Plaintiff's Opposition to Motion to Dismiss — Wax v. Cross River Bank (D.N.J.)

Record facts

U.S. District Court for the District of New Jersey · No. 2:24-cv-09510-ES-JRA · Doc. 40 · 2025-07-25 · Docket on CourtListener

Full text

Case 2:24-cv-09510-ES-JRA Document40_ Filed 07/25/25 Page 1 of 49 PagelD: 1343

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

MITCHELL WAX, Individually and

on behalf of All Others Similarly
Situated, Case No. 2:24-cv-09510-ES-JRA

Plaintiff,

PLAINTIFF’S OPPOSITION TO
Vv. DEFENDANT’S MOTION TO
DISMISS

CROSS RIVER BANK,

Defendant.

Case 2:24-cv-09510-ES-JRA Document40- Filed 07/25/25 Page 2 of 49 PagelD: 1344

TABLE OF CONTENTS

INTRODUCTION ............scccssscscssecssscccssscccssseccssscsssscscsssssccsssesssssescssscssssescsssessssoees 1
PRELIMINARY STATEMENT ..............ccssscssssccssssccssseccsssesscsccssssesccsssescssessseseoees 1
A. Sunnlight’s Business Model .................sscsccccsscssscssssccsssccssrcccesscssssesecesscsssssseees 3
B. Defendant’s Role as Sunlight’s Bank Partiner.................cccssssssscssssssseeesssees 3
C. CRB’s Scheme to Deceive Sunlight Investors with Sunlight.................... 6
D. The Truth Is Revealed in a Series of Partial Disclosures....................00000 7
LEGAL STANDARD .............cscscsscccsccsssccscssecccsseescssssssssessssssscssssssssccsessossssssesssens 11
ARGUMENT. ...........scccssscccssscscscscscscccsssesccssecscscscssssscssessnssssessssscsssssssessesessscossssnsees 12
I. The Complaint Plausibly States a Claim for Relief....................ssssssssooees 12
A. Plaintiff Adequately Pleads CRB’s Scheme Liability .....................s0000 12

1. Plaintiff Sufficiently Pleads Reliance on CRB’s Conduct................00 17

2. The Complaint Does Not Repackage Rule 10b-5(b) Claims ............... 20

3. The Complaint Alleges Facts Giving Rise to a Strong Inference of
SCHENTEL .......ssccccrcsssscscsssesssecsssecscsssesesesssssessesssseesesesssessessesessesssssescessesessesoesees 22

4. CRB’s Conduct Was Inherently Deceptive ..................ccsscccccsssscsseeeeseees 25
Case 2:24-cv-09510-ES-JRA Document40- Filed 07/25/25 Page 3 of 49 PagelD: 1345

5. Plaintiff Has Standing to Bring His Claim and Sufficiently Pleads

LOSS CausatiOM .............ssccccssssscccsssssccscsssessscssscssssssssssssssesssssssscsssssssssessssssscesecs 27
6. The Complaint Pleads Fraud with the Requisite Particularity .......... 30
B. The Complaint Does Not Assert a Claim for Aiding and Abetting..... 32

II. Neither the Bankruptcy Plan Injunction nor the Sunlight Class Action
Settlement Bars Plaintiff's Claims ...............csscsssssssssssssssscsssssesssscsssssescesessessees 35

A. The Sunlight Bankruptcy Plan Injunction Does Not Bar Plaintiff’s

B. The Release in the Sunlight Class Action Settlement Has No Impact

on Plaintiff’s Claims Against CRB................:sscccsssssssscssscscssseeesescssssseeeeeceees 36

CONCLUSION .0........sscccsssscssecssrcccssescssseessnescssssessessescesessessesesseesesscssessessssescnsses 39

il
Case 2:24-cv-09510-ES-JRA Document40_ Filed 07/25/25 Page 4 of 49 PagelD: 1346

TABLE OF AUTHORITIES

Cases

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)... ecceccecesessceceessneeceseneeeeeseeeeeenseeeeeenes 12
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007) ......eeecccceessecceeesseeceeeeneeeenenees 12
Central Bank of Denver, 511 U.S. at 191-920... ccccccccessseceeseteeeceeeneeeeensneeeenenaes 33

Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S.

164, 185, 191 (1994)... ec eeccesceceneeeseeeeseeeeeecesaeceaeceaeeceeeeeaeeseaeceeeceaecenaeeeeeeneeens 33
Cognizant, 2020 WL 3026564, at *10 1.6... eeecceesecesteceneeeseeeeseeeeeeceseceeaeceeeenaeens 31
Cognizant, 2020 WL 3026564, at *16 0. eesccesceceteceneeeeeeeeeeeeeeeceseeceaeeeaeeeeaees 14, 29
Cognizant, 2020 WL 3026564, at *17 oo. eecceeecceeseceseceeseceeeseeeeeseeeeeeceseceeaecneeeneeens 18
Cognizant, 2020 WL 3026564, at *18 oo... eee eeccceeseceteceeseceeeseeeeeseeeseeceaeceeaeceeeenaeens 21
Cognizant, 2020 WL 3026564, at *19 oo. eeccceeseceseceseeceeeeeeeeeneeeteeeeaeeeeas 16, 17, 26
Cognizant, 2020 WL 3026564, at *21 oo. eeecceeseceteceeeceeeseeeeeseeeeeeceseeeeaeeneeenaeens 22
Copeland v. Grumet, 88 F. Supp. 2d 326, 332-34 (D. N.J. 1999) oo... ccccceeeees 34

De Vito v. Liquid Holdings Grp., Inc., No. 15-6969, 2018 WL 6891832, at *41

(D.N.J. Dec. 31, 2018). cece eccceeseeseeeeseeceseceeecnaeceseeceseeeaeeseeeceeeceaeeeaaeceaeeeaeees 13
Dura Pharms., Inc. v. Broudo, 544 U.S. at 336, 347 (2005) .....ceeccecccssssteeeeeeesees 30
Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) .......eeeeeeseeeeeeees 12
Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007) .....ccccccccceesssteceeeeeeees 31

Fulton Fin. Advisors, Nat’l Ass’n v. NatCity Invs., Inc., 2013 WL 5635977, at *11

(E.D. Pa. Oct. 15, 2013) ccccsceccssesssssesessesssssessssecessecessucessusessuesessesessvsessseesseesenseen 25
Case 2:24-cv-09510-ES-JRA Document40 _ Filed 07/25/25 Page 5of 49 PagelD: 1347

Fung v. Sunlight Financial Holdings, Inc., et al., Case No. 1:22-cv-10658-AKH

(S. DN.Y.) .cecceecccseseesseceseceeeccsneceaeeceseeeaeesenecesaeceaeecaeceaeeceaeeeaeeseeeceeeceaeeeaaeceeeeaeees 36
Gross v. GFI Grp., Inc., 162 F. Supp. 3d 263, 269 (S.D.N.Y. 2016)... cece 29
GSC Partners CDO Fund v. Washington, 368 F.3d 228, 237 (3d Cir. 2004) ......... 24
Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005)... ceecesceceeetseeeeeeees 12

In re Bio-Technology Gen. Corp. Sec. Litig., 380 F. Supp. 2d 574, 589 (D.N.J.

In re Cognizant Tech. Sols. Corp. Sec. Litig., No. CV166509ESCLW, 2020 WL
3026564, at *14 (D.N.J. June 5, 2020) oo. eecceeseceneeeneeeneeeeeeceeeeeeaecenaeceaeeeneeens 13

In re Dr. Reddy’ Lab. Ltd. Sec. Litig., 2019 WL 1299673, at *13 (D.N.J. Mar. 21,

2019) oe ceeccecssecssceeseeeseeceeceeeaecesceceaeeceeceseeseeeeeeceeecesecesaeceaeecaeeseaeeeeeeceaeeesaeceaeeeaeens 28
In re Eletrobras Sec. Litig., 245 F. Supp. 3d 450, 471 (S.D.N.Y. 2017)... 26
In re Eletrobras Sec. Litig., 245 F. Supp. 3d 450, 472 (S.D.N.Y. 2017)... 17
In re Essar Steel Minnesota, LLC, 652 B.R. 709, 720 (Bank. D. Del. 2023)......... 36
In re N. Telecom Secs. Litig., 116 F. Supp. 2d 446 (S.D.N.Y. 2000) oe 25
In re Parmalat Sec. Litig., 376 F. Supp. 2d 472, 504 (S.D.N.Y. 2005) ........ eee 21
In re Parmalat Sec. Litig., 376 F. Supp. 2d 472, 508 (S.D.N.Y. 2005) ........ eee 17

In re RenovaCare, Inc. Sec. Litig., No. 2:21-CV-13766, 2024 WL 2815034, at *24

(D.N.J. June 3, 2024) ceccceccssescssecssssesessesessuecesuecesuvcessusessucsssucsessesesssessueeseesenseee 13

iV
Case 2:24-cv-09510-ES-JRA Document40 _ Filed 07/25/25 Page 6 of 49 PagelD: 1348

JAC Holding Enters., Inc. v. Atrium Capital Partners, LLC, 997 F. Supp. 2d 710,
735 (E.D. Mich. 2014)... ceccccccscecesecessecceseeeeseeeeeaeecseaeceeseeecsseecesaeeeeaeeseaeeeeseees 26
Janus Cap. Grp., Inc. v First Deriv. Traders, 564 U.S. 135, 144 (2011)............... 33

Lewakowski v. Aquestive Therapeutics, Inc., 2023 WL 2496504 (D.N.J. Mar. 14,

Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160, 187 (2d

Cir. 2015) oe eeeceeesseceseeeessseecesaecesseeeseaeecesaeceseeeeseaeeceaecesneeeseaeecesaeeeeeeeeseaeeeesaeeeeaees 30
Lorenzo v. U.S. Sec. & Exch. Comm’n, 587 U.S. 71, 79 (2019) wu... ccccceessecceeeeeeees 13
Lucent, 610 F. Supp. 2d at 360 oo... ccccccccccceesssssseceeeessseeeeeeceesseseeeecessssssaeeeeeseseas 27
Melito v. Experian Mktg. Sols., Inc., 923 F.3d 85, 95 (2d Cir. 2019) 2... eee 38
Mintz, 723 F. Supp. 3d at 398 oo... eeccesseceeseecesneeeeseeceeeeceeaeeceaeeceneeeesaeeeesaeeeeseeees 28
Mintz, 723 F. Supp. 3d at 403, 406-07 oe eeceeessecceseeeeeeecenneeceseeeeeseeeesaeeeeeeeees 20
Mintz, 723 F. Supp. 3d at 405 (Same), 407 ........cccccccccecsssssseceeeeesseeeeeceesssseaeeeeeeseas 31
Mintz, 723 F. Supp. 3d at 406-07 oo... eee ceecceeesceecesecceeeecesaeecesaeeceseeeseeeessaeeeeseeeens 13
Mintz, 723 F. Supp. 3d at 408 oo... cece eescecessecceseeeeeeeeesaeeceseeeeeaeeceaeeeeeeeeesneeeeas 15, 22
RenovaCare, 2024 WL 2815034, at *24-26 oo... cccccceccessssssesececcecececececseeseseseseueeeas 34
RenovaCare, 2024 WL 2815034, at *26..... cc cccscccccccccccssssececcccsesseesesescesseeeaenscess 30

Sbarra v Horizontal Expl., LLC, No. CIV.A. 14-866, 2015 WL 1201329, at *8-9

(W.D. Pa. Mar. 16, 2015) wo... eeccccccccccesessecceceecsesseceeceeceesseeeeeeecsesaeeeeesesesseeeeeees 34
Schiff, 602 F.3d at 167 .occcccccccccessccesseceesseecesneceseeceeseeeceaecseseeecsaeeceueeseseeseeeeeesaees 34
Case 2:24-cv-09510-ES-JRA Document40 _ Filed 07/25/25 Page 7 of 49 PagelD: 1349

Shapiro v Cantor, 123 F. 3d 717, 720 (2d Cir. 1977) .......ccecccccsccccceesssesseeeeeeseesnseees 34

Shih v. Maselli, Mills & Fornal, P.C., No. CV 24-6300 (ES) (MAH), 2025 WL
957680, at *2 (D.N.J. Mar. 31, 2025) oo. eeceecccesseceneeeneeeeeeeeeceeeeeeaecesaeceaeeeaeens 22

Stoneridge Inv. Partners, LLC v. Scientific—Atlanta, Inc., 552 U.S. 148 (2008).... 18

Takata v. Riot Blockchain, Inc., No. CV182293GCRLS, 2023 WL 7133219 (D.N.J.

AU. 25, 2023) oc eeecceccccssecesceseseeeseceeeeceseecaeceseeseseeeaeeeeaeceeeeeaeceaaeceaeecueseaeeeeeeeeaees 21
Tellabs, 551 U.S. at 310 vic eccccccccccccsssssccccccscsseseesecscssseseeesecescsssaueseececesseeuausesess 24
Tellabs, 551 U.S. at 319 vic eccccccccccccsssseccccccccssseececscsseeseeesscescsssauaseseecesseeeaensnsss 24
Tellabs, 551 U.S. at 324 viicccccceccccccccccccssseccccccscssseececcessseseusececcssssuaeseesecsssseuaesensss 22
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322-23 (2007)........... 22

U.S. Sec. & Exch. Comm’n v. Kearns, 691 F. Supp. 2d 601, 618 (D.N.J. 2010)... 26

U.S. Sec. & Exch. Comm’n v. Lucent Techs., Inc., 610 F. Supp. 2d 342 (D.N.J.

2009) oo .eeecceccsscccesccesecceceseeceseceseseeceseeceueceseececesseceseceseeeeceseecesueceeeseecesaeceeeseseeeeeeaes 26
U.S. Sec. & Exch. Comm’n v. Mintz, 723 F. Supp. 3d 386, 403 (D.N.J. 2024) ...... 13
United States v. Schiff, 602 F.3d 152, 167 (3d Cir. 2010) oo... cee eeeceeeseeeesteeeeteees 34

Waterford Twp. Police & Fire Ret. Sys. v. Smithtown Bancorp., Inc., No. 10-CV-

864 (SLT) (RER), 2014 WL 3569338, at *9 (E.D.N.Y. July 18, 2014)... 20
Waterford Twp., 2014 WL 3569338, at *9 oo... eccccecsseecceesneeceeenneeeeeeeeeeeeeneeeeeeeeeeees 24
Wright v. Ernst & Young LLP, 152 F.3d 169,175 (2d Cir. 1981)... eee eeeeeeeeeeees 34
Wright, 152 F.3d at 175 voce eeceecceseceseessecseceseeccessecseseecesaeeaeesaecneeseeeseeeaeenaesseeeatens 34

vi
Case 2:24-cv-09510-ES-JRA Document40_ Filed 07/25/25 Page 8 of 49 PagelD: 1350

Zhengyu He v. China Zenix Auto Int’l Ltd., No. 2:18-cv-15530 (KM) (JAD), 2020

WL 3169506, at *11 (D.N.J. June 12, 2020) oo... eee eeceeeneeeeeeeeeeneeceseesenneeeeaee 30
Statutes
17 CLER. § 240. LOD—S wooo ee ceecceseeeeesneeeeseeceseeseaeessaaeceeeeeesaaeeseaaeceeaeeeeaeeeeeaees 13
Civ. P. Rule 12(D)(6) oe. cece eececesnecceseeeesneeeesacecesaeeeeaeeeesaaeceeaeessaaeeesaaeeeeeeesenaeeeeaaees 12
Other Authorities
6 Newberg and Rubenstein on Class Actions § 18:20 (6th ed.) ......ee eee eeeereeees 38

vil
Case 2:24-cv-09510-ES-JRA Document40 Filed 07/25/25 Page 9 of 49 PagelD: 1351

INTRODUCTION

Lead Plaintiff Mitchell Wax (‘Plaintiff’) submits this Memorandum of Law
in opposition to Defendant Cross River Bank’s (“CRB” or “Defendant”) Motion to
Dismiss for Failure to State a Claim (“Motion”) under Fed. R. Civ. P. Rule 12(b)(6).

PRELIMINARY STATEMENT

Plaintiff brought his Complaint (“Complaint”),' on behalf of all persons who
purchased the common stock of Sunlight Financial Holdings, Inc. (“Sunlight”)
between January 25, 2021 and October 31, 2023 (the “Class Period), against CRB,
Sunlight’s “Bank Partner” as Sunlight referenced it in its SEC filings, for violations
of the Securities and Exchange Act of 1934 (the 1934 Act”). The Complaint alleges
that CRB engaged in a scheme that, to the detriment of Sunlight investors, enabled
Sunlight to originate and conceal from investors a massive amount of non-
performing, mispriced, and unsaleable loans to unscrupulous solar panel installers,
which CRB warehoused for Sunlight “off balance sheet.” Sunlight retained full
economic exposure for those problematic loans, but CRB’s warehouse arrangement
allowed Sunlight to keep the loans off of its books and hidden from investors.

CRB had every incentive to engage in the fraudulent scheme as it earned

substantial profits from the loans for which—at least initially—it had no risk of loss.

' References to the Complaint (ECF 1), will be made herein as ]__. The capitalized
terms throughout this brief have the same meaning as in the Complaint.

1
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 10 of 49 PagelD:
1352

In addition to the substantial fees CRB charged to borrowers as a lender, Sunlight
also paid CRB, its Bank Partner, a fee based on the balance of CRB-originated loans.
Unbeknownst to Plaintiff and other Sunlight investors, CRB allowed Sunlight
to amend its CRB lending agreements to dramatically increase Sunlight’s exposure
to the fast-growing volume of mispriced, off-balance sheet loans as interest rates
rose in 2021 and 2022. To substantially increase its fees charged to borrowers and
Sunlight, which were based on the loan volume, CRB repeatedly facilitated that
rapid growth, allowing Sunlight to greatly and unsustainably exceed the lending
limits in its agreements with CRB. CRB’s scheme to allow Sunlight to exceed its
lending limits to unsustainable levels just as interest rates were rising was inherently
fraudulent and designed to enrich CRB, and ultimately led to Sunlight’s collapse.
CRB’s arguments in favor of dismissal seek to incorrectly re-frame Plaintiff’s
scheme liability claim brought by Plaintiff under 1934 Act Rule 10b-5(a) and (c) —
a claim of primary liability for CRB’s own conduct — as one of aiding—and—abetting,
a claim of secondary liability for Sunlight’s conduct. CRB also inaccurately argues
that Plaintiff’s scheme liability claim lacks specificity and fails to plead scienter,
despite the abundant factual allegations detailing CRB’s conduct and showing both
conscious or reckless behavior and motive and opportunity, as more fully detailed

herein. CRB further argues that its own conduct was too remote for causation
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 11 of 49 PagelD:
1353

purposes, even though causation is not appropriately addressed at the motion to
dismiss stage.

CRB then inaccurately claims that Plaintiff lacks standing to assert the claim
due to the timing of his Sunlight purchases, while the facts show that CRB’s actions
at issue here occurred before Plaintiff’s final purchases. Lastly, CRB’s arguments
that the Sunlight bankruptcy plan injunction and, in the alternative, the Sunlight class
action settlement release foreclose Plaintiff's claims both fails, as more fully
explained below. Defendant’s Motion should be denied.

STATEMENT OF FACTS

A.  Sunlight’s Business Model

Sunlight was a technology-enabled point-of-sale financing platform that
provided residential solar and home improvement contractors the ability to offer
point-of-sale financing to customers. 9] 4, 33. Sunlight earned revenue from a
“platform fee” from each loan its app facilitated. §] 33. Sunlight relied on contractors
to inform customers about financing through Sunlight. /d. Thus, to earn revenues,
Sunlight had to convince contractors to use its financing platform. /d. Generally, in
the industry, loans are funded after a contractor completes the work. /d. Sunlight
attempted to differentiate itself by offering large cash advances to contractors. Jd.

B. _Defendant’s Role as Sunlight’s Bank Partner
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 12 of 49 PagelD:
1354

Sunlight arranged for the origination of loans by third-party lenders in two
ways. § 34. On one hand, Sunlight arranged Direct Channel Loans whereby its Direct
Channel Partners would originate the loans directly using their own credit criteria,
retain those loans, and remit funds to Sunlight, which would pay the contractor. Id.
On the other hand, Sunlight also arranged Indirect Channel Loans originated by its
Bank Partner, CRB, whereby CRB was the owner of the loans and kept them on its
balance sheet until they were sold to third-party purchasers; in these Indirect Channel
Loans, Sunlight retained full economic exposure until the loans were sold. {§ 34,
41. The Indirect Channel Loans held by CRB on its balance sheet, but for which
Sunlight bore the risk of loss, were referred to as the “Backbook.”

Initially, the CRB-originated Indirect Channel Loans were a minority of
Sunlight’s loans, most of which were Direct Channel Loans sold directly to lenders.
However, the mix changed dramatically as interest rates rose starting in 2021. 4 35.

With regard to CRB’s Indirect Channel Loans, Sunlight’s “solar loan
allocation engine direct[ed] the solar loans to be funded on the balance sheet” of
CRB, and CRB charged Sunlight a fee based on the balance of loans CRB originated.
q§| 34, 37. CRB required Sunlight to be responsible for arranging the sale of Indirect
Channel Loans to financial firms, guarantee the performance of those loans, and
repurchase them if it was unable to facilitate the sale. ¥§] 34, 36. Under CRB’s

agreement with Sunlight, the sale of the Indirect Channel Loans had to occur within
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 13 of 49 PagelD:
1355

180 days from origination, otherwise Sunlight was required to repurchase them from
CRB. 4 39. Thus, while CRB was the “owner” of the loans until they were sold,
Sunlight retained full economic exposure and only profited when the price that the
loan purchaser paid for the loan exceeded CRB’s cost basis in the loan. ¢ 41.

The CRB-held Backbook loans were segregated by Sunlight into solar (“Solar
Backbook’’) and home improvement loans (“Home improvement Backbook’’). § 43.
However, only the Home Improvement Backbook — but not the far larger Solar
Backbook — was considered a derivative, subject to Fair Market Value accounting
and reflecting fair market value changes on Sunlight’s financial statements. Jd. By
contrast, fair market value changes in the Solar Backbook went unaccounted for
on Sunlight’s financial statements and were thus concealed by Sunlight from its
stockholders.” § 44.

The Backbook of Indirect Channel Loans CRB originated and held on its
balance sheet was highly sensitive to fluctuations in interest rates and other
macroeconomic factors. Thus, in the absence of an interest rate hedge to protect

itself, Sunlight was exposed to significant losses when interest rates rose. § 42.

? In its brief in support of the Motion to Dismiss (CRB’s “Brief” or “CRB Br.”), CRB
repeatedly mischaracterizes or misconstrues Plaintiff Mitchell Wax’s (“Plaintiff’ or
“Wax’’) allegations. Plaintiff does not allege, as CRB asserts, “that Sunlight did not
accurately disclose the accounting method it employed to record the value of certain
loans.” CRB Br. at 6. Rather, Plaintiff alleges that the accounting method Sunlight
employed “left Plaintiff and the other Sunlight stockholders in the dark about the
rapid deterioration of the Solar Backbook.” § 44.

5
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 14 of 49 PagelD:
1356

C. |CRB’s Scheme to Deceive Sunlight Investors with Sunlight

In addition to the foundational facts set forth above, the Complaint describes
in detail CRB’s scheme to deceive Sunlight investors. Specifically, CRB knowingly
facilitated loans to disreputable solar panel installers of dubious credit quality and
the build-up of the enormous Backbook of high-risk, mispriced, and unsaleable
Indirect Channel Loans CRB warehoused for Sunlight on CRB’s balance sheet, with
Sunlight retaining the risk of loss. This scheme artificially inflated the price of
Sunlight stock and operated as a fraud or deceit on Sunlight stock purchasers. 4 45.

CRB’s conduct was particularly likely to deceive Sunlight’s investors, as the
Solar Backbook was increasingly comprised of loans of highly questionable quality.
Indeed, two of Sunlight’s primary vendors were subject to numerous consumer
complaints and lawsuits, and also numerous federal and state regulatory
investigations and actions for their illicit business practices. {Jj 46, 47, 49.

CRB, as Sunlight’s Bank Partner, knowingly granted ever-increasing and
unsustainable amounts of credit to Sunlight and its contractors, including contractors
of dubious credit quality. CRB repeatedly lifted its loan caps and waived defaults
under its agreement with Sunlight, with knowledge that such defaults and Sunlight’s
unsustainable debt load were being concealed by Sunlight from its investors. 4 48.

CRB engaged in these inherently fraudulent transactions for no legitimate purpose
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 15 of 49 PagelD:
1357

or economic rationale other than to enrich itself with substantial lending fees and
fees Sunlight was to pay to CRB based on loan volume.? Jd.

As the Complaint details, CRB acted with the motive and opportunity to
commit fraud. CRB earned substantial profits as Sunlight’s Bank Partner, a lending
relationship for which CRB initially had no risk, as all of the economic risk for poor
quality loans was shouldered by Sunlight. In addition to the substantial fees CRB
charged to borrowers as a Bank Partner lender, it also benefitted by the large fees
Sunlight was required on the loans CRB originated. § 72. Thus, CRB benefitted
financially as the volume of loans it made and warehoused for Sunlight increased
regardless of the borrowers’ credit quality. Jd. However, as interest rates rose, the
CRB Backbook loans became unsaleable except at a deep discount, putting Sunlight
at risk for failure. Jd. This meant that, although CRB was merely warehousing the
Backbook loans and Sunlight was ultimately responsible upon default, CRB was
now at risk for the loans’ liability if Sunlight failed. /d. Rather than let Sunlight fail,
CRB enabled Sunlight to continue to lend at ever-increasing levels that far exceeded
its lending limits, amending the lending caps in those agreements after the fact. Id.

D. The Truth Is Revealed in a Series of Partial Disclosures

3 Notwithstanding those detailed facts, CRB mischaracterizes Plaintiff’s allegations
as “entirely conclusory” (CRB Br. at 1) and wrongly contends that the Complaint
describes the scheme in only “four conclusory paragraphs.” (CRB Br. at 6).

7
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 16 of 49 PagelD:
1358

Sunlight investors learned the truth about the Backbook scheme through a
series of partial disclosures between September 28, 2022 and Sunlight’s October 31,
2023 bankruptcy filing. Through the course of these unfolding revelations, Sunlight
incrementally disclosed: 1) the existence of the Backbook; 2) that the buildup of the
Backbook occurred prior to Sunlight’s third quarter fiscal 2022, before Plaintiff Wax
last purchased Sunlight stock; and 3) that the loans in the CRB warehouse facility
reached a staggering $764 million by March 31, 2023. As a result of the scheme, the
Sunlight shares purchased by Plaintiff and the proposed Class members became
worthless. J] 49-71. The string of bad news started on September 28, 2022, when
Sunlight announced it was taking a non-cash advance receivable impairment of $30
to $33 million stemming from liquidity issues by one of its major vendors. This
caused Sunlight’s stock price to plummet 57%, or $1.44 per share, falling from a
closing price of $2.52 per share on September 28, 2022 to a close of $1.08 per share
on September 29, 2022. 4 49.

The Complaint details a series of disclosures following the September 28,
2022 announcement, which incrementally revealed to investors the true state of
Sunlight’s loan portfolio. Such partially corrective facts include, without limitation,
that rising interest rates were negatively impacting Sunlight’s Indirect Channel Loan
portfolio and that CRB had amended its loan agreements with Sunlight to raise the

loan capacity CRB was willing to extend to Sunlight from $210 million to $450
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 17 of 49 PagelD:
1359

million, then to $650 million, and such amendments included an omnibus waiver of
certain potential breaches and defaults of the existing agreements. §] 54. In a Form
8-K filed on December 13, 2022, Sunlight for the first time revealed the existence
of the Backbook, and further revealed that not only did CRB more than double the
amount it was willing to lend to Sunlight: the amount of credit to Sunlight as of the
date of the amendment was above the new increased limit. 49 55, 56. Sunlight,
however, did not reveal what its actual exposure to the loans on CRB’s balance sheet
was. Instead, it couched its disclosures by stating that it was attempting to sell a
portion of the loans held by CRB “to facilitate compliance” with the revised $450
million limit, and that it expected the amount of loans held by CRB after the sale to
be $350 to $400 million, of which $275 to $300 million would be Backbook loans,
leaving investors in the dark about the actual loan balance. Jd.

The December 13, 2022 Form 8-K also revealed certain details about the
timing of the buildup of the CRB Backbook, stating that “a significant portion” of it
was “credit approved prior to certain pricing actions that the Company took in the
third and fourth quarters. . .” 4] 55. Thus, the buildup of the CRB Backbook occurred
before actions taken during Sunlight’s 2022 third quarter.

Next, on March 14, 2023, Sunlight revealed that “[d]espite the completion of
the previously disclosed loan sale in December 2022, the Company is currently not

in compliance with certain provisions of the Bank partner Agreements, including the
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 18 of 49 PagelD:
1360

total loan cap.” 458. Yet Sunlight did not disclose how far out of compliance with
the lending cap it was. On March 17, 2023, Sunlight revealed that it expected a
significant change in results of operations for the fiscal year 2022, chiefly due to the
deterioration in the market for Indirect Channel Loans held on CRB’s balance sheet,
but still did not reveal the magnitude of its exposure to the CRB loans. 4 59.

On April 3, 2023 Sunlight revealed that CRB had again: 1) dramatically
increased its loan cap—this time from $450 to $650 million, yet still without
revealing the balance; 2) granted Sunlight certain grace periods; and 3) extended
Sunlight a $100 million loan facility to be used to repay Sunlight’s borrowings from
Silicon Valley Bank, following that bank’s collapse. §61. In return, CRB received
warrants from Sunlight representing 19.9% of the shares outstanding.

On May 4, 2023, Sunlight for the first time quantified the losses on the CRB
Backbook loans, revealed that it may incur negative platform fees between $45 and
$50 million for the portfolio of unsold loans held by CRB as of March 31, 2023, and
issued an earnings release that revealed that as of that same date, its CRB warehouse
facility balance had swollen to a staggering $764 million, far in excess of the then-
current lending cap of $450 million. 44 63, 64. While Sunlight sought to soften the
news by simultaneously announcing that the balance had been reduced by $296

million through a sale of loans sometime in April 2023, even with the sale, the

10
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 19 of 49 PagelD:
1361

balance stood at $468 million, only within the new lending cap of $650 million—
which reflected two increases of the limit. { 64.

On August 9, 2023, Sunlight revealed that its net tangible assets were negative
by about $37 million; in other words, Sunlight was essentially insolvent. { 66.

On September 13, 2023, Sunlight announced yet another amendment of its
agreements with CRB whereby CRB waived certain provisions of its prior loan
agreements, including certain default provisions and the provisions that required
Sunlight to maintain certain cash balances in its accounts with CRB. { 68.

On September 28, 2023, Sunlight announced it was suspended from trading
and delisted by the NYSE, and thereafter would be traded on the OTC market. §] 69.

Finally, on October 31, 2023, Sunlight announced it had filed for Chapter 11
bankruptcy with a pre-packaged plan whereby CRB would provide exit financing in
return for 12.5% of the equity in the reorganized company. 4 70. Under the plan, the
interests of Plaintiff and other stockholders were extinguished, meaning the stock
held by Plaintiff and the other putative class members was worthless. Jd.

On December 7, 2023, Sunlight announced that the reorganization plan was
approved — which meant that CRB had profited from its scheme. Per that plan, CRB
emerged as a 12.5% owner of Sunlight’s new equity, while investors such as Plaintiff
and the proposed Class members were left with nothing. 4 71.

LEGAL STANDARD

11
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 20 of 49 PagelD:
1362

On a motion to dismiss for failure to state a claim, the moving party “bears
the burden of showing that no claim has been presented.” Hedges v. United States,
404 F.3d 744, 750 (3d Cir. 2005) (citation omitted). In reviewing a motion to dismiss
under Civ. P. Rule 12(b)(6), “courts accept all factual allegations as true, construe
the complaint in the light most favorable to the plaintiff, and determine whether,
under any reasonable reading of the complaint, the plaintiff may be entitled to relief.”
Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (internal quotation
marks and citation omitted). To survive a motion to dismiss, the plaintiff need only
provide “enough facts to state a claim to relief that is plausible on its face.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009). This standard requires the plaintiff to show “more than a
sheer possibility that a defendant has acted unlawfully,” but does not create what
amounts to a “probability requirement.” /d.

ARGUMENT

I. The Complaint Plausibly States a Claim for Relief
A. Plaintiff Adequately Pleads CRB’s Scheme Liability

The Complaint sufficiently alleges a violation of Rule 10b-5(a) and (c) on the

part of CRB. “[S]ubsections (a) and (c) [of Rule 10b-5] cover what is referred to as

12
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 21 of 49 PagelD:
1363

‘scheme liability’ for allegedly deceptive conduct.” Jn re Cognizant Tech. Sols. Corp.
Sec. Litig., No. CV166509ESCLW, 2020 WL 3026564, at *14 (D.N.J. June 5, 2020)
(citing De Vito v. Liquid Holdings Grp., Inc., No. 15-6969, 2018 WL 6891832, at
*41 (D.N.J. Dec. 31, 2018)). Scheme liability “is implicated when an individual,
either directly or indirectly, “employ[s] any device, scheme, or artifice to defraud, ...
or [ ] engage[s] in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any person, in connection with the purchase or sale
of any security.” /d. at *16 (quoting 17 C.F.R. § 240.10b—S).

Unlike Rule 10b-5(b), which applies to deceptive statements, Rule 10b-5(a)
and (c) “make deceptive conduct actionable.” Jd. at *18 (emphasis added; citation
omitted); see also U.S. Sec. & Exch. Comm’n v. Mintz, 723 F. Supp. 3d 386, 403
(D.N.J. 2024). Indeed, “[a] party can incur liability for employing a fraudulent
scheme or engaging in any fraudulent act in connection with the purchase or sale of
any security, even without making an oral or written statement.” Mintz, 723 F. Supp.
3d at 406-07 (citation omitted). The Rule 10b-5(a) and (c) subsections “capture a
wide range of conduct.” Lorenzo v. U.S. Sec. & Exch. Comm’n, 587 U.S. 71, 79
(2019); see also In re RenovaCare, Inc. Sec. Litig., No. 2:21-CV-13766, 2024 WL
2815034, at *24 (D.N.J. June 3, 2024) (“Subsections (a) and (c) of Rule 10b-5
encompass a ‘wide range of conduct’ and are not limited to the prohibition of market

manipulation.”’) (citations omitted).

13
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 22 of 49 PagelD:
1364

To bring a colorable claim for scheme liability, “a plaintiff must allege (1) that
the defendant committed a deceptive or manipulative act, (2) in furtherance of the
alleged scheme to defraud, (3) with scienter, and (4) reliance.” Cognizant, 2020 WL
3026564, at *16 (internal quotation marks and citation omitted). Plaintiff’s
Complaint meets each of these elements.

First, Plaintiff alleges a series of deceptive acts by CRB. This deceptive
conduct includes, for example, that CRB: “knowingly allow[ed] and enable[ed]
Sunlight to hide its exposure to the solar Backbook from its investors,” ({] 23); and
“deceived the investing public as to Sunlight’s business and prospects.” Jd.

Second, Plaintiff alleges that CRB’s deceptive acts were in furtherance of a
scheme to defraud Sunlight’s investors. That scheme consisted of enabling Sunlight
to make its financial health appear stronger than it was, which artificially inflated
Sunlight’s stock price and allowed CRB to earn significant fees that, absent CRB’s
fraud, would have been unavailable. See, e.g. §] 10 (“CRB’s repeated extensions of
credit and agreement to help Sunlight conceal its true indebtedness from investors
by having it recorded in CRB’s books, coupled with Sunlight’s false statements
about its true loan exposure, kept Sunlight’s true financial distress a secret from
investors, which kept the price of Sunlight’s shares artificially inflated during the

Class Period.”).

14
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 23 of 49 PagelD:
1365

Third, Plaintiff alleges that CRB acted with scienter in that (a) CRB’s
deceptive conduct was conscious (or at a minimum reckless), and (b) CRB had the
motive and opportunity to engage in the deceptive conduct. See Mintz, 723 F. Supp.
3d at 408. As to conscious misbehavior or recklessness, the Complaint alleges that
“CRB had actual knowledge of the misleading nature of the statements made by
Sunlight or acted in reckless disregard of the true information known to them at the
time.” § 73; see also 4 23 (“CRB further increased its loan limits and enabled
Sunlight to exceed those limits, and held such loans on its own balances sheet, thus
knowingly allowing and enabling Sunlight to hide its exposure to the solar Backbook
from its investors.”) (emphasis added); § 45 (“CRB knowingly facilitated loans to
disreputable solar contractors of dubious credit quality, as well as the build-up of an
enormous Backbook of high-risk Indirect Channel Loans Defendant warehoused for
Sunlight on CRB’s balance sheet but for which Sunlight retained the risk of loss.”)
(emphasis added); 4 48 (“CRB, as Sunlight’s Bank Partner, knowingly granted ever-
increasing amounts of credit to Sunlight and its contractors ..., repeatedly lifted its
loan caps, and waived defaults under its agreements with Sunlight, all with
knowledge that such defaults and Sunlight’s unsustainable debt load were being
concealed from Sunlight’s investors.”) (emphasis added).

The Complaint also alleges that CRB “had both the motive and opportunity to

commit fraud,” “was earning substantial profits as Sunlight’s Bank Partner’ without

15
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 24 of 49 PagelD:
1366

risk, and earned more in interest and fees as the volume of loans originated by CRB
increased. §] 72; see also | 2 (“CRB benefitted financially on multiple fronts as the
volume of loans it made increased.”), 4 48 (CRB “granted ever-increasing amounts
of credit to Sunlight and its contractors ..., repeatedly lifted its loan caps, and waived
defaults,” ““engag[ing] in these inherently fraudulent transactions for no legitimate
purpose other than to enrich itself with substantial fees as a lender, as well as the fee
Sunlight was obligated to pay to CRB based on loan volume.”).

Fourth, Plaintiff alleges reliance — specifically, a “causal connection between
[CRB]’s alleged misconduct and [P]laintiff’s injury,” which is all that is required by
the scheme liability reliance element. See Cognizant, 2020 WL 3026564, at *19. The
Complaint alleges that CRB’s scheme caused Sunlight’s shares to be artificially
inflated. See, e.g. § 23 (“CRB’s scheme deceived the investing public as to Sunlight’s
business and prospects, artificially inflated the price of Sunlight common stock, and
caused Plaintiff and the other members of the Class (as defined below) to purchase
Sunlight stock at artificially inflated prices and suffer economic loss when the
revelations set forth herein reached the market’’); see also 4 7, 10.

As shown below, none of CRB’s challenges to these well-pled allegations

defeat its liability under the Exchange Act.

16
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 25 of 49 PagelD:
1367

1. Plaintiff Sufficiently Pleads Reliance on CRB’s Conduct

The reliance element of a scheme liability claim only requires a “causal
connection between a defendant’s alleged misconduct and a plaintiffs injury.”
Cognizant, 2020 WL 3026564, at *19 (citation omitted) (emphasis added). This is
not an onerous burden for a plaintiff. Scheme liability reliance is adequately alleged
where a scheme defendant’s participation in the scheme makes it “‘necessary or
inevitable’ that falsehoods on the part of [the issuer] would result.” Jn re Eletrobras
Sec. Litig., 245 F. Supp. 3d 450, 472 (S.D.N.Y. 2017) (citation omitted).4

Here, Plaintiff alleges that CRB engaged in a scheme to allow Sunlight to
accumulate a large pool of risky loans, which enabled Sunlight to conceal its true
financial position from the market and thus caused Sunlight’s share price to be
artificially inflated. This connection is abundantly alleged throughout the Complaint.
See, e.g. | 7 (“CRB engaged in a scheme to extend loans to disreputable solar
contractors of dubious credit quality and facilitate Sunlight’s accumulation of a large
loan pools of fixed-rate loans on CRB’s balance sheet for which Sunlight retained

the risk of loss”), 4 10 (CRB’s conduct “kept Sunlight’s true financial distress a

secret from investors (including Plaintiff), which kept the price of Sunlight’s shares

* Notably, the S.D.N.Y. Court has commented: “Although it often is said that reliance
is an element of a private cause of action under Rule 10b—5, that formulation
typically arises in the context of Rule 10b—5 actions based on misstatements and
omissions—in other words, conduct in violation of Rule 10b—5S(b) rather than (a) and
(c).” In re Parmalat Sec. Litig., 376 F. Supp. 2d 472, 508 (S.D.N.Y. 2005).

17
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 26 of 49 PagelD:
1368

artificially inflated’’), §] 23 (“CRB’s scheme deceived the investing public as to
Sunlight’s business and prospects, artificially inflated the price of Sunlight common
stock, and caused Plaintiff and the other members of the Class ... to purchase
Sunlight stock at artificially inflated prices and suffer economic loss when the
revelations set forth herein reached the market’).

These allegations are in line with the reliance allegations the Court found
sufficient in Cognizant. There, the defendant was alleged to have participated in a
scheme to disguise the nature of bribe payments, which he knew would result in the
issuer reporting overstated capitalized expenditures and overstated earnings.
Cognizant, 2020 WL 3026564, at *17. The Court held that reliance was adequately
alleged because “‘but-for [the scheme defendant’s] misconduct ... [the issuer] would
not have overstated its earnings, which then resulted in Plaintiffs’ alleged injuries.”
Id. at *19. The same is true here, where CRB’s conduct made it inevitable that
falsehoods on the part of Sunlight would result.

CRB mistakenly bases its entire reliance challenge on the Supreme Court’s
decision in Stoneridge Inv. Partners, LLC v. Scientific—Atlanta, Inc., 552 U.S. 148
(2008), but case is factually inapposite. In Stoneridge, the scheme defendants were
only “suppliers, and later customers, of’ the issuer. /d. at 153. By contrast, as
Sunlight’s Bank Partner and sole indirect channel provider, CRB “regularly

provid[ed] financing through Sunlight for consumers’ purchases of solar power

18
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 27 of 49 PagelD:
1369
systems from solar contractors.” See, e.g. § 46; see also { 6. In discussing the reliance
requirement in Stoneridge, the Supreme Court noted that “nothing [the scheme
defendants] did made it necessary or inevitable for [the issuer] to record the
transactions as it did.” 552 U.S. at 161. The opposite is true with CRB, which—as
the Complaint spells out—housed loans on its balance sheet so that Sunlight’s
liabilities would be hidden from its investors and CRB could continue to enjoy fees
from indirect channel loans. See, e.g. J] 1, 7, 45. The Complaint alleges CRB’s role
as indirect channel loan Bank Partner, as described in Sunlight’s SEC disclosures:
Indirect Channel Loans—Sunlight arranges for Loans to be originated
by Sunlight’s issuing Bank Partner. Sunlight entered into program
agreements with Bank Partners. Sunlight pays its Bank Partner a fee
based on balance of Loans originated by the Bank Partner. The Bank
Partner funds loans by remitting funds to Sunlight, and Sunlight is
responsible for making payments to the contractor. Sunlight arranges
for sale of Indirect Channel Loans to third party purchasers.
4] 34. Likewise, the Complaint further specifies how the indirect channel loans—i.e.,
loans through CRB as Sunlight’s only indirect channel provider—directly impacted
the financial performance that Sunlight publicly disclosed. For instance:
Revenue Recognition—Sun recognizes revenue from (a) platform fees
on Indirect Channel Loans when the Indirect Channel Purchaser buys
the Loans from the balance sheet of the Bank Partner, and loan portfolio
and management services monthly as Sun provides such services.
4] 36. Lastly, CRB argues that scheme liability does not attach to its conduct because

there is no allegation that CRB issued or had any role in the dissemination of any

public statement. CRB Br. at 17. As shown above, Rule 10b-5(a) and (c) “make

19
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 28 of 49 PagelD:
1370

deceptive conduct actionable.” Mintz, 723 F. Supp. 3d at 403, 406-07 (emphasis
added). The making of a statement is unnecessary. Plaintiff has sufficiently alleged
that deceptive conduct, which made Sunlight’s misstatements and omissions
inevitable, deceiving the public and artificially inflating its securities.

2. The Complaint Does Not Repackage Rule 10b-5(b) Claims

CRB incorrectly argues that Plaintiff’s scheme lability claim is an improperly
reframed misrepresentations and omissions claim under Rule 10b-5(b). CRB Br. at
18-19. This is flatly contradicted by the Complaint’s well-pled allegations.

The gravamen of this case is not the making of misrepresentations. Rather, the
conduct alleged is that of a bank scheming, for its own economic gain, to enable an
entirely separate entity (i.e., the issuer, Sunlight) to originate loans which it knew
were of dubious credit quality. In so doing, CRB helped make another company’s
financial health appear stronger than it was, a scheme which artificially inflated the
price of that issuer’s securities—precisely the type of deceptive scheme deemed
actionable under Rules 10b-5(a) and (c). See e.g., Waterford Twp. Police & Fire Ret.
Sys. v. Smithtown Bancorp., Inc., No. 10-CV-864 (SLT) (RER), 2014 WL 3569338,
at *9 (E.D.N.Y. July 18, 2014) (motion to dismiss denied where the complaint
alleged that defendants “sought to mask the increasing delinquency in SBI’s loan
portfolio—the core of its business—by commissioning fraudulent property

appraisals, holding back corrective appraisals,” among other things); /n re Parmalat

20
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 29 of 49 PagelD:
1371

Sec. Litig., 376 F. Supp. 2d 472, 504 (S.D.N.Y. 2005) (denying motion to dismiss
where bank defendants engaged in deceptive transactions with the issuer which, in
turn, allowed the issuer to publish misleading financial statements).

Takata v. Riot Blockchain, Inc., No. CV182293GCRLS, 2023 WL 7133219
(D.N.J. Aug. 25, 2023), upon which CRB relies, is factually inapplicable. In Takata,
the scheme liability claims were against officers and directors of the issuer who,
while engaged in a pump-and-dump scheme, caused the issuer “to issue materially
false and misleading statements in SEC filings.” /d. at *3. In other words, the alleged
scheme—perpetrated by the issuer’s own executives and Board members—
consisted of preparing and publishing misrepresentations and making omissions to
investors. The Zakata court found that, because the alleged scheme consisted of
making misstatements and omissions, the scheme could not give rise to liability
under Rule 10b-S5(a) and (c). See id. at *11. This is consistent with the well-
established distinction between deceptive statements, which fall under Rule 10b-
5(b), and deceptive conduct, which falls under Rule 10b-5(a) and (c). See, e.g.
Cognizant, 2020 WL 3026564, at *18.

Here, by contrast, the scheme—perpetrated by the issuer’s Bank Partner, not
its own executives or directors—consisted of deceptive conduct: it was designed to
improperly allow the issuer to take on more risky debt carried in the Bank Partner’s

(CRB) books, while CRB sat back and collected fees. CRB’s conduct did not involve

21
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 30 of 49 PagelD:
1372

causing or making any misrepresentations or omissions to investors, as the Takata
officers and directors did. CRB’s attempt to couch these claims as premised on
statements is inappropriate and should be rejected. See Shih v. Maselli, Mills &
Fornal, P.C., No. CV 24-6300 (ES) (MAH), 2025 WL 957680, at *2 (D.N.J. Mar.
31, 2025) (citation omitted) (Salas, J.) (“In evaluating the sufficiency of a complaint,
a court must accept all well-pleaded factual allegations contained in the complaint
as true and draw all reasonable inferences in favor of the non-moving party.”).

3. The Complaint Alleges Facts Giving Rise to a Strong
Inference of Scienter

To sufficiently plead scienter in a scheme liability action, a plaintiff needs to
either (a) “identify circumstances indicating conscious or reckless behavior by” the
defendant, or (b) “allege facts showing both a motive and a clear opportunity for
committing the fraud.” Mintz, 723 F. Supp. 3d at 408 (citation omitted). As this Court
has observed, “[t]he relevant question is ‘whether all of the facts alleged, taken
collectively, give rise to a strong inference of scienter, not whether any individual
allegation, scrutinized in isolation, meets that standard.’” Cognizant, 2020 WL
3026564, at *21 (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,
322-23 (2007)) (emphasis added). A plaintiff needs not supply “‘smoking-gun’
evidence to support the inference of scienter.” Jd. (citing Tellabs, 551 U.S. at 324).

Plaintiff here has pleaded sufficient facts to support a strong inference of
scienter. First, the Complaint is replete with allegations of CRB’s deceptive conduct

22
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 31 of 49 PagelD:
1373

perpetrated knowingly or, at a minimum, extremely recklessly. See, e.g., §] 73 (“CRB
had actual knowledge of the misleading nature of the statements made by Sunlight
or acted in reckless disregard of the true information known to them at the time.”);
4] 23 (“CRB further increased its loan limits and enabled Sunlight to exceed those
limits, and held such loans on its own balances sheet, thus knowingly allowing and
enabling Sunlight to hide its exposure to the solar Backbook from its investors.”’); 4
45 (“CRB knowingly facilitated loans to disreputable solar contractors of dubious
credit quality, as well as the build-up of an enormous Backbook of high-risk Indirect
Channel Loans Defendant warehoused for Sunlight on CRB’s balance sheet but for
which Sunlight retained the risk of loss.’’); 4 48 (“CRB, as Sunlight’s Bank Partner,
knowingly granted ever-increasing amounts of credit to Sunlight and its contractors
..., repeatedly lifted its loan caps, and waived defaults under its agreements with
Sunlight, all with knowledge that such defaults and Sunlight’s unsustainable debt
load were being concealed from Sunlight’s investors.”).°

Of note, scienter was found adequately pled in a 10b-5(a) and (c) case where
the complaint alleged that the scheme defendants “sought to mask the increasing

delinquency in SBI’s loan portfolio—the core of its business.” Waterford Twp., 2014

> These are not simple “[c]onclusory allegations that the defendant[] ‘knew’ or
‘should have known,’” disapproved of by CRB’s authority, Jn re Bio- Technology
Gen. Corp. Sec. Litig., 380 F. Supp. 2d 574, 589 (D.N.J. 2005), which does not
concern scheme liability anyway. CRB Br. at 21.

23
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 32 of 49 PagelD:
1374

WL 3569338, at *9. The court considered “all of the facts collectively,” and found
that the complaint pleaded “a strong inference that Defendants engaged in conduct
and/or made statements with ‘a mental state embracing intent to deceive, manipulate
or defraud.’” Jd. (quoting Tellabs, 551 U.S. at 319). Here too, CRB’s conduct
concealed from investors the credit quality of Sunlight’s loan portfolio. Scienter
should likewise be found.

Second, Plaintiff alleges that CRB “had both the motive and opportunity to
commit fraud,” as it “was earning substantial profits as Sunlight’s Bank Partner”
without risk, and, significantly, earned more in interest and fees as the volume of
loans originated by CRB increased. 4 72; see also § 2 (“CRB benefitted financially
on multiple fronts as the volume of loans it made increased.’’), J 48 (“CRB engaged
in these inherently fraudulent transactions for no legitimate purpose other than to
enrich itself with substantial fees as a lender, as well as the fee Sunlight was
obligated to pay to CRB based on loan volume.”).

Such well-pled facts are not, contrary to CRB’s assertion, mere “catch-all
allegations that [a] defendant[] stood to benefit,’ CRB Br. at 20 (quoting GSC
Partners CDO Fund v. Washington, 368 F.3d 228, 237 (3d Cir. 2004)), but rather
specific allegations detailing the steps CRB knowingly took to wrongly (and
handsomely) benefit at the expense of Sunlight’s shareholders. The financial rewards

reaped by CRB satisfy the pleading standard. See Tellabs, 551 U.S. at 310 (“The

24
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 33 of 49 PagelD:
1375

Court agrees that motive can be a relevant consideration, and personal financial gain
may weigh heavily in favor of a scienter inference.”).°

As in Cognizant, the Court should “find[] that cumulatively, Plaintiff[’s]
allegations regarding [CRB] reflect a strong inference of scienter.” 2020 WL
3026564, at *22.

4, CRB’s Conduct Was Inherently Deceptive

CRB contends that the Complaint fails to allege inherently deceptive conduct
on the part of CRB, and instead pleads conduct that consists of “legitimate business
transactions.” CRB Br. at 21-22. This is wrong. To the contrary, the Complaint sets
forth a wealth of inherently deceptive conduct by CRB, including, for example, that
it: aggressively raised the loan capacity extended to Sunlight “to conceal Sunlight’s
exposure to its loan portfolio,” (§ 12); “knowingly allow[ed] and enable[ed] Sunlight
to hide its exposure to the solar Backbook from its investors,” (4 23); and “deceived

the investing public as to Sunlight’s business and prospects.” (id.).

© CRB’s purported authority gains it no ground. For one thing, Plaintiff has alleged
much more than just the desire “to show profitability, which is common to all for-
profit enterprises.” CRB Br. at 20 (quoting Fulton Fin. Advisors, Nat’l Ass’n vy.
NatCity Invs., Inc., 2013 WL 5635977, at *11 (E.D. Pa. Oct. 15, 2013)). Moreover,
Lewakowski v. Aquestive Therapeutics, Inc., 2023 WL 2496504 (D.N.J. Mar. 14,
2023) is inapposite—it does not even concern scheme liability. And the language
from Lewakowski selectively quoted by CRB 1s from a parenthetical quoting another
case Un re N. Telecom Secs. Litig., 116 F. Supp. 2d 446 (S.D.N.Y. 2000)) discussing
10b-5(b), not _10b-5(a) and (c), claims against individual defendants, who were
officers of the issuer.

25
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 34 of 49 PagelD:
1376

This is fraudulent conduct, plain and simple. There would be no legitimate
reason for CRB to allow Sunlight to exceed the credit limits in their loan agreements,
nor would there be any legitimate reason for CRB to “warehouse” these elevating
loan levels on its “Backbook.” Such conduct is inherently deceptive and makes
Plaintiff’s “claim for scheme liability [] appropriate under subsections (a) and (c).”
Cognizant, 2020 WL 3026564, at *19 (citing JAC Holding Enters., Inc. v. Atrium
Capital Partners, LLC, 997 F. Supp. 2d 710, 735 (E.D. Mich. 2014), which found
that the plaintiffs adequately pled scheme liability where the alleged conduct
included a scheme to mislead the buyers as to JAC’s value”); see also U.S. Sec. &
Exch. Comm’n v. Kearns, 691 F. Supp. 2d 601, 618 (D.N.J. 2010) (finding sufficient
allegations that the defendant “engaged in inherently deceptive conduct, separate
and apart from his direct statements to the public, designed to secretly and artificially
inflate [the issuer’s] revenues”); cf. In re Eletrobras Sec. Litig., 245 F. Supp. 3d 450,
471 (S.D.N.Y. 2017) (finding a failure to adequately plead scheme liability where
“the plaintiffs focus[ed] only on [certain] defendants’ alleged misstatements or
omissions, and therefore fail[ed] to state that they committed an inherently deceptive
act that is distinct from an alleged misstatement’’) (internal quotation marks and
citation omitted).

CRB reliance on U.S. Sec. & Exch. Comm’n vy. Lucent Techs., Inc., 610 F.

Supp. 2d 342 (D.N.J. 2009), is misplaced. CRB Br. at 22. There, the business

26
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 35 of 49 PagelD:
1377

transactions deemed legitimate were “oral assurances” —by employees of the issuer,
as opposed to a Bank Partner here—regarding “rights of return or pricing
concessions in connection with the sales.” Lucent, 610 F. Supp. 2d at 360.
Representations regarding return conditions and pricing obviously relate to ordinary
business transactions, so it follows that the court in Lucent rejected “the SEC’s
alternative theory of [scheme] liability....” /d. at 361 (holding that such allegations
could “not breathe new life into the defunct primary liability claims against [the
same individual defendants]”).

Here, by contrast, the transactions at issue are inherently fraudulent, as they
were devised for the sole purpose of generating fees for CRB through an
unsustainable risky pool of loans.

5. Plaintiff Has Standing to Bring His Claim and Sufficiently
Pleads Loss Causation

CRB asserts that Plaintiff does not have standing to pursue his claim because
it hinges on conduct that occurred after he purchased his Sunlight shares. CRB Br.
at 22. This baldly conflicts with the allegations in the Complaint. Plaintiff alleges
that CRB’s fraudulent scheme commenced on January 25, 2021 — more than a year
and a half before Plaintiff’s final purchases of Sunlight securities on September 29,

2022.’ See J 45 (“Between January 25, 2021 and October 31, 2023, CRB knowingly

7 See Complaint, Ex. A, Schedule A showing that Wax’s Sunlight share purchases on
September 29, 2022 (ECF No. 1-2 at 8-9).

27
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 36 of 49 PagelD:
1378

(at a minimum, extremely recklessly) engaged in a scheme to deceive Sunlight
investors...”).8 See also {¥ 1, 3, 8, 46-48, 49 (alleging that “Sunlight investors were
first tipped off as to CRB’s scheme” on September 28, 2022—i.e., the scheme was
in progress before that date).

Moreover, Plaintiff alleges a partial corrective disclosure that occurred on
September 28, 2022—-prior to Plaintiff’s final purchases of Sunlight securities. {| 49
(describing Form 8-K filing with the SEC and its effect on Sunlight’s stock price).
In addition, Sunlight disclosed that the Backbook consisted of loans that were credit-
approved before certain purportedly remedial actions taken by Sunlight in the 2022
third quarter. § 55. Plaintiff has standing to assert the claims in this litigation.’

Given the well-pled allegations in the Complaint, to find that Plaintiff lacks
standing here would be to construe the pleading against Plaintiff, against the
principles applicable on a motion to dismiss. See, e.g., Mintz, 723 F. Supp. 3d at 398

(“When considering a Rule 12(b)(6) motion to dismiss, a court must accept as true

8 CRB’s citation of § 54 of the Complaint for this point is confusing. That paragraph
alleges a Form 8-K filed by CRB on December 13, 2022. Paragraph 54 in no way
alleges that CRB’s misconduct “did not begin” until that time. See CRB Br. at 22.

’ In another hiccup, the quote that CRB attributes to In re Dr. Reddy ’s Lab. Ltd. Sec.
Litig., in fact, references a discussion of a different case. See CRB Br. at 22
(misquoting Jn re Dr. Reddy's Lab. Ltd. Sec. Litig., 2019 WL 1299673, at *13 (D.N.J.
Mar. 21, 2019)). Nevertheless, Dr. Reddy's is inapposite because it discusses the
timing of an issuer’s misstatements, not scheme conduct in violation of Rule 10b-
5(a) and (c).

28
Case 2:24-cv-09510-ES-JRA Pocument, 39 Filed 07/25/25 Page 37 of 49 PagelD:
all well-pleaded allegations in the complaint, including all reasonable inferences that
can be drawn therefrom, and view them in the light most favorable to the plaintiff.’’).

Next, CRB argues that the Complaint fails to plead loss causation. Putting
aside the fact that loss causation is not an element of a scheme liability claim,'° and
that in any event, loss causation is typically not an issue to be resolved at the pleading
stage, CRB’s contention is simply false.

In RenovaCare, Judge Martinotti enumerated the standard for establishing
loss causation at the pleading stage. It is not a taxing burden:

Allegations of loss causation are not subject to the heightened pleading

requirements of Rule 9(b) and the PSLRA: all that is required is that
plaintiff provide some indication of the loss and the causal connection

that the plaintiff has in mind, consistent with Rule 8(a). Further, /t/he

issue of loss causation is usually not resolved on a motion to dismiss.

2024 WL 2815034, at *25 (internal quotation marks and citations omitted; emphasis
added); see also Gross v. GFI Grp., Inc., 162 F. Supp. 3d 263, 269 (S.D.N.Y. 2016)
(“[Plaintiff]’s burden to plead loss causation is ‘not a heavy one,’ and when it is

unclear whether the plaintiff’s losses were caused by the fraud or some other

intervening event, ‘the chain of causation is ... not to be decided on a Rule 12(b)(6)

'0 Loss causation is not a separate enumerated element of a scheme liability claim.
See Cognizant, 2020 WL 3026564, at *16 (listing the elements of scheme liability:
“a plaintiff must allege (1) that the defendant committed a deceptive or manipulative
act, (2) in furtherance of the alleged scheme to defraud, (3) with scienter, and (4)
reliance.”’) (internal quotation marks and citation omitted).

29
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 38 of 49 PagelD:
1380

motion to dismiss.’”) (quoting Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec.,
LLC, 797 F.3d 160, 187 (2d Cir. 2015)).

Here, Plaintiff alleges a series of partial disclosures through which Plaintiff
and the class of Sunlight investors he seeks to represent learned of CRB’s scheme to
artificially inflate the price of Sunlight’s shares for CRB’s own economic benefit. 4]
49-70 (describing disclosures in September, November, and December 2022; March,
April, May, August, September, and October 2023); see also Sec. I.B.1., supra
(detailing the causal connection between CRB’s misconduct and Plaintiff’s injuries).
Such allegations are sufficient at the pleading stage. See Zhengyu He v. China Zenix
Auto Int’l Ltd., No. 2:18-cv-15530 (KM) (JAD), 2020 WL 3169506, at *11 (D.N.J.
June 12, 2020) (“the truth may be revealed through a series of partial disclosures

999

through which the truth gradually ‘leaks out.’’’) (internal citations omitted).

Ultimately, “[t]he Third Circuit has stated that loss causation is ordinarily an
issue for the trier of fact.” Id. at *12 (emphasis added). To sufficiently allege loss
causation, “Plaintiff[] need only ‘provide some indication of the loss and the causal
connection,’” RenovaCare, 2024 WL 2815034, at *26 (quoting Dura Pharms., Inc.
v. Broudo, 544 U.S. at 336, 347 (2005)), which Plaintiff has surely done here.

6. The Complaint Pleads Fraud with the Requisite Particularity

The Complaint provides appropriate detail to satisfy PSLRA’s particularity

requirement. “[A] complaint must state the circumstances of the alleged fraud with

30
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 39 of 49 PagelD:
1381

sufficient particularity to place the defendant on notice of the precise misconduct
with which [it is] charged.” Cognizant, 2020 WL 3026564, at *10 n.6 (quoting
Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007)) (quotation marks
omitted); see also Mintz, 723 F. Supp. 3d at 405 (same), 407 (finding unconvincing
the defendants’ argument “that reliance on scheme liability cannot save the SEC’s
failure to identify particular misstatements attributable to each Defendant’’).

Here, the allegations of CRB’s scheme are far from lacking in particularity.
For example, the Complaint alleges that: “CRB’s repeated extensions of credit and
agreement to help Sunlight conceal its true indebtedness from investors by having it
recorded in CRB’s books, coupled with Sunlight’s false statements about its true
loan exposure, kept Sunlight’s true financial distress a secret from investors, which
kept the price of Sunlight’s shares artificially inflated during the Class Period.” (4
10); CRB aggressively raised the loan capacity extended to Sunlight in order “to
conceal Sunlight’s exposure to its loan portfolio” (§ 12); “CRB further increased its
loan limits and enabled Sunlight to exceed those limits, and held such loans on its
own balances sheet, thus knowingly allowing and enabling Sunlight to hide its
exposure to the solar Backbook from its investors.” (4 23); “CRB knowingly
facilitated loans to disreputable solar contractors of dubious credit quality, as well as
the build-up of an enormous Backbook of high-risk Indirect Channel Loans

Defendant warehoused for Sunlight on CRB’s balance sheet but for which Sunlight

31
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 40 of 49 PagelD:
1382

retained the risk of loss.” ({] 45); and (“CRB, as Sunlight’s Bank Partner, knowingly
granted ever-increasing amounts of credit to Sunlight and its contractors ...,
repeatedly lifted its loan caps, and waived defaults under its agreements with
Sunlight, all with knowledge that such defaults and Sunlight’s unsustainable debt
load were being concealed from Sunlight’s investors.”) (48); see also Secs. I.B,
1.B.1, 1.B.3.-LB.5., supra.

These facts are more than sufficient to put CRB on notice of the misconduct
at issue, and Plaintiff’s scheme liability claim against CRB should proceed.

B. The Complaint Does Not Assert a Claim for Aiding and Abetting

Notwithstanding the well-pled facts setting forth the existence of a scheme,
CRB weakly attempts to recast the Complaint as a claim for aiding and abetting the
making of false or misleading statements under Rule 10b-5(b). CRB Br. at 12.
Having asserted this straw man argument, CRB proceeds to exhaust three pages
knocking that straw man down. Aiding and abetting simply does not apply here.
Plaintiff has alleged a scheme under Rule 10b-5(a) and (c), not the issuance of
misrepresentations, let alone the aiding and abetting thereof. CRB’s contention here
directly conflicts with the facts as pled and is not supported by the law.

As an initial matter, CRB poses the incorrect premise that a scheme liability
claim “is just another way” of seeking to hold CRB accountable for aiding and

abetting Sunlight’s issuance of false or misleading statements, a claim barred by the

32
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 41 of 49 PagelD:
1383

U.S. Supreme Court’s decision in Central Bank of Denver, N.A. v. First Interstate
Bank of Denver, N.A., 511 U.S. 164, 185, 191 (1994). See CRB Br. at 12. However,
not only does Central Bank’s rejection of aiding and abetting liability not apply
here—as Plaintiff does not allege any aiding and abetting on CRB’s part—but
Central Bank explicitly states that liability lies for the very conduct alleged here:

[t]he absence of § 10(b) aiding and abetting liability does not mean

that secondary actors in the securities markets are always free from

liability under the securities Acts. Any person or entity, including a

lawyer, accountant, or bank, who employs a manipulative device . . .

on which a purchaser or seller of securities relies may be liable as a

primary violator under 10b-5, assuming a// of the requirements for
primary liability under Rule 10b-5 are met.

Central Bank of Denver, 511 U.S. at 191-92 (citations omitted) (emphasis added).
In other words, the Supreme Court explicitly acknowledges that “scheme liability”
exists under Rule 10b-5(a) and (c), a claim that was not in issue in Central Bank."
Central Bank, thus, is of no relevance here and does not help CRB.

CRB’s other authorities are equally unpersuasive. For example, the issue
before the court in Janus Cap. Grp., Inc. v First Deriv. Traders, 564 U.S. 135, 144
(2011), was who constitutes a “maker” of a statement for purposes of a

misrepresentation claim under Rule 10b-5(b). See id. at 142-144. Claims for

'l Unlike here, the Respondents in Central Bank conceded that Central Bank did not
commit a manipulative or deceptive act within the meaning of § 10(b), and instead
“in the words of the complaint, Central Bank was ‘secondarily liable under § 10(b)
for its conduct in aiding and abetting the fraud.’” See id.

33
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 42 of 49 PagelD:
1384

“scheme liability” under Rule 10b-5(a) and (c), as Plaintiff asserts here, were not
before the court in Janus.'*

CRB further suggests that Wright v. Ernst & Young LLP, 152 F.3d 169,175
(2d Cir. 1981), and United States v. Schiff, 602 F.3d 152, 167 (3d Cir. 2010), stand
for the blanket proposition that all claims under Section 10(b) of the Exchange Act
require a false or misleading statement, and any other conduct is merely aiding and
abetting, which is not a cognizable claim under Central Bank. CRB Br. at 13-14.
This is not so. Both Wright and Schiff addressed the issue of who is a “maker.” The
entire analysis in those cases were in the context of a claim under Rule 10b-5(b), not
Rule 10b-5(a) and (c). See Wright, 152 F.3d at 175; Schiff, 602 F.3d at 167.

Finally, CRB’s reliance on Jn re RenovaCare, Inc. Sec. Litig., supra, 1s
misplaced. In the passage cited by CRB, Judge Martinotti dismissed one of two
individual defendants because he was not a “maker” of the alleged false and
misleading statement. CRB tellingly fails to note that the court sustained the
plaintiffs’ claim for scheme liability under Rule 10b-5(a) and (c) against other

defendants from that same group. See RenovaCare, 2024 WL 2815034, at *24-26.

'2 Similarly, Copeland v. Grumet, 88 F. Supp. 2d 326, 332-34 (D. N.J. 1999) and
Shapiro v Cantor, 123 F. 3d 717, 720 (2d Cir. 1977), addressed the question of who
is a “maker” of a statement for purposes of Rule 10b-5(b). Likewise, the issue in
Sbarra v Horizontal Expl., LLC, No. CIV.A. 14-866, 2015 WL 1201329, at *8-9
(W.D. Pa. Mar. 16, 2015) was whether the defendant “participated” in making the
alleged misstatement. None of the cases addressed whether the defendants
participated in a scheme to defraud under Rule 10b-5(a) and (c).

34
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 43 of 49 PagelD:
1385

In sum, CRB’s invocation of case law rejecting aiding and abetting liability
in the context of misrepresentations claims under Rule 10b-5(b) is of no relevance
here. CRB’s challenge should be rejected.

II. Neither the Bankruptcy Plan Injunction nor the Sunlight Class Action
Settlement Bars Plaintiff’s Claims

A. The Sunlight Bankruptcy Plan Injunction Does Not Bar Plaintiff’s
Claims

CRB next argues that the Sunlight bankruptcy plan injunction bars Plaintiff’s
claims. Specifically, according to CRB, the indemnification provisions found in the
plan set forth in the Loan Program Agreement at § 10.1 and the Loan & Security
Agreement at § 11.3 provide that CRB is entitled to indemnity from Sunlight for any
liability arising out of this action. CRB Br. at 24. But the Court need not look any
further than the express terms of those indemnification provisions to see that they do
not apply to the claims asserted in this action.

First, the indemnification provision in the Loan Program Agreement at § 10.1
does not apply to CRB “to the extent of any Losses which arise from the direct acts
or omissions of [Defendant]”—which Plaintiff alleges here. See CRB Ex. 5 at p. 32.

Second, the indemnification provision set forth in § 11.3 of the Loan and
Security Agreement does not apply to Defendant:

to the extent that . . . losses, claims, damages, liabilities or related

expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the gross

35
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 44 of 49 PagelD:
1386

negligence, will misconduct or bad faith of ([Defendant)].
See CRB Ex. 6 at p. 37. Thus, these provisions are inapplicable to the instant facts.

Even if the indemnification agreements did apply here—and they clearly do
not—CRB is not obligated to enforce them. If CRB were to voluntarily seek
indemnification against Sunlight in violation of a court order, that would be CRB’s,
not Plaintiff’s, violation by seeking to enforce that provision against Sunlight in
violation of the plan. Any potential availability of indemnification for CRB does not
automatically render Plaintiff’s claims violative of the plan. Defendant’s argument
on this point does not support dismissal. !3

B. The Release in the Sunlight Class Action Settlement Has No
Impact on Plaintiff’s Claims Against CRB

In a last-ditch attack on the Complaint, CRB asserts that the terms of the
release in a securities class action against Sunlight in the Southern District of New
York bars the instant claims against CRB. CRB Br. at 25. This is simply wrong.

The Stipulation of Settlement in Fung v. Sunlight Financial Holdings, Inc., et
al., Case No. 1:22-cv-10658-AKH (S.D.N.Y.) (the “Sunlight Action”), did not

release Plaintiff’s claims here against CRB. Indeed, at the fairness hearing for the

'3 In re Essar Steel Minnesota, LLC, 652 B.R. 709, 720 (Bank. D. Del. 2023), does
not help CRB. It simply stands for the proposition that a bankruptcy plan provision
that bars the assertion of a claim against a specific non-debtor is enforceable even
though the person seeking to assert the barred claim was not solicited to approve or
reject the plan. /d.

36
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 45 of 49 PagelD:
1387

Sunlight Action settlement, in response to Plaintiff’s objection that the release should
not be deemed to include Plaintiff or its claims in the instant action, Judge Hellerstein
narrowed the terms of the release and declined to rule that the Sunlight Action
release included the instant claims against CRB. See Sunlight Action, Dec. 10, 2024
Fairness Hearing Transcript, attached hereto as Ex. A at 13-19."

Nor is it of any help to CRB that CRB was a “shareholder” or “partner” of
Sunlight such that it would be covered by the release in the Sunlight Action, as CRB

proposes. CRB Br. at 25. The shareholder at issue here (CRB) only became a

'4 Judge Hellerstein struck overbroad proposed release language from the definition
of “Settlement Class Claims,” as highlighted here:

“Settlement Class Claims” means any and all claims, rights, demands,
suits, liabilities, or causes of action, in law or in equity, accrued or
unaccrued, fixed or contingent, direct, individual or representative, of
every nature and description whatsoever, under federal, state, local,
foreign law, or any other law, rule, or regulation, both known and
Unknown Claims, alleged or which could have been alleged by any
Released Plaintiff Party against Defendants or against any other of the
Released Defendant Parties in any court of competent jurisdiction or
any other adjudicatory tribunal that arise out of, are based upon, are in
any _way related to, or are in consequence of any of the facts,
allegations, transactions, matters, events, disclosures, nondisclosures,
occurrences, representations, statements, acts, claims, omissions, or
failures to act that were: (1) involved, set forth, or referred to in any of
the complaints filed in the Action, that could have been filed in the
Action, or that otherwise would have been barred by res judicata had
the Action been fully litigated to a final judgment; and (11) relate to the
purchase or sale of unlight or Spartan common stock during the Class
Period.

Id. at 18. (emphasis added).
37
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 46 of 49 PagelD:
1388

shareholder of Sunlight by virtue of Sunlight’s bankruptcy reorganization, which
occurred more than a year after the end of the class period in the Sunlight Action.

Ultimately, a class action release may release claims not presented or claims
that could not have been presented only when “the released conduct arises out of the
identical factual predicate as the settled conduct.” Melito v. Experian Mktg. Sols.,
Inc., 923 F.3d 85, 95 (2d Cir. 2019) (internal quotations omitted) (emphasis added).
See 6 Newberg and Rubenstein on Class Actions § 18:20 (6th ed.) (“The basic rule
is that courts will approve settlements—or give preclusive effect to judgments
approving settlements—so long as the released claims arise out of the ‘identical
factual predicate’ as the settlement.”’).

The claims alleged here in no way share an “identical factual predicate” with
the claims alleged in the Sunlight Action. As CRB acknowledges, the Class Period
in the case at bar is more than a year longer than the Class Period alleged in the
Sunlight Action. CRB Br. at 25. According to the notice of the settlement in the
Sunlight Action, the allegations in that case were that:

Defendants made false and misleading statements concerning

Sunlight’s due diligence process for its contractor partners....

Specifically, Plaintiffs alleged that Sunlight gave substantial amounts

of cash advances to its contractor partners without conducting the type

of due diligence that it claimed to conduct. Plaintiffs alleged that as a

result, there was a heightened risk that one or more of Sunlight’s

contractor partners could default on Sunlight’s cash advances, and

alleged that this risk eventually transpired when one of Sunlight’s
largest contractor partners defaulted and went into bankruptcy.

38
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 47 of 49 PagelD:
1389

Notice of Pendency and Proposed Settlement of Class Action, attached hereto as Ex.
B at 3.

By contrast, the instant action is not premised on misrepresentations as to the
due diligence process relating to Sunlight’s contractors. Rather, this case concerns
the relationship between Sunlight and its capital providers—specifically, its indirect
channel capital provider. See e.g., J] 5-6, 8, 13, 17, 33-43. The instant case relates
to a scheme undertaken by CRB to enable Sunlight to repeatedly and improperly
exceed its lending limits and increase its exposure to non-performing loans, which
Sunlight thereafter concealed from its investors. See e.g., {4 3, 7, 12, 72. Also, as
CRB acknowledges, the information that corrected the false impression on the
market is alleged to have occurred at different times. CRB Br. at 25.

In sum, CRB’s attempt to get a free ride on a release from a settlement of a
prior action involving different facts and different claims should be rejected.

CONCLUSION
For the foregoing reasons, CRB’s motion to dismiss should be denied.

Dated: June 11, 2025 Respectfully submitted,

/s/ Paul Scarlato

Paul J. Scarlato, Esq. (NJ ID 041921986)
ROSCA SCARLATO LLC

Four Tower Bridge

200 Barr Harbor Drive Suite 400
Conshohocken, PA 19428

Telephone: (216) 946-7070

39

Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 48 of 49 PagelD:
1390

E-mail: pscarlato@rscounsel.law

Alan L. Rosca, Esq.

ROSCA SCARLATO LLC
2000 Auburn Dr. Suite 200
Beachwood, OH 44122
Telephone: (216) 946-7070
E-mail: arosca@rscounsel.law

Michael Dell’ Angelo

Andrew D. Abramowitz
BERGER MONTAGUE PC
1818 Market Street, Suite 3600
Philadelphia, PA 19103
Telephone: (215) 875-3000
mdellangelo@bm.net
aabramowitz@bm.net

Counsel for Lead Plaintiff Mitchell Wax and
the Proposed Class

40
Case 2:24-cv-09510-ES-JRA Document 40 Filed 07/25/25 Page 49 of 49 PagelD:
1391

CERTIFICATE OF SERVICE

I hereby certify that on June 11, 2025, I served a true and correct copy of the
foregoing document on counsel for Defendant via email, pursuant to the Court’s May

23, 2025 Text Order, ECF 38, as follows:

Steven M. Rosato; steven.rosato@us.dlapiper.com

John J. Clarke, Jr; john.clarke@usdlapiper.com

Richard Zelichov; Richard.zelichov@us.dlapiper.com

/s/ Paul J. Scarlato

Paul J. Scarlato

4]

File and source

File

gov.uscourts.njd.555169.40.0.pdf

Size

323,901 bytes

SHA-256

5905eb72e15fe755aee9f1f083f4fd983b86ba07d7e16ed7e38b1199a647f15c

Our copy

gov.uscourts.njd.555169.40.0.pdf

Original

No public link identified.