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Tesla stockholders suing company CEO Elon Musk over a $2.6 billion merger have lost a bid to access depositions taken for another case against the CEO, with the court saying the plea came too late.
Vice Chancellor Joseph R. Slights ruled that the deposition request was too late and could prejudice Musk, adding that the deposition statements, which focus on board conflicts around Musk’s 10-year compensation plan, are too far removed from the July 2016 SolarCity merger decision, Law360 reports.
Musk is likely to be the first witness in a 10-day trial beginning Monday in Delaware on Tesla’s purchase of SolarCity — the deal in question.
“Musk argues that whether he controls years after is irrelevant to whether he controlled Tesla at the time of the transaction,” the vice chancellor said, adding that, “I agree with Musk and will deny this motion.”
Slights said that the stockholders had opportunities to seek deposition testimony during regular discovery periods, acknowledging that there were similarities between the current case and that which the depositions were taken for, including allegations that Musk “dominates and controls the board of directors such that fiduciaries are unable to act independently of his influence.”
At the center of both lawsuits is Musk’s level of control over the board. Stockholders in the SolarCity class action lawsuit allege that the 2016 merger was driven by Musk’s roles as Tesla’s CEO, board chairman and 22.1 percent stockholder in early 2016 and by a “complex web of familial and business relationships” with SolarCity, Law360 reports.
SolarCity is run by Musk’s cousins, and he has invested $500 million in the company.
In their argument to get hold of the depositions, investors argued that “Musk ignores that the factual allegations regarding his control over Tesla and the board’s conflicts of interest are fundamentally identical in each case.”
According to their class action lawsuit, the investors allege Musk made false and misleading disclosures and led a conflicted deal that ended up wasting corporate assets on SolarCity , which was “on the brink of insolvency,” Law360 reports.
“The allegations in the Tornetta action concerning control, disinterestedness and independence do not relate to new events or circumstances, but are all based on facts and circumstances that existed at the time of the SolarCity acquisition,” the investors said in their motion to get the depositions.
However, Slights said that they had left their calls too late.
In 2018, Slights refused to dismiss the case, ruling that it was conceivable that Musk controlled Tesla’s board when it was considering acquiring the solar power company, Law360 reports.
“The combination of well-pled facts relating to Musk’s voting influence, his domination of the board during the process leading up to the acquisition against the backdrop of his extraordinary influence within the company generally, the board level conflicts that diminished the board’s resistance to Musk’s influence, and the company’s and Musk’s own acknowledgements of his outsized influence, all told” kept the suit going, the chancellor wrote at the time. In January 2020, six Tesla directors named in the suit agreed to settle with the investors for $60 million leaving only Musk to face trial, Law360 reports.
Did you know that Tesla acquired a solar power company owned by CEO Elon Musk’s cousins? Let us know your thoughts in the comments section!
The stockholders are represented by Jay W. Eisenhofer, Christine M. Mackintosh, Kelly L. Tucker, Vivek Upadhya and Daniel L. Berger of Grant & Eisenhofer PA; Lee D. Rudy, Eric L. Zagar, Justin O. Reliford, and Matthew C. Benedict of Kessler Topaz Meltzer & Check LLP; and Randall J. Baron, David T. Wissbroecker, and Maxwell R. Huffman of Robbins Geller Rudman & Dowd LLP.
Elon Musk is represented by David E. Ross, Garrett B. Moritz, and Benjamin Z. Grossberg of Ross Aronstam & Moritz LLP; and Evan R. Chesler, Daniel Slifkin, Vanessa A. Lavely; and Helam Gebremariam of Cravath Swaine & Moore LLP.
The Tesla SolarCity Merger Class Action Lawsuit is In re: Tesla Motors Inc. Stockholder Litigation, Case No. 12711, in the Court of Chancery of the State of Delaware.
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