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 ) CA. No. 12711-VC&

MEMORANDUM OPINION

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Date Submitted: November 4, 2019
Date Decided: February 4, 2020

Jay W. Eisenhofer, Esquire, Christine M. Mackintosh, Esquire, Kelly L. Tucker,
Esquire and Vivek Upadhya, Esquire of Grant & Eisenhofer P.A., Wilmington,
Delaware; Daniel L. Berger, Esquire of Grant & Eisenhofer P.A., New York,
New York; Lee D. Rudy, Esquire, Eric L. Zagar, Esquire, Robin Winchester,
Esquire and Justin O. Reliford, Esquire of Kessler Topaz Meltzer & Check, LLP,
Radnor, Pennsylvania; and Randall J. Baron, Esquire, David T. Wissbroecker,
Esquire and Maxwell R. Huffman, Esquire of Robbins Geller Rudman & Dowd
LLP, San Diego, California, Attorneys for Co-Lead Plaintiffs.

David E. Ross, Esquire, Garrett B. Moritz, Esquire and Benjamin Z. Grossberg,
Esquire of Ross Aronstam & Moritz LLP, Wilmington, Delaware and Evan R.
Chesler, Esquire, Daniel Slifkin, Esquire, Vanessa A. Lavely, Esquire and Helam
Gebremariam, Esquire of Cravath, Swaine & Moore LLP, New York, New York,
Attorneys for Director Defendants Elon Musk, Brad W. Buss, Robyn M. Denholm,
Ira Ehrenpreis, Antonio J. Gracias, Stephen T. Jurvetson and Kimbal Musk.

SLIGHTS, Vice Chancellor
Tesla, Inc. (“Tesla”) acquired SolarCity Corporation (“SolarCity”) in 2016 by
merger (the “Merger”). Several stockholders initiated lawsuits in this Court
challenging the Merger, and those lawsuits have now been consolidated. The lead
plaintiffs allege direct and derivative claims against both Elon Musk (“Musk”), as
Tesla’s controlling stockholder, and Tesla’s Board of Directors (the “Board”) for
breaches of fiduciary duty in connection with the Merger.

In 2017, Defendants moved to dismiss under Court of Chancery
Rule 12(b)(6). In pressing for dismissal, Defendants argued, as a matter of law, that
the Court must review the breach of fiduciary duty claims against all Defendants
under the business judgment rule because Musk was not a conflicted controlling
stockholder at the time of the Merger and a majority of Tesla’s disinterested
stockholders approved the Merger in a fully informed, uncoerced vote.!

On March 28, 2018, this Court issued a Memorandum Opinion
(the “2018 Opinion”) denying Defendants’ Motion to Dismiss.” Specifically, the
Court held Plaintiffs had pled sufficient facts to allow a reasonable inference that

Musk was Tesla’s controlling stockholder, thereby triggering entire fairness review.”

' See Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015) (holding that business
judgment review is appropriate when a transaction not subject to entire fairness is approved
by disinterested stockholders in a fully informed, uncoerced vote).

* In re Tesla Motors, Inc. S’holder Litig., 2018 WL 1560293 (Del. Ch. Mar. 28, 2018).

3 Td. at *19.
The parties have completed discovery and now bring cross motions for
summary judgment.* Defendants urge the Court to enter complete summary
Judgment in their favor on three grounds: (1) after conducting extensive discovery,
Plaintiffs have failed to unearth any evidence that would undermine Defendants’
stockholder ratification defense since there is no evidence that Musk, as the alleged
conflicted controller, actually coerced Tesla’s stockholders into approving the
Merger; (2) the disinterested stockholder vote approving the Merger was both
uncoerced and fully informed, thereby triggering business judgment review; and
(3) the Merger did not constitute corporate waste.

For their part, Plaintiffs seek partial summary judgment on two grounds:
(1) that a majority of the Tesla Board was conflicted with regard to the Merger; and
(2) that the stockholder vote approving the Merger was not fully informed.

By Plaintiffs’ lights, if they win on these issues, Defendants will be required to prove

* The parties advised the Court last week that they had reached an agreement in principle
to settle all claims against all defendants, except the claims brought against Elon Musk.
D.I. 381. During a subsequent status conference, this Court requested the parties to address
whether this proposed settlement affects the cross-motions for summary judgment
addressed in this Memorandum Opinion. In response, the parties have advised the Court
that they agree the proposed settlement does not affect the cross-motions. D.I. 383;
D.I. 384. As Plaintiffs have asserted each of their claims against both the settling
defendants and Musk, and no claim is specific to any settling defendant, I agree.

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entire fairness at trial regardless of how the Court decides Plaintiffs’ claim that Musk
was Tesla’s controlling shareholder at the time of the Merger.°

The issues raised in the cross-motions implicate settled issues of Delaware
corporate law, except one. Defendants maintain that while our law might permit
Plaintiffs to defeat a motion to dismiss by invoking a presumption of “inherent
coercion” arising from Musk’s position as an alleged conflicted controller, having
now been afforded full discovery, Plaintiffs can no longer ask the Court to presume
that Musk’s status as a conflicted controller coerced any Tesla stockholder into
approving the Merger. According to Defendants, in the absence of evidence that
Musk actually coerced Tesla’s disinterested stockholders into approving the Merger,
their stockholder ratification defense is case dispositive because the stockholder vote
was fully informed, the standard of review, therefore, is the business judgment rule,
and there is absolutely no evidence of corporate waste. Defendants acknowledge
that no Delaware authority directly supports this position.6 Nevertheless, they
maintain that no Delaware authority would excuse a stockholder plaintiff from
proving that the controller actually exploited his influence to advance self-interest at

the expense of the minority stockholders as a basis to trigger entire fairness review.

> Neither party has argued that the Court can decide whether Musk was Tesla’s controlling
stockholder based on undisputed facts. If Defendants do not prevail on summary judgment,
it appears the parties agree that the controlling stockholder issue will be decided after trial.

6 Oral Argument on Cross-Mots. for Summ. J. (“OA”) at 35.

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I acknowledge that Defendants have raised a provocative argument regarding
the extent to which a pleadings stage determination that a stockholder conceivably
is a “controlling stockholder” owing fiduciary duties to the minority stockholders
should remain intact throughout the litigation absent proof of actual coercion.
The argument raises the practical question of what quantum of evidence is required
actually to prove (rather than plead) breach of fiduciary duty claims resting on the
theory that a conflicted controlling stockholder and beholden directors overwhelmed
the will of the minority to advance the controller’s self-interest. While I commend
Defendants for their ingenuity, I decline to accept their position that the notion of
“inherent coercion,” as relates to controlling stockholders, evaporates when the case
moves beyond the pleading stage. As explained below, I find no support for that
position in our Supreme Court’s existing precedent.

I likewise decline to accept Plaintiffs’ arguments that there are no genuine
issues of material fact regarding either Board-level conflicts or the particular
disclosure claims they have proffered for summary adjudication. In doing so, I apply
the well-vetted principle that the trial court should not grant summary judgment
when it has questions that are best answered after a careful examination of the
evidence at trial. With that said, I do believe Defendants have exposed certain

disclosure claims that are not viable, either as a matter of undisputed fact or as a
matter of law. In the interest of focusing presentations at trial, I grant summary
judgment to Defendants on those discreet claims.
I. BACKGROUND

The Court addressed the facts underlying this dispute extensively in the 2018
Opinion so I need not rehash them here.’ The dispute is relatively straightforward.
The Merger of Tesla and SolarCity closed in November 2016. Defendants maintain
the Merger was the product of a valid exercise of the Defendants’ business judgment
and furthers Tesla’s long-term goal of building a fully integrated, sustainable
alternative energy business. According to Defendants, a majority of Tesla’s
disinterested stockholders saw the wisdom of the Merger, as expressed in their vote
to approve it. Plaintiffs, on the other hand, allege the Merger is the product of
Musk’s (and others’) desire to save the failing SolarCity, a company in which he had
a significant interest, and further allege that Musk and the other Defendants
wrongfully caused Tesla assets to be diverted for the ill-advised bailout.

The parties return to the Court for case dispositive relief after developing a
full evidentiary record comprising numerous depositions and interrogatory

responses and voluminous documents.’ While the record is extensive, the questions

’ Tesla, 2018 WL 1560293, at *1-11.

§ I will cite to Plaintiffs’ exhibits as “PX,” Defendants’ exhibits as “DX__,” and
depositions as “(Name) Dep. #.”
called in the cross-motions for summary judgment are primarily legal questions that
depend very little on the factual record. At the risk of repetition, I summarize those
legal arguments, briefly, below.

As noted, Defendants’ Motion for Summary Judgment advances three
arguments. First, Defendants argue as a matter of law that Plaintiffs cannot sustain
a claim of breach of fiduciary duty against Musk as a controlling stockholder with
respect to the Merger because they have developed no evidence that Musk actually
coerced the stockholder vote.? Next, Defendants argue there is no genuine dispute
of material fact that the stockholder vote was fully informed and uncoerced.'®
According to Defendants, with an undisputed record of a fully informed, uncoerced
vote of disinterested stockholders in favor of the Merger, the breach of fiduciary
duty claims collapse under the weight of stockholder ratification, which ratchets
down the standard of review from entire fairness to the business judgment rule,

oll

thereby “insulating the directors from all claims except waste. Finally,

Defendants argue, “it has been understood that stockholders would be unlikely to

” Defs.’ Opening Br. in Supp. of Their Mot. for Summ. J. (“Defs.’? OB”) 29-42.

10 Td. at 50-65.

" Corwin, 125 A.3d at 311 n.19, 314 (Del. 2015) (quotations omitted). As Plaintiffs’ unjust
enrichment claims are duplicative of their fiduciary duty claims, those would be dismissed
as well. See Defs.” OB 65; Pls.’ Answering Br. in Opp’n to Director Defs.’ Mot. for
Summ. J. (“Pls.” AB”).
approve a transaction that is wasteful,” and Plaintiffs have not met the heavy burden
of showing the transaction “was so one sided that no business person of ordinary,
sound judgment could conclude that the corporation has received adequate
consideration.”!? Therefore, Defendants argue, Plaintiffs’ claim for waste cannot
succeed and judgment must be entered in Defendants’ favor on all counts.!°
Plaintiffs’ Motion for Partial Summary Judgment rests on two arguments.
First, Plaintiffs argue there is no genuine dispute of material fact that a majority of
Tesla’s directors faced disabling conflicts with respect to the Merger.'4 Next, they
argue there is no genuine dispute of material fact that the stockholder vote was
uninformed because Tesla withheld material information about: (1) SolarCity’s true
financial condition, including a liquidity crisis that threatened the company’s
solvency; (2) the assumptions underlying Evercore’s financial analysis of the
Merger; and (3) Musk’s involvement in negotiating and evaluating the Merger that

contradicts disclosures describing his recusal.!> According to Plaintiffs, a win for

!2 Singh v. Attenborough, 137 A.3d 151, 151-52 (Del. 2016); In re Walt Disney Co. Deriv.
Litig., 906 A.2d 27, 74 (Del. 2006) (quotations omitted).

'3 Defs.’ OB 68.
'4 Pls,’ Opening Br. in Supp. of Their Mot. for Partial Summ. J. (“Pls.? OB”) 1.

'S Td. at 55-67.
them on both of these issues would result in Defendants having to prove at trial the
Merger was entirely fair to Tesla.'®

I address Defendants’ motion first and find that their stockholder ratification
defense is not ripe for summary judgment. As for Plaintiffs’ motion, I find that it is
desirable to inquire more thoroughly into the facts before deciding whether a
majority of the Tesla Board was conflicted or whether the stockholder vote
approving the Merger was fully informed.

II. ANALYSIS

There is no “right” to summary judgment.!? Indeed, summary judgment may
only be granted when “there is no genuine issue as to any material fact and [] the
moving party is entitled to a judgment as a matter of law.”!® When considering a
motion for summary judgment, “the court must view the evidence in the light most

favorable to the non-moving party.”!? The Court will decline to enter summary

16 See In re Trados Inc. S’holder Litig., 73 A.3d 17, 44 (Del. Ch. 2013) (“Entire Fairness,
Delaware’s most onerous standard, applies when the board labors under actual conflicts of
interest.”); Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1162 (Del. 1995)
(“Where . . . the presumption of the business judgment rule has been rebutted, the board of
directors’ action is examined under the entire fairness standard.”); Corwin, 125 A.3d at 306
(holding that any stockholder vote must be “fully informed” to cleanse a tainted
transaction).

"" Telxon Corp. v. Meyerson, 802 A.2d 257, 262 (Del. 2002).
8 Ct. Ch. R. 56(c).
19 Merrill v. Crothall-American, Inc., 606 A.2d 96, 99 (Del. 1992).

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judgment “when the record indicates a material fact is in dispute or if it seems
desirable to inquire more thoroughly into the facts in order to clarify the application
of law to the circumstances.””° With these well-settled standards in mind, I turn to
the cross-motions.

A. The Practical Implications of Musk’s Status as a Controlling
Stockholder

The gravamen of Defendants’ summary judgment argument is that Plaintiffs’
failure to offer proof that Musk, as Tesla’s alleged controlling stockholder, actually
coerced disinterested stockholders into voting to approve the Merger is fatal to their
breach of fiduciary duty claims.?! Plaintiffs acknowledge they have not attempted
to develop that evidence in discovery.”” Nevertheless, they argue Defendants’
ratification argument fails because it ignores our law that Musk’s status as
controlling stockholder carries with it a presumption that he possesses “inherently

coercive” influence over the other stockholders.7?

0 Guy v. Judicial Nominating Comm’n, 659 A.2d 777, 780 (Del. Super. Ct. 1995). See also
Ebersole v. Lowengrub, 180 A.2d 467, 470 (Del. 1962); Phillips v. Schifino, 2009
WL 5174328, at *1 (Del. Ch. Dec. 18, 2009); Mentor Graphics Corp. v. Quickturn Design
Sys., Inc., 1998 WL 731660, at *3 (Del. Ch. Oct. 9, 1998).

21 Defs.’ OB 4-5.
22 OA at 64-65.
23 Td. at 48-49.
To resolve the parties’ dispute over the practical, post-pleadings implications
of the Court’s determination that Musk, conceivably, is Tesla’s controlling
stockholder, I examine: (1) the rationale for holding that a minority blockholder can,
in some instances, be regarded as a controlling stockholder; (2) the origins of, and
rationale for, the notion of “inherent coercion” in our controlling stockholder
jurisprudence; and (3) the reasons we subject transactions involving conflicted
controllers to our law’s most rigorous standard of review, entire fairness. This
analytic sequence leads me to conclude that if Plaintiffs prove that Musk was a
controlling stockholder at the time of the Merger, his inherently coercive influence
over the other Tesla decision-makers, including the disinterested stockholders,
justifies and, indeed, mandates entire fairness review of the Merger.

1. The Controlling Shareholder Inquiry

While every stockholder with majority voting control is a controller, not every
controller is a majority stockholder.*4 A minority blockholder can, as a matter of
law, be a controlling stockholder through “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.””> “The requisite

24 See Kahn vy. Lynch Commc’n Sys. Inc., 638 A.2d 1110, 1113-14 (Del. 1994)
(“[A] shareholder owes a fiduciary duty only if it owns a majority interest in or exercises
control over the business affairs of a corporation.”’) (internal quotations omitted).

5 Corwin, 125 A.3d at 307.

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degree of control can be shown to exist generally or ‘with regard to the particular
transaction that is being challenged.’”?6

While Musk’s 22.1% voting share is well below the majority threshold, “there
is no absolute percentage of voting power that is required in order for there to be a
finding that a controlling stockholder exists... .”*” “[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.””*

This court has held that one of these “other factors” is “managerial
supremacy.””? In In re Cysive, Inc., when deciding post-trial that the plaintiffs had

proven a minority blockholder was a controlling shareholder, the court gave great

weight to the minority blockholder’s role as a company’s “hands-on” CEO and

*6 Carsanaro v. Bloodhound Techs., Inc., 65 A.3d 618, 659 (Del. Ch. 2013) (quoting
Williamson v. Cox Commce’ns Inc., 2006 WL 1586375, at *4 (Del. Ch. June 5, 2006)).

*7 In re PNB Hldgs. Co. S’holders Litig., 2006 WL 2403999, at *9 (Del. Ch. Aug. 18,
2006).

*8 Superior Vision Servs., Inc. v. ReliaStar Life Ins. Co., 2006 WL 2521426, at *4 (Del. Ch.
Aug. 25, 2006) (emphasis supplied). See also In re Cysive, Inc. S’holders Litig., 836 A.2d
531, 553 (Del. Ch. 2003) (holding a minority blockholder is a controller when “as a
practical matter, [he] possesses a combination of stock voting power and managerial
authority that enables him to control the corporation, if he so wishes’’).

9 Cysive, 836 A.2d at 552.

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“inspirational force” who was “involved in all aspects of the company’s business.””°

Additional “other factors” might include a company’s public statements
acknowledging that the minority blockholder “[is] able to exercise significant
influence over our company” and that a loss of the blockholder “would have a
material adverse effect on our business and operations.’”*!

The cases where this Court has found that a minority blockholder was, in fact,
a controlling stockholder recognize that it is the controller’s “ability to dominate the
corporate decision-making process” that is important to the controlling stockholder
analysis.*? The fact that the minority blockholder’s “combination of stock voting
power and managerial authority . . . enables him to control the corporation, if he so
wishes” is what makes him a controlling stockholder.*? In other words, the “ability”

to control, rather than the actual exercise of control, is the determinative factor in

our controlling stockholder jurisprudence.*4

3° Td.

31 In re Zhongpin Inc. S’holders Litig., 2014 WL 6735457, at *7 (Del. Ch. Nov. 26, 2014)
(rev’d on other grounds, In re Cornerstone Therapeutics Inc. S’holder Litig., 115 A.3d
1173 (Del. 2015)). See also In re Loral Space and Commce’ns Inc., 2008 WL 4293781,
at *21 (Del. Ch. Sept. 19, 2008) (noting that the minority blockholder’s public statements
regarding its control supported a finding that the plaintiffs had proven at trial that a minority
blockholder was a controlling shareholder).

32 See Superior Vision Servs., Inc., 2006 WL 2521426, at *4.
33 Cysive, 836 A.2d at 553 (emphasis added).

34 Superior Vision Servs., Inc., 2006 WL 2521426, at *4.

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2. The Doctrine of Inherent Coercion

Why the focus on the ability to control rather than the exercise of control in
the “other factors” analysis? The answer, I think, is the recognition that a
controller’s influence is “inherently coercive.” The presumption of “inherent
coercion,” as such, was first articulated by then-Vice Chancellor Jacobs in Citron v.
E.I. Du Pont de Nemours & Co.*° Four years later, our supreme court followed suit
in its seminal Kahn v. Lynch, where the court quoted Citron at length:

The controlling stockholder relationship has the potential to influence,
however subtly, the vote of [ratifying] minority stockholders in a
manner that is not likely to occur in a transaction with a noncontrolling

party.

Even where no coercion is intended, shareholders voting on a parent
subsidiary merger might perceive that their disapproval could risk
retaliation of some kind by the controlling stockholder. For example,
the controlling stockholder might decide to stop dividend payments or
to effect a subsequent cash out merger at a less favorable price, for
which the remedy would be time consuming and costly litigation.
At the very least, the potential for that perception, and its possible
impact upon a shareholder vote, could never be fully eliminated .. .
Given that uncertainty, a court might well conclude that even minority
shareholders who have ratified a... merger need procedural protections
beyond those afforded by full disclosure of all material facts. One way
to provide such protections would be to adhere to the more stringent
entire fairness standard of judicial review.*°

35 584 A.2d 490, 502 (Del. Ch. 1990) (articulating that a controlling stockholder “has the
inherent potential to influence” minority stockholders).

36 Lynch, 638 A.2d at 1116-17 (emphasis supplied) (quoting Citron, 584 A.2d at 502).

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In Kahn v. Tremont Corp. (“Tremont IT’), our supreme court again embraced
Citron’s inherent coercion paradigm, writing, “[t]he risk is thus created that those
who pass upon the propriety of the [interested merger] transaction might perceive
that disapproval may result in retaliation by the controlling shareholder.”>’
In holding that the inherently coercive effect of the controlling shareholder could not
be fully mitigated, the Court again held entire fairness applies “to ‘interested
transactions’ in order to ensure that all parties to the transaction have fulfilled their
fiduciary duties to the corporation and all its shareholders.’ That conflicted
controller transactions are inherently coercive—‘a finding of empirical fact rooted

9939

in the Supreme Court’s perception of how the world works”’’—is a fixture of our

37 Kahn v. Tremont Corp., 694 A.2d 422, 428 (Del. 1997).
38 Td. at 428-29 (quoting Lynch, 638 A.3d at 1110).

39 In re JCC Hldg. Co., Inc., 843 A.2d 713, 723 n.25 (Del. Ch. 2003). In JCC, the court
well-explained the difficulties with applying a straight stockholder ratification defense to
transactions involving a conflicted controller (albeit in the squeeze-out context):

A fundamental premise of the Lynch doctrine is that controlling stockholders
are reasonably perceived as having such potent retributive powers as to
subject minority stockholders to inherent coercion in casting a vote on a
squeeze-out merger. This inherent coercion is thought to undermine the
fairness-guaranteeing effect of a majority-of-the-minority vote condition
because coerced fear or a hopeless acceptance of a dominant power’s will,
rather than rational self-interest, is deemed likely to be the animating force
behind the minority’s decision to approve the merger. As Chancellor
Chandler pointed out in Best Lock, even if all of the minority stockholders
approve a merger subject to the Lynch doctrine after receiving exemplary
disclosure, the unanimous vote would not have the traditional ratification
effect of extinguishing equitable challenges to the merger’s fairness.

14
law endorsed by our highest court and re-emphasized in numerous decisions of this
Court.”

This is not to say the theory of inherent coercion is without critics. Some of
our state’s leading jurists, including the judge who first articulated the doctrine, have
written that inherent coercion is not a substantial concern when the stockholder vote
approving a conflicted transaction is otherwise uncoerced and fully informed.*!
The authors of Function Over Form, each renowned scholars of Delaware corporate
law, observed, “[iJn our opinion, experience has shown that that concern (inherent
coercion) is too insubstantial to justify a review standard that requires judges to
second-guess a business transaction that rational investors have approved.”

Perhaps this view is correct. But even its proponents recognized in their scholarly

40 See, e.g., Garfield v. BlackRock Mortg. Ventures, LLC, 2019 WL 7168004, at *7
(Del. Ch. Dec. 20, 2019); Tornetta v. Musk, 2019 WL 4566943, at *4 (Del. Ch. Sept. 20,
2019); RCS Creditor Trust v. Schorsch, 2017 WL 5904716, at *10 n.158 (Del. Ch. Nov. 30,
2017); Sciabacucchi v. Liberty Broadband Corp., 2017 WL 2352152, at *2 (Del. Ch.
May 31, 2017); Larkin v. Shah, 2016 WL 4485447, at *9 (Del. Ch. Aug. 25, 2016);
Inre EZCORP Inc. Consulting Agmt. Deriv. Litig., 2016 WL 301245, at *20 (Del. Ch.
Jan. 25, 2016); In re Best Lock Corp. S’holder Litig., 845 A.2d at 1082; JCC Hidg.,
843 A.2d at 723 n.25; Cysive, 836 A.2d at 552; Inre Pure Res., Inc., S’holders Litig.,
808 A.2d 421, 436 (Del. Ch. 2002); Clements v. Rogers, 790 A.2d 1222, 1238 (Del. Ch.
2001).

‘I See William T. Allen, Jack B. Jacobs & Leo E. Strine Jr., Function Over Form:
A Reassessment of Standards of Review in Delaware Corporation Law, 56 BUS. L. 1287,
1308-09 (2001) (hereinafter “Function Over Form”). See also In re Cox Commce’ns, Inc.
S’holders Litig., 879 A.2d 604, 647 (Del. Ch. 2005) (“By now, experience has proven that
special committees and independent board majorities are willing to say no to controllers.”),

42 Function Over Form, at 1308.

15
advocacy for doctrinal change that inherent coercion is a presumption embedded in
our law.*? This Court follows Supreme Court precedent,“ and that precedent is
clear: transactions involving conflicted controllers must be reviewed for entire
fairness, even when the transaction is approved by stockholders, because, in such
instances, the stockholder vote is presumed to be coerced.*°

3. Controlling Stockholders and Entire Fairness

Subjecting conflicted controller transactions to heightened entire fairness
review to mitigate the threat of inherent coercion is also in line with the theoretical
underpinnings and development of our state’s entire fairness jurisprudence.
The entire fairness standard has its origins in the duty of loyalty.** In this tradition,
our supreme court has famously stated, “[t]here is no ‘safe harbor’ for [] divided

loyalties in Delaware.”*’ “The requirement of fairness is unflinching in its demand

3 Id.

“4 American Int’l Gp. Inc. v. Greenberg, 965 A.2d 763, 818 (Del. Ch. 2009)
(“[O]ur Supreme Court rightly expects . . . that our state’s trial courts will [apply Supreme
Court precedent].”).

45 Lynch, 638 A.2d at 1116-17; Tremont II, 694 A.2d at 428.

46 Guth v. Loft, 5 A.2d 503, 510 (Del. 1939) (“The rule that requires an undivided and
unselfish loyalty to the corporation demands that there shall be no conflict between duty
and self-interest.”).

“” Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del. 1983).

16
that where one stands on both sides of a transaction, he has the burden of establishing
its entire fairness, sufficient to pass the test of careful scrutiny by the courts.”

One of the fundamental purposes of the entire fairness standard of review is
to provide a framework for this Court to review transactions involving conflicted
controllers.” A conflicted controller has strong incentives to engage in transactions
that benefit him to the detriment of the corporation and its other stockholders.~°
And, as an “800-pound gorilla” in the board room and at the ballot box, the controller
has retributive capacities that lead our courts to question whether independent

directors or voting shareholders can freely exercise their judgment in approving

transactions sponsored by the controller.°! In these circumstances, shareholders are

48 Td.

” See Sterling v. Mayflower Hotel Corp., 93 A.2d 107, 109-10 (Del. 1952) (“Plaintiffs
invoke the settled rule of law that Hilton as majority stockholder of Mayflower and the
Hilton directors as its nominees occupy, in relation to the minority, a fiduciary position in
dealing with Mayflower’s property. Since they stand on both sides of the transaction, they
bear the burden of establishing its entire fairness, and it must pass the test of careful
scrutiny by the courts.”); Keenan v. Eshleman, 2 A.2d 904, 908 (Del. 1938)
(“The appellants were in absolute control of both corporations. As directors, they were
trustees for the stockholders, and the utmost good faith and fair dealing was exacted (sic)
of them, especially where their individual interests were concerned .... Dealing as they
did with another corporation of which they were sole directors and officers, they assumed
the burden of showing the entire fairness of the transaction.”).

°° See EZCORP, 2016 WL 301245, at *2—3, 21-23 (discussing the economic incentives a
controller has to engage in “non-pro rata transactions”).

5! Pure Res., 808 A.2d at 436.

17
entitled to an independent review where the controller is made to explain why the
transaction’s process and price were fair.~*

If the facts proven at trial demonstrate that Musk was Tesla’s controller at the
time of the Merger, Defendants will still avoid liability if the transaction was fair.
Entire fairness review of the Merger is not a prejudgment that fiduciary misconduct
occurred.** It is simply a recognition that because conflicted controller transactions
have such strong potential for self-dealing, absent replication of an arm’s-length
transaction process,“ an independent judge should thoroughly examine the
transaction’s substantive fairness.°> As there remain genuine disputes of material

fact as to whether Musk is Tesla’s controlling stockholder, Defendants’ Motion for

>? Weinberger, 457 A.2d at 711.

%3 See Emerald P’rs vy. Berlin, 787 A.2d 85, 93 (Del. 2001) (“A determination that a
transaction must be subjected to an entire fairness analysis is not an implication of
liability.”).

>4 The Tesla Board elected not to implement the dual protections endorsed by Kahn v. M&F
Worldwide Corp., 88 A.3d 635 (Del. 2014) as a means to earn business judgment review.
Thus, the only remaining question is which party will bear the burden of proof as the Court
reviews the Merger for entire fairness. To be more precise, whether Plaintiffs or
Defendants will bear the burden of showing the Merger was or was not entirely fair will
depend on the Court’s determination of whether the vote of unaffiliated stockholders was
informed. See Lynch, 638 A.2d at 1116 (holding that approval of a conflicted controller
transaction by an informed vote of the majority of the minority stockholders shifts the
burden of proving unfairness to the plaintiffs).

35 See In re MFW S’holders Litig., 67 A.3d 496, 502 (Del. Ch. 2013), aff'd, Kahn v.
M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (describing the two-step process a
conflicted controller transaction must follow to be entitled to business judgment
deference); Lynch, 638 A.2d at 1115.

18
Summary Judgment predicated upon the defense of stockholder ratification must be

denied.

B. There are Genuine Disputes of Material Fact as to Whether the
Stockholder Vote Was Fully Informed

Both Plaintiffs and Defendants have moved for summary judgment on certain
of the disclosure claims pled in the Complaint. Plaintiffs argue they are entitled to
summary judgment because there is no genuine issue of material fact that: (1) Tesla
did not adequately disclose that SolarCity was on the verge of insolvency at the time
of the Merger; (2) Evercore’s financial analysis of SolarCity on behalf of Tesla
omitted material information; and (3) Tesla’s disclosures of Musk’s role in
negotiating the transaction were materially misleading.”°

In response to Defendants’ Motion for Summary Judgment, where Defendants
argue the disclosures were adequate as a matter of law, Plaintiffs identify two
additional disclosure issues: (1) whether Tesla misrepresented the status of
SolarCity’s solar roof product; and (2) whether Tesla misrepresented the expected
financial impact of the Merger on Tesla.°’ According to Plaintiffs, while the
evidence regarding these disclosure deficiencies is not undisputed, the alleged

deficiencies are ripe for adjudication at trial and provide sufficient bases to deny

56 Pls. OB at 56-68.

57 Pls.’ AB at 57-63.

19
Defendants’ Motion for Summary Judgment on the validity of the stockholder vote
for ratification purposes.

Directors have a “fiduciary duty to disclose fully and fairly all material
information within the board’s control when [they] seek[] shareholder action.”°*
‘An omitted fact is material if there is a substantial likelihood that a reasonable
shareholder would consider it important in deciding how to vote.”°’ Put differently,
an omitted fact is material if it would have “significantly altered the total mix of
information made available.” A failure adequately to disclose all material facts to
voting shareholders will serve both as bases for director liability and to preclude a

stockholder vote from having a ratifying effect.°! In this latter regard, the burden of

demonstrating that a vote was fully informed “falls squarely on the board.”

8 Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992).

>»? Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus., Inc. v.
Northway, Inc., 426 U.S. 438, 449 (1976)).

69 Arnold v. Soc’y for Sav. Bancorp, Inc., 650 A.2d 1270, 1277 (Del. 1994) (quoting
TSC Indus., 426 U.S. at 449).

61 Stroud, 606 A.2d at 84; Corwin, 125 A.3d at 312.

6 Corwin, 125 A.3d at 312 n.27 (quoting Harbor Fin. P’rs v. Huizenga, 751 A.2d 879, 899
(Del. Ch. 1999)).

20
1. SolarCity’s Financial Woes

Plaintiffs argue that, at the time of the Merger, SolarCity was on the brink of
insolvency.’ This is not the picture painted by Tesla’s disclosures.“
The disclosures make general statements that SolarCity’s future “access [to] the
equity markets” was uncertain and that its liquidity position could be negatively
affected by its upcoming earnings announcement.” Defendants argue these
disclosures were accurate and sufficient; they vigorously dispute any contention that
SolarCity was facing insolvency.®°

There is a triable issue of fact as to SolarCity’s ability to function as a going
concern but for the Merger. Plaintiffs have provided evidence that: SolarCity was
at serious risk of breaching the liquidity covenants in its revolver in 2016; SolarCity
had limited options for outside financing; and SolarCity’s advisors questioned

whether the company had “sufficient cash to meet its obligations as they come

63 Pls.” OB 56-59.
64 See PX 137 (“Tesla Proxy”) at 62, 65-66, 73, 105.

65 Tesla Proxy at 61-62. This is a dispute over the truth of the disclosures, not the
materiality of omitted facts. If SolarCity was careening towards insolvency when the
Merger was approved, failing to disclose that fact undoubtedly would be material.

66 See OA at 130.

21
due.”®”’ Defendants characterize Plaintiffs’ evidence as outdated and misleading.®*
That may well prove to be true. For now, however, these are genuine disputes of
material fact and it is desirable to inquire more thoroughly into them before
adjudicating this claim.”

2. Evercore’s Discounted Cash Flow Valuation

Next, Plaintiffs argue they are entitled to summary judgment on their
disclosure claim because the Evercore financial analysis disclosed in Tesla’s proxy
was inadequate.” They zero in on whether Evercore adequately disclosed how it
performed its discounted cash flow (“DCF”) valuation of SolarCity in connection
with its advice to the Tesla Board regarding the Merger.”! Plaintiffs argue Evercore
did not disclose that it relied on an assumption that the Solar Investment Tax Credit
(“Solar ITC”), which was set to expire without Congressional action, would
continue in perpetuity when choosing a 3—5% perpetual growth rate to calculate

SolarCity’s terminal value.” The Solar ITC was a significant source of value for

67 PX 33 at 13; PX 19; PX 27 at 6; PX 112 at 3.

68 Defs.’ Answering Br. in Opp’n to Pls.’ Mot. for Summ. J. (“AB”) 37-47; DX 80 at 28;
Rive Dep. 64:21-66:1.

69 Ebersole, 180 A.2d at 468.
10 Pls.” OB 66.
71 Td.

? Pls.” AB 49-54.

22
SolarCity, and Plaintiffs have offered expert testimony that excluding it from the
perpetual growth rate in a DCF of SolarCity would result in a share value of $6.14,
far below the range of Evercore’s valuations disclosed in the proxy.”

When stockholders vote on a merger, they are “entitled to a fair summary of
the substantive work performed by the investment bankers upon whose advice the
recommendations of their board as to how to vote on a merger or tender rely.””*
These disclosures must include “the valuation methods used to arrive at the [fairness]
opinion as well as key inputs and the range of ultimate values generated by those
analyses ....”’> This summary need not be comprehensive; instead, the information
disclosed need only be “sufficient for the stockholders to usefully comprehend, not
recreate, the analysis.””°
The methods Evercore used to create its valuations were adequately disclosed.

The proxy disclosed that Evercore used a 3-5% perpetual growth rate for SolarCity

in calculating SolarCity’s terminal value.”’” While Plaintiffs argue this rate was too

2 Td. at 52; Pls.” OB 32.
™ Pure Res., 808 A.2d at 449.
® In re Netsmart Techs., Inc. S’holders Litig., 924 A.2d 171, 203-04 (Del. Ch. 2007).

76 Inre Merge Healthcare Inc. S’holders Litig., 2017 WL 395981, at *10 (Del. Ch. Jan. 30,
2017).

™ Tesla Proxy at 77.

23
high, disputing Evercore’s substantive analysis does not a disclosure claim make.”
If stockholders thought this rate was too high, then they were free to discount, or
reject altogether, Evercore’s valuation. Given that the growth rate used to calculate
SolarCity’s value was disclosed, failing to disclose Evercore’s tax assumptions in
calculating that rate is immaterial as a matter of law.”

3. Elon Musk’s Recusal

Tesla’s proxy statement represented that Musk was recused “from any vote
by the Tesla Board on matters relating to a potential acquisition of SolarCity,
including evaluation, negotiation and approval of the economic terms of any such
acquisition... .”®° Musk himself stated on a conference call announcing the Merger
that “I had no role in establishing this valuation for the offer that was made . . . I was
fully recused from the matter, so I know about as much as you do about how this

price was obtained.”®!

78 See In re 3Com S’holders Litig., 2009 WI 5173804, at *6 (Del. Ch. Dec. 18, 2009)
(“[Q]uibbles with a financial advisor’s work simply cannot be the basis of a disclosure
claim.”); In re JCC Hldg. Co., Inc., 843 A.2d at 721-22 (holding that a plaintiff cannot
state a disclosure claim by “quibbling with the substance of a banker’s opinion” or arguing
that the opinion reaches the “wrong” conclusion on value).

” This, of course, does not mean that Plaintiffs’ valuation evidence is not relevant to their
claim that the Merger is the product of an unfair process resulting in an unfair price.

89 Tesla Proxy at 59.

81 PX 158 at 6.

24
Discovery has uncovered evidence that raises a genuine issue regarding
whether these statements were accurate.** The parties quibble about what exactly
the proxy’s description of Musk’s recusal means but, at the very least, Musk’s
statement that he was “fully recused” appears to be contradicted by some evidence,
including the narrative in the proxy. Whether these misstatements are material,
however, cannot be resolved at this stage of the proceedings.

The materiality of Musk’s undisclosed involvement in the process appears to
rely on a predicate determination of his status as a controller. If Musk is a controller,
then his involvement in the process beyond what was disclosed in the proxy would
likely have been something a reasonable stockholder would have considered
important when deciding whether to vote for the Merger. If, however, Musk was
not a conflicted controller at the time of the Merger, then the discrepancy between
the disclosures and actual events is far less likely to be material. This determination

will be made after a trial.

82 See PX 53; McBean Dep. 97:10—16, 287:17—288:15.

83 See OA at 130 (Defendants’ counsel arguing the statement means Musk was only recused
from votes); OA at 97 (Plaintiffs’ counsel arguing the statement means Musk was recused
from votes and actual evaluation and negotiation of the merger). See Tesla Proxy at 558—
59, 64, 66-67, 106 (discussing Musk’s involvement in the deal process).

25
4. The Solar Roof

Plaintiffs argue that statements made by Defendants about the efficacy of
SolarCity’s “solar roof’ product were materially misleading.** They point to
statements by Musk touting the solar roof’s bona fides as a currently viable product,
and a comment made by Musk before the vote that the “first solar roof deployments
will start next summer.”®> Defendants respond that Plaintiffs are misinterpreting
appropriately qualified, forward-looking statements about a product in
development.®° Defendants did not argue in their briefing or at oral argument that
these alleged misstatements were immaterial.

It cannot be disputed that the solar roof was years away from being a
marketable product in late 2016.87 The question is whether Defendants’ statements
discussing the solar roof adequately informed the voting shareholders that this was
an unproven prototype not ready for prime time, or whether the suggestion was that

this promising product was ready to roll off the shelves. There seem to be unsettled

84 Pls.” AB 57. While they do not move for summary judgment on this disclosure claim,
they argue it precludes summary judgment for Defendants.

85 PX 146; PX 183.
86 Defs.’ Reply Br. in Supp. of their Mot. for Summ. J. (“Defs.’ RB”) 32.

87 See PX 110 (Noting that SolarCity “has zero visibility on how much it is going to cost
[to] make a solar roof, install it, R&D, where it will be manufactured, build up cost of
getting raw materials, etc., [we are] running blind here which may be a big risk?”). Even
now, the solar roof is not being produced in volume. See OA 104.

26
issues of material fact here; for instance: (1) were these disclosures understood as
communicating the reality that the solar roof was years away from commercial
production, or understood as claiming the solar roof would boost Tesla’s fortunes in
the nearer term?; and (2) perhaps more importantly, was the solar roof an important
part of Tesla’s value proposition for the SolarCity acquisition? Statements
describing the solar roof as Tesla’s “vision” for a “sustainable energy future” or that
the “solar roof [] will generate sustainable energy from a rooftop that looks better
and is more durable than a normal roof” could reasonably be interpreted either way.®*
Further inquiry is desirable.®?

5. The Effect of the Transaction on Tesla’s Financial Position

Last, Plaintiffs argue Defendants have not earned summary judgment on the
disclosure claim because they falsely disclosed the Merger: (1) would be accretive
to Tesla’s earnings per share; and (2) add $500 million in cash to Tesla’s balance
sheet.” Defendants respond that representations concerning the financial impact of

the transaction were appropriately qualified with disclaimers, and that the claim the

88 PX 157.
89 Ebersole, 180 A.2d at 470.
°0 Pls.” AB 61-62; PX 157.

27
Merger would add cash to Tesla’s balance sheet was backed by summaries of
SolarCity’s cash flow.”!

The statements Plaintiffs identify as misleading shareholders about the
dilutive effect of the Merger are appropriately qualified. Tesla’s proxy clearly notes
that while it expected the Merger to be accretive in 2016, “[t]he Merger may not be
accretive and may cause dilution to Tesla’s earnings per share . . . based on

. .”22 No reasonable

preliminary estimates which may materially change .
stockholder would read these appropriately qualified statements as anything
approaching a guarantee.

Likewise, the claim that Tesla expected the Merger to add $500 million to
Tesla’s balance sheet “over the next 3 years” is not misleading. The blog post
containing this statement points readers to the Tesla proxy, which includes

SolarCity’s projected net cash generation.” That these projections may not bear

fruit is a risk identified by the proxy and presumably understood by investors.”

*! Defs.’ RB 34-36; Tesla Proxy 102-05.
* Tesla Proxy at 47.

3 PX 157.

4 See id.; Tesla Proxy 102-05.

> Tesla Proxy 103-05.

28
The financial projections here were “accurately described and appropriately
qualified; that is sufficient.”

C. There are Genuine Disputes of Material Fact as to the Independence of
Tesla’s Board

Plaintiffs maintain there is no genuine issue of material fact that the majority
of Tesla’s Board faced disqualifying conflicts of interest, which, combined with the
allegedly misleading disclosures, mandates entire fairness review of the transaction
regardless of Musk’s status as a controller.*’” Defendants respond that trial is
necessary to determine director independence.”

“Classic examples of director self-interest in a business transaction involve
either a director appearing on both sides of a transaction or a director receiving a
personal benefit from a transaction not received by the shareholders generally.”
There is “‘no dilution’ of the duty of loyalty when a director ‘holds dual or multiple’

fiduciary obligations.”'®° “If the interests of the beneficiaries to whom the dual

fiduciary owes duties . . . diverge, the fiduciary faces an inherent conflict of

% PNB, 2006 WL 2403999, at *20.

7 Pls.” OB 42-54.

°8 See Defs.’ OB 9-29.

° Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 362 (Del. 1993).

100 Trados, 73 A.3d at 47 (quoting Weinberger, 457 A.2d at 710).

29
interest.”'°! Directors may also be found to lack independence when they are
beholden to an interested party.!°? This is a “fact-specific determination made in the
context of a particular case.”!°

Plaintiffs allege each member of Tesla’s Board was a dual fiduciary, stood on
both sides of the Merger or was otherwise conflicted through a personal or business
relationship with Musk.!* The members of Tesla’s Board voting on the Merger
were Kimbal Musk, Steve Jurvetson, Ira Ehrenpreis, Brad Buss and Robyn
Denholm; Elon Musk and Antonio Gracias were recused from the vote.'™
For purposes of Plaintiffs’ motion only, Defendants concede that Kimbal Musk was

conflicted.!°° Therefore, for Plaintiffs to earn partial summary judgment, they must

demonstrate there is no genuine dispute of material fact that Jurvetson, Ehrenpreis,

101 Td. at 47-48.
102 Sandys v. Pincus, 152 A.3d 124, 128 (Del. 2016).

103 Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1049
(Del. 2004).

104 Dis.” OB 44-55.
105 Tesla Proxy at 69.

106 Defs.’ AB 18 n.15.

30
Buss or Denholm labored under disabling conflicts.'°’ While Plaintiffs may succeed
at trial, they cannot make the required showing on summary judgment.'°8

1. Steve Jurvetson

Plaintiffs argue that Jurvetson is a dual fiduciary for two reasons. First, he
sits on the board of Space Exploration Technologies Company (“SpaceX’’),
a separate Musk-controlled entity.!°? SpaceX owned SolarCity bonds.'!° Therefore,
Plaintiffs say Jurvetson owed a duty to SpaceX shareholders to maximize the return
received from the SolarCity bonds.'!! Second, Plaintiffs note that Draper Fisher
Jurvetson (“DFJ”), the venture capital firm where Jurvetson served as managing

partner until 2017, owned millions of shares of SolarCity stock at the time of the

107 Plaintiffs argue that Musk’s and Gracias’s recusals should not be credited, meaning they
only have to show Kimbal Musk and one other voting director were conflicted. Pls.’ Reply
Br. in Supp. of Their Mot. for Partial Summ. J. (“Pls.’ RB”) 7. While this may be proven
at trial, Plaintiffs cannot show there is no genuine dispute of material fact regarding
whether Musk and Gracias’s recusals were illusory.

108 Plaintiffs base their motion, in part, on arguments that each director is too beholden to
Musk to exercise his or her independent business judgment. Pls.” OB 42-54. This fact-
intensive issue will be decided, in part, based on the predicate determination of Musk’s
status as a controller. The present discussion of whether the directors were conflicted will
focus on questions of self-dealing and dual fiduciary status.

109 Pls.” RB 8-9
'l0 Tesla Proxy at 108.

111 Pls.’ RB at 8-9.

31
Merger.''2 Given his fiduciary obligations to SpaceX shareholders and DFJ
investors to maximize the value of SolarCity, along with his fiduciary duty to Tesla
shareholders, I agree with Plaintiffs that Jurvetson is a dual fiduciary as a matter of
law.'' With that said, there are open material factual issues regarding whether the
interests of Tesla and SpaceX shareholders and DFJ investors were (or were not)
aligned in the Merger that will be explored at trial.

2. Ira Ehrenpreis

Ehrenpreis also faces a potential dual-fiduciary problem, although of a nature
less direct than Jurvetson’s. Ehrenpreis is a principal of DBL Partners, a venture
capital firm that has made significant investments in SpaceX.''* As noted, SpaceX
held millions of dollars of SolarCity bonds at the time of the Merger. Again, whether
the interests of Tesla and SpaceX stockholders were (or were not) aligned will be

decided after trial.

112 DX 149 at 8-9.
3 Trados, 73 A.3d at 46-47.

'l4 Bhrenpreis Dep. 17:3-18:7.

32
3. Brad Buss

Plaintiffs’ allegations that Buss lacks independence stem from his ownership
of 37,277 shares of SolarCity stock at the time of the Merger.'!? This ownership,
Plaintiffs argue, is an example of “disparate consideration” that poses a “disabling
conflict of interest.”!'® Defendants counter that Plaintiffs need to show this
investment was material to Buss, and that his far larger investment in Tesla aligned
his interests with Tesla’s stockholders.!!’

When considering whether a director’s financial holdings improperly
influenced his fiduciary conduct, this Court considers whether those holdings were
“of a sufficiently material importance, in the context of the director’s economic
circumstances, as to have made it improbable that the director could perform her
fiduciary duties to [] shareholders without being influenced by her overriding
personal interest... .”!'§ Defendants have pointed to Buss’s substantial personal

wealth and far larger stake in Tesla stock as evidence that his SolarCity stock

‘IS Tesla Proxy at 107; PX 151 at 8.

N6 Pls.” RB 10 (quoting Jn re Delphi Fin. Gp. S’holder Litig., 2012 WL 729232, at *3
(Del. Ch. Mar. 6, 2012).

7 Defs.” AB 25-27.

8 Ty re Gen. Motors Class H S’holders Litig., 734 A.2d 611, 617 (Del. Ch. 1999). See also
Cede, 634 A.2d at 364 (“A trial court must have flexibility in determining whether an
officer’s or director’s interest in a challenged board-approved transaction is sufficiently
material to find the director to have breached his duty of loyalty ....”).

33
ownership is not materially important to him.'!? This is a genuine dispute of material
fact that precludes summary judgment for Plaintiffs.

4. Robin Denholm

Plaintiffs’ allegations that Denholm lacked independence are threadbare.
Denholm is indisputably not a dual fiduciary in the current transaction and she
indisputably had no financial interest in SolarCity.'’7° Plaintiffs point to her
compensation as a Tesla director and the fact that she is “friends with her fellow
directors” as evidence she lacks independence.!*! Merely showing that Denholm
was well compensated for her service as a Tesla director or that she had social
relationships with other directors, without more, does not extinguish issues of
122

material fact as to whether she is independent

D. There Is a Genuine Dispute of Material Fact as to Whether the Merger
Constitutes Waste

“To recover on a claim of corporate waste, the plaintiffs must shoulder the
burden of proving that the exchange was ‘so one sided that no business person of

ordinary, sound judgment could conclude that the corporation has received adequate

119 Defs.” AB 25-27.
220 Defs.’ AB 18; Pls.” RB 11; PX 107.
121 is? OB 54.

122 In re Ltd., Inc., 2002 WL 537692, at *4—5 (Del. Ch. Mar. 27, 2002).

34
consideration.’”!?? These are frequently “unconscionable cases where directors
irrationally squander or give away corporate assets.”'** Where fully informed
stockholders approve a transaction, waste will be extremely difficult to prove as
“it has been understood that stockholders would be unlikely to approve a transaction
that is wasteful.”!”°

While a claim for waste is difficult to prove, it is not impossible. Plaintiffs
claim they will show at trial that SolarCity was worth almost nothing when the
Merger was consummated.'*° If SolarCity was, in fact, insolvent when Tesla
acquired it, that proof may well sustain a waste claim.!?’

Il. CONCLUSION

For the foregoing reasons, Plaintiffs’ Partial Motion for Summary Judgment

is DENIED. Defendants’ Motion for Summary Judgment is GRANTED in part

with respect to the discreet claims challenging the disclosures regarding Evercore’s

123 Disney, 906 A.2d at 74 (quoting Brehm v. Eisner, 746 A.2d 244, 263 (Del. 2000)).
124 Brehm, 746 A.2d at 263.

125 Singh, 137 A.3d at 151-52.

26 Pls.” AB 63-66.

27 The stockholder vote does not change this. If SolarCity was insolvent, something
clearly not in Tesla’s disclosures, the vote was uninformed, negating the effect of the
shareholder vote. Cf Huizenga, 751 A.2d at 901 (noting how a “fully informed” vote of
stockholders approving a transaction warrants dismissing waste claims).

35
valuation analysis and the predicted financial impact of the Merger on Tesla, and
DENIED in part as to all other claims.

IT ISSO ORDERED.

36