Just a few months ago, Newsome Melton announced a pivotal victory in the putative nationwide class action against Lumio HX Inc. after the Court granted leave to file an amended complaint expanding the claims. The expanded claims include allegations that Lumio violated the Federal Racketeer Influenced and Corrupt Organizations Act (RICO) as well as state consumer protection laws by overstating energy savings, misrepresenting tax credits as “rebates,” and employing high-pressure sales tactics designed to bypass essential consumer disclosures and “cool-off” cancellation rights. Lumio’s actions were allegedly part of a coordinated effort with other individuals and organizations, including financial institutions, collectively referred to as the “Lumio Enterprise” in the complaint.
Just a few months later, on September 3, Lumio filed for bankruptcy, seeking to reorganize and wipe the proverbial slate clean. But rest assured: we are not backing down. We fully intend to continue the fight on all available fronts and seek accountability on behalf of those we believe have been defrauded by the Lumio Enterprise. And we have experience in this area—another solar company we sued in a nationwide class action, Vision Solar, also recently declared bankruptcy. We’ve learned from that process and are in a firm position to hit the ground running in this latest solar bankruptcy.
The Bankruptcy Proceeding: A New Battlefield
Lumio’s September 3 bankruptcy petition identifies a new company—LHX Home Services LLC—that intends to “purchase substantially all” of Lumio’s assets. Lumio hopes this transaction will be effectuated through the bankruptcy, as spelled out in a series of motions it filed along with the bankruptcy petition. The motions further specify that Lumio hopes to complete the sale process in less than two months—by mid-October.
The proposed deal would largely be “financed” by a “credit bid” from White Oak Global Advisors. Air quotes are necessary because the $100 million “purchase price” would reflect debt that White Oak claims Lumio already owes it. This debt potentially dates back to Lumio’s founding, as press releases from 2020-2021 indicate that White Oak contributed $110 million to Lumio.
An affidavit Lumio submitted in support of its proposed bankruptcy plan claims the bankruptcy was the result of “a severe liquidity crisis over the past year, caused by a sharp decline in demand in the solar market and various macroeconomic headwinds.” Remarkably, the affidavit claims Lumio “boasts a phenomenal market reputation”—yet it fails to address the numerous online complaints about Lumio, which tell a different story. The affidavit also entirely omits mention of the putative nationwide class action, in which the Court just green-lit RICO claims against the company.
The key point for now: the filing of a bankruptcy petition does not guarantee approval or that the proposed sale will proceed as planned. The plaintiffs in the putative class action against Lumio have standing to object to the bankruptcy petition and the proposed plan. Such challenges can range from a potential motion to dismiss the bankruptcy altogether to objections against aspects of the proposed restructuring plan. It is also possible to seek certification and resolution of class claims within the bankruptcy proceeding. We are currently, and swiftly, evaluating all available options.
Other Avenues of Recovery
In addition to potential challenges in the bankruptcy proceeding, there are other potential sources of recovery. Lumio was not the sole defendant in the class action lawsuit. Fifth Third Bank, doing business as Dividend Finance, was also added as a defendant under the same order that allowed the RICO claims against Lumio to proceed. The claims against Dividend Finance are brought under the “Holder Rule,” which provides that the lender is accountable for the seller’s failure to uphold its end of the bargain in certain consumer finance transactions.
In other words, the Lumio class action complaint already includes a built-in protection against Lumio’s potential bankruptcy by offering another avenue of relief via the Holder Rule against Dividend Finance. Of course, not all of Lumio’s customers were financed through Dividend. Other lenders can also potentially be held accountable for Lumio’s failures through the Holder Rule. However, many of these lenders have arbitration agreements in place, which means that a different forum—arbitration—may be required. Notably, Newsome Melton is currently pursuing claims against financing companies in arbitration proceedings and intends to continue doing so.
Additionally, as referenced above, the class action complaint asserts the existence of a “Lumio Enterprise.” Since an enterprise involves several actors, Lumio is not the only potentially liable party. We are currently evaluating options against other participants in the Lumio Enterprise who are not protected by the bankruptcy.
Conclusion
Lumio’s bankruptcy presents an obstacle, but it is not insurmountable. We are working hard to pursue the best paths forward for our clients, both within the bankruptcy proceeding and with respect to other individuals and entities that have not declared bankruptcy but should also share accountability for Lumio’s alleged misconduct.
Stay tuned to this blog for updates as the litigation continues. And as always, please give us a call if you’d like to discuss your case free of charge.