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New York
Northern California
Washington DC
São Paulo
London
Paris
Madrid
Hong Kong
Beijing
Tokyo
James P. Rouhandeh
Davis Polk & Wardwell LLP Lexington Avenue
New York, NY 10017
450 4835 tel
rouhandeh@davispolk.com
August 9, 2019
Fred Norton
The Norton Law Firm PC Third Street, Suite 106
Oakland, CA 94607
Re:
Notice of Material Breach of Solar Power & Services Agreements
Dear Mr. Norton:
I write on behalf of Walmart Inc. (“Walmart”) in response to the correspondence received
from The Norton Law Firm PC on July 29, 2019 (the “Letter”), which purports to respond to the
notice of breach and demand for cure sent by Walmart on July 9, 2019 (“Walmart Final Notice”).
As the Walmart Final Notice makes clear, Tesla Energy Operations Inc. (“Tesla”) remains in
material breach of the 242 solar panel agreements (the “Agreements”) into which it entered with
Walmart. The Letter does not meaningfully dispute—and, in some cases, concedes—Walmart’s
descriptions of Tesla’s negligent failure to properly install, maintain, and operate its solar panel
systems on Walmart rooftops (the “Systems”). Moreover, the Letter makes clear that Tesla
remains unwilling to take all of the steps necessary to cure its numerous material breaches even
as the thirty-day cure period draws to a close (the “Cure Period”).
Walmart also rejects Tesla’s assertion that Walmart has breached the Agreements. The
Letter’s factual narrative is littered with inaccuracies, and its allegations about Walmart’s
purported breaches are unsupported—as Walmart has already explained in its response to
Tesla’s Notice of Breach, dated August 6, 2019 (“Walmart Response”).
I.
Tesla’s Negligence and Failure to Abide by Prudent Industry Practices Lead
to Fires at Six or More Walmart Stores
Tesla’s counterfactual description of events (Letter at 1–9) omits important details and
misunderstands others. Most prominently, Tesla’s intemperate accusations about the parties’
year-long negotiations are irrelevant—and are seemingly designed to distract from the fact that
Tesla has no substantive response to the claims of breach raised by Walmart. Indeed, Tesla’s
response to the detailed evidence that Walmart offered regarding Tesla’s negligent and
imprudent practices is virtually nonexistent. Given the number of errors in Tesla’s factual
description, the discussion below is not exhaustive.Page 3 FILED: NEW YORK COUNTY CLERK 08/20/2019 06:40 PM
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a. In Light of Tesla’s Widespread Negligence, Walmart Exercises Its Contractual
Right to De-Energize the Systems
On March 7, 2018, a Walmart store in Beavercreek, Ohio, experienced a roof fire caused
by solar panel systems owned, operated, and maintained by Tesla. (Walmart Final Notice at 2.)
Two other stores located in different states experienced roof fires, again caused by Tesla-owned
solar panel systems, in late May 2018. (Id.) Given the obvious and imminent danger posed by
continued operation of fire-prone Systems, and in light of Tesla’s negligent installation,
maintenance, and operation of the Systems that had resulted in breaches of the Agreements,
Walmart notified Tesla that it had breached the Agreements and demanded de-energization of all
Systems and an explanation as to the root causes of the fires (“Walmart Initial Notice”).
(Walmart Initial Notice at 1, 3.)
Contrary to the Letter’s assertion (Letter at 2), Walmart has an express contractual right
under each of the Agreements to disconnect—and even remove—the Systems on its rooftops.
Thus,
in exercising this express contractual right, Walmart could have had the Systems removed
entirely, but opted instead to have them disconnected or de-energized, which Tesla itself agreed
was “prudent.” (Letter from Cal Lankton to Mark Vanderhelm (“Lankton Letter”), dated June 1,, at 1.)
And Walmart was clear—both in the Walmart Initial Notice and during subsequent
discussions with Tesla—that it would not authorize re-energization unless and until it understood
the root causes of the fires and was satisfied that those root causes were not present in other
Systems. As the Walmart Initial Notice stated:
Since the root cause of these fires is unknown, there is no way for Walmart to
reasonably conclude that the solar systems at the other Affected Sites [do] not
pose a hazard with regard to the potential for additional roof fires, especially since
Tesla’s current inspection procedures appear to have been inadequate to prevent
the roof fires at Indio and Beavercreek. Walmart will not jeopardize the health
and safety of its employees and customers by assuming the safety of the Tesla
systems at the Affected Sites.
(Walmart Initial Notice at 3.) It is baseless and disingenuous for Tesla to suggest that this
longstanding demand for final root cause analyses is pretextual or not obviously warranted in
response to the safety concerns caused by Tesla’s negligence (Letter at 5–6). Final root cause
analyses for each of the fires remain a necessary—but not sufficient—condition to reenergization. It is not clear why Tesla failed to produce any final root cause analyses for well
over a year despite Walmart’s consistent demands for them and has still failed to produce final
root cause analyses for the Denton, Indio, and Yuba City sites. Nor has the passage of timePage 4 FILED: NEW YORK COUNTY CLERK 08/20/2019 06:40 PM
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without final conclusions as to the root causes of the fires done anything to allay Walmart’s
concerns as to the pervasiveness or imminence of the danger or Tesla’s negligence.1
b. Tesla’s First Round of Inspections Confirms Its Negligence and Inability to
Monitor and Maintain the Systems
The Letter’s play-by-play recounting of the back-and-forth between the parties over
inspection protocols is similarly immaterial—and similarly inaccurate. Pursuant to Walmart’s
contractual rights, the Walmart Initial Notice also demanded that Tesla inspect all of the Systems
and certify that they did not suffer from the same flaws that had caused fires in other Systems.
(Walmart Initial Notice at 3.) Tesla agreed to do so. (Lankton Letter at 1.) However—again,
contrary to the Letter’s assertion (Letter at 3)—the first inspection protocol proposed by Tesla
was highly inadequate to identify and correct the problems that had caused the fires. The
protocol did not meet minimum industry standards for an appropriate inspection procedure, and
Tesla’s employees were ill-equipped to carry out even those basic and insufficient processes.
Walmart never agreed to this inspection protocol. Nonetheless, Tesla began conducting sham
inspections based on its wholly inadequate protocol and then claimed to be surprised when
Walmart pointed out the protocol’s inadequacies.
Faced with the reality that its initial protocol was deficient, and with the help of
consultants retained by Walmart, Tesla began revising its inspection protocol. But Walmart
never agreed to any revised inspection protocol. (Contra Letter at 3–4.) Indeed, it was never in
a position to do so because Tesla did not provide any purported final root causes until today
(August 9, 2019) and still has not identified to Walmart the final root causes of the fires at
Denton, Indio, and Yuba City. Any inspection protocol must necessarily—and at a minimum—
take account of those final root cause analyses.
Moreover, inspections performed under Tesla’s revised protocol only confirmed that
issues identified at Systems where fires had occurred were pervasive across the Systems more
generally. (Walmart Final Notice at 5–7.) Poor wire management practices, incorrect as-built
drawings, broken/damaged solar modules, hotspots, cross-matched field-made connectors, and
improper system grounding, among many other issues, were present at site after site. (Id.) In
conducting their own inspections and shadowing Tesla’s technicians, Walmart’s own consultants
observed the same problems. They also observed, among other things, that (i) Tesla’s
technicians were not properly trained or supervised and were not able to inspect or remediate the
Systems adequately and (ii) Tesla’s own negligent installation, maintenance, and operation
practices necessarily led to the prevalence of the problems that were identified with the Systems.
(Id. at 4–6.)
Given the system-wide nature of the defects uncovered during Tesla’s own inspections
and Tesla’s widespread negligence in operating the Systems, the need for final root cause
analyses only became more pressing. Without all of these analyses, all indications point to the
conclusion that Tesla’s negligent maintenance and operation over a period of years caused the
The Letter refers to “existing root cause reports.” (Id. at 5–6.) Please clarify this reference, including
whether any such reports (other than the purported final root cause analysis for the Beavercreek fire) have been
provided to Walmart; if not, why not; and why any such reports have not been finalized. If Tesla has prepared
final root cause reports but has not provided them to Walmart (even though Walmart has requested them for over
a year), please provide the reports immediately.Page 5 FILED: NEW YORK COUNTY CLERK 08/20/2019 06:40 PM
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fires, and nothing indicates that Tesla has the personnel or is willing to adopt the improvements
necessary to correct those failings.
c. Tesla’s Continued Negligence Demonstrates that the Sites Cannot Be ReEnergized Safely
The Letter spends several pages attempting to lay the blame for continued deenergization at Walmart’s feet (Letter at 3–8), but it focuses on inapposite discussions between
the parties that have nothing to do with the substance of the parties’ contractual rights and
obligations. In any event, for the reasons described above, Tesla’s position is baseless. As
Walmart has consistently stated, Walmart will not jeopardize the health and safety of its
employees and customers by re-energizing the Systems without adequate assurances of their
safety, including certifications that the root causes of the fires are not present in other Systems.
Any delay thus rests entirely at Tesla’s feet.
Contrary to Tesla’s claim (Letter at 14–15), Tesla has provided no basis to conclude that
it has corrected years of deficient performance. For example, Tesla has given Walmart no
reason to believe that it has changed its hiring or training policies in a way that will ensure
adequate execution of the current inspection protocol. Indeed, the inspection reports that Tesla
has produced to date still suffer from numerous inadequacies, including inconsistent
categorization of the severity levels presented by various site conditions, failure to list action
items that will address the problems identified in the body of the reports, failure to include
documents or photographs supporting the findings, and action items described using very vague
or indeterminate terms. (Walmart Final Notice at 6.)
The Letter’s discussion of the parties’ negotiations over a potential contractual
amendment (Letter at 6–8) is irrelevant and a sideshow, and it does not obviate the need for
Tesla to ensure that the Systems can be operated safely and are free of the defects that caused
the fires. Walmart proposed reasonable terms in an effort to reach an amicable resolution of the
parties’ dispute, but Tesla rejected those terms, and Walmart has never waived its right to hold
Tesla to its contractual obligations. Moreover, the Letter omits that it was through this
negotiation process that Walmart learned that Tesla had assigned Agreements without providing
notice to Walmart, violating the Agreements and severely complicating any attempt to reach a
negotiated resolution. (See Agreements at § 14.1(c).) The amendment negotiations simply do
not advance Tesla’s position.
II.
Tesla Has Materially Breached the Agreements and Failed to Cure Its
Breaches
a. Tesla’s Conduct Materially Breached the Agreements and Creates an
Ongoing, Imminent Risk of Harm
Turning to the substance of Walmart’s claims regarding Tesla’s negligence and
imprudent practices (a topic that goes largely un-addressed in the Letter), Tesla’s Systems
caused at least six fires at Walmart stores, including three that occurred over just a three-month
period in 2018. (Walmart Final Notice at 1–3.) Inspections conducted by Walmart’s
consultants—along with inspections conducted by Tesla itself—revealed that the fires were likely
caused or exacerbated by preventable defects in the Systems that would have been identified
and corrected had Tesla acted in accordance with prudent industry practices in installing,
maintaining, and inspecting the Systems. (Id. at 4–7.) The Walmart Final Notice listed thePage 6 FILED: NEW YORK COUNTY CLERK 08/20/2019 06:40 PM
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specific defects that both Walmart and Tesla inspectors identified and outlined the evidence
revealing that those defects were systemic. (Id.)
Although the Letter runs 17 pages (and goes to great lengths to describe extraneous
topics, such as the history of the parties’ negotiations), it does not contain a single sentence
contesting a single one of the specific defects identified in Walmart’s letter (other than the
boilerplate and unelaborated statement that it “disputes all of [Walmart’s] supposed findings”).
(Letter at 11.) In fact, the Letter concedes that “some of these issues did exist, to varying
degrees, at some Walmart rooftop sites” and that Tesla’s inspections “have identified areas for
improvement and opportunities for error correction.” (Id. at 12.)
Tesla claims that the problems identified by Walmart are simply evidence that the solar
panel systems “require periodic maintenance and repair in a manner that is entirely customary
within the solar power industry.” (Id. at 11.) But it should go without saying that well-functioning
solar panels, in need of nothing more than customary maintenance and repair, do not catch
fire—and certainly not repeatedly. As the Walmart Final Notice explains, Tesla has proven itself
incapable of performing “periodic maintenance and repair” consistent with prudent industry
standards, which has resulted in widespread substantial issues posing dangerous conditions.
Tesla also seems to assert, without reference to any authority, that Walmart cannot claim
breach until it has inspected every single one of the Systems. (Letter at 13.) But that assertion
ignores the evidence of systemic negligence outlined in detail in the Walmart Final Notice and
herein. (Walmart Final Notice at 4–7.) The inspections conducted by both Walmart’s consultants
and Tesla itself of Systems located in different locations and overseen by different Tesla
inspectors—combined with the occurrence of no fewer than six fires in Systems across the
country—demonstrate a common set of defects caused or exacerbated by negligent installation
and maintenance. (Id. at 2–6.) The information currently available to Walmart provides more
than a sufficient basis to conclude that Tesla has failed to carry out its contractual obligations in a
non-negligent manner and in accordance with prudent industry practices, justifying a claim of
breach under each of the Agreements.
b. Tesla Has Failed to Cure Its Breaches
The Walmart Final Notice listed multiple conditions that Tesla must satisfy in order to
cure its breaches. (Walmart Final Notice at 8–9.) Rather than treating those conditions as
necessary to effect cure (which they are), Tesla improperly treats them as the starting point for a
negotiation. (Letter at 13–14.) Tesla’s attempts to effect cure (as to those of its breaches that
are curable at all) fall short of bringing it into compliance with its contractual obligations.
Specifically:
Final Root Cause Analyses. Walmart asked (once again) for final root cause
analyses of the Beavercreek, Denton, Indio, and Yuba City fires. (Walmart Final
Notice at 8.) Tesla states that it is willing to provide these reports “as those
reports are completed.” (Letter at 13.) Walmart did not provide any purported
final root cause analysis for Beavercreek until today, even though Walmart had
requested this analysis for over a year. Please immediately provide any
additional final root cause analyses to Walmart or confirm that, despite having
been requested more than a year ago, no root cause analyses (other than the
purported Beavercreek analysis) have been completed.Page 7 FILED: NEW YORK COUNTY CLERK 08/20/2019 06:40 PM
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Capacity to Inspect, Maintain, and Operate. Walmart required Tesla to
demonstrate its ability to inspect, maintain, and operate the Systems in a prudent,
non-negligent manner going forward. (Walmart Final Notice at 8.) Tesla’s
response (Letter at 14-15) consists of empty, unsubstantiated assertions. For
example, while Tesla claims that it will conduct annual inspections (something
that it has notably failed to do previously), those infrequent inspections will do
little good if they are overseen by the same personnel who repeatedly overlooked
System defects in the past. Furthermore, Tesla has consistently failed to execute
on previous promises to Walmart that Tesla was willing and able to adopt
adequate inspection and maintenance protocols.
Enhanced Inspection Protocol. Walmart also required Tesla to “formally adopt a
substantially enhanced inspection protocol satisfactory to Walmart, which must
take into account the conclusions of the root cause analyses for the Beavercreek,
Denton, Indio, and Yuba City fires.” (Walmart Final Notice at 8.) Instead of doing
so, Tesla says that it will continue applying its current protocol. (Letter at 15.)
That proposal is not acceptable to Walmart because, among other things, it does
not account for the conclusions of the final root cause analyses, most of which
Walmart still has not seen (and one of which it saw for the first time today). Any
satisfactory protocol must account for the causes of the fires and ensure that the
factors contributing to the fires are not present at other sites.
Tesla Certifications. Walmart required Tesla to certify that the causes of the
Beavercreek, Denton, Indio, and Yuba City fires were not present at other
Walmart sites, that Tesla had conducted a thorough inspection using the abovereferenced enhanced inspection protocol, and that all Walmart sites have been
remediated and do not pose a future risk of fire. (Walmart Final Notice at 8.) Yet
Tesla refuses to adopt an enhanced inspection protocol that takes into account
the final root cause analyses. The fact that other fires not caused by Tesla
Systems may have occurred at other Walmart stores (Letter at 9–10, 15), does
not alleviate—and has utterly nothing to do with—Tesla’s obligation to properly
install, operate, and maintain its own Systems so that they do not cause fires.
Tesla claims that it does not reference these other purported fires in order “to
trivialize those at Beavercreek, Denton, Indio, and Yuba City” (id. at 10), but that
is exactly what its argument accomplishes.
Performance Guarantee Payments. Walmart demanded that Tesla pay the
Performance Guarantee Payments owed to Walmart under the Agreements since
de-energization. (Walmart Final Notice at 9.) Tesla refuses to pay the full
amount that is due, arbitrarily cutting off the Performance Guarantee Payments
as of September 30, 2018. (Letter at 15.) Because its negligence—not any
conduct by Walmart—was the sole cause of de-energization, which Tesla agreed
was “prudent,” and because Tesla has done nothing to assure Walmart that the
Systems can be safely re-energized and operated, Tesla must pay the full
amount of Performance Guarantee Payments from the date of de-energization to
the present.
Out-of-Pocket Damages. Walmart required Tesla to compensate Walmart for its
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each of the Beavercreek, Denton , Indio, and Yuba City fires. (Walmart Final
Notice at 9.) All payments as to the Denton , Indio, and Yuba City sites remain
outstanding, and consultant and attorney fees remain outstanding as to the
Beavercreek site.
Because Tesla has not taken any of the steps that are necessary to cure its breaches (or
made any progress toward doing so), it remains in breach of the Agreements.
Ill.
Walmart Has Not Breached the Agreements
Despite the Letter's contrary assertions (Letter at 8- 9) , Walmart has not breached any of
the Agreements , as Walmart explained in its response to Tesla's Notice of Breach . Tesla does
not attempt to identify any conduct that qualifies as a breach under the vast majority of the
Agreements. As for the 30 Agreements to which it specifically refers . none of the referenced
contractual provisions or implied covenants provide any basis for a claim of breach .
Very truly yours.
%~' Q
{6,r.,~~1.,..r. ·~
James P. Rouhandeh
cc:
Robert Williams (robert.williams@walmartlegal.com)
Eneida Boniche Silcott (eneida.silcott@walmartlegal.com)
Joseph Krcmar Uoseph .krcmar@walmartlegal.com)
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New York
Northern California
Washington DC
São Paulo
London
Paris
Madrid
Hong Kong
Beijing
Tokyo
James P. Rouhandeh
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
212 450 4835 tel
rouhandeh@davispolk.com
August 9, 2019
Fred Norton
The Norton Law Firm PC
299 Third Street, Suite 106
Oakland, CA 94607
Re:
Notice of Material Breach of Solar Power & Services Agreements
Dear Mr. Norton:
I write on behalf of Walmart Inc. (“Walmart”) in response to the correspondence received
from The Norton Law Firm PC on July 29, 2019 (the “Letter”), which purports to respond to the
notice of breach and demand for cure sent by Walmart on July 9, 2019 (“Walmart Final Notice”).
As the Walmart Final Notice makes clear, Tesla Energy Operations Inc. (“Tesla”) remains in
material breach of the 242 solar panel agreements (the “Agreements”) into which it entered with
Walmart. The Letter does not meaningfully dispute—and, in some cases, concedes—Walmart’s
descriptions of Tesla’s negligent failure to properly install, maintain, and operate its solar panel
systems on Walmart rooftops (the “Systems”). Moreover, the Letter makes clear that Tesla
remains unwilling to take all of the steps necessary to cure its numerous material breaches even
as the thirty-day cure period draws to a close (the “Cure Period”).
Walmart also rejects Tesla’s assertion that Walmart has breached the Agreements. The
Letter’s factual narrative is littered with inaccuracies, and its allegations about Walmart’s
purported breaches are unsupported—as Walmart has already explained in its response to
Tesla’s Notice of Breach, dated August 6, 2019 (“Walmart Response”).
I.
Tesla’s Negligence and Failure to Abide by Prudent Industry Practices Lead
to Fires at Six or More Walmart Stores
Tesla’s counterfactual description of events (Letter at 1–9) omits important details and
misunderstands others. Most prominently, Tesla’s intemperate accusations about the parties’
year-long negotiations are irrelevant—and are seemingly designed to distract from the fact that
Tesla has no substantive response to the claims of breach raised by Walmart. Indeed, Tesla’s
response to the detailed evidence that Walmart offered regarding Tesla’s negligent and
imprudent practices is virtually nonexistent. Given the number of errors in Tesla’s factual
description, the discussion below is not exhaustive.
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a. In Light of Tesla’s Widespread Negligence, Walmart Exercises Its Contractual
Right to De-Energize the Systems
On March 7, 2018, a Walmart store in Beavercreek, Ohio, experienced a roof fire caused
by solar panel systems owned, operated, and maintained by Tesla. (Walmart Final Notice at 2.)
Two other stores located in different states experienced roof fires, again caused by Tesla-owned
solar panel systems, in late May 2018. (Id.) Given the obvious and imminent danger posed by
continued operation of fire-prone Systems, and in light of Tesla’s negligent installation,
maintenance, and operation of the Systems that had resulted in breaches of the Agreements,
Walmart notified Tesla that it had breached the Agreements and demanded de-energization of all
Systems and an explanation as to the root causes of the fires (“Walmart Initial Notice”).
(Walmart Initial Notice at 1, 3.)
Contrary to the Letter’s assertion (Letter at 2), Walmart has an express contractual right
under each of the Agreements to disconnect—and even remove—the Systems on its rooftops.
Thus,
in exercising this express contractual right, Walmart could have had the Systems removed
entirely, but opted instead to have them disconnected or de-energized, which Tesla itself agreed
was “prudent.” (Letter from Cal Lankton to Mark Vanderhelm (“Lankton Letter”), dated June 1,
2018, at 1.)
And Walmart was clear—both in the Walmart Initial Notice and during subsequent
discussions with Tesla—that it would not authorize re-energization unless and until it understood
the root causes of the fires and was satisfied that those root causes were not present in other
Systems. As the Walmart Initial Notice stated:
Since the root cause of these fires is unknown, there is no way for Walmart to
reasonably conclude that the solar systems at the other Affected Sites [do] not
pose a hazard with regard to the potential for additional roof fires, especially since
Tesla’s current inspection procedures appear to have been inadequate to prevent
the roof fires at Indio and Beavercreek. Walmart will not jeopardize the health
and safety of its employees and customers by assuming the safety of the Tesla
systems at the Affected Sites.
(Walmart Initial Notice at 3.) It is baseless and disingenuous for Tesla to suggest that this
longstanding demand for final root cause analyses is pretextual or not obviously warranted in
response to the safety concerns caused by Tesla’s negligence (Letter at 5–6). Final root cause
analyses for each of the fires remain a necessary—but not sufficient—condition to reenergization. It is not clear why Tesla failed to produce any final root cause analyses for well
over a year despite Walmart’s consistent demands for them and has still failed to produce final
root cause analyses for the Denton, Indio, and Yuba City sites. Nor has the passage of time
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without final conclusions as to the root causes of the fires done anything to allay Walmart’s
concerns as to the pervasiveness or imminence of the danger or Tesla’s negligence.1
b. Tesla’s First Round of Inspections Confirms Its Negligence and Inability to
Monitor and Maintain the Systems
The Letter’s play-by-play recounting of the back-and-forth between the parties over
inspection protocols is similarly immaterial—and similarly inaccurate. Pursuant to Walmart’s
contractual rights, the Walmart Initial Notice also demanded that Tesla inspect all of the Systems
and certify that they did not suffer from the same flaws that had caused fires in other Systems.
(Walmart Initial Notice at 3.) Tesla agreed to do so. (Lankton Letter at 1.) However—again,
contrary to the Letter’s assertion (Letter at 3)—the first inspection protocol proposed by Tesla
was highly inadequate to identify and correct the problems that had caused the fires. The
protocol did not meet minimum industry standards for an appropriate inspection procedure, and
Tesla’s employees were ill-equipped to carry out even those basic and insufficient processes.
Walmart never agreed to this inspection protocol. Nonetheless, Tesla began conducting sham
inspections based on its wholly inadequate protocol and then claimed to be surprised when
Walmart pointed out the protocol’s inadequacies.
Faced with the reality that its initial protocol was deficient, and with the help of
consultants retained by Walmart, Tesla began revising its inspection protocol. But Walmart
never agreed to any revised inspection protocol. (Contra Letter at 3–4.) Indeed, it was never in
a position to do so because Tesla did not provide any purported final root causes until today
(August 9, 2019) and still has not identified to Walmart the final root causes of the fires at
Denton, Indio, and Yuba City. Any inspection protocol must necessarily—and at a minimum—
take account of those final root cause analyses.
Moreover, inspections performed under Tesla’s revised protocol only confirmed that
issues identified at Systems where fires had occurred were pervasive across the Systems more
generally. (Walmart Final Notice at 5–7.) Poor wire management practices, incorrect as-built
drawings, broken/damaged solar modules, hotspots, cross-matched field-made connectors, and
improper system grounding, among many other issues, were present at site after site. (Id.) In
conducting their own inspections and shadowing Tesla’s technicians, Walmart’s own consultants
observed the same problems. They also observed, among other things, that (i) Tesla’s
technicians were not properly trained or supervised and were not able to inspect or remediate the
Systems adequately and (ii) Tesla’s own negligent installation, maintenance, and operation
practices necessarily led to the prevalence of the problems that were identified with the Systems.
(Id. at 4–6.)
Given the system-wide nature of the defects uncovered during Tesla’s own inspections
and Tesla’s widespread negligence in operating the Systems, the need for final root cause
analyses only became more pressing. Without all of these analyses, all indications point to the
conclusion that Tesla’s negligent maintenance and operation over a period of years caused the
The Letter refers to “existing root cause reports.” (Id. at 5–6.) Please clarify this reference, including
whether any such reports (other than the purported final root cause analysis for the Beavercreek fire) have been
provided to Walmart; if not, why not; and why any such reports have not been finalized. If Tesla has prepared
final root cause reports but has not provided them to Walmart (even though Walmart has requested them for over
a year), please provide the reports immediately.
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fires, and nothing indicates that Tesla has the personnel or is willing to adopt the improvements
necessary to correct those failings.
c. Tesla’s Continued Negligence Demonstrates that the Sites Cannot Be ReEnergized Safely
The Letter spends several pages attempting to lay the blame for continued deenergization at Walmart’s feet (Letter at 3–8), but it focuses on inapposite discussions between
the parties that have nothing to do with the substance of the parties’ contractual rights and
obligations. In any event, for the reasons described above, Tesla’s position is baseless. As
Walmart has consistently stated, Walmart will not jeopardize the health and safety of its
employees and customers by re-energizing the Systems without adequate assurances of their
safety, including certifications that the root causes of the fires are not present in other Systems.
Any delay thus rests entirely at Tesla’s feet.
Contrary to Tesla’s claim (Letter at 14–15), Tesla has provided no basis to conclude that
it has corrected years of deficient performance. For example, Tesla has given Walmart no
reason to believe that it has changed its hiring or training policies in a way that will ensure
adequate execution of the current inspection protocol. Indeed, the inspection reports that Tesla
has produced to date still suffer from numerous inadequacies, including inconsistent
categorization of the severity levels presented by various site conditions, failure to list action
items that will address the problems identified in the body of the reports, failure to include
documents or photographs supporting the findings, and action items described using very vague
or indeterminate terms. (Walmart Final Notice at 6.)
The Letter’s discussion of the parties’ negotiations over a potential contractual
amendment (Letter at 6–8) is irrelevant and a sideshow, and it does not obviate the need for
Tesla to ensure that the Systems can be operated safely and are free of the defects that caused
the fires. Walmart proposed reasonable terms in an effort to reach an amicable resolution of the
parties’ dispute, but Tesla rejected those terms, and Walmart has never waived its right to hold
Tesla to its contractual obligations. Moreover, the Letter omits that it was through this
negotiation process that Walmart learned that Tesla had assigned Agreements without providing
notice to Walmart, violating the Agreements and severely complicating any attempt to reach a
negotiated resolution. (See Agreements at § 14.1(c).) The amendment negotiations simply do
not advance Tesla’s position.
II.
Tesla Has Materially Breached the Agreements and Failed to Cure Its
Breaches
a. Tesla’s Conduct Materially Breached the Agreements and Creates an
Ongoing, Imminent Risk of Harm
Turning to the substance of Walmart’s claims regarding Tesla’s negligence and
imprudent practices (a topic that goes largely un-addressed in the Letter), Tesla’s Systems
caused at least six fires at Walmart stores, including three that occurred over just a three-month
period in 2018. (Walmart Final Notice at 1–3.) Inspections conducted by Walmart’s
consultants—along with inspections conducted by Tesla itself—revealed that the fires were likely
caused or exacerbated by preventable defects in the Systems that would have been identified
and corrected had Tesla acted in accordance with prudent industry practices in installing,
maintaining, and inspecting the Systems. (Id. at 4–7.) The Walmart Final Notice listed the
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specific defects that both Walmart and Tesla inspectors identified and outlined the evidence
revealing that those defects were systemic. (Id.)
Although the Letter runs 17 pages (and goes to great lengths to describe extraneous
topics, such as the history of the parties’ negotiations), it does not contain a single sentence
contesting a single one of the specific defects identified in Walmart’s letter (other than the
boilerplate and unelaborated statement that it “disputes all of [Walmart’s] supposed findings”).
(Letter at 11.) In fact, the Letter concedes that “some of these issues did exist, to varying
degrees, at some Walmart rooftop sites” and that Tesla’s inspections “have identified areas for
improvement and opportunities for error correction.” (Id. at 12.)
Tesla claims that the problems identified by Walmart are simply evidence that the solar
panel systems “require periodic maintenance and repair in a manner that is entirely customary
within the solar power industry.” (Id. at 11.) But it should go without saying that well-functioning
solar panels, in need of nothing more than customary maintenance and repair, do not catch
fire—and certainly not repeatedly. As the Walmart Final Notice explains, Tesla has proven itself
incapable of performing “periodic maintenance and repair” consistent with prudent industry
standards, which has resulted in widespread substantial issues posing dangerous conditions.
Tesla also seems to assert, without reference to any authority, that Walmart cannot claim
breach until it has inspected every single one of the Systems. (Letter at 13.) But that assertion
ignores the evidence of systemic negligence outlined in detail in the Walmart Final Notice and
herein. (Walmart Final Notice at 4–7.) The inspections conducted by both Walmart’s consultants
and Tesla itself of Systems located in different locations and overseen by different Tesla
inspectors—combined with the occurrence of no fewer than six fires in Systems across the
country—demonstrate a common set of defects caused or exacerbated by negligent installation
and maintenance. (Id. at 2–6.) The information currently available to Walmart provides more
than a sufficient basis to conclude that Tesla has failed to carry out its contractual obligations in a
non-negligent manner and in accordance with prudent industry practices, justifying a claim of
breach under each of the Agreements.
b. Tesla Has Failed to Cure Its Breaches
The Walmart Final Notice listed multiple conditions that Tesla must satisfy in order to
cure its breaches. (Walmart Final Notice at 8–9.) Rather than treating those conditions as
necessary to effect cure (which they are), Tesla improperly treats them as the starting point for a
negotiation. (Letter at 13–14.) Tesla’s attempts to effect cure (as to those of its breaches that
are curable at all) fall short of bringing it into compliance with its contractual obligations.
Specifically:
Final Root Cause Analyses. Walmart asked (once again) for final root cause
analyses of the Beavercreek, Denton, Indio, and Yuba City fires. (Walmart Final
Notice at 8.) Tesla states that it is willing to provide these reports “as those
reports are completed.” (Letter at 13.) Walmart did not provide any purported
final root cause analysis for Beavercreek until today, even though Walmart had
requested this analysis for over a year. Please immediately provide any
additional final root cause analyses to Walmart or confirm that, despite having
been requested more than a year ago, no root cause analyses (other than the
purported Beavercreek analysis) have been completed.
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Capacity to Inspect, Maintain, and Operate. Walmart required Tesla to
demonstrate its ability to inspect, maintain, and operate the Systems in a prudent,
non-negligent manner going forward. (Walmart Final Notice at 8.) Tesla’s
response (Letter at 14-15) consists of empty, unsubstantiated assertions. For
example, while Tesla claims that it will conduct annual inspections (something
that it has notably failed to do previously), those infrequent inspections will do
little good if they are overseen by the same personnel who repeatedly overlooked
System defects in the past. Furthermore, Tesla has consistently failed to execute
on previous promises to Walmart that Tesla was willing and able to adopt
adequate inspection and maintenance protocols.
Enhanced Inspection Protocol. Walmart also required Tesla to “formally adopt a
substantially enhanced inspection protocol satisfactory to Walmart, which must
take into account the conclusions of the root cause analyses for the Beavercreek,
Denton, Indio, and Yuba City fires.” (Walmart Final Notice at 8.) Instead of doing
so, Tesla says that it will continue applying its current protocol. (Letter at 15.)
That proposal is not acceptable to Walmart because, among other things, it does
not account for the conclusions of the final root cause analyses, most of which
Walmart still has not seen (and one of which it saw for the first time today). Any
satisfactory protocol must account for the causes of the fires and ensure that the
factors contributing to the fires are not present at other sites.
Tesla Certifications. Walmart required Tesla to certify that the causes of the
Beavercreek, Denton, Indio, and Yuba City fires were not present at other
Walmart sites, that Tesla had conducted a thorough inspection using the abovereferenced enhanced inspection protocol, and that all Walmart sites have been
remediated and do not pose a future risk of fire. (Walmart Final Notice at 8.) Yet
Tesla refuses to adopt an enhanced inspection protocol that takes into account
the final root cause analyses. The fact that other fires not caused by Tesla
Systems may have occurred at other Walmart stores (Letter at 9–10, 15), does
not alleviate—and has utterly nothing to do with—Tesla’s obligation to properly
install, operate, and maintain its own Systems so that they do not cause fires.
Tesla claims that it does not reference these other purported fires in order “to
trivialize those at Beavercreek, Denton, Indio, and Yuba City” (id. at 10), but that
is exactly what its argument accomplishes.
Performance Guarantee Payments. Walmart demanded that Tesla pay the
Performance Guarantee Payments owed to Walmart under the Agreements since
de-energization. (Walmart Final Notice at 9.) Tesla refuses to pay the full
amount that is due, arbitrarily cutting off the Performance Guarantee Payments
as of September 30, 2018. (Letter at 15.) Because its negligence—not any
conduct by Walmart—was the sole cause of de-energization, which Tesla agreed
was “prudent,” and because Tesla has done nothing to assure Walmart that the
Systems can be safely re-energized and operated, Tesla must pay the full
amount of Performance Guarantee Payments from the date of de-energization to
the present.
Out-of-Pocket Damages. Walmart required Tesla to compensate Walmart for its
out-of-pocket damages, including consultant and attorney fees, resulting from
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each of the Beavercreek, Denton , Indio, and Yuba City fires. (Walmart Final
Notice at 9.) All payments as to the Denton , Indio, and Yuba City sites remain
outstanding, and consultant and attorney fees remain outstanding as to the
Beavercreek site.
Because Tesla has not taken any of the steps that are necessary to cure its breaches (or
made any progress toward doing so), it remains in breach of the Agreements.
Ill.
Walmart Has Not Breached the Agreements
Despite the Letter's contrary assertions (Letter at 8- 9) , Walmart has not breached any of
the Agreements , as Walmart explained in its response to Tesla's Notice of Breach . Tesla does
not attempt to identify any conduct that qualifies as a breach under the vast majority of the
Agreements. As for the 30 Agreements to which it specifically refers . none of the referenced
contractual provisions or implied covenants provide any basis for a claim of breach .
Very truly yours.
%~' Q
{6,r.,~~1.,..r. ·~
James P. Rouhandeh
cc:
Robert Williams (robert.williams@walmartlegal.com)
Eneida Boniche Silcott (eneida.silcott@walmartlegal.com)
Joseph Krcmar Uoseph .krcmar@walmartlegal.com)
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