Commitments and Contingencies
|9 Months Ended|
Sep. 30, 2020
|Commitments and Contingencies Disclosure [Abstract]|
|Commitments and Contingencies||Commitments and Contingencies
Letters of Credit
As of September 30, 2020 and December 31, 2019, the Company had $25.9 million and $20.1 million, respectively, of unused letters of credit outstanding, which carry fees of 2.13% - 3.25% per annum and 1.25% - 3.25% per annum, respectively.
Operating and Finance Leases
The Company leases real estate under non-cancellable-operating leases and equipment under finance leases.
The components of lease expense were as follows (in thousands):
Other information related to leases was as follows (dollars in thousands):
Future minimum lease commitments under non-cancellable leases as of September 30, 2020 were as follows (in thousands):
The Company entered into purchase commitments, which have the ability to be canceled without significant penalties, with multiple suppliers to purchase $77.8 million of photovoltaic modules, inverters and batteries by the end of 2022.
The Company accrues warranty costs when revenue is recognized for solar energy systems sales, based on the estimated future costs of meeting its warranty obligations. Warranty costs primarily consist of replacement costs for supplies and labor costs for service personnel since warranties for equipment and materials are covered by the original manufacturer’s warranty (other than a small deductible in certain cases). As such, the warranty reserve is immaterial in all periods presented. The Company makes and revises these estimates based on the number of solar energy systems under warranty, the Company’s historical experience with warranty claims, assumptions on warranty claims to occur over a systems’ warranty period and the Company’s estimated replacement costs.
Commercial ITC Indemnification
The Company is contractually committed to compensate certain investors for any losses that they may suffer in certain limited circumstances resulting from reductions in Commercial ITCs. Generally, such obligations would arise as a result of reductions to the value of the underlying solar energy systems as assessed by the Internal Revenue Service (the “IRS”). At each balance sheet date, the Company assesses and recognizes, when applicable, the potential exposure from this obligation based on all the information available at that time, including any audits undertaken by the IRS. One of the Company's investors is being audited by the IRS. Since this audit is ongoing, the Company is unable to determine the potential tax liabilities as of the filing date of this Quarterly Report on Form 10-Q. The maximum potential future payments that the Company could have to make under this obligation would depend largely on the difference between the prices at which the solar energy systems were sold or transferred to the Funds (or, in certain structures, the fair market value claimed in respect of such systems (referred to as "claimed values")) and the eligible basis determined by the IRS. The Company set the purchase prices and claimed values based on fair market values determined with the assistance of an independent third-party appraisal with respect to the systems that generate Commercial ITCs that are passed-through to, and claimed by, the Fund investors. In April 2018, the Company purchased an insurance policy providing for certain payments by the insurers in the event there is any final determination (including a judicial determination) that reduced the Commercial ITCs claimed in respect of solar energy systems sold or transferred to most Funds through April 2018, or later, in the case of Funds added to the policy after such date. In general, the policy indemnifies the Company and related parties for additional taxes (including penalties and interest) owed in respect of lost Commercial ITCs, gross-up costs and expenses incurred in defending such claim, subject to negotiated exclusions from, and limitations to, coverage.
The Company is subject to certain legal proceedings, claims, investigations and administrative proceedings in the ordinary course of its business. The Company records a provision for a liability when it is both probable that the liability has been incurred and the amount of the liability can be reasonably estimated. These provisions, if any, are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Depending on the nature and timing of any such proceedings that may arise, an unfavorable resolution of a matter could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period.
On April 8, 2019, a putative class action captioned Loftus et al. v. Sunrun Inc., Case No. 3:19-cv-01608, was filed in the United States District Court, Northern District of California. The complaint generally alleges violations of the Telephone Consumer Protection Act (the “TCPA”) on behalf of an individual and putative classes of persons alleged to be similarly situated. Plaintiffs filed a First Amended Complaint on June 26, 2019, adding defendant MediaMix 365, LLC, also asserting individual and putative class claims under the TCPA, along with claims under the California Invasion of Privacy Act. In the amended version of their Complaint, plaintiffs seek statutory damages, equitable and injunctive relief, and attorneys’ fees and costs on behalf of themselves and the absent purported classes. Most, if not all, of the claims asserted in the lawsuit relate to activities allegedly engaged in by third-party vendors, for which the Company denies any responsibility. The vendors are contractually obligated to indemnify the Company for losses related to the conduct alleged. While the Company believes that the claims against it are without merit, in view of the cost and risk of continuing to defend the action, it has reached an agreement with plaintiffs to settle the lawsuit on a class-wide basis for $5.5 million, which was accrued as of June 30, 2020, in exchange for a release of all claims that were or could have been asserted in the litigation. The settlement is subject to court approval. Preliminary approval was granted on September 25, 2020 and the court has scheduled the final approval hearing for May 6, 2021.
Litigation Relating to the Vivint Solar Inc. Merger
Following the announcement of the merger agreement on July 6, 2020, twelve lawsuits were filed by purported stockholders of Vivint Solar, Inc. (“Vivint Solar”) and Sunrun challenging the merger. As of the date of the filing of this Form 10-Q, all twelve lawsuits have either been fully dismissed and closed, or are awaiting final approval by the court of a notice of voluntary dismissal.
The first complaint (captioned Wang v. Vivint Solar, Inc., et al., No. 3:20-cv-5880 (N.D. Cal.)) was filed in the United States District Court for the Northern District of California by a purported stockholder of Vivint Solar challenging the merger. The complaint names as defendants Vivint Solar, each of the members of the Vivint Solar Board (collectively, the “Vivint Solar Defendants”), Sunrun, and the Merger Sub (collectively, the “Sunrun
Defendants”). The complaint asserts violations of Section 14(a) of the Exchange Act and Rule 14a-9 against all defendants, and asserts violations of Section 20(a) of the Exchange Act against members of the Vivint Solar board. The Wang complaint was dismissed on September 30, 2020.
The second complaint was filed as a putative class action on August 21, 2020 in the Supreme Court of the State of New York against the Vivint Solar Defendants and Sunrun Defendants (captioned Toledo v. Vivint Solar, Inc., et al., No. 653982/2020 (N.Y. Sup. Ct.)). The complaint asserted that members of the Vivint Solar Board breached their fiduciary duties, and that the other defendants aided and abetted that alleged breach of fiduciary duties. The Toledo complaint was dismissed on October 12, 2020.
A third complaint (captioned Wolf v. Vivint Solar, Inc., et al., No 1:20-cv-01111 (D. Del.)) was filed on August 24, 2020, as a putative class action, and a fourth complaint (captioned Abalos v. Vivint, Solar, Inc., et al., No. 1:20-cv-01117 (D. Del.)) was filed on an individual basis on August 25, 2020, both in the United States District Court for the District of Delaware against the Vivint Solar Defendants and the Sunrun Defendants. Both complaints asserted violations of Section 14(a) of the Exchange Act and Rule 14a-9 against the Vivint Solar Defendants and the Sunrun Defendants, and violations of Section 20(a) of the Exchange Act against the members of the Vivint Solar Board. These complaints were dismissed on October 8, 2020.
Additional complaints were filed against the Vivint Solar Defendants only on August 26 (captioned Brown v. Vivint Solar, Inc., et al., No. 20-cv-06900 (S.D.N.Y.), August 27 (captioned Alanazi v. Vivint Solar, Inc., et al., No. 20-cv-06926 (S.D.N.Y.) and Alvarez v. Vivint Solar, Inc., et al., No. 20-cv-4000 (E.D.N.Y.)), and August 31 (captioned Silverberg v. Vivint Solar, Inc., et al., No. 20-cv-07051 (S.D.N.Y.)). The Brown, Alanazi and Alvarez complaints alleged that the Vivint Solar Defendants violated Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9, and the Alanazi complaint contained an additional allegation that the Vivint directors breached their fiduciary duty of candor and disclosure. The Silverberg complaint was filed as a purported class action, and alleged only a violation of Section 14(a) of the Exchange Act and Rule 14a-9. The Brown, Alanazi, and Silverberg complaints were consolidated on September 8, 2020. As of the date of the filing of this Form 10-Q, Notices of voluntary dismissal have been filed by the plaintiffs in all three cases and are pending final approval by the court. The Alvarez complaint was dismissed on October 12, 2020.
Additional complaints were filed against the Vivint Solar Defendants on September 4, 11, and 18, 2020 (captioned Bushansky v. Vivint Solar, Inc., et al., No. 5:20-cv-6277 (N.D. Cal.), Friedman v. Vivint Solar, Inc., et al., No. 5:20-cv-6402 (N.D. Cal.), and Federman v. Vivint Solar, Inc., et al., No. 1:20-cv-1257, respectively), and against Sunrun and the Sunrun board on September 9, 2020 (captioned Patino v. Sunrun, Inc., et al., No. 3:20-cv-6357 (N.D. Cal.)). All of the complaints alleged that the defendants violated Sections 14(a) and 20(a) of the Exchange Act and Rule 14a‑9 by omitting or misrepresenting material information in the Form S-4 relating to the merger. The Patino case was dismissed on September 29, 2020; the Bushansky and Friedman cases were dismissed on October 13, 2020; and the Federman case was dismissed on October 14, 2020.
The entire disclosure for commitments and contingencies.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef