Judge Edward M. Chen of the California Northern District Court has filed an order denying lead plaintiff Glen Littleton’s motion to convert or alternatively, to strike; granting defendant Tesla’s request for judicial notice and denying Tesla’s motion to dismiss.
The class-action lawsuit arose from Elon Musk’s tweets and blog posts, where he “discussed funding for a transaction to take Tesla, Inc. …from a publicly-traded company to a private company.” Littleton is a shareholder, representing a class of shareholders, who bought or sold Tesla shares during the time period. He claims that Musk’s “social-media posts contained false statements, which led to a trading frenzy that artificially drove up the value of Tesla’s shares.” As a result of the tweet, where Musk stated: “Am considering taking Tesla private at $420. Funding secured,” the plaintiff and the Class have alleged financial loss, which led them to sue. It was later determined that Musk did not line up funding and he stopped his attempt to go private. The tweet also led to a lawsuit and a subsequent $40 million settlement between Tesla and the Securities Exchange Commission. Musk was also forced to step down as chairman for the company.
After the tweet, Tesla stock prices rose by 10 percent, but ten days later had fallen 11 percent below where it was before Musk’s tweet. Some have claimed that this was an attempt to get rid of short-sellers. A few days later by the end of August 2018, Musk announced that the company would remain public.
The court denied the plaintiff’s motion to convert, which would change the defendant’s motion to dismiss into a motion for summary judgment. The plaintiffs argued that Tesla relied on information outside of the complaint, however, the court stated that the plaintiffs have not identified any conflicting information in the referenced publications to that information in the complaint. These publications are also publicly available information. As a result, the Court denied this motion and the motion to strike.
Tesla made four points for their motion to dismiss: “(1) Mr. Musk’s statements were not misrepresentations; (2) Tesla did not make any statement because the posts came from Mr. Musk in his individual capacity as a potential bidder; (3) Plaintiff cannot plead loss causation because Tesla’s decline in stock price was from a corrective disclosure of facts; and (4) Mr. Musk’s tweets were not cleared by anyone at Tesla, so the Director Defendants cannot be liable.” The plaintiffs countered that the defendants knowingly and willingly disseminated false information. The court noted that the plaintiff adequately argued the stock price changes were related to Musk’s intentional false statements. The court also agrees with the plaintiff’s argument against Tesla’s s claims as provided by the evidence that Musk and Tesla misled investors and that the market relied on this false information.
