (incorporation by reference and judicial notice doctrines for documents relied on in complaint)
Marder v. Lopez, 450 F.3d 445 (9th Cir. 2006) (treating incorporated documents as part of the complaint on a motion to dismiss)
Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (U.S. 2011) (the “maker” of a statement is the person with ultimate authority over its content and communication)
Police Retirement Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051 (9th Cir. 2014) (forward‑looking statements analysis and puffery guidance)
In re Cutera, Inc. Sec. Litig., 610 F.3d 1103 (9th Cir. 2010) (PSLRA safe harbor and puffery doctrines)
Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) (heightened PSLRA/Rule 9(b) falsity and scienter pleading standards; CW evidence limitations)
Or. Pub. Emps. Ret. Fund v. Apollo Group Inc., 774 F.3d 598 (9th Cir. 2014) (applying PSLRA/Rule 9(b) to securities fraud pleadings)
Berson v. Applied Signal Tech., Inc., 527 F.3d 982 (9th Cir. 2008) (backlog misstatement theory where contemporaneous events made revenue impossible)
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (U.S. 2011) (no duty to disclose every material fact; omissions actionable only if misleading)
Basic Inc. v. Levinson, 485 U.S. 224 (U.S. 1988) (materiality and total mix standard)
Ronconi v. Larkin, 253 F.3d 423 (9th Cir. 2001) (requirement for specific contemporaneous facts to show deliberate recklessness)
Reese v. Malone, 747 F.3d 557 (9th Cir. 2014) (standard for strong inference of scienter)
In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869 (9th Cir. 2012) (insider trading and stock transactions as evidence for scienter)