COVID-19 Delays Musk Chancery Trial To March 2021

By Jeff Montgomery
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Law360 (July 16, 2020, 8:12 PM EDT) -- Despite weeks of precautionary planning, the Delaware Chancery again delayed a 10-day trial on the allegedly conflicted roles of Elon Musk and Tesla's directors in the company's $2.6 billion acquisition of rooftop solar company SolarCity, saying COVID-19 safety concerns persist in Delaware.

Vice Chancellor Joseph R. Slights III notified attorneys that the trial's July 27 start date had been moved to March 29, 2021, just over a year beyond the original March 16, 2020, kickoff date.

Chancery Court Administrator Susan Judge said in an email on Thursday that courtroom safety limitations and a recent extension of the current phase of a multi-step reopening plan for Delaware's courtrooms "were key factors in the decision by counsel to postpone the trial."

The original start date was moved on March 13, one day after Delaware Gov. John Carney declared a Delaware coronavirus state of emergency.

The seven stockholder suits consolidated for the trial started in 2016, and they focus on allegations that Musk and Tesla's directors misled stockholders about the solar company acquisition. Attorneys for one of the early complaints claimed that Musk and Tesla's board breached their duty in pursuing SolarCity, "a company run by Elon Musk's cousins, intertwined with Tesla in a complex web of familial and business relationships, and in which he [Musk] holds approximately $500 million of stock."

Standing in the way of getting the claims to trial is a pandemic that prompted Chief Justice Collins J. Seitz Jr. to halt all in-person oral arguments on March 16. That was followed days later by an order closing most state court buildings to the public, hours before a statewide stay-at-home order closed non-essential businesses.

Although the chief justice has since approved the second phase of the four-step reopening plan, he recently extended current restrictions to Aug. 6.

Vice Chancellor Slights and attorneys in the case had been wrestling for weeks with the logistics of the trial and concerns about partial live, in-court proceedings, including for testimony by Musk. Some members on the legal teams face particular concerns created by travel from California, which recently reimposed safety restrictions, to Delaware, which recently extended them.

Plans at the time of the delay on Thursday called for relying on Zoom and YouTube in part for remote proceedings, with direct courtroom trial access limited to, at most, eight attorneys and six members of the public. The legal teams were cautioned that they would have to shuttle to and from the courthouse as needed, with none of the space traditionally available in the building for trial "war-rooms."

Vice Chancellor Slights rejected dismissal and moved the case toward trial in March 2018, after finding it reasonably conceivable that Musk was Tesla's controlling stockholder. In the motion, the vice chancellor noted that it had been claimed that Musk has publicly maintained that Tesla, SolarCity and rocket and spacecraft company SpaceX "form a 'pyramid' on top of which he sits."

The motion pointed to claims of Musk's "domination of the board during the process leading up to the [SolarCity] acquisition against the backdrop of his extraordinary influence" within Tesla, along with "conflicts that diminished the board's resistance to Musk's influence, and ... Musk's own acknowledgements of his outsized influence" as evidence reasonably supporting his status as controlling stockholder.

The investors are represented by Jay W. Eisenhofer, Christine M. Mackintosh, Kelly L. Tucker, Vivek Upadhya and Daniel L. Berger of Grant & Eisenhofer PA, Lee D. Rudy, Eric L. Zagar, Robin Winchester and Justin O. Reliford of Kessler Topaz Meltzer & Check LLP, and Randall J. Baron, David T. Wissbroecker and Maxwell R. Huffman of Robbins Geller Rudman & Dowd LLP.

Musk and the other director defendants are represented by David E. Ross, Garrett B. Moritz and Benjamin Z. Grossberg of Ross Aronstam & Moritz LLP, and Evan R. Chesler, Daniel Slifkin, Vanessa A. Lavely and Helam Gebremariam of Cravath Swaine & Moore LLP.

The case is In re: Tesla Motors Inc. Stockholder Litigation, case number 12711, in the Court of Chancery of the State of Delaware.

--Additional reporting by Matt Chiappardi, Rose Krebs, Vince Sullivan and RJ Vogt. Editing by Adam LoBelia.

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