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In re Tesla Motors, Inc. Stockholder Litigation

Delaware Court of Chancery
2018 WL 1560293 (2018)


Facts

Tesla Motors, Inc., acquired SolarCity Corporation when Tesla’s chief executive officer (CEO) Elon Musk owned approximately 22 percent of the stock in each company and was SolarCity’s chairman. The acquisition meant Musk converted his SolarCity holdings into over $500 million in Tesla shares. Tesla shareholders (plaintiffs) sued Musk, Tesla’s other directors, SolarCity, and its subsidiary (defendants) over the transaction, including a claim that Musk breached fiduciary duties as Tesla’s controlling shareholder. The complaint claimed that Musk had significant voting influence, dominated the board during the acquisition process, and held extraordinary influence in the company. Not only the “face” of Tesla, Musk said Tesla “wasn’t going to make it” without him and called it “his company.” Musk claimed Tesla, SolarCity, and SpaceX formed a pyramid with him atop, which would crumble if one element faltered. Musk also significantly influenced Tesla board members because most had interests or conflicts rendering allegiance likely. Musk demonstrated willingness to remove senior management who disagreed with him by forcing out the previous CEO and founder. Last, Musk bailed Tesla out with his own money and controlled Tesla’s corporate filings. Musk nonetheless moved to dismiss the claim, arguing he could not be Tesla’s controlling shareholder with only a 22 percent stake.

Rule of Law

Issue

Holding and Reasoning (Slights, J.)

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