Ironridge shareholders sue Esdec over 2019 merger, allege fraud

The shareholders have filed a lawsuit alleging that Esdec concocted a plan to defraud them and has been avoiding buyout payments.

January 13, 2021 Tim Sylvia

Image: Ironridge

Case managers are slated to confer in March on a lawsuit filed by shareholders of solar services company Ironridge, which was sold in 2019 to Esdec. The complaint alleges that Esdec engaged in fraud and refused to meet terms of the buyout agreed to in the companies’ merger.

The lawsuit alleges that Esdec showed “contempt” towards the company’s deal partners, including its refusal to pay the initial $72 million buyout price, as well as an additional $3 million promised to shareholders if IronRidge met agreed-to performance requirements.

The filing also alleges that instead of paying, “Esdec reneged on the deal and concocted a plan to defraud the Stockholders into deferring receipt of that money and falsely promising” that Esdec would pay nearly $2 million related to certain tax credits.

Esdec did not respond to a request from pv magazine USA for comment.

The acquisition was originally announced in September 2019 along with a separate deal in which Esdec acquired Quick Mount PV. Esdec said the mergers represented more than 60% share of the residential mounting market, with annual revenue of over $250 million.

The lawsuit claims that Esdec required all of the approximately $5 million to be placed into an escrow account to serve as security for any indemnification claims (compensation for harm or actions taken in bad faith) Esdec might make, in addition to $3.72 million already placed into escrow to provide security to Esdec.

An escrow account is one where assets or money are held by a third party on behalf of two other parties that are in the process of completing a transaction.

That sum was to be paid out by March. But in the shareholder suit that was filed in October, Esdec allegedly knew that the deadline was approaching, and made plans to siphon as much of that escrowed money out of the deal by making inflated indemnification demands against that money, among other alleged tactics.

According to the lawsuit, Esdec began by raising tax-related issues that the company claimed created a possible risk of tax liability to Esdec and/or the surviving IronRidge entity. It then allegedly refused to pay the earn-out until those issues were addressed.

The lawsuit said the shareholders agreed to modify the agreement, moved more money into escrow, and deferred the payment due date until 2023.

The shareholders alleged that Esdec’s actions illustrate that it had no intent to abide by the agreement. The alleged actions include:

Esdec making up “bogus excuses” to avoid paying the $3 million earnout, even after the shareholders provided Esdec with IRS forms that eliminated the possible tax exposure risk that Esdec claimed existed.
Esdec submitting an “outlandishly inflated” demand for indemnification in an attempt to move money out of the escrow account.
Esdec allegedly continuing to take “unreasonable and baseless” positions to avoid paying the shareholders the full amounts they are due.

Shareholders are asking that the amendment to the merger agreement be rescinded and cancelled. Esdec has filed a demurrer to the complaint, essentially denying the complaint.

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