The Power Authority of the State of New York, ex rel. Solar Liberty Energy Systems, Inc. v. Advanced Energy Industries, Inc.

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
THE POWER AUTHORITY OF THE STATE
OF NEW YORK, ex rel. SOLAR LIBERTY
ENERGY SYSTEMS, INC,
Plaintiff,
v.
ADVANCED ENERGY INDUSTRIES, INC.,
Defendant.
REPORT AND
RECOMMENDATION
Case No. 1:19-cv-1542-LJV-JJM
This is a qui tam action in which plaintiff/relator Solar Liberty Energy Systems,
Inc. seeks recovery on behalf of the Power Authority of the State of New York (“NYPA”) for
allegedly defective solar inverters sold by defendant Advanced Energy Industries, Inc. (“AE”) to
Solar Liberty, which then installed them at New York City schools pursuant to contracts with the
NYPA. Before the court is AE’s motion for sanctions [160]1 which has been referred to me by
District Judge Lawrence J. Vilardo for initial consideration [47].
AE argues that Solar Liberty “engaged in serious litigation misconduct by
improperly offering and actually providing financial and other inducements to a fact witness in
exchange for favorable testimony” - namely, “that Solar Liberty’s President/CEO and majority
owner, Adam Rizzo, a licensed attorney, made multiple offers and provided consideration
(including through payment of personal legal fees) to a former [AE] employee and fact witness,
Norman Smith, to get him ‘on our side’ and provide an affidavit that ultimately formed the basis
of Solar Liberty’s core allegations in this action”. AE’s Memorandum of Law [161-27] at 6. AE
1 	Bracketed references are to CM/ECF docket entries, and page references are to CM/ECF
pagination.
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seeks dismissal of Solar Liberty’s claims and an award of its fees and costs, or in the alternative,
precluding Solar Liberty “from offering Mr. Smith as a witness, offering Mr. Smith’s affidavit
into evidence, questioning any witness about Mr. Smith’s affidavit or the information contained
therein, or offering any other evidence arising from Mr. Smith’s assertions”. Id. at 30.
Having reviewed the parties’ submissions [160, 161, 165, 169, 172, 175, 176] and
heard oral argument on August 27, 2024 [177], for the following reasons I recommend that the
motion be denied.
BACKGROUND
During a March 30, 2018 teleconference with Adam Rizzo (Solar Liberty’s
president) and Bryant Carlson (an electrical engineer at Solar Liberty) concerning problems with
AE’s inverters, AE’s technical support representative, Norman Smith, made several statements
indicating that AE was responsible for the defective inverters: “I really feel for you guys, but I
think you’re fighting a battle that’s not yours, and I understand it might be complicated, you’re
probably in chest deep at this point, but get the f**k out of there and throw it in the AE. You
know? I’d love for somebody to do that” ([169-45] at 5); “[t]hey deal in deception” (id. at 10);
“I’m kind of telling you how it is. Right? [AE] doesn’t care about if it works or it doesn’t
f**king work” (id. at 11); “I can’t be a whistleblower . . . . I mean, I would love to . . . . And that
day will probably come” (id. 13); “our systems are all f**ked up” (id. at 14); “I don’t want to
stick around here and work for [AE] forever . . . . I can’t live in deception, but I need a little bit
of money. So I’m gonna stick around and make some and then get the hell out of here” (id. at
16); “I’ve just taken ten calls on three TL inverters, and my common sense tells me, that’s not a
customer fault, that’s a f**king design fault. Right? Um, but I have to walk the official line, and
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then I do it. . . . But, my inner [gut] tells me, Hey, there is a problem here. Right? . . . . So, I take
the path of least resistance, so do all of us” (id. at 22).
By letter dated April 6, 2018 [172-2], Solar Energy’s attorney, Heath Szymczak,
furnished AE with a settlement demand, and directed it to preserve evidence in anticipation of
possible litigation. On April 27, 2018 Szymczak e-mailed AE’s assistant general counsel, Steven
Mason, stating “I think it would be beneficial to set up a call with the tech guys to flush these
issues out and try to come up with a solution short of litigation . . . . Solar Liberty has been
working with AE’s Norm Smith on these issues so it might make sense to have him on the call.”
[172-3] at 4.
On May 9, 2018 Bryant Carlson e-mailed Adam Rizzo, stating: “You won’t
believe who I just got a phone call from - Norm at AE - he was let go today. He has a suspicion
its due to our conversation a few weeks back, and wanted to speak to us with the intention of
finding out if we had any info for him and if he could be of any further help to us. I told him that
conversation had personally been my last contact with AE but we were continuing to pursue a
remedy for our predicament, so I wouldn’t be surprised if the firing had something to do with
that. I let him know you might be interested in having a conversation with him and that I would
pass his contact info on. I didn’t mention anything about the litigation plans . . . but I’m sure
Norm would be a good person to have on our side through the process.” [160-3] at 2.
Later that day, Rizzo and Szymczak held a teleconference with Smith, who told
them that he “was called to a one-on-one yesterday at 2:00 p.m., and they just read off my - my
separation agreement and said my last day was Friday. So that happened yesterday . . . . No
discussion whatsoever.” [161-5] at 5. Rizzo said “other than asking to have to speak to
you as a technician, I don’t know what else they would have known about our conversation
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because we never disclosed it to them”, to which Smith responded “I’m not inferring,
nor would I care if it was disclosed . . . . Because it’s the truth . . . . I know I did the right action”.
Id. at 8. “I feel terrible working there, and I see so many injustices . . . . If there’s anybody . . .
who wants to step up, I will gladly help them and that’s why I reached out to Bryant this
morning.” Id. at 9.
At that point Rizzo stated: “Well, I think you can really help us, and I think
there’s things that can help you as well, personally, because I think what’s happened here is
wrong”. Id. at 9-10. Szymczak2 stated: “I’d encourage you to talk with an attorney. You know,
we might be able to represent you, or I could at least talk with you, if not represent you, and try
to, you know, give you some guidance that might be helpful to you, or I could help, you know, I
know some attorneys that I could set you up with to see, explore if you want to pursue
anything . . . . [W]e don’t want to leave you out hanging to dry. I know you’ve been
very helpful to this date, and certainly want to help you in any way we can.”
When Smith stated that he “wouldn’t have money to . . . do any of
that”, Rizzo asked Szymczak “if it’s something that someone would ever take on a contingency”,
who responded “Yeah, it’s possible”. Id. at 12, 14. Szymczak told Smith “if we’re able to help
you, we certainly will”. Id. at 16. Rizzo then asked Smith if he would “be willing to give us
a statement to support our case”, and Smith responded “I would, yeah. I definitely
would . . . . [N]othing to withhold here. I would not have spoken to you in the way I did if I
didn’t feel passionately about this”. Id. at 18. Szymczak suggested that he “could put something
together and I could . . . send that out to you just for you to take a look at, and you’re free to
change it or do whatever you want with it, so you’re comfortable with it”. Id. at 18.
2 	The transcript misidentifies him as “Keith” rather than “Heath”.
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“[A]s agreed to in the phone call . . . Szymczak prepared the Affidavit of Norman
Smith following a lengthy consultation with Norman Smith”. AE’s Memorandum of Law [161-
27] at 12. Smith signed the affidavit on May 16, 2018 [160-9]. “Mr. Rizzo then began
forwarding information on attorneys Solar Liberty was contacting for Mr. Smith’s wrongful
termination case. Mr. Rizzo had Solar Liberty’s outside counsel initiate the outreach to, and
screening of, the attorney ultimately secured on behalf of Mr. Smith, and then Mr. Rizzo directly
paid the attorney’s consultation fee.” AE’s Memorandum of Law [161-27] at 13-14.
Rizzo explains that “[r]oughly three weeks after Mr. Smith signed his affidavit, I
received an email from the counsel that Mr. Smith had chosen to represent him on a contingency
basis asking that I pay his $300 initial consultation fee. I had no idea that a lawyer taking on a
case on a contingent basis would even require a ‘consultation fee’. As Mr. Smith had not even
spoken to this attorney at the time he signed his affidavit, it simply never came up. Nevertheless,
I thought helping Mr. Smith obtain legal representation to help him protect himself from further
abuse by AE was simply the right thing to do.” Rizzo affidavit [169-44], ¶¶20-21. He testified
that he “felt extremely bad for [Smith], because I felt that him talking to Solar Liberty was the
reason he was terminated from AE’s employment . . . . And so I wanted to help him any way I
could by . . . getting an attorney”. [161-4] at 22, 23.
“In October 2023, [AE]’s counsel requested updated contact information for Mr.
Smith and indicated an intent to depose him . . . . In an October 18, 2023 email, Mr. Rizzo
alerted Mr. Smith to the potential deposition and in the same breath offered to help with Mr.
Smith’s business: ‘You may get a letter from the other side looking to take your deposition, but
I’m not sure yet. Maybe I can help you market your sugar in US?’” AE’s Memorandum of Law
[161-27] at 16 (emphasis in original). “Mr. Rizzo offered two more times over the next day in
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communications that continued to discuss the logistics of Mr. Smith’s deposition: ‘Also, let me
know if you think we could help you market your sugar!’ and ‘Is there anything I can do to assist
you in getting your business off the ground?’ . . . . Over the next few days . . . Mr. Rizzo offered
a more precise inducement - a business plan for Mr. Smith at no charge.” Id. at 16-17.
AE further argues that “[n]otwithstanding its direct discovery requests in 2021 for
information regarding the Smith Affidavit, [AE] was kept in the dark about the quid pro quo
arrangement until the end of January 2024. In particular, the recording of the May 2018 phone
call between Solar Liberty and Mr. Smith was not produced until January 30, 2024”. AE’s
Memorandum of Law [161-27] at 18. Rizzo responds that “[o]n December 20, 2023, I was
looking in my desk drawer for a file folder that contained password information and came across
an old Dictaphone that I had completely forgotten about. When I saw it, I vaguely recalled that I
had recorded some conversations with AE back when the problems with the inverters were being
discussed some five years earlier, so I began listening to what was on it. As soon as I realized
that there were recordings on it that could be relevant to this lawsuit, I immediately (i.e., that
day) called my attorneys and let them know that I had found it so they could determine whether
the recordings were responsive to any discovery requests that AE had made, whether they were
of any use to Solar Liberty in the lawsuit, etc. Mr. Szymczak personally picked the Dictaphone
up from me on or about December 27, 2023.” Id., ¶¶25-26.
Szymczak states that he dropped off the audio recorder to an outside forensic
vendor on January 2, 2024, that the audio files were made available to his firm on January 10,
2024, that on January 11, 2024, he notified AE’s attorneys that “we have recently come across
additional materials relating to Norm Smith and are reviewing those for responsiveness to AE’s
demands. Should those materials need to be produced, you would probably want to review them
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prior to Norm’s deposition”, and that the audio files were produced to for AE’s attorneys on
January 30, 2024, allowing ample time for review in advance of both Rizzo’s April 17, 2024
deposition and Smith’s April 30, 2024 deposition. Szymczak Declaration [169], ¶¶47-51. I credit
Solar Liberty’s explanation for the delay in producing the recordings.
DISCUSSION
AE states that “[t]his Motion is not a test of the merits of Solar Liberty’s
allegations, and the substance of Mr. Smith’s assertions is irrelevant to the question of whether
Solar Liberty’s conduct in offering inducements to Mr. Smith was contrary to the law and ethical
rules.” AE’s Reply Memorandum [175-8] at 10. It relies upon Rule 3.4(b) of New York’s Rules
of Professional Conduct (22 N.Y.C.R.R. §1200.0) and the federal anti-gratuity statute, 18 U.S.C.
§201(c)(2), both of which prohibit the offering of anything of value to a witness for the purpose
of influencing that witness’s testimony.
AE argues that “[c]ourts have inherent power and discretion to impose sanctions
for abuse of the judicial process, including through unethical behavior such as improper
payments or offers to fact witnesses”. AE’s Memorandum of Law [161-27] at 22. Inherent
powers “are governed not by rule or statute but by the control necessarily vested in courts to
manage their own affairs so as to achieve the orderly and expeditious disposition of cases.”
Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991). “Because of their very potency, inherent
powers must be exercised with restraint and discretion.” Id. at 44. “[I]nherent power sanctions
must be supported by a finding of subjective bad faith . . . . The conduct at issue must be (1)
entirely without color and (2) motivated by improper purposes.” AE’s Memorandum of Law
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[161-27] at 22, quoting Wolters Kluwer Financial Services, Inc. v. Scivantage, 564 F.3d 110,
114 (2d Cir. 2009).
The finding of subjective bad faith must be supported by “clear and convincing
evidence”, Mills v. Genesee County, 2014 WL 61239, *7 (W.D.N.Y.), aff’d, 588 F. App’x 36
(2d Cir. 2014), meaning “evidence is evidence that satisfies the factfinder that it is highly
probable that what is claimed actually happened”. Loreley Financing (Jersey) No. 3 Ltd. v. Wells
Fargo Securities, LLC, 13 F.4th 247, 260 (2d Cir. 2021). “[A] mere preponderance of the
evidence is not enough.” Hotchner v. Castillo-Puche, 551 F.2d 910, 913 (2d Cir. 1977). Such
evidence must “enable the factfinder to come to a clear conviction, without hesitancy, of the
truth of the precise facts in issue”. Blair v. Inside Edition Productions, 7 F. Supp. 3d 348, 358
(S.D.N.Y. 2014).
AE argues that “Solar Liberty’s conduct . . . was motivated by improper purpose
because it served to influence Mr. Smith’s testimony and, at a minimum, make him sympathetic
to Solar Liberty’s case.” AE’s Memorandum of Law [161-27] at 22. Determining whether
actions were motivated by an improper purpose amounting to subjective bad faith “is a fact-
intensive inquiry”. Colgate-Palmolive Co. v. Lanfranchi North America, Inc., 2020 WL
5440554, *6 (S.D.N.Y. 2020); In re Inwood Heights Housing Development Fund Corp., 2011
WL 3793324, *11 (Bk. S.D.N.Y. 2011).
Having made that inquiry, I am not clearly and convincingly persuaded that Solar
Liberty’s dealings with Smith were motivated by an improper purpose, or that it acted with
subjective bad faith. Solar Liberty had no need to make Smith sympathetic to its case, since
Smith’s statements during the March 30 teleconference demonstrated that he was already
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sympathetic to Solar Liberty’s position - and once AE terminated him from employment, he
contacted Solar Liberty and told them that he was willing to help.
Clear and convincing evidence “is neither equivocal nor open to opposing
presumptions”, Loreley Financing, 13 F.4th at 260, and “it is presumed that plaintiffs will not
willingly violate the law”. Price v. City of Seattle, 2005 WL 8172772, *2 (W.D. Wash. 2005);
31A C.J.S. Evidence §225 (“there is a presumption in favor of . . . compliance with the law”).
AE has not overcome that presumption: while it is possible that Solar Liberty was attempting to
influence Smith’s testimony, it appears far more likely that it was attempting to help Smith
because, as Rizzo testified, he believed that Solar Liberty was in some way responsible for his
termination from employment.
Therefore, AE has not satisfactorily demonstrated that Solar Liberty engaged in
sanctionable conduct. However, even if I were to conclude that it did, I would not recommend
dismissal of Solar Liberty’s claims, or preclusion of Smith’s testimony. Since AE does not
question the validity of that testimony for purposes of this motion, those remedies would be too
harsh. See States v. Quest Diagnostics Inc., 734 F.3d 154, 166 (2d Cir. 2013) (“dismissal or
disqualification for violations of ethical rules may impede the pursuit of meritorious litigation to
the detriment of the justice system . . . . Accordingly, courts must balance these competing
concerns by limiting remedies for ethical violations to those necessary to avoid tainting the
underlying trial”).
As Solar Liberty suggests, if there are concerns that the alleged inducements
“may have influenced [Smith’s] testimony and thereby affected his credibility . . . the proper
course of action is to allow a factfinder to make that determination - not for the Court to ordain
it”. Solar Liberty’s Memorandum of Law [169-49] at 42.
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CONCLUSION
For these reasons, I recommend that AE’s motion for sanctions [160] be denied.
Unless otherwise ordered by District Judge Vilardo, any objections to this Report and
Recommendation must be filed with the clerk of this court by November 12, 2024. Any requests
for extension of this deadline must be made to Judge Vilardo. A party who “fails to object timely
. . . waives any right to further judicial review of [this] decision”. Wesolek v. Canadair Ltd., 838
F. 2d 55, 58 (2d Cir. 1988); Thomas v. Arn, 474 U.S. 140, 155 (1985).
Moreover, the district judge will ordinarily refuse to consider de novo arguments,
case law and/or evidentiary material which could have been, but were not, presented to the
magistrate judge in the first instance. Patterson-Leitch Co. v. Massachusetts Municipal
Wholesale Electric Co., 840 F. 2d 985, 990-91 (1st Cir. 1988).
The parties are reminded that, pursuant to Rule 72(b) and (c) of this Court’s Local
Rules of Civil Procedure, written objections shall “specifically identify the portions of the
proposed findings and recommendations to which objection is made and the basis for each
objection . . . supported by legal authority”, and must include “a written statement either
certifying that the objections do not raise new legal/factual arguments, or identifying the new
arguments and explaining why they were not raised to the Magistrate Judge”. Failure to comply
with these provisions may result in the district judge’s refusal to consider the objections.
Dated: October 28, 2024
/s/Jeremiah J. McCarthy
JEREMIAH J. MCCARTHY
United States Magistrate Judge
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