Does Elon Musk control Tesla Inc, or does Tesla control Elon Musk? More than $ 2 billion is related to this issue as a lawsuit begins Monday.
Shareholders claim that Musk used his control of Tesla to force the company in 2016 to save SolarCity and save the solar cell manufacturer – and Musk’s investment in the company – from bankruptcy.
The union’s pension funds and asset managers leading the case want Musk to reimburse Tesla for the $ 2.6 billion expense. Trade and loathe the profits of his SolarCity share. If they win, it would be one of the biggest judgments against a person.
The two-week trial at the Court of Chancery in Wilmington, Delaware, will boil down to whether Musk, who owned approx. 22% of Tesla at the time of the agreement is the rare controlling shareholder who does not own a majority stake.
“I think it’s going to be very difficult for the court to ignore the reality that Elon Musk is Elon Musk and his relationship with Tesla,” said Ann Lipton, a professor at Tulane University Law School.
She said the case could pose an unusual situation given Musk’s celebrity status, his personal ties to Tesla board members and those board members’ financial ties to SolarCity.
“Put it all together, and it may be enough to count as a controlling shareholder,” she said.
Few executives dominate their corporate image, so much so that Musk, known for mocking regulators, fights nayayers and personally engages with his 57 million Twitter followers.
“We are very dependent on the services of Elon Musk, Technoking at Tesla and our CEO,” said Tesla’s 2020 annual report.
Complainants claim that Musk ran the negotiations and even pushed Tesla’s board to raise the price of SolarCity, not lower.
A higher price benefited Musk, which was the largest shareholder in SolarCity, with a share of approx. 22% as well as four members of Tesla’s Board of Directors who directly or indirectly owned SolarCity shares according to legal records.
Board members settled charges against them last year for $ 60 million and did not admit any wrongdoing.
The complainants also claim that the deal was in favor of two of Musk’s cousins who founded SolarCity and saved a company that was quickly running out of cash.
Musk has said he was “fully recalled” from board negotiations and that shareholders voted to approve the deal because it was central to his “Master Plan, Part Deux,” which aims to integrate sustainable solar energy with electric self-driving cars.
He has said that what the plaintiffs see as evidence of control is little more than strong leadership.
“Taking the natural conclusion, virtually all ‘practical’ and ‘inspiring’ minority-owned CEOs will be considered controllers,” Musk’s lawyers wrote in a court of law.
If Vice Chancellor Joseph Slights states that Musk was a controlling shareholder, it will be up to Musk to prove that the SolarCity agreement met the high bar of the “whole fairness” standard, which examines process and price, legal experts said.
Musk has noted in court papers that the SolarCity deal has been a huge success for Tesla shareholders, showing that the deal was not only fair, but a blessing. After Tesla split its stock 5-1 in 2020, it rose to $ 652 on Thursday from nearly $ 37 per share. Share when the agreement was closed in November 2016.
“If the principal thinks this agreement was awful and was not effectively negotiated on behalf of the company, he will crack it down,” said Larry Hamermesh, a professor at Delaware Law School.
(Reporting by Tom Hals in Wilmington, Delaware and Sierra Jackson in New York; editing by Noeleen Walder and Dan Grebler)