Global Project Finance > Tax Equity Telegraph > Class Action Bar Targets Residential Solar
05 Apr '13

SunRun, Inc. (“SunRun”) has been targeted by a consumer class action lawsuit. Mr. Shawn Reed of California is the named plaintiff in the complaint against SunRun. Mr. Reed and his lawyers, Hagens Berman Sobol Shapiro LLP, seek similarly situated consumers to be designated as a “class” so that they can sue SunRun in a single action. The class action complaint is available here.  Akin Gump is not involved in this lawsuit.

The lawsuit has three allegations:

1. It was deceptive for SunRun to include predictions of increased energy prices in California in its marketing materials. SunRun’s marketing materials referenced a 6 percent annual average increase in electricity prices nationwide over the last 30 years. The plaintiff asserts that this fact confused him and caused him to assume that prices would increase in California to make his investment in a home solar system more lucrative.

2. The plaintiff was misled to believe that, if he sold his house and the buyer did not want to continue to pay for the solar system, SunRun would come and remove the system, and he would have no further liability. This is based on SunRun’s contract referencing the fact that, at the end of the stipulated term, SunRun would come and remove the system at no cost to the homeowner (if the homeowner does not purchase the system or renew the contract). The plaintiff thought this provision also applied to a termination during the term, despite there being an express provision in the contract that a termination during the term accelerated the obligation to make the payments due for the remainder of the term.

3. At the time the system was installed on the plaintiff’s home, SunRun did not have a California contractor’s license.  SunRun started installing solar systems in 2007, but did not obtain a California contractor’s license until February 2012.

I find the first two allegations to be preposterous as claims for damages. Projecting future price increases is a standard marketing technique in the home real estate industry and the securities industry.  For instance, stockbrokers and financial advisors frequently reference the tremendous appreciation in stock prices since 1929 as a justification for investing in equities. Similarly, it is common for real estate agents to pitch the increase in home prices since the 1950s. No prudent person would interpret these facts as a guarantee of future appreciation or believe he or she could sue his or her stockbroker or real estate agent if prices did not increase. A prudent person should have also been capable of realizing the same is true of electricity prices.

As to the second allegation, everyone knows that, if you lease a car, even if you do not want the car, you are still obligated under the lease. During the term, you cannot just return it to the dealership and wash your hands of it. Similarly, a prudent person should realize that, if he or she leases a solar system and then sells the house upon which it is installed, either the buyer will need to be an assignee of the lease and accept responsibility for the payments for the solar system or the solar company will be due a termination payment. Further, financing a solar system is a relatively large-ticket and complex consumer transaction. Consumers should be expected to either have sufficient sophistication to understand what they are signing or realize that they need a lawyer, and it is not realistic that the contracts should be written on a fifth-grade reading level in a manner to assuage every possible misimpression.

To be fair, the complaint also alleges that SunRun’s marketing representatives suggested to the plaintiff that, upon selling his house, he had no further obligation for the solar lease. That is a difficult allegation to prove, since it is a classic “he said, she said” situation. The plaintiff will insist the representative said such a thing; SunRun will insist that its representatives are clearly trained to not say such things. Importantly, such issues are not appropriate for class action litigation, which is what the plaintiff and his counsel are attempting to initiate here, because each plaintiff/homeowner would have to testify and each marketing representative would have to testify.  Class action cases are supposed to be based on relatively common facts that do not require testimony from each plaintiff (e.g., airline passengers all of whom were charged a questionable fee in the price of their tickets). 

I cannot offer much insight as to the third allegation. The plaintiff’s counsel makes an interesting point that SunRun started operating in California in 2007 and only obtained a contractor’s license in 2012.  Oftentimes, solar companies contract out the installation. I have no experience in contract licensing law in California, but it seems plausible to me that there may have been a reasonable analysis that it was sufficient if the installer who actually did the work was licensed. SunRun may have then decided to obtain a contractor’s license as a “belt and suspenders” measure.

Finally, in my experience, most California consumers who leased solar equipment had their utility bills decline by more than their lease payments (i.e. “net-net” they saved money).  Solar companies generally try to structure their leases to show some savings even at the outset.  If that is true in this instance, then Mr. Reed has no damages, and the case should be dismissed.

Unfortunately, this lawsuit will likely start a trend, and we will see similar actions with respect to the marketing materials and contract termination provisions filed against SolarCity, Sungevity and the other residential solar players. We can only hope that the courts apply an appropriate standard of business sophistication to homeowners who enter into contracts for expensive and complex solar systems, and that these lawsuits do not cause a drag on an industry that is both improving the environment and creating blue-collar jobs.