In re Solarcity Corporation Securities Litigation (274 F. Supp. 3d 972, 2017)

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS

Re: Dkt. No. 55

LUCY H, KOH, United States District Judge , ;,

Plaintiffs Frank Fish (“lead plaintiff’), Joerg Mueller, George Nuckols, Richard Flynn, Neil Jubitz, and Retail Wholesale Department Store Union Local 338 Retirement Fund (collectively, “Plaintiffs”) allege that Defendants SolarCity Corporation (“SolarCity”), Lyndon Rive, Brad Buss, Tanguy Serra, and Hayden Barnard (collectively, “Defendants”) violated federal securities laws by misrepresenting SolarCity’s business health. Before the Court is Defendants’ Motion to Dismiss. ECF No. 55 (“Mot.”). Having considered the parties’ briefing, the relevant law, and the record in this case, the Court GRANTS Defendants’ Motion to Dismiss.

I. BACKGROUND

A. Factual Background

1. The Parties

Lead plaintiff Frank Fish “purchased SolarCity common stock” and was allegedly damaged by misrepresentations made by Defendants. ECF No. 50, Consolidated Class Action Complaint (“Compl.”) ¶ 18. Lead plaintiff seeks to represent a . putative class of “all persons who purchased or otherwise acquired the publicly-traded securities of SolarCity between May 6, 2015 and May 9, 2016 (the “Class Period”). Id. ¶ 1. SolarCity is a Delaware corporation that was traded on the NASDAQ stock market under the symbol SCTY during the Class Period. Id. ¶ 19. In June 2016, it was announced that SolarCity would be purchased by Tesla, Inc., and the sale closed in November 2016. Id.

Defendant Lyndon Rive (“Rive”) is one of the founders of SolarCity and served as the Chief Executive Officer (“CEO”) for SolarCity during the Class Period. Id. ¶ 20. Defendant Brad Buss (“Buss”) served ,as the Chief Financial Officer (“CFO”) for SolarCity from before the Class Period until February 10, 2016, when Buss resigned from that position. M. ¶ 21. Buss remained an employee of SolarCity until March 31, 2016, and remained “an advisor to [SolarCity] for the remainder of the Class Period.” Id. Defendant Hayes Barnard (“Barnard”) was the Chief Revenue Officer (“CRO”) of SolarCity from August 2013 to June 9, 2016, when he resigned from that position. Id. ¶22. Defendant Tanguy Serra (“Serra”) served as President of SolarCity throughout the Class Period, and became Solarcity’s CFO starting in February 2016. Id. ¶ 23.

2. SolarCity’s Business Model

SolarCity “sells solar energy systems for residential and commercial use.” Compl, ¶4. SolarCity generally “absorbs the upfront capital costs needed to install the solar energy system at the customer’s property, and then bills the customers pursuant to long-term contracts lasting 20 years.” Id. These contracts (called Solar-Leases or Solar PPAs) “can be cancelled by the customer prior to construction at no charge.” Id. .Under the Solar PPA, SolarCity “arranges for the design, permitting and financing of the solar system on the host customer’s property.” Id. ¶36. So-larCity then “sells the energy created by the system to the host customer at a fixed rate that is typically lower than what is charged by the local utility.” Id. Under SolarLeases, instead of selling the customer the energy produced by the solar panels at a particular rate, “the customer pays a fixed monthly amount” to SolarCity. Id. If 37. At the end of these 20-year contracts, “the customer can upgrade the system, extend the agreement, or have the system removed.” Id. Up until the solar system is installed, SolarLeases and Solar PPAs can be cancelled by the customer or SolarCity at any time with no repercussions. Id.

SolarCity also offered a loan product called a MyPower loan. Id. ¶39. Under MyPower loans, a subsidiary of SolarCity “would provide qualified residential customers with a 30-year loan to finance the purchase of a solar system.” Id. However, Plaintiffs allege that “most of Solarcity’s business is derived from the PPA and solar lease model.” Id. For simplicity, the Court alternatively refers to SolarLeases and Solar PPAs as “contracts” throughout this order.

3. , SolarCity’s Key Metrics

Plaintiffs’ suit is premised on allégations that SolarCity made false or misleading statements in SolarCity’s quarterly shareholder letters, Solarcity’s quarterly reports with the Securities and Exchange Commission (“SEC”) on Form 10-Q, and quarterly earnings conference calls with business analysts. See id. ¶¶ 96-143. Plaintiffs primarily -allege that SolarCity made false or misleading reports about SolarCity’s “key operating metrics,” which So-larCity used to “evaluate [Solarcity’s] business, measure [Solarcity’s] performance, identify trends affecting [Solarcity’s] business, formulate financial projection's and make strategic decisions.” Id. ¶43, These key operating metrics included: (1) Cumulative Customers; (2) Cumulative Energy Contracts; (3) Megawatts (“MW”) Booked, 'MW Installed, and MW Deployed; and (4) Nominal Contracted Payments. M ¶ 44. The Court briefly describes these key operating metrics below.

First, the Cumulative Customers metric is a count of all customers “where [SolarCity] ha[s] installed or contracted to install a solar energy system, or performed or contracted to perform an energy-related com sultation or other energy efficiency services,” Id. ¶ 43. For example, at the end of quarter 1 of 2015, SolarCity reported that it had 217,595 Cumulative Customers. Id. ¶ 96.

Second, the Cumulative Energy Contracts metric is a count of all “residential, commercial or government [contracts] pursuant to which consumers use or will use energy generated by a solar energy system that. [SolarCity] ha[s] installed or ha[s] been contracted to install.” Id. For examT pie, at the end of. quarter 1 of 2015, So-larCity reported that it had 207,426 Cumulative Energy Contracts. Id. ¶ 96.

Third, MW Booked is defined “as the aggregate megawatt production capacity of solar energy systems pursuant to customer contracts signed during the applicable period” after subtracting the “cancellations during the applicable period.” Id. ¶45. MW Installed is defined as “the megawatt production capacity of solar energy systems for which all hardware has been installed, the system inverter is connected and production capacity has been confirmed, and the system is capable of being grid connected.” Id. ¶ 46. MW Deployed is defined as “the megawatt production capacity of [SolarCity’s] solar energy systems that have had all required building department inspections completed.” Id. MW Installed is broader than MW Deployed because the former metric includes solar energy systems that both have and have not been inspected. For example, So-larCity reported that in quarter 1 of 2015, SolarCity’s MW Booked was 237 MW and its MW Installed was 153 MW for that quarter. Id. ¶ 96. Also in quarter 1 of 2015, SolarCity estimated it would reach a MW Deployed of 920-1,000 MW for the 2015 fiscal year. Id. ¶ 98.

Fourth, Nominal Contracted Payments is a metric based on the fact that SolarCity’s contracts with customers “create long-term recurring customer payments.” Id. Nominal Contracted Payments are defined as SolarCity’s “estimate of the sum of the cash payments that [SolarCity’s] customers] [are] obligated to pay under our agreements.” Id. These calculations include estimated future payments on contracts for “deployed” solar energy systems (installed and inspected solar energy systems) and contracts from the “backlog.” The term “backlog” refers to all of the contracts for which “solar energy systems [have] not yet [been] deployed.” Id. ¶ 43. At the end of quarter 1 of 2015, for example, SolarCity reported an estimated $6.1 billion in Nominal Contracted Payments. Id. ¶ 96.

4. Declining Demand and SolarCity’s Business Practices

Plaintiffs allege that “[a]s the Class Period began, SolarCity was experiencing declining demand for its solar panels.” Id. ¶ 50. Demand was allegedly declining because of changes in regulatory policies towards solar energy systems, the expiration of Federal tax credits for solar energy systems, increased competition, and customer preference to own rather than lease solar energy systems. Id.

Plaintiffs allege that “[i]n order to conceal declining demand, [SolarCity] embarked on a two-fold scheme that would” inflate SolarCity’s key operating metrics. Id. ¶ 51. “First, [SolarCity] would inflate the number of contracts through the use of overly-aggressive and deceptive sales practices, and, second, [SolarCity] would maintain long-inactive and infeasible contracts on the system as long as possible.” Id. The Court addresses each of these two aspects of the “scheme” in turn.

First, as to the overly-aggressive and deceptive sales practices, Plaintiffs allege that two questionable sales practices were used that artificially inflated the number of contracts. Plaintiffs allege that “SolarCity management instructed its sales representatives to” (1) engage in deceptive sales practices and (2) enter contracts with customers who would not ultimately receive credit approval.” Id. ¶57. First, with respect to the deceptive sales practices, Plaintiffs allege that SolarCity engaged in sales techniques that involved misrepresentations about the benefits of switching to solar power and about the terms of the SolarLeases and PPAs. Plaintiffs allege that these questionable sales tactics are shown through the testimony of a number of confidential witnesses (“CWs”). The thrust of these allegations is that SolarCity salespersons would make “representations to customers that were incorrect and untrue in order to .get a contract.”' Id. ¶ 84. After the contract was obtained through .misrepresentations, many SolarLeases and PPAs were allegedly cancelled when those misrepresentations were discovered.

With respect to the customers who would not ultimately receive credit approval, the CWs provide testimony that many of SolarCity’s contracts were “not high quality.” Id. ¶ 72. Specifically, at least one CW states that SolarCity salespeople were encouraged to get a' customer to enter a contract regardless of whether the customer would be able to qualify [to have a solar energy system installed].” Id. ¶ 93. Plaintiffs allege that because of the misrepresentations and lack of discernment as . to which customers were allowed .to sign contracts, the number of contracts in SolarCity’s system was artificially inflated. Id.

Second, as to “maintaining] long-inactive and infeasible contracts on the system,” Plaintiffs allege that SolarCity “fail[ed] to cancel and/or improperly re-fus[ed] to cancel contracts that customers had attempted to terminate, or which should have been cancelled because they were inactive.” Id. ¶56. These contracts were entered in SolarCity’s “SolarWorks” and “Zipline” customer database systems. Id. ¶ 55. According to Plaintiffs, SolarCity sales representatives intentionally kept many contracts in the database that should have been cancelled by taking no action on those contracts or by entering “notes” in SolarCity’s database that prevented the contracts from automatically being can-celled. Id. ¶ 56.

Plaintiffs attribute the aggressive sales tactics and retention of contracts that should have been canceled to Individual Defendant Hayes Barnard (“Barnard”). As noted above, Barnard was the CRO of SolarCity from August 2013 to June 9, 2016. Id. ¶ 22. Plaintiffs allege that “Barnard. . .had a history of employing similar deceptive practices in the mortgage industry.” Id. ¶ 52: Before becoming SolarCity’s CRO, “Barnard was the Founder, Chairman, and CEO of Paramount Equity Mortgage, a consumer finance company specializing in mortgage, insurance,- and residential solar.” Id. While the complaint does not allege when, Paramount Equity Mortgage “agreed to pay a fine and restitution totaling approximately $400,000 in response to .charges brought by the Department of Financial Institutions, Division of Consumer Services for the State of Washington concerning alleged false, deceptive, and misleading mortgage services advertising and collected fees.” Id. ¶54.

5. Alleged Misrepresentations

Plaintiffs allege that, over á period of five fiscal quarters from quarter 1 of 2015 to the end of quarter 1 of 2016, SolarCity made a number of false or misleading statements. These false or misleading statements were allegedly made in SolarCity’s quarterly shareholder letters, SolarCity’s quarterly reports to the SEC on Form 10-Q, and quarterly earnings conference calls with business analysts. See id. ¶¶ 96-143.

The- quarterly shareholder letters that allegedly contain false or misleading statements were issued by SolarCity after each quarter in 2015 and the first quarter of 2016. Specifically, the shareholder letter reporting on the first quarter of 2015 was issued on May 5, 2015 (“1Q15 Shareholder Letter”), id. ¶ 96; the shareholder letter reporting on the second quarter of 2015 was issued on July 29, 20.15 (“2Q15 Shareholder Letter”), id. ¶ 107; the shareholder letter reporting on the third quarter of 2015 was issued on October 29, 2015 (“3Q15 Shareholder Letter”), id. ¶ 120; the shareholder letter reporting on the fourth quarter of 2015 was issued on February 9, 2016 (“4Q15 Shareholder Letter”), id. ¶ 134; and the shareholder letter reporting on the first quarter of 2016 was issued on May 9, 2016 (“1Q16 Shareholder Letter”), id. ¶ 140. On the same day 'that each of the above shareholder letters was issued, Defendants, held earnings conference calls with business analysts to discuss the prior quarter and to discuss predictions for the foture- of the business. Id. ¶¶ 102, 116,126, 138. The.day following the issuance of each shareholder letter, Defendants filed Form 10-Q‘ with the SEC, which provided a report on that quarter. Id. ¶¶ 100, 116, 124, 126,142.

■As a general matter, Plaintiffs allege that the outlook for SolarCity’s business changed significantly from the beginning of quarter 1 of 2016 to the end of quarter 1 of 2016. See id. ¶¶ 4-13. Plaintiffs allege that, although the first and second quarters of 2016 seemingly indicated a successful growing business, those reports were false or misleading. Id. ¶ 7. Plaintiffs allege that the problems with SolarCity’s business model began to show in quarter 3 of 2016 when SolarCity announced a new strategy of becoming “cash flow positive” rather than pursuing growth. Id. ¶ 62. Plaintiffs allege that these problems became clearer in quarter 4 of 2015 and quarter 1 of 2016, when SolarCity began tb show shrinking bookings and installations of solar systems. Id. ¶ 11. Plaintiffs allege that statements made throughout this period were false or misleading to investors who invested in SolarCity. Id. ¶ 13.

First, Plaintiffs allege that Defendants’ reporting of four of the key operating metrics—MW Booked, Cumulative Customers, Cumulative Energy Contracts, and Nomi-nál Contracted Payments—in the quarterly shareholder letters and Forms 10-Q was false or misleading. Id. ¶ 6. In the first three quarters of 2015, Defendants reported all four of these key operating metrics. Id. ¶¶ 96, 115, 124. However, in quarter 4 of 2015, Defendants stopped reporting Nominal Contracted Payments, and in quarter 1 of 2016 Defendants only reported MW Booked. Id. ¶¶ 134, 140. Plaintiffs allege that the key operating metrics, when they were reported, were false or misleading because they were artificially inflated by contracts obtained by deception, low quality contracts, and old and inactive contracts that should have been removed from. SolarCity’s database. Id. ¶6-7, Plaintiffs also allege that Defendants’ decision to stop reporting these key operating metrics in quarter- 4 of 2015 and quarter 1 of 2016 shows that the metrics were false or misleading when they were reported. Id. ¶¶ 134,140,

Second, Plaintiffs allege that-Defendants’ . guidance statements for MW Installed in the quarterly shareholder letters, that is, the predictions of the total energy capacity of solar systems SolarCity was going ,to install in the future, were false .or misleading because Plaintiffs based their prediction on artificially inflated metrics. Id. ¶¶ 98, 110, 122, 134, 140.

Third, Plaintiffs allege that many of the statements made by Defendants that expressed a positive outlook for SolarCity were false or misleading because demand for'SolarCity’s products was dropping and the key operating metrics -were artificially inflated. Id. ¶ 50.

Finally, Plaintiffs allege that the individual Defendants’ explanations for why So-larCity’s installation and booking numbers no longer showed the same level of growth in quarter 4 of 2015 and quarter 1 of 2016 were false or misleading because these statements did not reveal that demand had béen dropping for SolarCity’s products throughout the Class Period. Id. ¶¶ 137, 143.

The Court reproduces in the table below the specific statements that Plaintiffs allege are false or misleading:

6. Resulting Losses

Plaintiffs allege ■ that “Defendants’" wrongful conduct directly and proximately caused the economic loss suffered by Plaintiff and the Class.” Id. ¶ 144. Plaintiffs allege that Plaintiffs suffered economic losses because “[d]uring the Class Period, [Plaintiffs] purchased SolarCity’s securities at artificially inflated prices,” and these prices dropped significantly “when the misrepresentations made to the market, and/or the information alleged herein to have been concealed from the market, and/or the effects thereof, were revealed.” Id.

Plaintiffs allege that as a result of the revelations in quarter 3 and quarter 4 of 2015 that SolarCity was not doing as well as previously thought, SolarCity’s stock price dropped significantly. On October 30, 2015, the day after the issuance of the 3Q15 Shareholder Letter, SolarCity’s “stock price fell $8.42 per share, or 22%, to close at $29.65.” Id. ¶ 147. On February 10, 2016, the day after the issuance of the 4Q15 Shareholder Letter, SolarCity’s “shares fell $7.72 per share, or 29%, to close at $18.68.” Id. ¶ 152. On May 10, 2016, the day after the issuance of the 1Q16 Shareholder Letter, SolarCity’s “stock price fell $4.69, or 20.8%, to close at $17.79.” Id. ¶ 156.

B. Procedural History

On August 15, 2016, a group of SolarCity’s shareholders filed suit against SolarCity in a case captioned Mueller v. SolarCity Corporation, N.D. Cal. Case No. 16-CV-04686-LHK. See ECF No. 1. A different group of SolarCity’s shareholders filed suit on October 7, 2016 in a case captioned Nuckols v. SolarCity Corporation, N.D. Cal. Case No. 16-CV-05806-LHK. On November 4, 2016, the Court granted the parties’ stipulation to consolidate the two cases as In re SolarCity Corporation Securities Litigation, N.D. Cal. Case No. 16-CV-04686-LHK. See ECF No. 29. On January 25, 2017, the Court appointed Plaintiff Frank Fish as lead plaintiff in the instant suit. ECF No. 43. In the same order, the Court also appointed lead plaintiffs counsel. Id.

On March 20, 2017, Plaintiffs filed a Consolidated Class Action Complaint. See Compl. On May 5, 2017, Defendants filed a Motion to.Dismiss Consolidated Class Action Complaint. See Mot. On June 19, 2017, Plaintiffs filed an opposition, ECF No. 61 (“Opp’n”), and on July 19, 2017, Defendants filed a reply, ECF No. 69 (“Reply”).

C. Request for Judicial Notice

Defendants request judicial notice of 24 documents, which include (1) 'five SolarCity quarterly shareholder letters for quarter 1, 2, 3, and 4 of 2015 and quarter 1 of 2016, (2) five SolarCity transcripts from the quarterly earnings calls for the above-mentioned quarters, (3) five SolarCity slide decks presented with the quarterly earnings call, (4) four SolarCity 10-Q forms filed with the SEC quarterly in quarters 1, 2, 3, and 4 of 2015, (5) two SolarCity 10-K forms filed with the SEC for 2014 and 2015; (6) one Form 4 filed with the SEC on June 15, 2015, which shows Brad Buss’s stock purchases; and (7) two SolarCity proxy statements for 2015 and 2016 filed with the SEC. “Although generally the scope of review on a motion to dismiss for failure to state a claim is limited to the Complaint, a court may consider evídencé on which the complaint necessarily relies if: “(1) the complaint refers to the document; (2) the document is central to the plaintiffs’ claim; and (3) no party questions the authenticity of the copy attached to the 12(b)(6) motion.” Daniels-Hall v. Nat'l Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 2010) (internal quotation marks and citations omitted). The court may “treat- such a document as ‘part of the complaint, and thus may assume-that its contents are true for purposes of a motion to dismiss under Rule-12(b)(6).’ ” Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (quoting United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003)).

Defendants contend, and Plaintiffs agree, that all of the items described! in items 1, 2, 3, 4, and 5, above, were cited by Plaintiffs in the complaint, and thus may be considered-under the incorporation by reference doctrine. Plaintiffs do not object to judicial notice being taken of these documents to the extent they are referenced in the complaint. However, Plaintiffs argue that because Plaintiffs allege in the complaint that Defendants made false or misleading statements in these documents, the Court should not consider these documents for the truth of the matter asserted. Plaintiffs also argue that the Court should not take judicial notice of items 6 and 7 above, Form 4 and the. proxy statements filed with the SEC, because those documents are not referenced in the complaint. The Court addresses each argument in turn.

First, Plaintiffs contend that the Court cannot consider the documents described in 1, 2, 3, 4, and 5 above for the truth of the matter asserted. Defendants argue that under the incorporation by reference doctrine, once documents are referenced in a complaint the entire document is assumed to be true for the purposes of a motion to dismiss. Although courts generally assume a document’s contents to be true on a motion to dismiss when that document is referenced in a complaint, the Court cannot do so when Plaintiffs’ complaint alleges that these documents contain false or misleading statements. Therefore, although the Court may consider these documents under the incorporation by reference doctrine, the Court does not assume that the documents contain true statements. See Lee v. City of L.A., 250 F.3d 668, 689 (9th Cir. 2001) (“A court may take judicial notice of matters of public record... But a court may not take judicial notice of a fact that is subject to reasonable dispute.”) (internal quotation marks omitted), overruled on other grounds by Galbraith v. Cty. of Santa Clara, 307 F.3d 1119 (9th Cir. 2002).

Second, Plaintiffs argue that the Court cannot consider Form 4 filed with the SEC for Buss’s stock transactions or SolarCity’s 2015 and 2016 proxy statements because these documents are not referenced in the complaint. However, courts in this district have taken judicial notice of SEC Form 4 and.proxy statements, even when those documents were not referenced in the pleadings in order to prove that stock sales were made or were not made. See, e.g., Cement Masons & Plasterers Joint Pension Trust v. Equinix, Inc., 2012 WL 685344, at *5 n.4, *8 n.5 (N.D. Cal. Mar. 2, 2012). These documents, and whether stock sales were made or not made, are relevant for the purpose of evaluating scienter because the sale of stock by an individual defendant may demonstrate a financial motive for that defendant to make false or misleading statements. See In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869, 884 (9th Cir. 2012) (holding that the sale or non-sale of stock by the individual Defendants is relevant to whether an inference of scienter is warranted); Coyler v. Acelrx Pharms., Inc., 2015 WL 7566809, at *3,14 (N.D. Cal. Nov. 25, 2015) (considering defendants’ personal financial holdings and transactions, as reflected in proxy statements and Form 4, and noting that the “absence of insider trading by a defendant is highly relevant and undermines any inference of scienter”). Accordingly, the Court may consider the proxy statements and the Form 4 supplied by Defendants.

II. LEGAL STANDARD

A. Motion to Dismiss

Pursuant to Federal Rule of Civil Procedure 12(b)(6), a defendant may move to dismiss an action for failure to state a claim upon which relief may be granted. Because Plaintiffs have brought their claims as a federal securities fraud action, Plaintiffs are not subject to the notice pleading standards under Federal Rule of Civil Procedure 8(a)(2), which require litigants to provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” Instead, Plaintiffs must “meet the higher, [more] exacting pleading standards of Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (PSLRA).” Or. Pub. Emp. Ret. Fund v. Apollo Group Inc., 774 F.3d 598, 603-04 (9th Cir. 2014).

Under Federal Rule of Civil Procedure 9(b), “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Plaintiffs must include “an account of the time, place, and specific content of the false representations” at issue. Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (internal quotation marks omitted). Rule 9(b)’s particularity requirement “applies to all elements of a- securities fraud action.” Apollo Group, 774 F.3d at 605. “PSLRA imposes additional specific pleading requirements, including requiring plaintiffs to state with particularity both the facts constituting the alleged violation and the facts evidencing scienter.” In re Rigel, 697 F.3d at 877. In order to properly allege falsity, “a securities fraud complaint must.. .specify each statement alleged to have been misleading, [and] the reason or reasons why the statement is misleading.” Id. (internal quotation marks and alteration omitted). In addition, in order to “adequately plead scienter under the PSLRA, the complaint must state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” Id. (internal quotation marks omitted).

For purposes of ruling on a Rule 12(b)(6) motion, the Court “aceept[s] factual allegations in the complaint as true and construe[s] the pleadings in the light most favorable tó' the nonmoving party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Nonetheless,' the Court is not required to “ ‘assume the truth of legal conclusions merely because they are cast in the form of factual allegations.’ ” Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (quoting W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981)). Mere “conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss.” Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004). Furthermore, “ ‘a plaintiff may plead [himjself out of court’ ” if he “plead[s] facts which establish that he cannot prevail on his ... claim.” Weisbuch v. Cty. of L.A., 119 F.3d 778, 783 n.1 (9th Cir. 1997) (quoting Warzon v. Drew, 60 F.3d 1234, 1239 (7th Cir. 1995)).

B. Leave to Amend

Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to amend “shall be freely granted when justice so requires,” bearing in mind “the underlying purpose of Rule 15 to facilitate decision on the merits, rather than on the pleadings or technicalities.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (internal quotation marks and alterations omitted). Generally, leave to amend shall be denied only if allowing amendment would unduly prejudice the opposing party, cause undue delay, or be futile, or if the moving party has acted, in bad faith. Leadsinger, Inc. v. BMG Music Publ’g, 512 F.3d 522, 532 (9th Cir. 2008).

III. DISCUSSION

Plaintiffs allege two causes of action: (1) violation of § 10(b) of the Exchange Act and Rule 10b-5 against all Defendants, and (2) violation of § 20(a) of the Exchange Act against the individual Defendants. The Court addresses each cause of action in turn.

A. Violation of § 10(b) of the Exchange Act and Rule 10b-5

“To plead a claim under section 10(b) and Rule 10b-5, the Plaintiffs must allege: (1) a material misrepresentation or omission; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance; (5) economic loss; and (6) loss causation.” Apollo Group, 774 F.3d at 603. Defendants argue that Plaintiffs have failed • to adequately allege (1) material misrepresentations or omissions, (2) scien-ter, and (3) loss causation. The Court first discusses Defendants’ alleged misrepresentations and omissions and finds that Plaintiffs have failed to adequately allege actionable misrepresentations or omissions. Although the Court finds below that Plaintiff fails to adequately allege actionable misrepresentations or .omissions, in anticipation of an amended complaint, the Court then addresses a number of other remaining issues, including scienter. However, because the Court finds below that Plaintiffs fail to adequately allege material misrepresentations or omissions and scien-ter, the Court does not reach the issue of loss causation. '

1. Material Misrepresentation or Omission

Plaintiffs allege that Defendants made a number of material misrepresentations and omissions in SolarCity’s quarterly shareholder letters, in filings with the SEC, and in quarterly earnings conference calls with business analysts. By contrast, Defendants argue that Defendants’ statements are nonactionable because they are (1) forward-looking statements that are protected by a safe harbor, (2) nonactiona-ble statements of corporate optimism, or (3) statements that are true and not misleading. The Court addresses each argument in turn and finds that none of the alleged misrepresentations or omissions is actionable because the statements fall into at least one of these three categories,

a. Forward-Looking Statements Safe Harbor

Under the PSLRA’s “Safe Harbor” Provision, “forward-looking statements” are not actionable-as a matter of law if they are identified as such and accompanied by “meaningful cautionary statements identifying important facts that could cause actual results to differ materially from those in the forward looking statement.” See 15 U.S.C. § 78u-5(c)(1)(A)(i). A forward-looking statement is “any statement regarding (1) financial projections, (2) plans and objectives of management for future operations, (3) future economic performance, or (4) the assumptions ‘underlying or related to’ any of these issues.” No. 84 Employer-Teamster Joint Council Pension Trust Fund v. Am. W. Holding Corp., 320 F.3d 920, 936 (9th Cir. 2003) (citing 15 U.S.C. § 78u5 (i)). When a statement includes both forward-looking and non-forward-looking statements, the challenged statements still fall within the safe harbor as forward-looking if, when “examined as a whole, the challenged statements relate[ ] to future expectations and performance.” Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1059 (9th Cir. 2014) (Police Retirement) (citing In re Cutera Sec. Litig., 610 F.3d 1103, 1111 (9th Cir. 2010)).

“[I]f a forward-looking statement is identified as such and accompanied by meaningful cautionary statements, then the state of mind of the individual making the statement is irrelevant, and the statement is not' actionable regardless of the plaintiffs showing of scienter.” In re Cutera, 610 F.3d at 1112. Alternatively, if a forward-looking statement is not identified as a,forward-looking statement or is unaccompanied by meaningful cautionary statements, then the statement is actionable only if the plaintiff proves that the forward-looking statement “was made with actual knowledge by that person that the statement was false or misleading.” 15 U.S.C. § 78u-5(c)(1)(B).

Defendants argue that Defendants’ guidance -statements—statements A2, B3, C2, C3, D2, and El—in the quarterly shareholder letters and earnings conference calls were forward-looking statements that are protected by the PSLRA’s safe harbor. Defendants also argue that statement C4 is a forward-looking statement that is protected by the safe harbor. The Court first addresses whether the guidance statements were forward-looking, then addresses whether statement C4 was forward-looking, and finally looks to whether these statements fall within the PSLRA’s safe harbor because they were “accompanied by meaningful cautionary statements.” In re Cutera, 610 F.3d at 1112.

i. Guidance Statements Were Forward-Looking

As discussed above, in each quarterly shareholder letter, SolarCity made predictions regarding the key operating metrics MW Installed or MW Deployed for. the next quarter, and for the.entire year. The guidance statements are statements A2, B3, C2, C3, D2, and El. Plaintiffs allege in the complaint that the guidance statements ]that were placed in SolarCity’s quarterly shareholder reports were false and misleading because the future growth predictions “relied on” key operating metrics that were artificially inflated by contracts that would never result in installations.

However, Plaintiffs’ opposition abandons Plaintiffs’ claim based on these guidance statements. Plaintiffs’ opposition does not argue that any guidance statements are actionable. As Defendants point out in their reply brief: “[Plaintiffs’] Opposition omits any reference to the allegations assailing the Company’s guidance.” Reply at 2. Accordingly; on this ground alone Plaintiffs’ claim based on these guidance statements is subject to dismissal with prejudice. See Moore v. Apple, Inc., 73 F.Supp.3d 1191, 1205 (N.D. Cal. 2014) (“[WJhere a plaintiff simply fails to address a particular claim in its opposition to a motion to .dismiss that claim, courts generally dismiss it with prejudice.”) (internal quotation marks omitted). -

Moreover, even if Plaintiffs did not abandon their challenge to Defendants’ guidance statements, the Court would still find those statements nonactionable because they fall within the forwardrlooking safe harbor. In this section, the Court discusses whether the guidance statements were, forward-looking. In section TIL A.l.a.iii below, the Court discusses whether these guidance statements fall into the safe harbor because they were accompanied by meaningful cautionary language.

The Ninth Circuit has held that “growth and revenue projections” are “forward-looking on their face.” Police Retirement, 759 F.3d at 1058; see also In re LeapFrog Enters., Inc. Sec. Litig., 527 F.Supp.2d 1033, 1046 (N.D. Cal. 2007) (“Here, each of the financial forecast statements identified by defendants as forward-looking falls squarely within 15 U.S.C. § 78u-5(i)(1)(A)-(D) as each is a statement predicting the company’s future expected sales or other financial results.”). Defendants’ guidance .for future MW Installed and MW Deployed are a projection of future sales and revenue for SolarCity. See, e.g., Compl. ¶ 98 (“For the second quarter of 2015, we expect MW Installed of 180 MW.”). These predictions for MW Installed and MW Deployed are a prediction of the. energy capacity of all of the contracts that will actually be transformed into revenue-producing assets. These predictions that certain, target sales numbers will be reached are forward-looking under Police Retirement and LeapFrog.

Plaintiffs’ complaint alleges that' that these guidance statements. were not forward-looking because the statements were based on operating metrics that provided a then-present description of the status of SolarCity. However, as discussed by the Ninth Circuit in Police Retirement, statements that “plainly project expectations for future growth” are still forward-looking even if they are based on “ ‘then-present effects and circurastances[ ]’ of known trends.” Police Retirement, 759 F.3d at 1058. Accordingly, Defendants’ guidance statements are forward-looking.

ii. Statement C4 Was Forward-Looking

In this section, the Court discusses whether Statement C4 was forward-looking. In the next section, the Court discusses whether statement C4 falls into the safe harbor because it was accompanied by meaningful cautionary language.

In statement C4, which was made during the earnings conference call at the end of quarter 3 of 2015, Rive stated that “[a]ll the fundamentals of the business is [sic] looking good...[and that] [d]emand for the product is strong. We expect Q4 bookings to be greater than Q3 bookings ... But the demand is strong. In 2016, we expect demand to be very strong.... [I just really want to] highlight one thing, because this is important to me. This is not a demand challenge.” Id. ¶ 126. Although this statement refers to demand, it is nonetheless forward-looking. In Fusion-io, this Court previously held that statements about demand are included in the safe harbor where the statement was made “in the context of Fusion’s guidance for its third-quarter revenues.” In re Fusion-io, Inc. Sec. Litig., 2015 WL 661869, at *12 (N.D. Cal. Feb. 12, 2015).

Here, although the statements about demand were not made as part of the “formal guidance” in the 3Q15 Shareholder Letter, the statements about demand were nonetheless being used by Rive to make predictions about future bookings in quarter 4 of 2015 and demand in 2016. Moreover, Rive made these statements in the context of discussions about the strategy change SolarCity made at the end of quarter 3 of 2015 to become “cash flow positive.” Previously, SolarCity was growing at a rapid rate: the MW Installed values for quarter 1 and quarter 2 of 2015 had grown 80% to 90% from the previous year. As part of the cash flow positive strategy, SolarCity would drop its growth rate to 40%. Statement C4 clarified that SolarCity*s change in strategy was not motivated by an expectation of a drop in demand. Thus, in context, Rive’s statements about demand were part of a discussion about the expectations for SolarCity’s “cash flow positive” strategy. Therefore, statement C4 is a forward-looking statement.

iii. Meaningful Cautionary Language and Safe Harbor

Plaintiffs argue that even if the above statements are forward-looking, Defendants did not identify the statements as such and did not provide meaningful cautionary language,.and thus the safe harbor does not apply. As noted at the beginning of the forward-looking safe harbor section, “if a forward-looking statement is identified as such and accompanied by meaningful cautionary statements, then the state of mind of the individual making the statement is irrelevant, and the statement is not actionable regardless of the plaintiffs showing of scienter.” In re Cutera, 610 F.3d at 1112.

Here, Defendants’ statements were accompanied by language that identified the presence of forward-looking statements and provided a warning using meaningful cautionary language. In Police Retirement, the Ninth Circuit approved the following language as sufficient to satisfy the requirements of the forward-looking safe harbor:

Before we begin, I would like to inform you that comments mentioned on today’s call may be deemed to contain forward-looking statements. Actual results may differ materially from those expressed or implied, as a result of certain risks and uncertainties. These risks and .uncertainties are described in detail in the company’s [SEC] filings. Prospective investors are cautioned not to place undue reliance on s-uch forward-looking statements.

Police Retirement, 759 F.3d at 1058; see also In re Cutera, 610 F.3d at 1108 (holding that essentially similar warning language was sufficient to trigger the PSLRA’s safe harbor).

Here, the guidance provided in shareholder letters, SEC filings, and earnings conference calls was accompanied by warning language that is substantially similar to the language approved in Police Retirement. All of the shareholder letters began with a warning that the document contained forward-looking statements and provided the following warning language about such statements:

Forward-looking statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the .forward-looking statements. As of the date hereof, we have bookings for only a portion of the orders needed to achieve our megawatt projections and therefore expect the megawatts we need to deploy and/or install to meet our projections to be sourced substantially from new deployments of solar systems not currently under contract. In order to meet our projections, we will need to expand our workforce, increase our installation efficiency and exceed our existing bookings rate relative to what we have achieved to date. Additional key risks and uncertainties include the level of demand for our solar energy systems,. -. the effect of electric utility industry regulations, net metering and related policies, the availability and' amount of rebates, tax credits and' other financial incentives,. . .risks that consumers who have executed energy contracts included in reported nominal contracted payments remaining and backlog may seek to cancel those contracts,... changes in strategic planning decisions by management or reallocation of internal resources....

ECF No, 56. The above, warning language specifically refers to a potential lack of demand and the potential that signed contracts would be cancelled, the two risk factors that Plaintiffs 'allege that Defendants failed to disclose.

Further, the earnings conference calls with investors similarly began with the warning:

As a reminder, today’s discussion will contain forward-looking statements that involve our views as of today based on information currently available to us. Forward-looking statements should not be considered a guarantee of future performance or results, and reflect information that may change over time. Please refer to SolarCity’s quarterly shareholder letter issued today, as well as the slides accompanying this presentation, and our periodic reports filed with the Securities and Exchange Commission •for a discussion of our forward-looking statements and the factors and risks that could cause our results to differ from these forward-looking statements.

Id, at 261-62. Again, this language is substantially similar to the language that was approved by the Ninth Circuit in Police Retirement, reproduced above. Therefore, the Court finds that adequate warning language accompanied the forward-looking statements made by Defendants.

Accordingly, Plaintiffs’ claims fail to the extent they are based on statements A2, B3, C2, C3, D2, and El—the guidance statements—and statement C4. As set forth above, these statements are forward-looking and they were accompanied by sufficient warning language. Thus, they fall within the PSLRA’s safe harbor,

b. Corporate Optimism

Defendants further argue that many of the allegedly false or misleading statements are not actionable because they are mere statements of corporate optimism. In the Ninth Circuit, “vague, generalized assertions of corporate optimism or statements of ‘mere puffing1 are not actionable material misrepresentations under federal securities laws” because no reasom able investor would rely on such statements. In re Impac Mortg. Holdings, Inc., 554 F.Supp.2d 1083, 1096 (C.D. Cal. 2008) (citing Glen Holly Entm't, Inc. v. Tektronix, Inc., 352 F.3d 367, 379 (9th Cir. 2003)); In re Cutera, 610 F.3d at 1111 (“[Professional investors, and most ama teur investors as well, know how to devalue the optimism of corporate executives.”). This is because “[w]hen valuing corporations,.. .investors do not rely on vague statements of optimism like ‘good,’ ‘well-regarded,’ or other feel good monikers.” In re Cutera, 610 F.3d at 1111; see also In re iPass, Inc. Sec. Litig., 2006 WL 496046, at *4 (N.D. Cal. Feb. 28, 2006) (generalized statements of optimism 'are not actionable because they are “ ‘not capable of objective verification,’ ” and “ ‘laek[ ] a standard against which- a reasonable investor could expect them to be pegged.’ ”) (quoting Grossman v. Novell, Inc., 120 F.3d 1112, 1119 (10th Cir. 1997).

Thus, for example, a district court in this district has held the following statements to be nonactionable statements of corporate optimism: “[w]e are very pleased with the learning from our pilot launch,” “so far we’re getting really great feedback,” and “we are very pleased with our progress to date.” Wozniak v. Align Tech., Inc., 850 F.Supp.2d 1029, 1036-37 (N.D. Cal. 2012). Likewise, “statements projecting ‘excellent results,’ a ‘blowout winner’ product, ‘significant sales gains,’ and ‘10% to 30% growth rate over the next several years’ ” have similarly been held not actionable as mere puffery. In re Cornerstone Propane Partners, L.P. Sec. Litig., 355 F.Supp.2d 1069, 1087 (N.D. Cal. 2005); see also In re Copper Mountain Sec. Litig., 311 F.Supp.2d 857, 868-89 (N.D. Cal. 2004) (“[R]un-of-the-mill” statements such as “business remained ‘strong’ ” are not actionable under § 10(b)); In re LeapFrog, 527 F.Supp.2d at 1050 (vague statements such as “This is going to be a very big second half for us” were not actionable under § 10(b)); City of Royal Oak Ret. Sys. v. Juniper Networks, Inc., 880 F.Supp.2d 1045, 1064 (N.D. Cal. 2012) (statements that “[b]oth Verizon and AT & T are strong partners,” company has “strong demand metrics and good momentum” and “our demand, indicators are strong, our product portfolio is robust” are nonactionable statements of corporate optimism).

Here, the Court finds that statements A3, A4, A5, A6, B2, B4, B5, 'B8, and C5 are statements of corporate optimism. See Statement A3 (“We are actually extremely bullish for the US markets.”); Statement A4 (“I think well see a lot more growth in Q3, Q4 based on where the jobs are in progress right now”); Statement A5 (“So we’re highly optimistic about the US.... In our primary states, we very [sic] optimistic about our growth.”); Statement A6 (“[0]ur growth profile is going to be pretty darn big compared to most companies that are out there.”); Statement B2 (“Demand remained as strong as ever in California, continued to gather significant steam in the northeast markets of New York, Massachusetts, and Connecticut, and gained early traction following the launch of sales in Rhode Island and New Hampshire.”); Statement B4 (“we plan on closing out our first decade with greater strength, momentum and record results as well as set the stage for continued strong growth for 2016 and beyond.”); Statement B5 (“Q2 was an amazing quarter for So-larCity... .We are well on our way to achieve our 1 million customer goal.”; “I think we had a great Q2 and I expect an even better Q3... .[SolarCity is] growing extremely well.”); Statement B8 (“I’m very happy with our continued ability to scale and [unbelievably] incredibly strong, sales.”); Statement C5 (“Overall, I’m very excited about the business, and the strategy change.").

All of these statements are “vague statements of optimism” and “feel good monikers” that are not actionable. Police Retirement, 759 F,3d at 1060. Indeed, these statements are similar to statements this Court and other courts in this circuit have found to be nonactionable statements of corporate optimism. See Kelly v. Elec. Arts, Inc., 71 F.Supp.3d 1061, 1071 (N.D. Cal. 2014) (holding inactionable statement that the defendant “[is] certainly bullish as we come into' this platform generation. .’.”); In re Cutera, 610 F.3d at 1111 (approving “I am optimistic about Syntex’s performance during this decade’ ” as a nonactionable statement of corporate puf-fery (quoting In re Syntex Corp. Sec. Litig., 855 F.Supp. 1086, 1095 (N.D. Cal. 1994), aff'd, 95 F.3d 922 (9th Cir. 1996)); In re LeapFrog, 527 F.Supp.2d at 1050 (vague and amorphous statements such as “This is going to be a very big second half for us,” “Our underlying sell-through at the retail level remained very strong throughout the third quarter,” “consumer demand for our learning products is more vibrant than ever, and “We are pleased with our progreás” were not actionable under § 10(b)).

The Court notes that two of the above statements, statements B2 and B5, warrant further discussion. First, statement B2 stated: “Demand remained as strong as ever in California, continued to gather significant steam in the northeast markets of New York, Massachusetts, and Connecticut, and gained early traction following the launch of sales in Rhode Island and New Hampshire.” Although this statement referred to particular markets, the description of demand in these various markets is general and vague. Statement B2 stated that demand in California was “as strong as ever”; in the northeast, demand “gained significant steam”; and in Rhode Island and New Hampshire, So-larCity “gained early traction.” These statements merely express that SolarCity’s business is going well in these markets in a general and vague manner. This Court has previously held that similar statements were nonactionable statements of corporate optimism. See Juniper, 880 F.Supp.2d at 1064 (statements that “[b]oth' Verizon and AT & T are strong partners,” company has “strong demand metrics and good momentum” and “our demand indicators are strong, our product portfolio is robust” are nonactionable statements of corporate optimism). As this Court has previously held, general statements about demand “merely express confidence in [a company’s] business and outlook, [and that] such statements are simply vague assertions of corporate optimism and therefore are not actionable under the federal securities laws.” Id. Therefore, the Court finds statement B2 to be a nonactionable statement of corporate optimism.

Second, statement B5 stated: “Q2 was an amazing quarter for SolarCity... .We are well on our way to achieve our 1 million customer goal.”; “I think we had a great Q2 and I expect an even better Q3.... [SolarCity is] growing extremely well.” The Court acknowledges that a “1 million customer goal” is not vague or general. However, in this statement, Defendant Rive is not setting the goal but asserting that SolarCity was “well on its way” towards such a goal. In section III. A.l.c.i below, the Court addresses the “key operating metric” of Cumulative Customers, which indicated precisely how close to the 1 million customer goal SolarCity had come. The statement “well on our way,” in contrast, is a nonactionable “feel good moniker.” Police Retirement, 759 F.3d at 1060. Moreover, the statement “I think we had a great Q2 and I expect an even better Q3” is a statement of corporate optimism because statements like “great” and “better” are vague and general “feel good monikers.” Id. The fact that the statement is using Q2 as a benchmark for Q3 does not cause this statement to not be general and vague. See In re Cutera, 610 F.3d at 1111 (approving as nonactionable puffery statement that “we expect the second half of fiscal 1992 to be stronger than the first half, and the latter part of the second half to be stronger than the first” (quoting In re Syntex, 855 F.Supp. at 1095)).

Plaintiffs argue that the above statements are not mere statements of corporate optimism because (1) these statements were based on the “key operating metrics,” and (2) were false. However, a similar argument was made in Police Retirement, where the plaintiff argued that statements of optimism were “objectively verifiable and thus qualified] as material misstatements.” Police Retirement, 759 F.3d at 1060. The Ninth Circuit rejected this argument because the statements involved “ ‘feel good’ speak that characterizes ‘non-actionable-puffing.’ ” Id. Those feel good monikers included statements “(i) that the opportunity for system placement at hospitals ‘is still very, very large’; (ii) that there is potential for growth in the dVP market; (iii) that the company is ‘reservedly optimistic’ about sales; and (iv) wishing it had ‘a crystal ball,’ that Intuitive ‘will come out stronger’ and [is] ‘in a pretty good position’ despite the economic crisis.” Id. Police Retirement also referred to feel good speak from the Ninth Circuit’s Cut-era decision: “ ‘[N]one of our employees is represented by a labor union, and we believe our employee relations are good’ and ‘everything is clicking [for the 1990s]... new products are coming in a wave, not in a trickle... old products are doing very well.’ ” Id. (quoting In re Cutera, 610 F.3d at 1112). Similarly here, the above statements involve “feel-good” speak of the type discussed in Police Retirement and Cutera. Accordingly, the Court finds that statements A3, A4, A5, A6, B2, B4, B5, B8, C4, and C5 are nonactionable statements of corporate optimism, c. Adequacy of Allegations of Falsity

To assert a claim under the PSLRA, the plaintiff must plead with particularity, inter alia, the element of falsity. Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th Cir. 2009) “The PSLRA has exacting requirements for pleading ‘falsity.’ ” Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1070 (9th Cir. 2008). To satisfy these “exacting requirements,” a plaintiff must plead “specific facts indicating why” the statements at issue were false. Id.; Ronconi v. Larkin, 253 F.3d 423, 434 (9th Cir. 2001) (“Plaintiffs’ complaint was required to allege specific facts that show” how statements were false); see also In re Stratosphere Corp. Sec. Litig., 1997 WL 581032, at *13 (D. Nev. May 20, 1997) (to plead falsity, plaintiff must provide “evi-dentiary facts contemporary to the alleged false or misleading statements from which this court can make inferences permissible under Rule 9(b)”). Moreover, to be actionable, a statement must be false “at [the] time by the people who made them.” Larkin, 253 F.3d at 430. “The fact that [a] prediction proves to be wrong in hindsight does not render the statement untrue when made.” In re VeriFone Sec. Litig., 11 F.3d 865, 871 (9th Cir. 1993).

The Court addresses all of the statements in this section that the Court has not already found nonactionable as forward-looking statements in the -PSLRA’s safe harbor and as statements of corporate optimism. Specifically, the Court addresses (1) the key operating metrics in statements Al, Bl, B6, Cl, and D3, and statements omitting those key operating metrics from statements DI and E3, (2) Defendants’ explanations for missing their installation targets in quarter 4 of 2015 and quarter 1 of 2016, and Defendants’ explanation for lowering predictions for future installations, which are discussed in statements D4 and E2, (3) Defendants’ statements about SolarCity’s “capacity constraints” on installing the contracts that had not yet been installed, which are discussed in statements B7, C6, and C7, and (4) Defendants’ statements about FICO scores, which are discussed in statement B9. The Court addresses, each of these categories of statements in turn.

i. Operating Metrics

Plaintiffs challenge SolarCity’s “key operating metrics,” which are reproduced as statements Al, Bl, B6, Cl, and D3 in the instant order. Moreover, Plaintiffs challenge the omission of some of these metrics from the quarter 4 of 2015 and quarter 1 of 2016 reports, as described in statements DI and E3. Plaintiffs argue that the “key operating metrics” were a “sham” involving “smoke and mirrors.” Opp’n at 11. Specifically, Plaintiffs argue that the values for MW Booked, Cumulative Customers, Cumulative Energy Contracts, and Nominal Contracted Payments were artificially inflated because SolarCity- included contracts that were likely to be canceled because the contracts were obtained by deception, were of “low quality”, or were improperly retained in SolarCity’s database. Plaintiffs allege that these four operating metrics depended on the. number of executed contracts SolarCity had with customers. According to Plaintiffs, certain contracts in SolarCity’s database should not have been counted in these metrics because the contracts were extremely unlikely to result in the actual installation of a solar system.

Plaintiffs’ theory is similar to the theory -of the plaintiffs in Berson v. Applied Signal Tech., Inc., 527 F.3d 982 (9th Cir. 2008). In Berson, the defendant had signed a number of contracts to perform work for the U.S. government which accounted for approximately 30% of the defendant’s revenue for that fiscal year. Id. at 985. During the work, the U.S. government issued a “stop work” order on those contracts, which stopped -all work on the contracts. Id. Even though “stop work” orders essentially always meant that the contract would not be completed, the defendant reported the contract as part of its “backlog,” that is, the “anticipated revenues from the uncompleted portions of existing contracts.” Id. at 985t86. The plaintiffs alleged that this report of the backlog was false or misleading, and the Ninth Circuit agreed. Id.

Here, Plaintiffs attempt to rely on a similar theory of relief. Plaintiffs assert that “many” of the contracts in SolarCity’s database would never result in installations because (1) they were low quality contracts, (2) they were contracts obtained by deceiving customers, or (3) they were contracts that were improperly retained in SolarCity’s database. Thus, Plaintiffs allege that these excess contracts caused the reporting of the key operating metrics to be false or misleading.

However, Plaintiffs fail to “allege specific facts that show” how the key operating metrics were false. The Court first addresses a point of ambiguity about the difference between “initial” and “final” contracts in Plaintiffs’ allegations. The Court then discusses the three alleged means of artificial inflation—entering low quality contracts, entering contracts obtained by deceptions, and retaining old and inactive contracts—in turn. Finally, the Court addresses whether Defendants’ decision to stop reporting certain key operating metrics in quarter 4 of 2015 and quarter 1 of 2016 shows the falsity of those key operating metrics.

(1) Initial vs. Final Contracts

The Court notes that one of the confidential witnesses (“CWs”), CW5, refers to the existence of two types of contracts: (1) initial contracts that contemplate a site visit and an evaluation'of the customer’s house for a solar system installation and (2) final contracts to actually install the systems. See Compl. ¶ 89 (CW5 discussing the initial and final contracts). However, throughout Plaintiffs’ complaint, Plaintiffs refer to SólarCity contracts generally, and does not identify whether Plaintiffs are speaking about initial or final contracts. Indeed, Plaintiffs fail to provide essential information on initial and final contracts such as (1) whether the initial contracts are included in the key operating metrics, and if so, whether they affect those key operating metrics in the same manner as final contracts, and (2) whether the initial contracts, final contracts, or both were artificially inflated by Defendants’ alleged practices. Without such information, Plaintiff has failed to allege falsity of the key operating metrics with particularity.

(2) Low Quality Contracts

With respect to the low quality contracts in the system, Plaintiffs. do not allege (1) how many of the contracts in the system were “low quality,” and thus unlikely to lead to any installation, (2) what constitutes a “low quality” contract that is unlikely to be installed, (3) .how these low quality contracts affected the allegedly false metrics, or (4) whether the inflation in the number of contracts occurred contemporaneously with Defendants’ reporting of the hey operating metrics. Although Plaintiffs rely on statements from a number of CWs, these statements do not provide sufficient specificity. For example, CW1 states that “many of the contracts were ‘not high quality1 ” and that contracts were entered with “[cjustomers who did not have the necessary credit quality.” Id. ¶ 73. CW5 states that “[m]any of the contracts entered into by SolarCity were of