Attorneys for a group of Tesla shareholders are asking the Delaware Supreme Court to overturn a judge’s decision in favor of CEO Elon Musk in a lawsuit...
DOVER, Del. — Attorneys for a group of Tesla shareholders are asking the Delaware Supreme Court to overturn a judge’s decision in favor of CEO Elon Musk in a lawsuit challenging the electric car maker’s $2.4 billion acquisition of a solar panel company founded by two of his cousins.
“Elon was more involved in the process than a conflicted fiduciary should be. And conflicts among other Tesla Board members were not completely neutralized,” former Vice Chancellor Joseph Slights wrote last year. “With that said, the Tesla board meaningfully vetted the acquisition, and Elon did not stand in its way.
Typically, under Delaware’s “business judgment” rule, courts give deference to a corporate board’s decision-making unless there is evidence that directors had conflicts or acted in bad faith. If a plaintiff can overcome the business judgment rule’s presumption because the deal involved a controlling shareholder or because directors might have been conflicted, the board’s action is subject to an “entire fairness” analysis.
“The trial court misapplied entire fairness because it essentially wrote fair dealing out of the standard, holding that the linchpin of entire fairness is fair price,” Hanrahan added. “…Because the Court of Chancery made fair price the foundation of its opinion, if its fair price finding was wrong, the whole house of cards comes down.”
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