Judge Saundra Brown Armstrong, Northern District of California. ()
SAN FRANCISCO — A federal judge will allow defunct solar panel maker Solyndra to move forward with claims that rival Chinese companies hatched a plot to drive the once-promising startup out of business.
Solyndra, which filed for Chapter 11 bankruptcy protection in 2011 after receiving more than $500 million in government-backed loans, alleged that a trio of Chinese companies torpedoed American manufacturers by selling their solar panels in the U.S. at rock-bottom prices. The Chinese firms protested that Solyndra had done little to sketch out the alleged conspiracy. But in a 25-page order issued Wednesday, U.S. District Judge Saundra Brown Armstrong ruled that the allegations passed muster.
“The pleadings specifically allege facts that are more than sufficient to suggest that defendants reached an agreement to fix prices and flood the American market with their below cost Chinese-made panels for the purpose of stifling competition,” Armstrong wrote.
The order sets the stage for a high-stakes fight in the U.S. District Court for the Northern District of California. Represented by Winston & Strawn, the Solyndra Residual Trust and its liquidating trustee, R. Todd Neilson, seek $1.5 billion in damages for the lost value of the company.
The Chinese firms have marshaled a robust legal lineup to fight the claims. Suntech Power Holdings, the world’s largest solar panel maker, and its American subsidiary are represented by a Shearman & Sterling team that until recently included James Donato, who has been confirmed for a seat on the Bay Area’s federal bench. Trina Solar Limited and its U.S. arm tapped Kirkland & Ellis to defend them, and Simpson Thacher & Bartlett has entered the fray for Yingli Green Energy and its local subsidiary.
Solyndra’s collapse gave GOP nominee Mitt Romney ammunition in his bid to take the White House in 2012 and launched a congressional inquiry into the Obama administration’s loans to the Fremont-based business. But the defunct company’s suit against the Chinese firms, filed in the Northern District in 2012, ditched the partisan warfare for a nationalist narrative.
The Solyndra Residual Trust v. Suntech, 12-5272, claims that the Chinese companies’ predatory pricing sunk Solyndra and various other American solar panel manufacturers. As demand for solar panels soared, the Chinese firms shocked industry observers by slashing their prices by 70 percent between 2008 and 2011, according to the complaint. Solyndra alleges that Chinese executives conspired at the annual conferences of the China New Energy trade group, noting that the companies’ prices fell in unison after each meeting.
Armstrong sided with the Solyndra trust that the meetings and subsequent price drops were enough to allege a conspiracy at the case’s early stage. The Chinese companies insisted Solyndra failed to show that they had engaged in predatory pricing, arguing there was not enough evidence that they had recovered the losses they incurred from their below-cost pricing. But Armstrong was not swayed, noting the defendants’ U.S. sales have allegedly skyrocketed in recent years.
“A permissible inference to draw from allegations that defendants’ revenues increased from a negligible amount to collectively well over a billion dollars is that they have, or at least have the dangerous ability, to recoup any losses resulting from below-cost pricing,” she wrote.
Armstrong also found the standard for predatory pricing was more flexible than the defendants suggested.
“Courts have resisted setting any particular bright-line test with respect to the level of pricing that qualifies as predatory,” she wrote.
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