SolarCity (SCTY) Shareholder Derivative Lawsuit

This shareholder derivative lawsuit has been brought for the benefit of SolarCity Corporation against members of its Board of Directors who, it is alleged, have engaged in self-dealing and breaches of fiduciary duties by adopting a compensation plan which grossly overcompensates them in relation to companies of comparable market capitalization and size. 

SolarCity is a Delware corporation headquartered in San Mateo, California and is in the business of offering residential, corporate and government customers solar energy systems through various contractual agreements and also offering products such as energy storage systems. The plaintiff shareholder alleges that members of SolarCity's Board, including renowned business magnate Elon Musk, have granted themselves grossly excessive compensation packages in breach of their fiduciary duties to the company and its investors. 

Effective June of 2015, the Board pays non-employee members who serve a full term roughly $463,778 per director per year. According to the complaint, this amount substantially exceeds the median total director compensation for 2014 for a Fortune 50 company ($281,667), for an S&P 500 company ($281,667) and also the median total director compensation for a sample of large cap companies ($250,000). This is true despite the fact that SolarCity is not a Fortune 50 company, nor an S&P 500 constituent, but is actually part of the Russel Midcap Index and the Russel Small Cap Completeness Index. Median total director compensation in 2014 for companies with a market capitalization of between $1 billion and $5 billion (SolarCity's category) was $189,500. 

The complaint argues that SolarCity Director compensation is more than twice the appropriate level when compared to peer enterprises and lacks any modicum of alignment with the long-term interests of the company. The plaintiff states that the level of compensation being granted to Directors is harmful to the company and shareholders alike and represents a serious waste of limited resources, particularly in light of the company's accumulation of $200 million in negative net income since 2012. 

As a result of the outlined breaches of fiduciary duties committed by SolarCity board members, the plaintiff is seeking:

  • Restitution of all damages resulting from those breaches
  • An order directing the company to act in a manner designed to reform corporate governance procedures with regard to determining board compensation
  • Disgorgement of profits, benefits and compensation obtained by the defendants as a result of their actions
  • Fees and costs associated with briging the lawsuit

A shareholder derivative lawsuit is one that is brought by a corporation's shareholder when a corporation in fact has a valid cause of action against a third-party (often a company insider or officer), but declines to pursue it. Such lawsuits are an unusual twist on conventional corporate law principles, under which management is typically charged with bringing legal action on behalf of the corporate entity. When management does not proceed in such a manner, a shareholder may be able to assume that role on behalf of the company and prosecute the litigation, provided that certain procedural hurdles are cleared. Should a shareholder prevail in type of suit, the resulting proceeds are paid to the corporation itself, not the individual who initiated the action.

http://www.solarcity.com/

http://www.theatlantic.com/technology/archive/2013/11/why-you-might-buy-electricity-from-elon-musk-some-day/281824/

Article Type: Lawsuit
Topic: Investments

Most Recent Case Event

Derivative suit questions SolarCity compensation plan for board members

September 18, 2015

The complaint compares SolarCity's board compensation plan to similar companies and alleges that SolarCity's Board members approved grossly excessive pay plan for themselves.

solarcity_shareholder_derivative_lawsuit.pdf

Case Event History

Derivative suit questions SolarCity compensation plan for board members

September 18, 2015

The complaint compares SolarCity's board compensation plan to similar companies and alleges that SolarCity's Board members approved grossly excessive pay plan for themselves.

solarcity_shareholder_derivative_lawsuit.pdf
Tags: Corporate Governance, Excessive Board Compensation