Generac Holdings, Inc.: Court dismisses complaint alleging COVID-related omissions

Generac Holdings, Inc. (Generac or the Company) is a publicly traded company that sells energy-related products, including power generators, solar power storage systems, home electricity controls, and gasoline-powered tools. During the COVID-19 pandemic, demand for Genrac's products, especially its home power generators, surged, which drove up Generac's stock price. As the pandemic continued, Generac could not keep up with orders, causing sales to stall and orders to decrease. As a result, Generac's stock dropped significantly. Generac eventually lost approximately 80% of its peak value. 

Following these events, a series of securities class action lawsuits were filed against Generac and certain of its officers and directors (Defendants). The suits were consolidated in the Eastern District of Wisconsin (the Court) with City Pension Fund for Firefighters and Police Officers in the City of Tampa Bay and City of Miami Fire Fighters and Police Officers' Retirement Trust appointed as lead plaintiffs (Lead Plaintiffs).

In the consolidated complaint (the Complaint), Lead Plaintiffs alleged that Defendants defrauded investors because, although Defendants accurately reported the Company's historic sales and orders for its products in Generac's SEC filings, Generac did not disclose three negative “trends”: (1) the weakening demand for Generac's generators; (2) a defect in SnapRS, one of Generac's solar energy products; and (3) the “overconcentration” of Generac's sales of solar energy products through a single distributor, Pink Energy. Defendants moved to dismiss the Complaint, asserting that Lead Plaintiffs failed to allege falsity or scienter. The Court dismissed the complaint, but allowed plaintiffs 30 days to file a further amended complaint to address the deficiencies.

The Court found that the “unnecessarily lengthy” 139-page Complaint failed to offer “specific plausible allegations of falsity, scienter, and materiality,” noting that Lead Plaintiffs “appear[ed] to be throwing everything at the wall in the hopes they [could] convince the Court that they have support for their fraudulent nondisclosure theories.”  The Court opined that this approach “serve[d] only to highlight Lead Plaintiffs' remarkable failure to identify any statement that was actually false.”

Specifically, the Court held that the Complaint failed to plead falsity with respect to the allegation that the Company failed to adequately disclose weakening demand for its generators. The Court held that Lead Plaintiffs “utterly fail[ed] to plausibly suggest that Defendants knew that demand was declining or that they were intentionally misleading investors about customers' demand for their product.”  The Court relying on the Seventh Circuit's holding in Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588, 597 (7th Cir. 2006) stated that Defendants' statements regarding their belief that demand for Generac's generators remained robust was not actionable because they are not “statements of objective fact that can support a claim for fraudulent misrepresentation or nondisclosure.”  The Court further stated, “[t]hat one out of several metrics might raise a question about demand does not mean that demand was falling.” The Court focused on “the multitude of accurate statements indicating that demand remained high,” which it found emphasized that the Complaint's “conclusory assertions to the contrary fail to satisfy their heavy burden.” The Court was likewise unpersuaded by Lead Plaintiffs' arguments that Generac had failed to disclose the ephemeral nature of the increase in demand due to COVID-19 and engaged in “channel stuffing,” i.e., shipping to a distributor more than the company believes it can sell. The Court held that the very statements cited by Lead Plaintiffs disclosed the uncertainty of COVID-19's impact and in any event, Lead Plaintiffs had not included sufficient factual allegations to support their claims.

The Court also found that Lead Plaintiffs failed to adequately plead scienter because “Defendants repeatedly disclosed to investors [that] the COVID-19 pandemic created unprecedented and unpredictable demand,” and without particularized allegations showing Defendants' knowledge as to when the demand would wane, the plaintiffs' allegations amounted to no more than “fraud by hindsight.” The Court noted, “[i]f these facts were sufficient to infer scienter, this necessary element would be satisfied in virtually every securities fraud case and the scienter requirements of the PSLRA would be rendered meaningless.”

The Court similarly rejected Lead Plaintiffs' second and third theories of fraud (concerning the SnapRS defect and the alleged dependency on Pink Energy), finding that Lead Plaintiffs had not alleged specific, particularized support that Defendants were aware of the alleged issues at the time the allegedly false and misleading statements were made. The Court added that the relatively small revenues generated by SnapRS and the concentration of solar energy sales in Pink Energy were immaterial.

In dismissing the Complaint without prejudice, the Court noted, “misfortune does not necessarily equate with fraud. Lead Plaintiffs' overly long Consolidated Amended Complaint is heavy in the sheer number of allegations and in its conclusory accusations of fraud. But the pleading is light on specific plausible factual allegations supporting a claim of actual securities fraud against any of the three Defendants.” 

The plaintiffs were granted leave to amend, and they filed an amended consolidated complaint on March 10, 2025, which largely relied on statements the Court had already rejected. The parties are currently engaged in briefing Defendants' motion to dismiss.

In this matter, the Court made the important observation that “no reasonable investor would have believed the surge in demand from the pandemic would continue indefinitely.” The Court's commentary that “misfortune does not necessarily equate with fraud” is helpful for corporate defendants; the fact that shareholders are displeased with a company's financial footing is not necessarily fraud, nor can it be used to support a claim of “fraud by hindsight.”

Authored by Allison M. Wuertz, Anne C. Kim, Jacey Gottlieb, and Danica Murthy.