The Delaware Supreme Court rejected an appeal of a lawsuit brought by Tesla investors. The plaintiffs originally alleged that Tesla failed to properly assess an appropriate value for SolarCity when it acquired the company in 2016.
The plaintiffs alleged that CEO Elon Musk pushed the company to overpay for SolarCity. Musk had owned a 22% stake in SolarCity and was the chairman of its board of directors. His cousins had founded the company.
During testimony at the original trial in April 2022, Musk denied that the acquisition amounted to a bailout of the nearly-insolvent SolarCity. He said acquiring the company had been part of the planned strategy for Tesla since about 2006.
SolarCity manufactured and installed rooftop solar panels and Tesla already had an early version of the Powerwall solar power battery. Tesla published a rationale that included a strategic vision for creating what it called an “integrated sustainable energy company” that produced power generation, transportation, and energy storage.
Tesla and SolarCity also unveiled Powerwall 2 and a prototype for the solar rooftop at about the same time as the acquisition, leading the plaintiffs’ attorney to question whether it had been used to prop the acquisition up. Delaware Court of Chancery judge Vice Chancellor Joseph Slights’ ruling acknowledged that Tesla still relies on third parties to manufacture parts of its solar products instead of doing it entirely in-house as planned, but the value of Tesla stock has gone up since then — including being included in the S&P 500 index for a bit.
The Delaware Supreme Court ruled that Slights did err in some portions of his analysis, but the overall premise that Tesla paid a fair price for SolarCity was otherwise sound.
During the appeal, attorneys for the plaintiffs argued that Slights relied too much on the market price for SolarCity, which was based on incomplete financial disclosures. They also argued that Slights acknowledged that Musk might have interfered with the deal, but failed to take that into account when making his ruling.
However, Slights rejected the theory that SolarCity was insolvent at the time of the acquisition. Elon Musk had argued during testimony that SolarCity would have been able to raise funds even without the deal.
Slights also rejected the plaintiffs’ claim that Tesla’s board of directors did not take appropriate steps to analyze the acquisition. Tesla had followed requirements outlined in Delaware law when it acquired SolarCity.
Other members of Tesla’s board of directors had settled similar lawsuits. Some legal experts such as Columbia Law School professor Eric Talley were critical of the Delaware Supreme Court’s decision. Talley had been a signatory for a Friends of the Court brief supporting the plaintiffs.
“In the end, perhaps more than anything, this outcome will add another hash mark on Elon Musk‘s belt for being able to avoid legal scrutiny,” Talley told Reuters in an email — an acknowledgment of Musk’s ability to win court cases or at least get a payout reduced when he decides to fight back in court.
The plaintiffs included union pension funds and asset managers. They had sought to force Musk to return the Tesla stock he had received as part of the deal. The value of the Tesla stock peaked at $13 billion. An attorney for the plaintiffs has not commented on the ruling.