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July 5 — Investors can't proceed with claims alleging that First Solar Inc. directors and officers breached their fiduciary duties by failing to disclose the impact of two manufacturing defects, the U.S. District Court for the District of Arizona ruled June 30 ( In re First Solar Derivative Litig., 2016 BL 213443, D. Ariz., No. CV-12-00769-PHX-DGC, 6/30/16 )
In their lawsuit, the plaintiff investors charged that the defendants misrepresented the full impact of two defects that caused the Delaware corporation, one of the world's largest producers of solar panels, to incur nearly $254 million in warranty and related charges.
Judge David Campbell held that the plaintiffs failed to sufficiently plead that a pre-suit demand on First Solar's board to take legal action would have been excused. Applying Delaware law, the court found that the plaintiffs didn't plead that a majority of First Solar directors faced a substantial likelihood of personal liability from the alleged disclosure failures.
Under Delaware law, investors that file derivative lawsuits must show that they made a pre-suit demand on the board of the company on whose behalf the case is brought, unless doing so would be futile.
According to the court's decision, the company in March 2009 discovered a low-power-modules (LPM) defect that caused certain of its solar panels to experience power loss within months of installation. The company's board learned about a second defect in April 2011 that caused certain panels to experience problems in hot climates.
The court said there weren't facts to show that the directors acted in bad faith in failing to disclose information about the defects.
The court distinguished the case from other decisions in which demand was excused based on allegations that the board knew of and did nothing about the alleged illegal activity.
Specifically, Campbell found that each defect was “discrete, and dealt with relatively quickly.” Just over a year had passed before the company learned of and disclosed the LPM defect, and an even shorter time—10 months—passed between discovery and disclosure of the “hot climate” issue, he said.
There is an ongoing securities fraud action, now on appeal to the U.S. Court of Appeals for the Ninth Circuit, as to whether First Solar and certain top executives intentionally made misleading statements about the defects (12 CARE 1083, 9/5/14).
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