The union pension funds and asset managers leading the case want Musk to repay to Tesla the cost of the $2.6 billion deal and to disgorge the profits on his SolarCity stock. If they win, it would be one of the largest judgments against an individual.
The two-week trial in the Court of Chancery in Wilmington, Delaware, will boil down to whether Musk, who owned about 22% of Tesla at the time of the deal, is that rare controlling stockholder who does not hold a majority stake.
“I think it’s going to be very hard for the court to ignore the reality that Elon Musk is Elon Musk and his relationship with Tesla,” said Ann Lipton, a professor at Tulane University Law School.
She said the case might present an unusual situation given Musk’s celebrity status, his personal ties to Tesla board members and those board members’ financial ties to SolarCity.
“Put it all together, and it might be enough to count as a controlling shareholder,” she said.
Few executives dominate their company’s image as much Musk, known for taunting regulators, battling naysayers and personally engaging with his 57 million Twitter followers.
“We are highly dependent on the services of Elon Musk, Technoking of Tesla and our chief executive officer,” said Tesla’s 2020 annual report.
Plaintiffs allege that Musk drove the negotiations and even pushed Tesla’s board to raise, not lower, the price for SolarCity.
A higher price benefited Musk, who was the largest shareholder of SolarCity, with a stake of about 22%, as well as four members of Tesla’s board, who directly or indirectly owned SolarCity stock, according to court records.
Plaintiffs also allege the deal benefited two of Musk’s cousins who founded SolarCity, saving a company that was rapidly running low on cash.