Delaware judge dismisses direct claims against Elon Musk in SolarCity lawsuit

The ruling has limited the ability of shareholders to hold Musk directly responsible for the acquisition of SolarCity. Image: Heisenberg Media via Flickr

A Delaware judge has dismissed direct claims against Tesla CEO Elon Musk over his part in the US$2.6 billion acquisition of residential solar installer SolarCity.

On Friday (22 October), Judge Joseph Slights III decertified the class action lawsuit and limited the shareholder action against Musk, although he still allowed them to sue the CEO in his role of Tesla director.

Tesla shareholders are seeking to get back the US$2.6 billion the company paid for the struggling module maker back in 2016, arguing that Musk pressured the Tesla board to buy SolarCity that was founded by Musk’s cousins and in which he owned a 22% stake.

The deal, first announced in June of that year, was subject to months of scrutiny and investigations but eventually won shareholder approval in November 2016. Musk’s cousin, Lyndon Rive, left Tesla less than a year later.

At the time, Musk also owned a 22% stake in Tesla and said: “Since it was a stock-for-stock transaction and I owned almost exactly the same percentage of both [companies] there was no financial gain.”

Slights cited the Delaware Supreme Court’s September decision regarding an unrelated case that found allegation of overspend or the improper dilution of existing shareholders can only be brought derivatively, meaning Musk is not personally liable.

“This Action is no longer certified as a class 3 action pursuant to Court of Chancery Rule 23 and shall continue exclusively as a derivative action under Court of Chancery Rule 23.1,” read the order.

In ruling so, Slights has narrowed the scope to legal action in the case and has kept other Tesla directors tied to the outcome.

In August 2020, Slights approved a US$60 million settlement for Tesla shareholders who challenged the company’s acquisition of SolarCity but the settlement only applied to the board of directors, with Musk’s involvement deferred to a separate case.