In re Tesla Inc. Securities Litigation

Background

Glen Littleton was the lead plaintiff and class representative for a certified class of people and entities that purchased or sold Tesla securities during the stated class period. The plaintiff alleged that Elon Musk and Tesla violated federal securities laws through August 7, 2018 tweets about potentially taking Tesla private at $420 per share and saying that funding was secured. The plaintiff also alleged that Tesla’s directors were liable as controlling persons.

The court stated that its April 1, 2022 summary-judgment order had found certain statements false and that Musk acted recklessly as a matter of law. The court emphasized that materiality, the level of scienter—the required state of mind—and other issues remained for trial. This final pretrial conference order addressed trial scheduling, witnesses, exhibits, and motions about the admissibility of evidence; it did not decide ultimate liability.

August 13 Blog-Post Theory

The plaintiff sought to argue that part of Musk’s August 13 blog post was misleading because it omitted information about the deterioration of communications with the Saudi Public Investment Fund after August 7. The court held that the plaintiff had not timely pleaded or adequately disclosed this specific theory. It therefore precluded the plaintiff from arguing that the identified blog-post statements were independently actionable under that omissions theory and did not reach defendants’ arguments on the theory’s merits.

Plaintiff’s Motion in Limine No. 2

The court granted in part and denied in part the plaintiff’s motion to exclude undisclosed testimony, opinions, or evidence from defense experts Daniel Fischel and Amit Seru.

The court denied the motion as to Fischel’s opinions about materiality because, although his report did not use the words “material” or “materiality,” it implicitly argued that the “funding secured” statement did not affect the market. Fischel could testify about materiality, but only within the opinions and supporting grounds disclosed in his report.

The court granted the motion as to Fischel’s opinions regarding Tesla stock options. Fischel had not discussed stock options in his reports, and defendants did not show that the failure to disclose those opinions was substantially justified or harmless.

Plaintiff’s Motion in Limine No. 3

The court denied the plaintiff’s motion to bar evidence from Musk that contradicted the prior summary-judgment order. Defendants could not argue that the Musk Tweets were true, because the court had already decided their factual falsity and Musk’s recklessness as a matter of law.

The court nevertheless held that Musk’s testimony about the tweets and the events surrounding them remained relevant to materiality, whether he acted knowingly or recklessly, and the allocation of damages among defendants. The court stated that the jury would be instructed that falsity and recklessness had already been resolved.

Plaintiff’s Motion in Limine No. 4

The court denied the plaintiff’s motion to exclude evidence concerning falsity or scienter. The court held that testimony from Sam Teller, representatives of the Saudi Public Investment Fund, and other witnesses about the funding discussions and Musk’s understanding could help the jury evaluate materiality and whether Musk acted knowingly or merely recklessly. The ruling did not prevent the plaintiff from raising other objections, such as hearsay or cumulative evidence, at trial.

Plaintiff’s Motion in Limine No. 5

The court granted in part and denied in part the plaintiff’s motion concerning events after the class period. The court denied the request to bar all evidence after the 90-day period used under the Private Securities Litigation Reform Act to cap damages. The court held that the 90-day period was a damages limitation and not an automatic rule determining what evidence was relevant.

The court granted the motion as to the specific evidence identified by the plaintiff, including Musk’s later publicity stunts, charitable acts, lack of consumption, Tesla’s charitable or moral mission, Tesla’s economic and financial performance since 2018, and Littleton’s post-class-period Tesla investments and trading. The court found that this evidence was irrelevant or inadmissible for the issues presented.

Defendants’ Motion in Limine No. 4

The court granted defendants’ motion to exclude evidence of Tesla’s and Musk’s Securities and Exchange Commission complaints and settlement agreements. The court found that the materials had minimal probative value and created a substantial risk of unfair prejudice, confusion, and delay. It also held that the complaints were hearsay because they contained allegations rather than factual findings. Although the settlement agreements were not barred by the settlement-evidence rule when offered to show bias rather than liability, the court still excluded the materials under the rule against unfairly prejudicial evidence.

Defendants’ Motion in Limine No. 5 and Expert Testimony

The court denied defendants’ motion to exclude the opinions of Steven Heston and opinions by Michael Hartzmark that relied on Heston’s work.

Under the expert-evidence rule and the Supreme Court’s Daubert standard, the court acts as a gatekeeper to assess whether an expert’s methods are reliable enough for a jury to consider. The court found that Heston’s use of the Black-Scholes-Merton model to calculate hypothetical, or “but-for,” Tesla option prices was sufficiently reliable. The model was supported by published work and widely accepted in finance.

The court raised serious questions about Heston’s use of theoretical prices instead of actual market data to calculate the actual option-price curve. But the plaintiff agreed to rerun the calculations using actual price data for each individual option. Because of that decision, the court did not decide whether the original use of theoretical data failed the Daubert standard and treated that part of the dispute as moot.

The court also denied the challenge to Hartzmark’s report based on alleged failure to account for confounding factors. The court found that Hartzmark had considered market-wide, industry-wide, and company-specific information sufficiently for the opinions to be admitted. Defendants remained free to challenge the weight of those opinions before the jury.

Trial Procedures and Overall Effect

The court scheduled jury selection and trial to begin January 17, 2023, with approximately ten trial days and eighteen hours for each side to present its case. The order also required advance notice of witnesses and exhibits and set deadlines for objections.

Judge Edward M. Chen’s order controlled the evidence and procedures for the upcoming trial. It did not enter judgment on the securities claims, determine damages, or resolve the parties’ ultimate dispute over liability.