In re Tesla Motors, Inc. Stockholder Litigation

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE TESLA MOTORS, INC. : Consolidated
STOCKHOLDER LITIGATION : C.A. No. 12711-VCS

MEMORANDUM OPINION

Date Submitted: December 21, 2017
Date Decided: March 28, 2018

Jay W. Eisenhofer, Esquire and James J. Sabella, Esquire of Grant &
Eisenhofer P.A., Wilmington, Delaware; Michael Hanrahan, Esquire, Paul A.
Fioravanti, Jr., Esquire and Samuel L. Closic, Esquire of Prickett, Jones &
Elliott, P.A., Wilmington, Delaware; Ned Weinberger, Esquire, Ryan T. Keating,
Esquire and Thomas Curry, Esquire of Labaton Sucharow LLP, Wilmington,
Delaware; Joel Friedlander, Esquire and Jeffrey M. Gorris, Esquire of Friedlander &
Gorris, P.A., Wilmington, Delaware; Justin S. Brooks, Esquire of Guttman,
Buschner & Brooks PLLC, Wilmington, Delaware; Randall J. Baron, Esquire,
David T. Wissbroecker, Esquire and Maxwell R. Huffman, Esquire of Robbins
Geller Rudman & Dowd LLP, San Diego, California; Lee D. Rudy, Esquire, Eric L.
Zagar, Esquire, Robin Winchester, Esquire and Kristen L. Ross, Esquire of Kessler
Topaz Meltzer & Check, LLP, Radnor, Pennsylvania; and Mark Lebovitch, Esquire
and Jeroen van Kwawegen, Esquire of Bernstein Litowitz Berger &
Grossmann LLP, New York, New York, Attorneys for Plaintiffs.

David E. Ross, Esquire, Garrett B. Moritz, Esquire and Benjamin Z. Grossberg,
Esquire of Ross Aronstam & Moritz LLP, Wilmington, Delaware and William
Savitt, Esquire, Graham W. Meli, Esquire, Steven Winter, Esquire and David E.
Kirk, Esquire of Wachtell, Lipton, Rosen & Katz, New York, New York, Attorneys
for Defendants.

SLIGHTS, Vice Chancellor
 The question addressed in this Memorandum Opinion is whether Plaintiffs

have adequately pled that Elon Musk is a controlling stockholder of Tesla, Inc.

(“Tesla” or the “Company”). Tesla acquired SolarCity Corporation (“SolarCity”) in

2016 (the “Acquisition”). Following the announcement of the proposed transaction,

Tesla stockholders filed several derivative and putative class action lawsuits in this

Court alleging that the Tesla board of directors (the “Board”) and Musk as a

conflicted controller breached their fiduciary duties by approving the Acquisition for

the benefit of SolarCity stakeholders and to the detriment of Tesla stockholders.

While it was not required to do so under Delaware law, the Board submitted

the Acquisition to Tesla stockholders for approval. A majority voted in favor of the

transaction. Following the stockholder vote, Defendants moved to dismiss the now-

consolidated complaint under Corwin v. KKR Financial Holdings LLC (“Corwin”).1

Plaintiffs oppose the motion, in part, on the ground that Corwin does not apply

because the Acquisition involved a conflicted controlling stockholder (Musk). 2

Musk, Tesla’s Chairman and Chief Executive Officer, owns less than a majority of

1
125 A.3d 304 (Del. 2015) (holding that director approval of a transaction not subject to
entire fairness review is entitled to pleading stage business judgment deference when the
transaction is later approved by an uncoerced, fully informed majority vote of disinterested
stockholders).
2
In re Merge Healthcare, Inc., 2017 WL 395981, at *6–7 (Del. Ch. Jan. 30, 2017) (holding
that a well-pled complaint supporting a reasonable inference that the transaction either
involved a conflicted controller will defeat a Corwin defense at the pleading stage).

1
Tesla’s outstanding voting stock. According to Defendants, Plaintiffs have failed to

plead facts that would support a reasonable inference that Musk, as a minority

blockholder, exercised either control over Tesla generally or control over Tesla’s

Board during its consideration and approval of the Acquisition. After carefully

reviewing the operative complaint, in a close call, I conclude it is reasonably

conceivable that Musk, as a controlling stockholder, controlled the Tesla Board in

connection with the Acquisition. Accordingly, for the reasons set forth below,

Defendants’ motion to dismiss must be denied.

I. FACTUAL BACKGROUND

I have drawn the facts from well-pled allegations in the Second Amended

Verified Class Action and Derivative Complaint (the “Complaint”) 3 and documents

incorporated by reference or integral to the Complaint.4 Tesla produced documents

to Plaintiffs pursuant to 8 Del. C. § 220 (“Section 220 Documents”).5 The parties

have agreed that all Section 220 Documents shall be deemed incorporated within the

3
Citations to the Complaint are to “Compl. ¶ __.”
4
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (noting that on
a motion to dismiss, the Court may consider documents that are “incorporated by
reference” or “integral” to the complaint).
5
Compl. ¶ 8.

2
Complaint whether or not expressly referenced or incorporated therein. 6 The

following facts, as well-pled in the Complaint, are accepted as true for purposes of

the present motion.7

A. The Parties and Relevant Non-Parties

Plaintiffs are Tesla stockholders and were so at all relevant times.8 They bring

both direct claims on behalf of themselves and a putative class of injured Tesla

stockholders as well as derivative claims on behalf of the Company.

Nominal Defendant Tesla is a public Delaware corporation headquartered in

Palo Alto, California that designs, develops, manufactures and sells electric vehicles

and energy storage products.9 Tesla’s Board comprises seven members: Elon Musk

(“Musk”), Brad W. Buss, Robyn M. Denholm, Ira Ehrenpreis, Antonio J. Gracias,

Stephen T. Jurvetson and Kimbal Musk (“Kimbal”).10

Non-party SolarCity was a public Delaware corporation headquartered in San

Mateo, California that was founded by Musk and his cousins, Peter and Lyndon Rive

6
Compl. 1; Defs.’ Opening Br. in Supp. of Mot. to Dismiss the Second Am. Compl.
(hereinafter “Defs.’ Opening Br.”) 4 n.2; Transmittal Aff. of Garrett B. Moritz in Supp. of
Defs.’ Mot. to Dismiss the Second Am. Compl. (hereinafter “Moritz Aff.”), Ex. 7 ¶ 8.
7
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 169 (Del. 2006).
8
Compl. ¶¶ 11–18.
9
Compl. ¶ 2.
10
Compl. ¶ 7. I refer to Kimbal Musk by his first name to avoid confusion with Elon Musk.
I intend no disrespect.

3
(“Peter” and “Lyndon”). 11 It principally operated as a solar energy system

installer.12 Its board of directors (the “SolarCity Board”) included Musk, Gracias,

Lyndon, Peter, Nancy Pfund, and John H.N. Fisher.13 Lyndon served as SolarCity’s

CEO and Peter as its Chief Technology Officer (“CTO”).14

Defendant Musk is Tesla’s largest stockholder. 15 At the time of the

Acquisition, Musk owned approximately 22.1% of Tesla’s common stock. 16

He serves as Chairman of the Tesla Board (since April 2004) and as Tesla’s CEO

(since October 2008) and Chief Product Architect.17 He also led Tesla’s pre-initial

public offering (“IPO”) funding rounds.18 Tesla has acknowledged in its Securities

and Exchange Commission filings that Musk is not an independent director.19

11
Compl. ¶¶ 3, 64. I refer to both Peter and Lyndon Rive by their first names to avoid
confusion. Again, no disrespect is intended.
12
See Compl. ¶¶ 3, 65.
13
Compl. ¶¶ 35, 49, 64. Except for Musk and Gracias, none of the SolarCity Board
members are party to this litigation.
14
Compl. ¶ 64.
15
Compl. ¶ 20.
16
Id.
17
Compl. ¶¶ 20, 271.
18
Compl. ¶ 2.
19
Compl. ¶ 20.

4
 As Tesla’s Chief Product Architect, Musk plays a key role in the design of all

Tesla products. 20 He also contributes “significantly and actively” to Tesla by

“recruiting executives and engineers, [] raising capital for [the Company] and

bringing investors to and raising public awareness of the Company.” 21 In its SEC

filings, Tesla states that it is “highly dependent on the services of Elon Musk,”22 and

acknowledges that if it were to lose Musk’s services, the loss would “disrupt

[Tesla’s] operations, delay the development and introduction of [its] vehicles and

services, and negatively impact [its] business, prospects and operating results as well

as cause [its] stock price to decline.”23 For his part, Musk has stated publicly that if

he had not assumed the role of CEO “the company wasn’t going to make it.”24 On an

August 1, 2016 conference call (the same day Tesla announced the Acquisition),

Musk repeatedly referred to Tesla as “my company.”25

20
Compl. ¶¶ 2, 60, 271.
21
Compl. ¶ 271.
22
Compl. ¶ 20.
23
Compl. ¶ 274.
24
Compl. ¶ 271.
25
Compl. ¶ 116.

5
 Musk also served as the Chairman of the SolarCity Board since its formation

in 2006.26 He was SolarCity’s largest stockholder, holding approximately 21.9% of

the common stock prior to the Acquisition.27 As a result of the Acquisition, Musk’s

SolarCity holdings were converted to over $500 million of Tesla shares. 28 It is

alleged that Musk has publicly maintained that Tesla, SolarCity and SpaceX form a

“pyramid” on top of which he sits, and that it is “important that there not be some

sort of house of cards that crumbles if one element of the pyramid . . . falters.”29

Defendant Buss has been a Tesla Board member since 2009.30 Tesla’s 2015

proxy statement acknowledges that Buss is not an independent director.31 In fiscal

year 2015, Buss earned $4,954,785 as a Tesla director.32 From August 2014 until

February 2016, Buss served as SolarCity’s Chief Financial Officer (“CFO”), for

26
Compl. ¶ 24.
27
Id.
28
Plaintiffs allege facts about a third company, Space Exploration Technologies
Corporation (“SpaceX”), a private aerospace manufacturer and space transport services
company that Musk founded. Compl. ¶ 25. Musk has served as the CEO, CTO and
Chairman of the Board of Directors of SpaceX since 2002. Id.
29
Compl. ¶ 5.
30
Compl. ¶ 26.
31
Compl. ¶ 28; Moritz Aff., Ex. 13, at TESLA00001483.
32
Compl. ¶ 29.

6
which he received total compensation of $32 million.33 After his departure from

SolarCity’s management, Buss remained at SolarCity as either an employee or

consultant through at least December 31, 2016. 34 He beneficially owned 37,277

shares of SolarCity common stock at the time of the Acquisition.35

Defendant Denholm has been a Tesla Board member since August 2014.36

She chairs the Board’s Audit Committee and is a member of its Compensation and

Nominating and Governance Committees.37 As a Tesla director, Denholm earned

$7,181,066 in 2014 and $4,979,785 in 2015.38 From July 2013 until February 2016,

Denholm served as Executive Vice President, CFO and Chief Operations Officer at

Juniper Networks, Inc. (“Juniper”).39 She left Juniper in July 2016 and did not return

to full-time employment until sometime in 2017.40

33
Compl. ¶¶ 27, 29.
34
Id.
35
Compl. ¶ 27.
36
Compl. ¶ 31.
37
Id.
38
Compl. ¶ 33.
39
Compl. ¶ 32.
40
Compl. ¶¶ 32–33.

7
 Defendant Ehrenpreis has been a Tesla Board member since May 2007. 41

He chairs the Board’s Compensation and Nominating and Governance

Committees.42 Ehrenpreis is an investor in, and serves on the board of directors of,

Mapbox, Inc., which provides custom online maps.43 Tesla and Mapbox entered

into an agreement in December 2015 pursuant to which Tesla pays Mapbox ongoing

fees, including $5 million over the first twelve months of the agreement.44

Ehrenpreis is also a managing partner and co-owner of a venture capital firm,

DBL Partners, which he co-founded with fellow managing partner and co-owner

Nancy Pfund.45 Pfund was an observer on the Tesla Board from 2006 to 2010.46

She was also a member of the SolarCity Board and one of two members of the

SolarCity Board’s special committee that negotiated and approved the Acquisition.47

Pfund is the managing director and founder of DBL Investors, LLC

(“DBL Investors”), which contributed at least $3.6 million over three of SolarCity’s

41
Compl. ¶ 34.
42
Id.
43
Compl. ¶ 38.
44
Id.
45
Compl. ¶ 35. Plaintiffs allege Ehrenpreis is also a manager of DBL Partners Fund III
(“DBL III”), and that both Ehrenpreis and DBL III are SpaceX investors. Compl. ¶ 39.
46
Id.
47
Id.

8
funding rounds. 48 At the time of the Acquisition, Pfund beneficially owned

1,554,114 shares of SolarCity common stock.49 She is a close friend of Musk’s and

has said that “[h]e’s always been a master of the universe in my mind.”50

Defendant Gracias has served on the Tesla Board since May 2007.51 Gracias

has been Tesla’s Lead Independent Director since September 2010.52 In that role,

Gracias has “broad authority to direct the actions of [Tesla’s] independent

directors.”53 Musk and Gracias are close friends; indeed, Musk gave Gracias the

second Tesla Roadster ever made.54 Gracias also served on SolarCity’s Board at the

time of the Acquisition and beneficially owned 211,854 shares of SolarCity common

stock.55

In addition, Gracias is founder, managing partner, CEO, Chief Investment

Officer, director and sole owner of private equity firm Valor Management Corp.,

48
Compl. ¶ 36. DBL Investors has also invested in SpaceX. Compl. ¶ 39.
49
Compl. ¶ 36. At the deal price of $25.37 per share, this ownership block is worth
approximately $39.4 million.
50
Id.
51
Compl. ¶ 40.
52
Compl. ¶ 46.
53
Id.
54
Compl. ¶ 45.
55
Compl. ¶¶ 42–43. Gracias also served on the board of directors of SpaceX at the time
of the Acquisition. Compl. ¶ 42.

9
which does business as Valor Equity Partners (“Valor”).56 Valor and Gracias have

participated in several pre-IPO funding rounds for Tesla and SolarCity.57 Through

Valor funds, Gracias participated in four Tesla venture funding rounds between 2005

and 2008, as well as a pre-IPO venture debt raise in 2009.58 Prior to Tesla’s IPO,

Valor owned nearly five million Tesla shares.59 Gracias and his Valor funds also

contributed nearly $25 million to SolarCity’s pre-IPO preferred stock financing

round.60 Musk has invested $2 million in each of two Valor funds.61

Defendant Jurvetson has served as a Tesla Board member since June 2009.62

He serves on the Board’s Audit Committee.63 In fiscal year 2015, Jurvetson earned

$6,095,984 as a Tesla director. 64 Musk and Jurvetson are also close friends,

56
Compl. ¶ 41.
57
Compl. ¶ 42. Gracias and Valor also participated in several pre-IPO venture funding
rounds for SpaceX. Id. In fact, Gracias has been a long time investor in Musk’s enterprises,
dating back to PayPal, an online financial services and e-mail payment company that Musk
founded in 1999. Compl. ¶ 42 n.4.
58
Compl. ¶ 42 n.5.
59
Id.
60
Id. Valor funds also participated in two SpaceX funding rounds in 2010 and 2015. Id.
61
Compl. ¶ 44.
62
Compl. ¶ 47.
63
Id.
64
Id.

10
evidenced in part by the fact that Musk gave Jurvetson the first Tesla Model S and

the second Tesla Model X ever made. 65 Jurvetson owned 417,450 shares of

SolarCity common stock at the time of the Acquisition.66

Jurvetson is a managing director of venture capital firm Draper Fisher

Jurvetson (“DFJ”). 67 Between 2006 and 2008, before Tesla’s IPO in 2010, DFJ

invested in three of Tesla’s venture funding rounds, but it has not held Tesla stock

since late 2014 or early 2015.68 DFJ was also invested in SolarCity. After its initial

investment in 2006, between 2006 and 2011, DFJ invested at least $18.9 million in

SolarCity via four venture capital funding rounds.69 At the time of the Acquisition,

funds managed by DFJ beneficially owned 3,308,266 shares of SolarCity common

65
Compl. ¶ 48 n.6.
66
Compl. ¶ 49.
67
Compl. ¶ 48.
68
Id.
69
Compl. ¶ 49 n.7. Additionally, DFJ participated in four early venture funding rounds of
SpaceX between 2009 and 2015. Compl. ¶ 50 n.10. Indeed, according to Tesla’s 2016
annual proxy statement, DFJ is a “significant stockholder” of SpaceX. Compl. ¶ 50.
Jurvetson and two other DFJ managing directors, John H.N. Fisher and Randall S. Glein,
all serve on the board of directors of SpaceX. Id.

11
stock, amounting to approximately 3.3% of the shares outstanding.70 Musk invests

in DFJ and one of Musk’s trusts is a limited partner in a DFJ fund.71

Defendant Kimbal has served on the Tesla Board since April 2004.72 He is

Musk’s brother and cousin of Lyndon and Peter, SolarCity’s co-founders.73 Tesla’s

SEC filings acknowledge that Kimbal is not an independent director.74 In fiscal year

2015, Kimbal earned $4,964,381 as a Tesla director. 75 He owns an unspecified

amount of Tesla shares.76 At the time of the Acquisition, Kimbal also beneficially

owned 147,541 shares of SolarCity common stock. 77 Additionally, Kimbal is a

limited partner in two Valor funds, and Musk has invested in one of those funds.78

70
Compl. ¶ 49. At the Acquisition price of $25.37, this ownership block is worth
approximately $83.9 million.
71
Compl. ¶ 51. Musk and DFJ co-founder Tim Draper have invested in other ventures
together. Compl. ¶ 52. Fisher (as noted, a DFJ managing director) was a SolarCity director
at the time of the Acquisition and owned 452,868 shares of SolarCity stock. Compl. ¶ 49.
72
Compl. ¶ 53.
73
Id. Kimbal is also a director of SpaceX. Compl. ¶ 56.
74
Compl. ¶ 53.
75
Compl. ¶ 55.
76
See Compl. ¶¶ 53–58.
77
Compl. ¶ 54.
78
Compl. ¶ 57.

12
 The Company’s SEC filings acknowledge that the “concentration of

ownership among [Tesla’s] existing executive officers, directors and their affiliates

may prevent new investors from influencing significant corporate decisions,”79 and

that “these stockholders will be able to exercise a significant level of control over all

matters requiring stockholder approval, including the election of directors,

amendment of our certificate of incorporation and approval of significant corporate

transactions.”80

B. The Tesla-SolarCity Connections

Martin Eberhard and Marc Tarpenning, two Silicon Valley engineers, founded

Tesla in 2003, with the goal of proving “that electric cars could be better than

gasoline-powered cars.” 81 Tesla initially focused on designing, developing,

manufacturing and selling high-performance fully electric vehicles and advanced

electric vehicle powertrain components.82 In 2013, the Company began producing

and selling home energy storage systems and then entered the commercial and utility

79
Compl. ¶ 275.
80
Id.
81
Compl. ¶ 59.
82
Compl. ¶ 63.

13
energy storage business in 2014.83 Nevertheless, Tesla’s primary source of revenue

remains the sale of its vehicles.84

Musk became involved with Tesla soon after it was formed. In 2004, Musk

led Tesla’s Series A round of financing and became Chairman of the Board pursuant

to a Series A voting agreement.85 Over the next few years, Musk participated in

Tesla’s Series B, C, D and E venture funding rounds.86 Musk led the Series B round

of funding and co-led the Series C round.87 Prior to Tesla’s IPO, Musk had invested

approximately $70 million in the Company.88

“In November 2007, Musk forced founder and then-CEO Eberhard out of the

Company.” 89 He appointed himself CEO in October 2008.90 Around that time,

83
Id.
84
Id.
85
Compl. ¶ 60.
86
Id.
87
Compl. ¶ 269.
88
Compl. ¶ 60.
89
Compl. ¶ 61.
90
Id.

14
Tesla encountered financial trouble.91 Musk personally borrowed $20 million from

SpaceX in early 2009 to help “keep Tesla afloat.”92

Since Tesla’s IPO in 2010, Musk has been the Company’s largest stockholder,

owning between 26.5% and 29% of its outstanding common stock, until he sold

shares in May 2016 that reduced his ownership stake to 22.5%.93 By September

2016, Musk owned 22.1% of Tesla’s outstanding common stock.94

Musk, Lyndon and Peter founded SolarCity in 2006.95 As noted, prior to the

Acquisition, SolarCity was in the business of leasing solar panel equipment to

residential and commercial customers.96 Its primary source of revenue was lease

payments received from its customers. 97 SolarCity took on substantial debt to

91
Id.; Compl. ¶ 269.
92
Compl. ¶ 61. Musk has financially supported Tesla and SolarCity on at least two other
occasions where he extended his personal credit lines to inject capital into both Tesla and
SolarCity. In early 2013, Musk increased his personal credit lines from $85 million to
$300 million secured by substantial shares of Tesla and SolarCity stock. Compl. ¶ 67.
From May 2013 to October 2013, Musk used his increased credit to acquire $100 million
in Tesla stock and $10 million in SolarCity stock. Id. In 2015, Musk further increased his
personal credit lines to $475 million and purchased $20 million in Tesla stock and $17.7
million in SolarCity stock. Compl. ¶ 68.
93
Compl. ¶ 62.
94
Id.
95
Compl. ¶ 64.
96
Compl. ¶ 65.
97
Id.

15
finance its upfront costs associated with equipment and installation.98 It completed

an IPO in December 2012 and since then has suffered losses in every quarter except

three. 99 Musk owned 21.9%, Lyndon owned 3.9% and Peter owned 3.8% of

SolarCity’s outstanding common stock at the time of the Acquisition.100

C. SolarCity’s Liquidity Challenges

During the three years immediately preceding Tesla’s June 2016 offer to

acquire SolarCity, SolarCity’s debt increased thirteen-fold, totaling $3.56 billion as

of June 2016.101 By any measure, SolarCity was in the midst of a liquidity crisis.102

Its revolving credit facility (the “Revolver”) contained a covenant requiring it to

maintain a minimum cash balance of $116 million (exclusive of cash held in fund

accounts), measured monthly.103 Failure to maintain the minimum cash balance was

an event of default, and a Revolver default would likely trigger cross-defaults on

98
Id.
99
Compl. ¶ 66.
100
Id.
101
Compl. ¶ 69.
102
Compl. ¶ 71.
103
Id. (citing TESLA00000740).

16
other debt instruments.104 SolarCity also faced the prospect of defaulting on its non-

recourse debt, which, in turn, could trigger a cross-default under the Revolver.105

In February 2016, a SolarCity Board presentation (the “February 2016

SolarCity Board Presentation”) acknowledged that the company faced “significant

liquidity concerns” and that SolarCity’s cash balance would not meet the Revolver’s

required level at least three times in 2016—in May, August and September.106 To

make matters worse, $1.23 billion of SolarCity’s debt was scheduled to become due

by the end of 2017.107 Musk, Gracias and Buss attended the February 2016 meeting

and were well aware of SolarCity’s “significant liquidity concerns” at the time Musk

brought the proposed acquisition of SolarCity to the Tesla Board.108

The debt and equity markets were effectively closed to SolarCity. It had

already issued nearly 25 million additional shares since its December 2012 IPO, and

its stock had declined in value approximately 64% from February 2015 to February

2016. 109 The credit markets were no more forgiving. SolarCity already held

104
Id.
105
Compl. ¶ 72.
106
Compl. ¶¶ 73, 83 (citing and quoting TESLA00000740).
107
Compl. ¶ 73.
108
Id.
109
Compl. ¶ 82.

17
substantial debt and had recently attempted to raise capital via bond offerings (“Solar

Bonds”).110

In September 2016, SolarCity and its subsidiary, Silevo, Inc., were sued for

allegedly misappropriating trade secrets and intellectual property and engaging in

other violations of law relating to solar cell shingling technology. 111 The plaintiffs

in that litigation sought, inter alia, “a permanent injunction prohibiting SolarCity

and Silevo’s use of the misappropriated information and prosecution of certain

patent applications.”112 The litigation presented particular concerns for SolarCity

(and soon for Tesla) “given Musk’s public statements that Silevo would be the driver

of any synergies in the Acquisition and [is] the gem of SolarCity.”113

D. Musk Persistently Presents the SolarCity Transaction to the Board

The Tesla Board held a special meeting on February 29, 2016. 114 At the

meeting, Musk and Tesla CFO, Jason Wheeler, presented a preliminary plan for

110
Compl. ¶ 76. SpaceX was the largest holder of Solar Bonds. Compl. ¶ 77. In March
2015, SpaceX bought $90 million in Solar Bonds, and then $75 million in June 2015 and
$90 million in March 2016. Id. In November 2015, a Musk-affiliated entity acquired
$10 million in Solar Bonds and Lyndon purchased $3 million. Id. When SolarCity sought
to raise $124 million in an August 2016 bond offering, Musk purchased $65 million of
these Solar Bonds, and Lyndon and Peter each purchased $17.5 million. Compl. ¶ 78.
111
Compl. ¶ 80.
112
Id.
113
Compl. ¶ 81.
114
Compl. ¶ 85 (citing TESLA00001346).

18
Tesla to acquire SolarCity.115 Musk led the presentation.116 The stated purpose of

the proposed transaction was “to complement the Company’s Energy business, grow

the Sales operations of the Company and to create other product, service and

operational synergies through the combination of the companies.” 117 Musk’s focus

was on a potential acquisition of SolarCity; he did not mention and the Board did

not consider other companies in the solar industry or other strategic transactions.118

The Board “decided not to proceed with an offer to SolarCity at [that] time because

of the potential impact on the management team’s time and resources in the near

term.”119

Two weeks passed, and Musk was before the Tesla Board again to propose a

possible acquisition of SolarCity (and only SolarCity) during the Board’s March 15,

2016 meeting.120 And, again, the Board deferred the discussion.121

115
Id. This presentation, perhaps coincidentally, occurred in the same month as the
February 2016 SolarCity Board Presentation.
116
Id.
117
Compl. ¶ 86.
118
Id. Musk ruled out as “unworkable” a joint venture between Tesla and SolarCity in lieu
of an acquisition. Compl. ¶ 87.
119
Compl. ¶ 89 (quoting TESLA00001347).
120
Compl. ¶ 90.
121
Id.

19
 Less than three months later, on May 31, 2016, at a regularly scheduled

meeting of the Board, Musk was back to propose (again) a possible acquisition of

SolarCity.122 This time, the Board appeared to share Musk’s view of “the possible

benefits . . . [of] acquiring a solar energy company in the context of the Company’s

strategic plan.”123 The minutes of the meeting reflect that “the Board discussed the

possibility of evaluating an acquisition of SolarCity Corporation . . . as a potential

target of opportunity in the solar energy space.”124 Once again, SolarCity was the

only target on which the Board trained its sight.125

At the conclusion of the May 31 meeting, the Tesla Board authorized Musk

and management to (a) assess a potential acquisition of a solar energy company;

(b) engage an independent financial advisor on behalf of the Tesla Board and the

Company; and (c) instruct the law firm Wachtell, Lipton, Rosen & Katz to undertake

a review of a potential acquisition by Tesla.126 Musk, as CEO, retained Wachtell as

122
Compl. ¶ 91 (citing TESLA00001455–56).
123
Compl. ¶ 92. Tesla’s strategic plan is the “Master Plan” that Musk authored in 2006
and updated in 2016 as “Master Plan, Part Deux.” Compl. ¶¶ 92, 138. The Master Plan
contemplated that Tesla would “provide solar power.” Compl. ¶ 140. In his Master Plan,
Part Deux, Musk emphasized that the phrase “provide solar power” “has literally been on
[Tesla’s] website for 10 years.” Id.
124
Compl. ¶ 92 (quoting TESLA00001455).
125
Id.
126
Compl. ¶ 93 (citing TESLA00001456).

20
legal advisor and Evercore Partners as financial advisor to advise both Tesla’s Board

and Tesla’s management.127 “Despite the Tesla Board members’ obvious conflicts

in considering an acquisition of SolarCity, the Tesla Board did not form a special

committee” to consider the potential acquisition.128

The Tesla Board called a special meeting for June 20, 2016 (the “June 2016

Special Meeting”) “to further explore a potential strategic transaction between the

Company and a participant in the solar energy industry.” 129 Musk opened the

meeting by “remind[ing] the board that the issue [of acquiring SolarCity] had been

raised and discussed but ultimately deferred at previous meetings and review[ing]

some of the strategic considerations that the board had evaluated at those previous

meetings.”130 It is alleged that, as if on cue, the Board heeded Musk’s “tacit order”

and promptly authorized its advisors to make an offer for SolarCity.131

The Board’s first meeting with Evercore occurred during the June 2016

Special Meeting, the same meeting where the Board approved the offer to acquire

127
Compl. ¶ 94.
128
Id.
129
Compl. ¶ 97 (quoting TESLA00001459).
130
Compl. ¶ 98 (quoting TESLA00001459).
131
Id.; Compl. ¶ 102.

21
SolarCity. 132 The meeting minutes reflect that although Evercore’s presentation

included a brief analysis of “various potential targets,” the Board did not discuss

potential acquisitions of any target other than SolarCity.133 This is surprising, to say

the least, given that “Goldman Sachs & Co., which was a co-underwriter in Tesla’s

$2 billion secondary stock offering that was issued just weeks earlier, publicly stated

that SolarCity was the ‘worst positioned’ company in the solar energy sector for

capitalizing on future growth in the industry.”134

Musk and Gracias, both directors of Tesla and SolarCity, recused themselves

from the June 2016 Special Meeting while the remaining members of the Board

voted to approve the offer for SolarCity.135 But both remained for the entirety of the

meeting while the potential acquisition of SolarCity was discussed, and Musk led

most of those discussions.136 When the time came for the vote, the Board approved

and adopted the offer on the same terms discussed when Musk and Gracias were

present.137

132
Compl. ¶¶ 95–96.
133
Compl. ¶ 100.
134
Compl. ¶ 99.
135
Compl. ¶¶ 98, 102.
136
Compl. ¶¶ 98, 100–102. See also Moritz Aff., Ex. 9, at TESLA00001461.
137
Compl. ¶ 102 (citing TESLA00001462–63).

22
 E. The Offer for SolarCity

On June 21, 2016, Tesla announced its offer to acquire SolarCity in a stock-

for-stock transaction at an exchange ratio of 0.122x to 0.131x (the “Offer”).138 The

Offer valued SolarCity at $26.50 to $28.50 per share, the equivalent of $2.6 to

$2.8 billion.139 The proposed purchase price reflected a 21% to 30% premium to

SolarCity’s closing price on June 20, 2016.140

Musk was active in his sponsorship and backing of the Offer and the eventual

Acquisition both before and after the announcement of the deal. First, during a

June 22, 2016, call with investors and analysts, one day after Tesla announced the

Offer, Musk stated:

Like the opinion is unanimous for both companies. So, I mean, unless
there’s something discovered that like that I have no idea about or just
that nobody on the board has any idea about, which is extremely
unlikely, then the board would—the independent board members
would recommend in favor of completing a transaction somewhere in
the price range that was mentioned, most likely.141

Then, during the due diligence period, Musk reached out to “certain

institutional investors” to garner support for the Acquisition.142 It is alleged that,

138
Compl. ¶ 103.
139
Id.
140
Id.
141
Compl. ¶ 118.
142
Compl. ¶ 127 (quoting TESLA00001476).

23
“by ensuring an ‘Increasing View of Deal Certainty’ in the market through his public

statements that nothing would be revealed in due diligence that would derail the

Acquisition, as well as conversations with institutional investors, Elon Musk forced

the Tesla Board into a position in which they had no choice but to follow through

with the Acquisition.”143

And finally, one month following the announcement of the Offer, on July 20,

2016, Musk published his “Master Plan, Part Deux” to Tesla’s website. 144 This

“manifesto” of sorts updated the original Master Plan that Musk published in 2006

and detailed Musk’s vision for Tesla’s future.145 The Master Plan, Part Deux, states,

in relevant part:

The first master plan that I wrote 10 years ago is now in the final stages
of completion. It wasn’t all that complicated and basically consisted
of:

1. Create a low volume car, which would necessarily be expensive
2. Use that money to develop a medium volume car at a lower price
3. Use that money to create an affordable, high volume car

And . . .

Provide solar power. No kidding, this has literally been on our website
for 10 years.

...

143
Compl. ¶ 128.
144
Compl. ¶ 138.
145
Id.

24
 The point of all this was, and remains, accelerating the advent of
sustainable energy, so that we can imagine far into the future and life is
still good.

. . . Here is what we plan to do to make that day come sooner:

. . . We can’t do this well if Tesla and SolarCity are different companies,
which is why we need to combine and break down the barriers inherent
to being separate companies. That they are separate at all, despite
similar origins and pursuit of the same overarching goal of sustainable
energy, is largely an accident of history. Now that Tesla is ready to
scale Powerwall and SolarCity is ready to provide highly differentiated
solar, the time has come to bring them together.146

The “Master Plan, Part Deux” reflects “that the Acquisition [was] being driven by

Elon Musk, as it has been a component of his strategy for Tesla for at least ten

years.”147

F. Due Diligence Reveals SolarCity’s Liquidity Crisis and Other Issues

In a July 5, 2016 presentation to the Tesla Board, Evercore warned the Board

that SolarCity had $3.164 billion in outstanding debt as of March 31, 2016, and that

significant debt would mature in a three-to-five year window. 148 According to

146
Compl. ¶ 140.
147
Id.
148
Compl. ¶ 129.

25
Evercore, a Tesla-SolarCity combined company would have “58% and 89% of pro

forma debt mature within 3 and 5 years, respectively.”149

At its July 19, 2016 special meeting, the Tesla Board discussed SolarCity’s

liquidity situation. 150 As predicted in the February 2016 SolarCity Board

Presentation, SolarCity was heading towards cash balances below the minimum

level required by the Revolver for the weeks of July 22, August 5 and August 12.151

With this default looming, SolarCity once again offered its Solar Bonds to the

market. As noted, Musk, Lyndon and Peter answered the call by acquiring

$100 million of the bonds between the three of them.152

In more bad news, due diligence revealed issues with SolarCity’s new

manufacturing facility planned for Buffalo, New York (the “Buffalo Factory”).153

SolarCity had planned to shutter its China-based manufacturing facility and move

production to Buffalo, New York.154 As an incentive for the move to Buffalo, the

state of New York offered SolarCity tax credits, a loan to fund the Buffalo Factory

149
Id. (quoting TESLA00000246).
150
Compl. ¶ 121.
151
Compl. ¶ 123 (citing TESLA00000740).
152
Compl. ¶ 130.
153
Compl. ¶ 131.
154
Compl. ¶¶ 131–32.

26
build and a grant worth hundreds of millions of dollars.155 In exchange, SolarCity

was required to invest $5 billion over ten years in total capital and operational

expenditures in New York State and was obligated to employ 5,000 people within

ten years of factory completion. 156 If SolarCity failed to meet certain targets, it

would be liable to New York for $41.2 million per year for each year it failed to

meet any of the milestones.157 As discovered in Tesla’s due diligence, SolarCity’s

Buffalo Factory was behind schedule, its costs were projected to be higher than those

carried in the industry and its “projected installed cost per watt for Silevo modules

[the principal product coming off the line] carried a $0.20 premium above the

industry in 2019 and beyond.”158

G. Evercore’s Discounted Cash Flow Analyses

Evercore performed two discounted cash flow valuation (“DCF”) analyses of

SolarCity as part of its fairness analysis. 159 The first DCF relied on SolarCity

management’s forecasts provided to Evercore in mid-July 2016 (the “SolarCity

155
Compl. ¶ 132.
156
Compl. ¶ 133 (citing TESLA00000738).
157
Compl. ¶ 134 (citing TESLA00000738).
158
Compl. ¶ 135 (citing TESLA00000705). If Tesla abandoned the Buffalo Factory after
the Acquisition, it would potentially be liable for approximately $646 million in
termination fees. Compl. ¶ 136 (citing TESLA00000872–73).
159
Compl. ¶ 170.

27
Unrestricted Liquidity Case”). 160 Tesla’s management, led by Musk, provided

Evercore with adjustments to revise the SolarCity Unrestricted Liquidity Case

downward to create a revised sensitivity case (the “SolarCity Revised Sensitivity

Forecasts.”) 161 The SolarCity Revised Sensitivity Forecasts reduced certain

SolarCity projections, which consequently decreased cash requirements. 162 This

sensitivity case also reduced overhead and research and development costs by ten

percent and increased litigation cost projections.163 Evercore performed a second

DCF analysis using the SolarCity Revised Sensitivity Forecasts. 164 Both DCF

analyses yielded per share value ranges supporting the Acquisition price and

ultimately Evercore’s July 30, 2016 fairness opinion.

Later, in August 2016, SolarCity management provided the Tesla Board and

Evercore with a second forecast that was less optimistic than the mid-July 2016

forecast (the “SolarCity Liquidity Management Case”). 165 SolarCity’s financial

advisor performed DCF analyses using the SolarCity Liquidity Management Case,

160
Id.
161
Compl. ¶ 171 (citing TESLA00001120).
162
Compl. ¶ 172 (citing TESLA00000879).
163
Id.
164
Compl. ¶ 173.
165
Compl. ¶ 174 (citing TESLA00001759–60).

28
which derived per share value ranges for SolarCity below the Acquisition price.166

Initially, SolarCity’s financial advisor calculated a per share equity value reference

range for SolarCity of approximately $6.75 to $19.25. 167 After adjusting for a

“computational error,” the SolarCity DCF analysis yielded values for SolarCity of

$10.50 to $23.25 per share.168

Evercore did not perform an additional DCF analysis using the SolarCity

Liquidity Management Case, nor did Evercore otherwise revise its valuation of

SolarCity.169 The Board did not request that Evercore perform such an analysis.170

At an August 25, 2016 special meeting, Evercore advised the Board, without

analysis, that the SolarCity Liquidity Management Case did not alter its prior

valuation. 171 The Board likewise determined that the new information did not

“change[] its view as to the value of SolarCity.”172

166
Compl. ¶ 175.
167
Id.
168
Id.
169
Compl. ¶ 176.
170
Id.
171
Id.
172
Id.

29
 H. Tesla and SolarCity Announce the Merger Agreement

On August 1, 2016, Tesla and SolarCity announced they had executed an

Agreement and Plan of Merger dated July 31, 2016 (the “Merger Agreement”),

pursuant to which Tesla would acquire SolarCity in an all-stock deal.173 The Merger

Agreement provided for each share of SolarCity common stock to be converted to

0.110 shares of Tesla common stock (the “Exchange Ratio”). 174 While this

Exchange Ratio was slightly lower than the 0.122x to 0.131x range that the Tesla

Board approved at the June 2016 Special Meeting, it was within the range initially

proposed without the benefit of any due diligence on SolarCity.175 The Acquisition

price valued SolarCity at approximately $2.6 billion, or $25.37 per share of

SolarCity stock based on the five-day volume weighted average price of Tesla shares

as of July 29, 2016, the last trading day prior to the announcement of the

Acquisition.176

The Complaint alleges the Acquisition was a bailout of SolarCity that

benefited six of the seven members of the Tesla Board and/or their family members,

173
Compl. ¶¶ 4, 142.
174
Compl. ¶ 143.
175
Compl. ¶¶ 144, 145.
176
Compl. ¶ 143. The per share Acquisition price was $25.83 per SolarCity share if based
on Tesla’s closing price as of July 29, 2016, the last trading day prior to the execution of
the Merger Agreement.

30
businesses and business partners. 177 Specifically, the Acquisition benefited:

(a) Musk, Kimbal and their cousins, Peter and Lyndon; (b) Gracias and the

investment fund he manages; (c) Jurvetson, his venture capital firm and his firm’s

managing director; (d) Ehrenpreis’ venture capital partner; and (e) Buss.178

I. The Tesla Stockholders Approve the Acquisition

On November 17, 2016, Tesla stockholders voted to approve the

Acquisition. 179 The Merger Agreement excluded from the vote certain Tesla

stockholders (and their affiliates) who were also directors or executive officers of

SolarCity, including Musk, Gracias and Jeffrey Straubel. 180 Kimbal, Jurvetson,

Ehrenpreis, Buss, Tesla executive officers and any other Tesla stockholders who also

owned stock in SolarCity were not excluded from the vote tally.181 As of the record

date for the stockholder vote, excluding shares held by Musk, Gracias, Straubel and

their affiliates, 118,044,090 shares of Tesla common stock were outstanding and

entitled to vote. Of these, 68,788,787 voted in favor of the Acquisition.182 Thus,

177
Compl. ¶ 7.
178
Id.
179
Compl. ¶¶ 223, 225.
180
Compl. ¶ 223.
181
Compl. ¶ 224.
182
Compl. ¶ 225.

31
according to Tesla, an “overwhelming” majority of Tesla’s disinterested

stockholders voted to approve the Acquisition.183

The Acquisition closed on November 21, 2016.184 Musk, Lyndon and Peter

became executive officers of the surviving SolarCity subsidiary of Tesla.185 And

with the stroke of a pen, Tesla’s debt load nearly doubled.186

J. Procedural Posture

On September 1, 2016, the first of several lawsuits challenging the

Acquisition was filed in this Court.187 Following the presentation of several motions

for the appointment of lead plaintiff and lead counsel, the Court selected a leadership

team that had filed a complaint enhanced by the incorporation of Section 220

183
Defs.’ Opening Br. 1. Plaintiffs contend that institutional stockholders who held equity
positions in both Tesla and SolarCity should have been excluded from the vote tally for
purposes of assessing the results and effect of the allegedly “disinterested” vote.
Compl. ¶¶ 226–28. In doing so, they rely on a document among the Section 220
Documents that purportedly reflects that among Tesla’s top twenty-five institutional
investors, those holding 45.7% of Tesla’s stock (66,658,000 shares) also held SolarCity
stock at the time of the Acquisition. Compl. ¶ 226 (citing TESLA00000243). This issue
may resurface in the event Defendants renew their ratification defense later in these
proceedings.
184
Compl. ¶ 230.
185
Compl. ¶ 150.
186
Compl. ¶ 153. As of June 30, 2016, Tesla’s indebtedness was approximately
$3.7 billion and SolarCity’s was approximately $3.3 billion. Id.
187
See Dkt. 1.

32
Documents. 188 That complaint did not allege any disclosure violations. Once

selected, lead counsel informed the Court that Plaintiffs were foregoing expedition

and would not seek to enjoin the transaction, including on disclosure grounds,

presumably to reserve their disclosure claims as bases to resist an anticipated Corwin

ratification defense.189 Defendants raised that defense in their motion to dismiss the

first amended complaint on January 27, 2017.190 Plaintiffs opted to amend the first

amended complaint with the operative Complaint on March 9, 2017. 191 That

Complaint included what the first amended complaint omitted—allegations of

inadequate pre-vote disclosures in support of a post-vote disclosure claim.

Defendants moved to dismiss the Complaint on March 17, 2017.192

The Complaint asserts seven claims: four derivative claims and three direct

claims on behalf of Plaintiffs and a putative class of Tesla stockholders.193 The

derivative claims are: Count I, a derivative claim for breach of fiduciary duty against

188
Dkt. 93.
189
Dkt. 91 at 47–48; Dkt. 89.
190
Dkt. 97, 98.
191
Dkt. 102.
192
Dkt. 104.
193
Compl. ¶¶ 294–330. Defendants do not move to dismiss under Court of Chancery
Rule 23.1. See Dkt. 104; Dkt. 110. Accordingly, I need not address the Complaint’s
demand futility allegations. See Compl. ¶¶ 231–82.

33
Musk as Tesla’s controlling stockholder for using “his control over the corporate

machinery to, among other things, orchestrate Board approval of the Acquisition”194;

Count II, a derivative claim for breach of the duty of loyalty against the Board for

“causing and/or allowing Tesla to enter into the self-dealing” Acquisition 195 ;

Count III, a derivative claim for unjust enrichment against Musk, Kimbal, Gracias,

Buss and Jurvetson, based on their ownership of SolarCity stock at the time of the

Acquisition and the fact that the Acquisition “bail[ed] out” SolarCity thereby

“spread[ing] across all of Tesla’s stockholders the loss that would otherwise be

experienced only by” these five individuals196; and Count VI, a derivative claim for

waste against the Board for causing Tesla to acquire SolarCity.197

The direct individual and class claims are: Count V, a direct claim against

Musk for breach of fiduciary duty as Tesla’s controlling stockholder by “causing

Tesla to enter into the self-dealing Acquisition at a price that is unfair to the

Company in order to unduly benefit himself . . . through the improper transfer of

economic and voting power” from the other stockholders to himself198; Count IV, a

194
Compl. ¶ 296.
195
Compl. ¶ 301.
196
Compl. ¶ 304.
197
Compl. ¶ 322.
198
Compl. ¶ 316.

34
direct claim against the Board for breach of the fiduciary duties of loyalty and care

by approving and executing the Acquisition, which “unduly benefit[ted] controlling

stockholder Elon Musk . . . through the improper transfer of economic and voting

power from the other stockholders” to Musk199; and Count VII, a direct claim against

the Board for breach of the duty of disclosure for failure to make accurate and non-

misleading disclosures to Tesla’s stockholders in connection with the Acquisition

and any stockholder vote, including regarding the circumstances surrounding the

Acquisition.200

The parties presented argument on Defendants’ motion to dismiss on

December 12, 2017.201 On December 20 and 21, 2017, the parties submitted post-

argument letters addressing a recent Delaware Supreme Court decision relating to

the controlling stockholder issue.202 This is the Court’s decision on Defendants’

motion to dismiss the Complaint.

199
Compl. ¶ 310.
200
Compl. ¶ 328–29.
201
Dkt. 124.
202
Dkt. 125; Dkt. 126. The parties addressed the Supreme Court’s analysis in Dell, Inc. v.
Magnetar Global Event Driven Master Fund Ltd, 177 A.3d 1 (Del. 2017) of the trial court’s
findings regarding whether Michael Dell was a controlling stockholder.

35
 II. ANALYSIS

Under Court of Chancery Rule 12(b)(6), a complaint must be dismissed if the

plaintiff would be unable to recover under “any reasonably conceivable set of

circumstances susceptible of proof” based on the facts as pled in the complaint.203

In considering a motion to dismiss, the court must accept as true all well-pled

allegations in the complaint and draw all reasonable inferences from those facts in

plaintiff’s favor.204 The court need not accept, however, conclusory allegations that

lack factual support or “accept every strained interpretation of the allegations

proposed by the plaintiff.”205

Defendants’ showcase defense rests on Corwin. Although Tesla stockholder

approval of the Acquisition was not required by the Delaware General Corporation

Law, the Tesla Board submitted the Acquisition for stockholder approval anyway.

Defendants maintain that the fully informed, uncoerced vote of the disinterested

stockholders mandates business judgment review of Plaintiffs’ breach of fiduciary

203
Gen. Motors, 897 A.2d at 168.
204
Id. See also Malpiede v. Townson, 780 A.2d 1075, 1083 (Del. 2001) (stating the court
is required to accept “reasonable inferences that logically flow” from the non-conclusory
facts pled); In re Morton’s Rest. Gp., Inc. S’holders Litig., 74 A.3d 656, 659–60 (Del. Ch.
2013) (same).
205
Id.

36
duty claims and dismissal of the Complaint. 206 Plaintiffs disagree on several

grounds; first among them, Plaintiffs maintain that, as a matter of law, Corwin does

not apply because the Acquisition benefited Tesla’s controlling stockholder,

Musk. 207 Because I agree the Complaint pleads facts that allow reasonable

inferences that Musk was a controlling stockholder and that Plaintiffs’ claims against

all Defendants are subject to entire fairness review, I begin and end my analysis of

the motion to dismiss there.

A. The Controlling Stockholder Inquiry

In the seminal Kahn v. Lynch Communications Systems, Inc., the Supreme

Court observed that Delaware courts will deem a stockholder a controlling

stockholder when the stockholder: (1) owns more than 50% of the voting power of

a corporation or (2) owns less than 50% of the voting power of the corporation but

“exercises control over the business affairs of the corporation.”208 Plaintiffs do not

206
Singh v. Attenborough, 137 A.3d 151, 151–52 (Del. 2016) (noting that dismissal is
typically the result when pleading stage business judgment deference applies “because the
vestigial waste exception has long had little real-world relevance”).
207
See Merge Healthcare, 2017 WL 395981, at *6 (clarifying that Corwin does not apply
in controlling stockholder transactions); In re Solera Hldgs., Inc. S’holder Litig., 2017
WL 57839, at *6 n.28 (Del. Ch. Jan. 5, 2017) (“[T]he only transactions that are subject to
entire fairness that cannot be cleansed by proper stockholder approval are those involving
a controlling stockholder”) (quoting Larkin v. Shah, 2016 WL 4485447, at *10 (Del. Ch.
Aug. 25, 2016)).
208
638 A.2d 1110, 1113–14 (Del. 1994) (emphasis in original).

37
dispute that Musk holds only 22.1% of the voting power in Tesla. Thus, the

operative question is whether Musk, as a minority blockholder, “exercises control

over the business affairs of [Tesla].”209 Further refined, the inquiry is whether Musk

“exercised actual domination and control over . . . [the] directors.” 210 In this regard,

his power must have been “so potent that independent directors . . . [could not] freely

exercise their judgment.”211

209
Id.
210
Morton’s Rest. Gp., 74 A.3d at 665 (stating the complaint must support the reasonable
inference that the minority stockholder “exercised actual domination and control over . . .
[the] directors”) (internal quotation marks omitted) (citing In re Sea-Land Corp. S’holders
Litig., 1988 WL 49126, at *3 (Del. Ch. May 13, 1988)).
211
Id. See also Corwin, 125 A.3d at 307 (“[T]he Court of Chancery, consistent with the
instructions of this Court, looked for a combination of potent voting power and
management control such that the stockholder could be deemed to have effective control
of the board without actually owning a majority of stock.”) (internal citations omitted);
Larkin, 2016 WL 4485447, at *13 (“Making the showing [that the alleged controller wields
such formidable voting and managerial power] is no easy task, as the minority
blockholder’s power must be so potent that it triggers the traditional Lynch concern that
independent directors’ free exercise of judgment has been compromised.”); In re PNB
Hldgs. Co. S’holders Litig., 2006 WL 2403999, at *9 (Del. Ch. Aug. 18, 2006)
(“[S]tockholders with very potent clout have been deemed, in thoughtful decisions, to fall
short of the mark.”).

38
 “The requisite degree of control can be shown to exist generally or ‘with

regard to the particular transaction that is being challenged.’” 212 Stated differently,

when pleading that a minority blockholder is a controlling stockholder, the plaintiff

may plead either (or both) of the following: (1) that the minority blockholder actually

dominated and controlled the corporation, its board or the deciding committee with

respect to the challenged transaction or (2) that the minority blockholder actually

dominated and controlled the majority of the board generally.213 “[W]hether a large

blockholder is so powerful as to have obtained the status of a ‘controlling

stockholder’ is intensely factual [and] it is a difficult [question] to resolve on the

212
Carsanaro v. Bloodhound Techs., Inc., 65 A.3d 618, 659 (Del. Ch. 2013) (quoting
Williamson v. Cox Commc’ns Inc., 2006 WL 1586375, at *4 (Del. Ch. June 5, 2006)).
See also In re Crimson Exploration Inc. S’holder Litig., 2014 WL 5449419, at *12 (Del.
Ch. Oct. 24, 2014) (“These cases show that a large blockholder will not be considered a
controlling stockholder unless they actually control the board’s decisions about the
challenged transaction.”); In re Primedia Inc. Deriv. Litig., 910 A.2d 248, 257 (Del. Ch.
2006) (“However, the plaintiffs need not demonstrate that KKR oversaw the day-to-day
operations of Primedia. Allegations of control over the particular transaction at issue are
enough.”); Superior Vision Servs., Inc. v. ReliaStar Life Ins. Co., 2006 WL 2521426, at *4
(Del. Ch. Aug. 25, 2006) (“In order to append the label of ‘controlling shareholder,’
pervasive control over the corporation’s actions is not required; indeed, a plaintiff ‘can
survive the motion to dismiss by alleging actual control with regard to the particular
transaction that is being challenged.’”) (quoting Williamson, 2006 WL 1586375, at *4).
213
In re Rouse Props., Inc. Fiduciary Litig., 2018 WL 1226015, at *12 (Del. Ch. Mar. 9,
2018).

39
pleadings.”214 Plaintiffs’ burden now is to “show it is reasonably conceivable that

[Musk] controlled [Tesla].”215

B. It Is Reasonably Conceivable That Musk Is Tesla’s Controlling
Stockholder

The parties proffer several factors to inform the Court’s determination of

whether the Complaint adequately pleads Musk’s controller status. They include:

(1) Musk’s ability to influence the stockholder vote to effect significant change at

Tesla, including the removal of Board members; (2) Musk’s influence over the

Board as Tesla’s visionary, CEO and Chairman of the Board; (3) Musk’s strong

connections with members of the Tesla Board and the fact that a majority of the

214
In re Cysive, Inc. S’holders Litig., 836 A.2d 531, 550–51 (Del. Ch. 2003). See also
Calesa Assocs., L.P. v. Am. Capital, Ltd., 2016 WL 770251, at *11 (Del. Ch. Feb. 29, 2016)
(“[T]here is no magic formula to find control; rather, it is a highly fact specific inquiry.”)
(citing Crimson Exploration, 2014 WL 5449419, at *10); In re Zhongpin Inc. S’holders
Litig., 2014 WL 6735457, at *6–7 (Del. Ch. Nov. 26, 2014) (noting the inquiry of “whether
or not a stockholder’s voting power and managerial authority, when combined, enable him
to control the corporation [ ] is not a formulaic endeavor and depends on the particular
circumstances of a given case”), rev’d on other grounds sub nom., In re Cornerstone
Therapeutics Inc, S’holder Litig., 115 A.3d 1173 (Del. 2015); Zhongpin, 2014
WL 6735457, at *9 n.33 (“Whether or not a particular CEO and sizeable stockholder holds
more practical power than is typical should not be decided at the motion to dismiss stage
if a plaintiff pleads facts sufficient to raise the inference of control.”); Williamson, 2006
WL 1586375, at *6 (“The question whether a shareholder is a controlling one is highly
contextualized and is difficult to resolve based solely on the complaint.”).
215
Crimson Exploration, 2014 WL 5449419, at *17 (emphasis added). See also Zhongpin,
2014 WL 6735457, at *7 (“Here, Plaintiffs do not need to prove that [the alleged controller]
was a controlling stockholder in order to withstand the motions to dismiss. Rather,
Plaintiffs must plead facts raising the inference that [the alleged controller] could control
[the company].”) (emphasis added)).

40
Tesla Board was “interested,” as that term is defined in our law, in the Acquisition;

and (4) Tesla’s and Musk’s acknowledgement of Musk’s control in its public filings.

The parties’ focus on these considerations is well-placed, as each is tied directly to

our controlling stockholder jurisprudence. Accordingly, I address each in turn

below.

1. Musk’s Control of the Vote

Musk is a 22.1% stockholder. In the controlling stockholder context, this

ownership stake is “relatively low” reflecting a “small block.” 216 Even so, “there is

no absolute percentage of voting power that is required in order for there to be a

finding that a controlling stockholder exists.” 217 Indeed, “[a]ctual control over

business affairs may stem from sources extraneous to stock ownership.” 218 As

illustrated in Crimson Exploration’s thorough study of significant cases where the

parties disputed whether a minority stockholder was a controlling stockholder, there

Defs.’ Opening Br. 15 (citing PNB Hldgs., 2006 WL 2403999, at *10 and Larkin, 2016
216

WL 4485447, at *14).
217
PNB Hldgs., 2006 WL 2403999, at *9; Zhongpin, 2014 WL 6735457, at *6 (citing PNB
Hldgs., 2006 WL 2403999, at *9). Compare Zhongpin, 2014 WL 6735457, at *1, 12
(finding it reasonably conceivable that a 17.3% stockholder was a controller), with Crimson
Exploration, 2014 WL 5449419, at *15 (observing that to find a stockholder with a 33.7%
ownership stake was a controller would be “aggressive”). See also In re Alloy, Inc., 2011
WL 4863716, at *8 (Del. Ch. Oct. 13, 2011) (declining to rule out that a mere 15%
stockholder could ever be considered a controller, but concluding that “collective stock
ownership of 15% do[es] not, without specific allegations of domination, create an
inference that [a stockholder] controlled the board”).
218
Zhongpin, 2014 WL 6735457, at *8.

41
is no “linear, sliding scale approach whereby a larger share percentage makes it

substantially more likely that the court will find the stockholder was a controlling

stockholder.” 219 The absence of a discernable pattern remains true in our post-

Crimson Exploration controller decisions.220

Defendants view the controlling stockholder question as turning on the

minority blockholder’s ability to control the outcome of a contested election and the

resulting perception of members of the board of directors that their future on the

board rests in the alleged controller’s hands. 221 According to Defendants, since

Musk’s 22.1% voting power is inadequate to dominate a contested election, he

cannot be deemed a controlling stockholder. 222 Stated differently, Defendants’

219
Crimson Exploration, 2014 WL 5449419, at *10.
220
Larkin, 2016 WL 4485447, at *2 (finding 23.1% minority stockholder was not a
controlling stockholder); Calesa, 2016 WL 770251, at *11 (holding it was reasonably
inferable that a 26% stockholder was a controlling stockholder); In re KKR Fin.
Hldgs. LLC S’holder Litig., 101 A.3d 980, 994 (Del. Ch. 2014) (granting motion to dismiss
where the court could not reasonably infer that a 1% minority stockholder was a controlling
stockholder), aff’d sub nom. Corwin, 125 A.3d 304; Zhongpin, 2014 WL 6735457, at *7–
8 (finding it was reasonably conceivable that a 17.3% (26% if accounting for an alleged
control group) blockholder wielded actual control).
221
Defs.’ Opening Br. 14–16 (citing Cysive, 836 A.2d at 551–52, Morton’s Rest. Gp.,
74 A.3d at 665 and KKR Fin., 101 A.3d at 994 and arguing “[a] ‘minority blockholder’ like
Musk is not considered to be a controlling stockholder unless [he] exercises such
formidable voting and managerial power that, as a practical matter, [he] is no differently
situated than if [he] had majority voting control’”) (quoting Morton’s Rest. Gp., 74 A.3d
at 664–65).
222
Plaintiffs have not attempted to allege or argue that Musk is part of a control group.

42
argument appears to be that the delta between Musk’s 22.1% ownership stake and

actual majority voting control is too great, regardless of other circumstances, for the

Court reasonably to infer that Musk possessed dominating voting power. By

Defendants’ lights, this ends the inquiry. I disagree.

The ability of an alleged controller to influence a contested election is a

significant consideration in the controlling stockholder analysis. That proposition

cannot credibly be challenged.223 But alleged control of the ballot box is not always

dispositive of the controlling stockholder inquiry in the minority stockholder

context. Indeed, our courts have considered “many factors . . . in analyzing whether

a shareholder is controlling.”224 “[T]he focus of the [controller] inquiry [is] on the

de facto power of a significant (but less than majority) shareholder, which, when

coupled with other factors, gives that shareholder the ability to dominate the

corporate decision-making process.” 225 As discussed below, while Plaintiffs

acknowledge that Musk’s minority block is “relatively low,” their Complaint pleads

223
See Cysive, 836 A.2d at 551–52; Morton’s Rest. Gp., 74 A.3d at 665; KKR Fin.,
101 A.3d at 994.
224
Williamson, 2006 WL 1586375, at *4. See also Zhongpin, 2014 WL 6735457, at *8
(“[T]he Court does not take an unduly restrictive view of the avenues through which a
controller obtains corporate influence.”); Superior Vision Servs., 2006 WL 2521426, at *4
n.38 (noting that “the reference to the ‘business and affairs’ of the corporation [in the
controller context] suggests something broader than one corporate act, such as the payment
of a dividend”).
225
Superior Vision Servs., 2006 WL 2521426, at *4 (emphasis added).

43
facts that allow a reasonable inference that “other factors” contributed to his ability

“to dominate the corporate decision-making process,” particularly with respect to

the Acquisition.226

Before turning to the “other factors,” it is appropriate to dilate for a moment

on Defendants’ position that Musk’s relatively “small block” causes the controller

analysis to break clearly in their favor. There is no question that the 28% delta

between Musk’s ownership stake and a voting majority is quite wide. Even so, it is

perhaps conceivable that, of all people, Musk might be the minority blockholder who

could rally other stockholders to bridge that gap, particularly if one accepts

Plaintiffs’ allegation that the public investments in Tesla actually reflect investments

in Musk and his vision for Tesla’s future.227 With that said, I agree with Defendants

that this dynamic alone, even if true, would not be enough to carry Plaintiffs’

controller argument across the “reasonably conceivable” threshold.

But there is more. Plaintiffs allege that Musk has demonstrated a willingness

to facilitate the ouster of senior management when displeased, as evidenced by the

fact that he “forced founder and then-CEO Eberhard out of the Company [and

226
PNB Hldgs., 2006 WL 2403999, at *10; Superior Vision Servs., 2006 WL 2521426,
at *4.
227
See Compl. ¶¶ 270–272.

44
thereafter] appointed himself CEO.”228 This history conceivably was not lost on

members of the Tesla Board when they considered Musk’s proposal that Tesla

acquire SolarCity. Plaintiffs also point out that:

Tesla’s bylaws contain several supermajority voting requirements. For
example, any changes at Tesla, including certain mergers, acquisitions,
or changes to the Board’s compensation or bylaws concerning the
Board’s composition must be approved by 66 2/3 percent of total voting
power of outstanding Tesla voting securities. This supermajority
standard allows Elon Musk significant control over corporate matters
while only owning approximately 22% of Tesla’s common stock.229

All tallied, the facts pled regarding Musk’s ability to exercise the equivalent

of majority voting control extend beyond mere conclusory statements that he could

control the vote.230 Nevertheless, I need not decide whether these allegations alone

are enough to survive Defendants’ dismissal motion because there is more alleged

in the Complaint relevant to the controller analysis.

228
Compl. ¶ 61.
229
Compl. ¶ 22. Defendants argue that Plaintiffs fail to explain how this requirement
supports their claim that Musk is a controlling stockholder. Defs.’ Opening Br. 21 n.8.
Here again, I disagree. Plaintiffs clearly recite the supermajority voting requirement as
evidence of Musk’s ability to utilize his 22% stake as a blocking position on significant
matters that may well directly affect members of the Tesla Board.
230
See In re Shoe-Town, Inc. S’holders Litig., 1990 WL 13475, at *6 (Del. Ch. Feb. 12,
1990) (observing that plaintiffs must do more to plead that a minority stockholder is a
controller than simply say he is a controller).

45
 2. Musk’s Control Over Tesla’s Board

That Musk is the “face of Tesla” cannot meaningfully be disputed.231 This

fact alone, however, is not dispositive of the controller question. Indeed, just

recently, in Dell, our Supreme Court relied on this Court’s post-trial fact findings to

conclude that a management buyout of Dell, Inc. led by Dell’s founder and CEO,

Michael Dell, was not a controlling stockholder transaction. 232 In reaching that

conclusion, however, this Court emphasized that after Mr. Dell announced his intent

to pursue the MBO: (1) he immediately advised Dell’s board he “did not want to

proceed further without approval of the Board, and that he would not engage a

financial advisor without first informing the Board” 233 ; (2) the board formed an

independent committee to negotiate with Mr. Dell and Mr. Dell did not participate

in any of the board level discussions regarding a sale of the company 234; (3) the

committee actively explored alternatives to Mr. Dell’s MBO proposal and Mr. Dell

committed to work with any competing bidders235; (4) Mr. Dell agreed to “to join up

231
Compl. ¶ 271 (“Elon Musk is the clear public face of Tesla and he is viewed, both within
the Company and by much of the public, as a visionary business leader who is, to a
significant degree, personally responsible for Tesla’s success.”).
232
177 A.3d at 25.
233
In re Appraisal of Dell Inc., 2016 WL 3186538, at *2 (Del. Ch. May 31, 2016), aff’d in
pertinent part sub nom., Dell, 177 A.3d 1 (Del. 2017).
234
Id. at *2–3.
235
Id. at *5, 13–14.

46
with whoever” in the event a superior proposal emerged236; (5) when the negotiations

reached an impasse over price, Mr. Dell agreed to roll over his shares at a lower price

than the deal price to resolve the stalemate237; and (6) importantly, Mr. Dell entered

into a voting agreement that required him and his affiliates to vote their shares “in

the same proportion as the number of [s]hares voted by the [u]naffiliated

[s]tockholders . . . that are voted in favor of the adoption” of either (i) the MBO

merger agreement or (ii) a superior proposal.238 These facts, and perhaps others,

allowed the trial court to determine that, at least with respect to the transaction at

issue, Mr. Dell did not “dominate the corporate decision-making process.”239 They

also provided a basis for the court to resist the instinctive appeal of the “face of the

company” argument when engaging in the controlling stockholder analysis.

According to the well-pled facts in the Complaint, there were practically no

steps taken to separate Musk from the Board’s consideration of the Acquisition. He

236
Id. at *8.
237
Id. at *11.
238
Id. at *12.
239
Superior Vision Servs., 2006 WL 2521426, at *4. See also Appraisal of Dell, 2016
WL 3186538, at *28 (“In this case, the Company’s process easily would sail through if
reviewed under enhanced scrutiny.”); Dell, 177 A.3d at 25 (finding “the record shows
that . . . this was not a buyout led by a controlling stockholder”).

47
brought the proposal to the Board not once, not twice, but three times. 240 He then

led the Board’s discussions regarding the Acquisition throughout its laser focus on

SolarCity and was responsible for engaging the Board’s advisors. 241 According to

the Complaint, the Board never considered forming a committee of disinterested,

independent directors to consider the bona fides of the Acquisition. It took that role

upon itself, notwithstanding the obvious conflicts of its members (discussed below).

Under these circumstances, it is appropriate to consider whether Musk brought with

him into the boardroom the kind of influence that would support a reasonable

inference that he dominated the Board’s decision-making with regard to the

Acquisition.242

When Musk rather insistently brought the proposed acquisition to the Board

for consideration, the Board was well aware of Musk’s singularly important role in

240
Compl. ¶ 85 (citing TESLA00001346); Compl. ¶ 90 (citing TESLA00001348–49);
Compl. ¶ 91 (citing TESLA00001455–56).
241
Compl. ¶¶ 85–86, 90, 92–94, 99–100.
242
This Court recently determined that a 33.5% blockholder was not a controller in
connection with an alleged squeeze-out merger after finding that the pled facts
acknowledged the alleged controller did not dominate the management of the target, did
not participate in or interfere with board discussions of the acquisition proposal, and did
not interfere with the independent committee’s search for alternatives (with the advice of
independent legal and financial advisors). See Rouse, 2018 WL 1226015, at *4–5, 7.
Simply stated, Rouse is easily distinguishable because the alleged controller was not
involved in the management of the target company, much less its day-to-day management,
and the Rouse board took meaningful steps to insulate itself from the alleged controller
during its consideration of the proposed transaction.

48
sustaining Tesla in hard times and providing the vision for the Company’s success.243

“As Tesla has acknowledged, ‘[i]n addition to serving as the CEO since October

2008, Mr. Musk has contributed significantly and actively to us since our earliest

days in April 2004 by recruiting executives and engineers, contributing to the Tesla

Roadster’s engineering and design, raising capital for us and bringing investors to

us, and raising public awareness of the Company.’” 244 When Tesla was on the ropes,

Musk infused his own capital into the Company to keep it afloat. 245 His “Master

Plans,” parts one and “deux,” apparently the products of his mind alone, provide the

architecture by which the Company has been and will be operated, right down to the

acquisition of a solar energy company. 246 Thus, setting aside Musk’s and the

Company’s public acknowledgments of Musk’s substantial influence (discussed

below), and the obvious conflicts at the Board level (also discussed below), the pled

243
I acknowledge Defendants’ argument that Musk should not be deemed a controlling
stockholder with concomitant fiduciary duties simply because he is a hands-on CEO with
a clear vision for the Company and its future. Defs.’ Opening Br. 17. If that is all Plaintiffs
alleged, then their pleading of Musk’s controller status would certainly be deficient. But,
as discussed here, there is much more to this Complaint’s pleading of control than
conclusory allegations that Musk is an effective and dynamic CEO.
244
Compl. ¶ 271.
245
Compl. ¶¶ 61, 67, 269.
246
Compl. ¶¶ 138, 140, 270.

49
facts reveal many of the markers that have been important to our courts when

determining whether a minority blockholder is a controlling stockholder.247

3. The Board Level Conflicts

The question of whether a board is comprised of independent or disinterested

directors is relevant to the controlling stockholder inquiry because the answer, in

turn, will inform the court’s determination of whether the board was free of the

controller’s influence such that it could exercise independent judgment in its

decision-making.248 Even an independent, disinterested director can be dominated

in his decision-making by a controlling stockholder.249 A director is even less likely

to offer principled resistance when the matter under consideration will benefit him

or a controller to whom he is beholden.250

247
See Calesa, 2016 WL 770251, at *11 (finding alleged controller brought the challenged
transaction to a board comprised of members that were either not independent of the
alleged controller or interested in the transaction); Zhongpin, 2014 WL 6735457, at *8
(finding alleged controller was an active CEO and company visionary who was conflicted
in the proposed transaction); Cysive, 836 A.2d at 553 (finding alleged controller was the
founder of the company and was a long-time, active CEO who brought the conflicted
transaction to the company).
248
See KKR Fin., 101 A.3d at 995 (“Here, there are no well-pled facts from which it is
reasonable to infer that KKR could prevent the KFN board from freely exercising its
independent judgment in considering the proposed merger . . .”).
249
Kahn, 638 A.2d at 1116–17.
250
Cf. Morton’s Rest. Gp., 74 A.3d at 665 n.47 (Del. 1984) (“There must be coupled with
the allegation of control such facts as would demonstrate that through personal or other
relationships the directors are beholden to the controlling person.”) (citing Aronson v.
Lewis, 473 A.2d 805, 815 (Del. 1984)).

50
 In this case, the Board did not form a special committee to consider the

transaction, and it is reasonably conceivable that a majority of the five Board

members who voted to approve the Offer and Acquisition (Musk and Gracias

recused themselves) were interested in the Acquisition or not independent of

Musk. 251 Tesla’s SEC filings concede Buss and Kimbal are not independent

directors.252 Jurvetson has served on Tesla’s Board for nearly a decade. 253 The

Complaint’s well-pled facts allow a reasonable inference that he and Musk are

acquainted beyond mere membership on the Board, as evidenced by Musk gifting to

Jurvetson the first Tesla Model S and the second Tesla Model X ever made. 254

DFJ, Jurvetson’s venture capital firm, has invested in Tesla three times between

2006 and 2008, and held Tesla stock as recently as late 2014.255 DFJ also owned

251
See Compl. ¶¶ 250–67, 276. Having found the Complaint supports a reasonable
inference that three out of the five Board members who voted in favor of the Acquisition
are not independent, I need not address the independence of Ehrenpreis and Denholm in
this analysis.
252
Compl. ¶¶ 28, 53; Moritz Aff., Ex. 13, at TESLA00001483. Both were also likely
interested in the Acquisition given their close affiliations with SolarCity. See Compl.
¶¶ 27–29, 54–55.
253
Compl. ¶ 47.
254
Compl. ¶ 48 n.6.
255
Compl. ¶ 48.

51
approximately 3.3% of SolarCity’s outstanding common stock. 256 And Jurvetson

himself owned 417,450 shares of SolarCity common stock as of the Acquisition.257

Jurvetson also has substantial connections with the third entity in Musk’s

“pyramid,” SpaceX. He serves as a member of the board of directors of SpaceX.258

And between 2009 and 2015, DFJ participated in four early venture funding rounds

for SpaceX and remains a “significant stockholder.”259

Musk, in turn, is a frequent investing partner with DFJ principals, including

Jurvetson and DFJ co-founder, Tim Draper, and is invested in DFJ itself. 260

“Although the actual extent of these relationships is not altogether clear at this point

in the litigation, the existence of these interests and relationships is enough” to allow

a reasonable inference that Jurvetson is beholden to Musk and may not have acted

independently in voting to approve the Acquisition.261

256
Compl. ¶ 49.
257
Id.
258
Compl. ¶ 50.
259
Compl. ¶ 50 & n.10.
260
Compl. ¶¶ 48–52.
261
In re New Valley Corp. Deriv. Litig., 2001 WL 50212, at *8 (Del. Ch. Jan. 11, 2001)
(denying motion to dismiss for failure to make a demand and explaining the complaint
“pleads with particularity facts that give this Court some reason to believe that a majority
of [the company’s] current Board is not disinterested or independent” because “[t]he facts
alleged in the complaint show that all the members of the current Board have current or
past business, personal, and employment relationships with each other and the entities
52
 In addition to the Board level conflicts, Plaintiffs urge me to consider the well-

pled facts regarding the “bail-out” of SolarCity that Musk was able to accomplish at

Tesla’s expense as further evidence supporting a reasonable inference of his control

over the Board. Based on Tesla’s stock price at the time of the Acquisition, the

Company paid approximately $2.6 billion in Tesla stock to acquire SolarCity, a

severely distressed company on the brink of bankruptcy but for the Acquisition.262

According to Plaintiffs, “[s]uch a price is ‘so one-sided’ that no fiduciary ‘acting in

good faith pursuant to [Tesla’s] interests could have approved the terms,’” further

revealing that the Board was dominated by Musk when voting to approve the

Acquisition.263

involved”). Moreover, DFJ’s and Jurvetson’s significant SolarCity stock holdings suggest
that Jurvetson was interested in the Acquisition as well.
262
Compl. ¶¶ 4–7. As noted, Evercore warned the Tesla Board that SolarCity had $3.164
billion in outstanding debt as of March 31, 2016, and that significant debt would mature in
a three-to-five year window. Compl. ¶ 129. See also Compl. ¶¶ 121–24, 129–37 (detailing
additional troubling facts about SolarCity uncovered during due diligence). Indeed,
following the Acquisition, Tesla’s debt load nearly doubled. Compl. ¶ 153. And yet,
according to Plaintiffs, the Board charged forward, approving the Acquisition within a
month of its May 31, 2016 meeting where the Board first authorized Musk and his
management team to put in motion certain steps for considering a potential acquisition.
Compl. ¶¶ 91, 93–94, 102.
263
Pls.’ Answering Br. in Opp’n to Defs.’ Mot. to Dismiss the Second Am. Compl. 3–4
(citing In re Ezcorp Inc. Consulting Agmt. Deriv. Litig., 2016 WL 301245, at *31 (Del. Ch.
Jan. 25, 2016) (internal citations omitted). Plaintiffs also point to the ever-fluctuating DCF
analyses, SolarCity’s substantial liability exposure in intellectual property litigation and
the difficulties confronting SolarCity at its Buffalo Factory as further evidence that the
Board’s singular focus on SolarCity can only be explained by Musk’s dominating
influence.

53
 4. Musk and Tesla Acknowledge Musk’s Influence

In Zhongpin, the company’s public filings disclosed that it “rel[ies]

substantially on [Zhu], and our Executive Vice President [Ben], to manage our

operations. . . . The loss of any one of [our key personnel], in particular Mr. Zhu or

Mr. Ben, would have a material adverse effect on our business and operations.”264

Additionally, the company’s public filings acknowledged:

Our largest shareholder has significant influence over our management
and affairs and could exercise this influence against your best interests.
At March 11, 2013, Mr. Xianfu Zhu, our founder, Chairman and Chief
Executive Officer and our largest shareholder, beneficially owned
approximately 17.3% of our outstanding shares of common stock, and
other executive officers and directors collectively beneficially owned
an additional 4.2% of our outstanding stock. As a result, pursuant to
our By-laws and applicable laws and regulations, our controlling
shareholder [Zhu] and our other executive officers and directors are
able to exercise significant influence over our company . . .265

Relying principally upon Zhongpin, Plaintiffs argue that Tesla and Musk himself

have made similar concessions of Musk’s powerful influence over the Company and

its Board. As for the Company, its public filings disclose:

 In addition to serving as the CEO since October 2008, Mr. Musk has
contributed significantly and actively to us since our earliest days in
April 2004 by recruiting executives and engineers, contributing to
the Tesla Roadster’s engineering and design, raising capital for us

264
Zhongpin, 2014 WL 6735457, at *8.
265
Id. (emphasis added).

54
 and bringing investors to us, and raising public awareness of the
Company.266

 Mr. Musk spends significant time with Tesla and is highly active in
[Tesla’s] management.267

 [Tesla is] highly dependent on the services of Elon Musk, [who is]
highly active in [the Company’s] management, [and if Tesla were to
lose his services, it could] disrupt our operations, delay the
development and introduction of our vehicles and services, and
negatively impact our business, prospects and operating results as
well as cause our stock price to decline.268

 The concentration of ownership among [Tesla’s] existing executive
officers, directors and their affiliates may prevent new investors
from influencing significant corporate decisions, [such that] these
stockholders will be able to exercise a significant level of control
over all matters requiring stockholder approval, including the
election of directors, amendment of our certificate of incorporation
and approval of significant corporate transactions.269

Musk himself has publically stated that: (1) Tesla, SolarCity and SpaceX form a

“pyramid” on top of which he sits, and that it is “important that there not be some

sort of house of cards that crumbles if one element of the pyramid . . . falters”270; and

(2) Tesla is “his company.”271

266
Compl. ¶ 271.
267
Compl. ¶ 21.
268
Compl. ¶ 274.
269
Compl. ¶ 275.
270
Compl. ¶ 5.
271
Compl. ¶ 116.

55
 Unlike Zhongpin, neither Tesla nor Musk have expressly conceded that Musk

is a controlling stockholder. Indeed, if the public disclosures were all that Plaintiffs

could point to as evidence of Musk’s control, the pleading likely would come up

short.272 The public acknowledgements of Musk’s substantially outsized influence,

however, do bear on the controlling stockholder inquiry when coupled with the other

well-pled allegations of Musk’s control over the Company and its Board.

******

Whether Musk has regularly exercised control over Tesla’s Board, or whether

he did so only with respect to the Acquisition, is not entirely clear from the

Complaint. For purposes of my decision on the motion, however, that distinction

does not matter. At the very least, the Complaint pleads sufficient facts to support a

reasonable inference that Musk exercised his influence as a controlling stockholder

with respect to the Acquisition. Specifically, 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

272
See Rouse, 2018 WL 1226015, at *19 (distinguishing Zhongpin on the ground that the
disclosure by Rouse’s board did not concede that the minority blockholder was Rouse’s
controlling stockholder).

56
acknowledgements of his outsized influence, all told, satisfy Plaintiffs’ burden to

plead that Musk’s status as a Tesla controlling stockholder is reasonably

conceivable. The facts developed in discovery may well demonstrate otherwise.273

But Plaintiffs have secured a right to pursue that discovery by adequately pleading

their breach of fiduciary duty claims and the ab initio inapplicability of Corwin.

C. The Exculpatory Charter Provision

Tesla’s certificate of incorporation contains an exculpation provision as

authorized by 8 Del. C. § 102(b)(7).274 Under Cornerstone, Plaintiffs “must plead a

non-exculpated claim for breach of fiduciary duty against an independent director

protected by an exculpatory charter provision, or that director will be entitled to be

dismissed from the litigation. That rule applies regardless of the underlying standard

of review for the transaction.” 275 Defendants have not raised an exculpation

argument, except as to the disclosure claim. And that “argument” consists of a

passing reference in a footnote in their Opening Brief.276 Issues not properly briefed

273
See, e.g., In re W. Nat’l Corp. S’holders Litig., 2000 WL 710192 (Del. Ch. May 22,
2000) (determining the controlling stockholder issue at summary judgment); Cysive, 836
A.2d at 552 (determining the controlling stockholder issue post-trial).
274
Moritz Aff., Ex. 19 § 8.1.
275
115 A.3d at 1179.
276
See Defs.’ Opening Br. 50 n.29.

57
are deemed waived.277 And failure to raise a legal issue in the above-the-line text of

a brief generally constitutes waiver of that issue.278 Accordingly, I deem the issue

of exculpation waived for purposes of this motion and decline to decide whether

each director is entitled to exculpation at this time.279 Defendants may raise the issue

in summary judgment motion practice should the undisputed facts support a finding

of exculpation.

III. CONCLUSION

For the foregoing reasons, Defendants’ motion to dismiss is DENIED.

IT IS SO ORDERED.

277
Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999); Thor Merritt Square, LLC v.
Bayview Malls LLC, 2010 WL 972776, at *5 (Del. Ch. Mar. 5, 2010) (“The failure to raise
a legal issue in an opening brief generally constitutes a waiver of the ability to raise that
issue in connection with a matter under submission to the court.”).
278
Murphy v. State, 632 A.2d 1150, 1152 (Del. 1993); Wimbledon Fund LP-Absolute
Return Fund Series v. SV Special Situations Fund LP., 2011 WL 6820362, at *3 n.15 (Del.
Ch. Dec. 22, 2011) (citing Murphy, 632 A.2d at 1152).
279
115 A.3d 1173.

58