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Note 15 - Commitments and Contingencies | 9 Months Ended
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Sep. 30, 2023
Notes to Financial Statements |
Commitments and Contingencies Disclosure [Text Block] | 15. Commitments and Contingencies The Company has an arrangement with a finance company to provide floor plan financing for certain dealers. The Company receives payment from the finance company after shipment of product to the dealer. The Company participates in the cost of dealer financing up to certain limits and has agreed to repurchase products repossessed by the finance company, but does not indemnify the finance company for any credit losses they incur. The amount financed by dealers which remained outstanding under this arrangement on September 30, 2023, and December 31, 2022, was $168.5 million and $212.2 million, respectively. On August 1, 2022, Power Home Solar, LLC d/b/a Pink Energy (“PHS”) filed a lawsuit in the Western District of Virginia against Generac Power Systems, Inc., a wholly-owned subsidiary of the Company (“Generac Power”). The complaint alleges breaches of warranty, product liability, and other various causes of action against Generac Power relating to the sale and performance of certain clean energy equipment and seeks to recover damages, including consequential damages, that PHS allegedly incurred. The Company disputes the allegations in the complaint, including that PHS can seek consequential damages or amounts greater than the $25.0 million liability cap set forth in the agreement between the parties. On September 23, 2022, Generac Power moved to dismiss the complaint and compel arbitration consistent with the parties’ agreement. On October 7, 2022, PHS filed a Chapter 7 bankruptcy petition in the Western District of North Carolina that identified Generac Power as one of its outstanding creditors. The petition listed a $17.7 million liability to Generac Power, which PHS characterized as disputed. The $17.7 million claim relates to equipment that Generac Power sold to PHS but was not paid for. After filing of the bankruptcy petition, the parties filed a joint motion to toll PHS’s deadline to respond to the motion to dismiss and all other pretrial deadlines to allow the bankruptcy trustee to evaluate the complaint, which motion was granted on October 11, 2022. The Trustee has not yet taken further action in this lawsuit. Generac Power intends to vigorously defend against the claims in the complaint, in whichever forum they may proceed. On October 28, 2022, Daniel Haak filed a putative class action lawsuit against Generac Power in the Middle District of Florida. The complaint alleges breaches of warranty, tort-based, and unjust enrichment claims against Generac Power relating to the sale and performance of certain clean energy products, and seeks to recover damages, including consequential damages, that the plaintiff and putative class allegedly incurred. Generac Power disputes the allegations and intends to vigorously defend against the claims in the complaint, including that plaintiff and the putative class can seek consequential damages. Eight additional putative class actions were filed by consumers of Generac clean energy products between November 21, 2022 and July 5, 2023. These complaints assert claims for breaches of warranty, tort-based, statutory, and unjust enrichment claims against Generac Power and/or the Company and seek to recover damages, including consequential damages, that plaintiffs and putative classes allegedly incurred. In some of these cases, the Company as well as Generac Power has been named as a defendant. The cases were filed in or removed to the federal district courts for the Eastern District of Wisconsin (Basler, et al. v. Generac Power Systems, Inc., Case No. 22-cv-01386; Dillon v. Generac Power Systems, Inc., Case No. 23-cv-00034; Kates v. Generac Power Systems, Inc., et al., Case No. 23-cv-00892; and Zukas, et al., v. Generac Power Systems, Inc., et al., Case No. 23-cv-00874), the Northern District of California (Moon v. Generac Power Systems, Inc., et al., Case No. 22-cv-09183; Hufton, et al., v. Generac Power Systems, Inc., et al., Case No. 23-cv-02462), the Eastern District of California (Locatell v. Generac Power Systems, Inc., et al., Case No. 23-cv-00203), and the Eastern District of North Carolina (Baltimore, et al. v. Generac Power Systems, Inc., Case No. 23-cv-00217). Generac Power and the Company dispute the allegations and intend to vigorously defend against the claims in the complaints. On March 3, 2023, the plaintiff in the Moon case filed a motion (the “MDL Motion”) to transfer that case and other pending putative class actions seeking relief for alleged harm purportedly arising in connection with a Generac clean energy product, to a proposed multidistrict litigation. The Judicial Panel on Multidistrict Litigation issued orders that ultimately resulted in all of the putative class actions being coordinated and consolidated for pretrial proceedings in the Eastern District of Wisconsin. Plaintiffs filed their consolidated master complaint on September 1, 2023, and the Company moved to dismiss on October 31, 2023. Generac Power and the Company intend to vigorously defend against the consolidated master complaint. On December 1, 2022, Oakland County Voluntary Employees’ Beneficiary Association and Oakland County Employees’ Retirement System filed a putative securities class action lawsuit against the Company and certain of its officers in the Eastern District of Wisconsin. On January 20, 2023, the California Ironworkers Field Pension Trust filed a related putative securities class action, also in the United States District Court for the Eastern District of Wisconsin. Both complaints assert claims for alleged violation of federal securities law related to disclosures of quality issues in Generac Power’s clean energy product, reliance on channel partners, and accounting for warranty reserves. The plaintiffs seek to represent a class of individuals who purchased or otherwise acquired common stock between April 29, 2021 and November 1, 2022 and seek unspecified compensatory damages and other relief on behalf of a purported class of purchasers of the Company’s stock. On March 14, 2023, the court consolidated the two actions. On May 30, 2023, the court appointed a lead plaintiff. On July 31, 2023, the lead plaintiff filed a consolidated complaint, which raised an additional claim for alleged violation of federal securities law related to the Company’s disclosures concerning demand for home standby generators. The Company moved to dismiss the consolidated complaint on October 9, 2023. The Company disputes the allegations in the operative consolidated complaint and intends to vigorously defend against the claims in the consolidated class action. On February 3, 2023, a purported Company shareholder filed a shareholder derivative action against certain of the Company’s officers and directors in the United States District Court for the Eastern District of Wisconsin. The complaint seeks unspecified damages on behalf of the Company and certain other relief, such as certain reforms to corporate governance practices. The complaint (in which the Company is named as a nominal defendant) generally alleges, among other things, breaches of fiduciary duties in connection with the oversight of the Company’s public statements and legal compliance, and that the Company was damaged as a result of the breaches of fiduciary duties, and the defendants were unjustly enriched. The complaint also alleges, among other things, violations of Sections 14(a), 10(b) and 20(a) of the Securities Exchange Act of 1934, abuse of control, gross mismanagement, and waste of corporate assets. On March 6, 2023, a second shareholder derivative action, making substantially similar allegations, was filed in the same court against certain of the Company’s officers and directors. The complaint (in which the Company is named as a nominal defendant) asserts a single claim for breach of fiduciary duty and seeks unspecified damages on behalf of the Company and certain other relief. On May 2, 2023, the court consolidated the two actions. On May 30, 2023, the court entered an order staying the consolidated action. Between March 20, 2023, and April 11, 2023, three shareholder derivative actions were filed in the Circuit Court of Waukesha County, Wisconsin. The complaints (in which the Company is named as a nominal defendant) assert breaches of fiduciary duty and unjust enrichment, among other claims, based generally on alleged misrepresentations in the Company’s public statements and filings relating to the Company’s clean energy product, reliance on channel partners, and accounting for warranty reserves, among other allegations. Each complaint seeks unspecified damages on behalf of the Company and certain other relief, including certain corporate governance reforms. On June 1, 2023, the court entered an order consolidating the three actions, appointing lead plaintiffs’ counsel, and staying the consolidated actions. The Company disputes the allegations in the shareholder derivative actions and intends to vigorously defend against the claims in the complaints. On October 28, 2022, Generac Power received a grand jury subpoena from the U.S. Attorney for the Eastern District of Michigan, as a result of which the Company became aware of an enforcement investigation by the U.S. Department of Justice (“DOJ”). The subpoena requests similar documents and information provided by the Company to the U.S. Environmental Protection Agency (“EPA”) and the California Air Resources Board (“CARB”) in response to civil document requests related to the Company’s compliance with emissions regulations for approximately 1.85 thousand portable generators produced by the Company in 2019 and 2020 and sold in 2020. The Company is cooperating with both the DOJ and the EPA and CARB inquiries. On November 30, 2022, the U.S. CPSC notified the Company of its intention to recommend the imposition of a civil penalty for failing to timely submit a report under section 19(a)(4) of the CPSA, 15 U.S.C. § 2068(a)(4), in relation to certain portable generators that were subject to a voluntary recall previously announced on July 29, 2021. On May 3, 2023, the parties entered into a mutual settlement agreement. The agreement does not constitute an admission by Generac or a determination by the CPSC that Generac violated the CPSA. The terms of the settlement agreement require the Company to (i) abide by certain customary agency requirements regarding the ongoing commitment to the Company’s internal CPSA compliance practices and program, and (ii) pay a civil fine of $15.8 million. On July 21, 2023, Generac Power received a grand jury subpoena from the U.S. Attorney for the Eastern District of Wisconsin, as a result of which the Company became aware of a continuing inquiry by the DOJ related to its statutory obligations under the CPSA in connection with this matter. The Company is cooperating fully with this investigation and, at this time, is unable to predict the eventual scope, duration or final outcome of such investigation. In 2019, EcoFactor, Inc. started a litigation campaign against smart thermostat manufacturers, including ecobee, Inc., which was acquired by the Company in 2021. EcoFactor accused ecobee of infringing its patents in three lawsuits filed in the United States District Court for the Western District of Texas and one lawsuit pending in the United States District Court for the District of Delaware. On June 23, 2023, a jury issued a verdict in a consolidated action in the Western District of Texas (Case Nos. 21-cv-00428-ADA and 20-cv-00078-ADA) finding that ecobee infringed one of the two patents at issue and awarded a lump-sum payment of $5.4 million for past and future damages. On August 23, 2023, the court issued its final judgment in favor of EcoFactor for $5.4 million, on a total lump-sum basis, together with interest and costs. ecobee filed a motion for judgment as a matter of law and intends to appeal the judgment. There are presently two remaining trials involving EcoFactor. EcoFactor claims ecobee infringes two patents in Case No. 22-cv-00033-ADA, which is scheduled for a jury trial in the Western District of Texas on September 16, 2024, and accuses ecobee of infringing three patents in Case No. 21-cv-00323-ADA, which is currently scheduled for trial on December 11, 2023, in the District of Delaware. ecobee denies infringement and intends to vigorously defend each of the lawsuits. On March 8, 2022, Ollnova Technologies Limited, a non-practicing entity, filed a patent infringement lawsuit against ecobee in the United States District Court for the Eastern District of Texas (Case No. 22-cv-00072-JRG). Ollnova claimed that ecobee infringes on four of its patents. On October 5, 2023, a jury issued a verdict finding one of Ollnova’s patents invalid and that ecobee infringed at least one of the claims of the asserted patents and awarded a lump-sum payment of $11.5 million. ecobee intends to file motions for judgment as a matter of law and an appeal of any adverse verdict. On June 9, 2023, Spartronics Vietnam, Inc., a contract manufacturer of Generac Power’s clean energy products, filed two lawsuits against Generac Power and sub-suppliers accusing Generac Power of fraud, breaching its supply agreement with Spartronics, tortiously interfering with Spartronics’ relationships with its sub-suppliers, and requesting a determination of rights under the parties’ agreements (Spartronics Vietnam, Inc. v. Generac Power Systems, Inc., et al., Case No. 23-cv-00957-MWB (M.D. Pa.); Spartronics Vietnam, Inc. v. Generac Power Systems, Inc., et al., Case No. GD-23-7206 (Pa. Allegheny Cnty.)). Spartronics made similar claims against Generac Power in third-party complaints in lawsuits Spartronics is defending brought by its suppliers (EXIM & Mfr Enter. v. Spartronics Vietnam, Inc., Case No. 23-cv-00660-MWB (M.D. Pa.); JC Global, Inc. v. Spartronics (M.D. Fla. 23-cv-1155); and Circuit Interruption Tech. v. Spartronics Vietnam, Inc., Case No. 23-cv-2140-WMW-DLM (D. Minn.)). Generac Power denies the allegations in the complaints, including that Generac Power is responsible for Spartronics purchasing practices, and has sought and will seek dismissal of the actions in favor of arbitration, as required by Generac Power’s supply agreement with Spartronics, and intends to pursue available claims in connection with the arbitration. In the opinion of management, it is presently unlikely that any legal or regulatory proceedings pending against or involving the Company will have a material adverse effect on the Company’s financial condition, results of operations or cash flows. However, in many of these matters, it is inherently difficult to determine whether a loss is probable or to estimate the size or range of the possible loss given the variety and potential outcomes of actual and potential claims, the uncertainty of future rulings, the behavior or incentives of adverse parties, and other factors outside the control of the Company. Accordingly, the Company’s loss reserves may change from time to time, and actual losses could exceed the amounts reserved by an amount that could be material to the Company’s consolidated financial position, results of operations or cash flows in any particular reporting period.

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