Elon Musk Beats Shareholder Suit Over Tesla’s SolarCity Deal

April 28, 2022 Executive Litigation

Yesterday (April 27, 2022), Tesla CEO Elon Musk dodged a $13 million shareholder suit filed in Delaware Chancery Court.  The Court ruled that Musk did not breach his fiduciary duties to Tesla shareholders in 2016 by purchasing rooftop solar company, SolarCity, for $2.6B.

Shareholders argued that Musk, at the time the largest shareholder and Board Chair of SolarCity and cousin of the two founders, purchased the financially struggling solar company as a bailout to save his and his family’s personal investments in it. Shareholders argued that Musk exerted an inappropriate level of board control in order to force Tesla to approve the purchase. Shareholders also asserted a claim of unjust enrichment because Musk acquired approximately 2.6 million Tesla shares through its acquisition of SolarCity.

In dismissing the shareholder claims, Vice Chancellor Joseph R. Sights III concluded the deal as “entirely fair in the truest sense of the word.”  The Vice Chancellor ruled that SolarCity was a solvent business, despite its financial struggles at the time, and had been purchased by Tesla for a fair price. Although the Vice Chancellor conceded that Musk’s involvement in the purchase of SolarCity was “more involved in the process than a conflicted fiduciary should be,” he ruled that the Tesla board exerted sufficient control over the vetting of the purchase and Musk did not force the board to accept it.

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