Tesla CEO Elon Musk Wins $13 Billion Delaware Chancery Suit Over Tesla’s SolarCity Deal

On April 27, 2022, the Delaware Court of Chancery granted judgment in favor of Cravath client Elon Musk on all counts in a stockholder derivative suit regarding the 2016 acquisition of SolarCity Corp. (“SolarCity”) by Tesla, Inc. (“Tesla”). The Court of Chancery’s 131‑page opinion in favor of Mr. Musk followed a highly publicized 11‑day trial in July and August 2021, and post‑trial briefing and oral argument held in January 2022.

In the suit, Plaintiffs brought claims against current and former Tesla board members Elon Musk, Brad W. Buss, Robyn M. Denholm, Ira Ehrenpreis, Antonio J. Gracias, Stephen T. Jurvetson and Kimbal Musk for breach of fiduciary duty, unjust enrichment and waste. Before trial, all defendants except Mr. Musk entered into a settlement funded entirely by insurance proceeds (which largely were transferred to Tesla) and in which they denied all allegations of wrongdoing.

Seeking $13 billion in damages, Plaintiffs claimed that Tesla’s $2.1 billion, all‑stock acquisition of SolarCity was a thinly veiled bailout of an insolvent company, driven by Mr. Musk, Tesla’s alleged controlling stockholder, and accomplished through his domination of a conflicted board and efforts to mislead Tesla’s stockholders. Cravath and Mr. Musk argued, among other things, that the deal was the culmination of Tesla’s “Master Plan” to transform from an electric vehicle company to the world’s first vertically integrated clean energy and technology company, which Mr. Musk had publicly announced a decade prior to the deal.

The Court observed that the parties’ “claims and defenses present provocative questions” of Delaware law regarding controlling stockholders, fiduciary conflicts and the appropriate means by which to disable them, and the application of stockholder ratification as a defense. However, the Court determined it need not resolve those questions to reach the verdict because even under the highest degree of scrutiny recognized under Delaware law—the entire fairness standard—“the persuasive evidence reveals that the [SolarCity] Acquisition was entirely fair.” The Court concluded that “the Tesla Board meaningfully vetted the Acquisition” and “SolarCity was, at a minimum, worth what Tesla paid for it” and the deal price was “not ‘near the low end of a range of fairness,’ but ‘entirely’ fair in the truest sense of the word.” The Court further stated: “[T]here can be no doubt that the combination with SolarCity has allowed Tesla to become what it has for years told the market and its stockholders it strives to be—an agent of change that will ‘accelerate the world’s transition to sustainable energy’ by ‘help[ing] to expedite the move from a mine‑and‑burn hydrocarbon economy towards a solar electric economy.’” Thus, the Court held that Mr. Musk had not breached his fiduciary duty and Plaintiffs’ other ancillary claims failed.

The Cravath team included partners Evan R. Chesler, Daniel Slifkin, Vanessa A. Lavely and Helam Gebremariam, and associates Samuel A. Stuckey, Jackie L. Carleton, Eric J. Zepp, Kathryn M. Baldwin and Katherine A. DuBois.

The case is In re Tesla Motors, Inc. Stockholder Litigation, Consol. C.A. No. 12711‑VCS (Del. Ch.).