Elon Musk wins lawsuit over Tesla’s acquisition of SolarCity

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SAN FRANCISCO — Elon Musk did not breach his fiduciary duty to Tesla when the company acquired solar energy company SolarCity, a Delaware Chancery Court judge ruled Wednesday.

The ruling, issued in a 132-page opinion, cleared Musk of any legal liability in a battle that has hung over Tesla for years since shareholders filed a lawsuit.

“[My] the verdict rests with the defense on all claims,” the judge, Joseph R. Slights III, wrote in his opinion.

Tesla acquired SolarCity for $2.6 billion in 2016. Musk owned much of SolarCity at the time, which was run by two of his cousins. Tesla shareholders have alleged Musk was acting in his own best interests with the purchase, rather than those of the electric vehicle company, now the world’s most valuable automaker. Shareholders had argued that the acquisition of SolarCity amounted to a bailout of a struggling business in which family members were involved.

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In his view, Slights summed up the plaintiffs’ view: that Musk gave the green light to Tesla’s “slavish” board of directors to acquire an “insolvent” SolarCity to bail out an investment of him and family members that did not materialize.

“This, the plaintiffs say, was a clear breach of Elon’s fiduciary duty of loyalty,” Slights wrote.

Musk himself had taken a stand in the SolarCity lawsuit last summer, defending Tesla’s decision to buy the solar company when he put the deal in terms of the planet’s future. He also attacked a plaintiffs’ attorney, calling him a “bad human being.”

The suit also concerned Musk’s alleged control over the board. Musk, the plaintiffs argued, exerted dominance over the board as he sought to complete the deal.

Slights disagreed, however, pointing to instances where he found the board pushed back against Musk.

“Elon was undoubtedly involved in the transaction process in a way he shouldn’t have been, but fortunately Tesla’s board of directors ensured that the process led to a fair price nonetheless. “, wrote the judge.

Musk did not immediately respond to a request for comment.

Randall Baron, attorney for the plaintiffs, said: “The court recognized significant conflicts and flaws in the agreement approval process. We are carefully reviewing the court’s decision and considering appropriate next steps in consultation with our clients. »

The ruling adds to a string of legal victories for Musk in a high-profile dispute that posed risks for both him and Tesla. Musk was not held liable, for example, in the 2018 defamation lawsuit involving a Thai rescue diver he called a “pedo.” And despite relinquishing his presidency of Tesla after a 2018 tweet that he had “Funding Secured” to take Tesla private at $420 a share, Musk retained control of the company and later became the person the richest in the world.

The latest threat to Tesla is Musk’s $44 billion deal this week to take over social media company Twitter. He is using billions of dollars of his Tesla stake as collateral to pay off Twitter, a move that sent Tesla shares down more than $100 billion on Tuesday.

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In the SolarCity lawsuit, Musk could have had to repay Tesla up to $2 billion.

Beyond that potential punishment, the lawsuit was also a referendum on Musk’s brash leadership style — where he aggressively pursued his interests, sometimes independently of established processes.

“If he were found liable for the monetary damages, it would hurt Tesla,” said Alexander Manglinong, an associate lawyer specializing in commercial litigation at Stubbs Alderton & Markiles. “In turn, the fact that he was behind this would be just another reason to add to this list why the board might want to reconsider who the CEO would be.”

Slights on Wednesday praised Musk’s unusual level of involvement in the deal.

“The process employed by the Tesla Board of Directors to negotiate and ultimately recommend the acquisition was far from perfect. Elon was more involved in the process than a conflicted fiduciary should be,” a- “That said, Tesla’s board of directors has meaningfully vetted the acquisition, and Elon hasn’t stood in its way.”

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Slights also said Tesla paid a fair price for SolarCity as part of the deal.

“SolarCity was worth, at a minimum, what Tesla paid for it,” he wrote, “and the acquisition was otherwise very beneficial to Tesla.”

In recent years, SolarCity’s investment has been dismissed as a gaffe by Tesla; some have blamed Musk for the litigation Tesla has faced over the subsidiary’s shortcomings in meeting Tesla’s clean energy goals. Walmart in 2019 filed a lawsuit against Tesla over a series of seven solar panel fires in stores across the country, an example of the type of litigation Tesla faced following the purchase. Tesla and Walmart have settled the matter, CNBC reported.

In his view, Slights responded to plaintiffs’ arguments that Tesla and SolarCity had not incorporated. Examples include Tesla laying off thousands of solar-focused workers and scaling back solar component deployments after Musk “reassigned” SolarCity employees to work on the rollout of the Model 3, Tesla’s intended sedan. to the mass market.

These examples were true, he said, but “the fact that SolarCity has not yet been fully integrated into Tesla does not diminish the substantial synergies already realized, not to mention the enormous potential for synergies yet to be realized.”

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