In re Tesla Inc. Securities Litigation
- Edward Chen
- 3:18-cv-04865
- U.S. District Court · Northern District of California
- 25
In re Tesla Securities Litigation: Judge Chen denied Glen Littleton’s requests for judgment or a new trial and ordered each side to pay its own costs.
Glen Littleton and the class he represents did not obtain judgment or a new trial. Tesla, Elon Musk, and Tesla’s directors retained the jury verdict in their favor, but were not awarded their costs; each side must pay its own costs.
What happened
In re Tesla Securities Litigation arose from two August 2018 tweets by Elon Musk about potentially taking Tesla private. Glen Littleton brought securities-fraud claims for a class of people and entities that bought or sold Tesla securities, and a related claim against Tesla’s directors. After a three-week trial, the jury found for the defendants on all claims.
Littleton asked the court to enter judgment in his favor or hold a new trial, arguing that the tweets were materially false and that investors relied on them. The defendants opposed that request and sought their litigation costs as the winning parties. The court said Littleton’s request could not support judgment on the whole claim because he had not asked for judgment on every required element, including whether the tweets caused investors’ losses.
Judge Chen denied Littleton’s motion for judgment as a matter of law and for a new trial. He concluded that substantial evidence supported the jury’s possible finding that the tweets were not important enough to reasonable investors and did not affect Tesla’s stock price in the required way, and that the jury instructions were not erroneous. Judge Chen also denied the defendants’ request for costs and ordered each party to pay its own costs.
The detailed version
- In re Tesla Inc. Securities Litigation · No. 3:18-cv-04865
- Edward Chen
- June 14, 2023
Background
Glen Littleton brought a securities class action against Tesla, Inc., Elon Musk, and Tesla’s Board of Directors. The claims arose from two August 7, 2018 tweets by Musk: “Am considering taking Tesla private at $420. Funding secured” and “Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.” Littleton alleged violations of Section 10(b) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5, as well as a Section 20(a) claim against the directors as alleged controlling persons of Tesla.
Before trial, the court granted Littleton partial summary judgment on falsity and reckless conduct concerning the statements “Funding secured” and “Investor support is confirmed.” The court did not decide materiality or reliance in Littleton’s favor. At trial, the jury was instructed to assume that the statements were untrue and that Musk acted with at least reckless disregard, but to decide whether the statements were material and whether Musk acted knowingly. After the trial, the jury returned a verdict for the defendants on all claims.
Post-Trial Motions
Littleton filed a renewed motion for judgment as a matter of law under Federal Rule of Civil Procedure 50(b), or alternatively for a new trial under Rule 59(a). His motion principally challenged materiality, classwide reliance, and individual reliance. He had not moved before the verdict on every essential element of the Section 10(b) claim, particularly loss causation, and had not moved on Tesla’s imputed liability or the directors’ Section 20(a) claim.
The court held that this limited the relief available under Rule 50(b). Although a party need not always address every element in a pre-verdict motion, Littleton’s failure to seek judgment on loss causation meant that the court could not enter judgment as a matter of law on the entire Section 10(b) claim. The court also stated that substantial trial evidence independently supported the defense verdict.
Materiality
Materiality asks whether a misrepresented fact would be important to a reasonable investor and whether the statement materially changed the overall information available to the market. The court concluded that reasonable jurors could find that the actual circumstances were not materially different from Musk’s statements when viewed in context.
The evidence included testimony that the Saudi Arabian Public Investment Fund had long been interested in helping take Tesla private; that, after a July 31, 2018 meeting, Tesla participants viewed Musk and the fund as having essentially reached a preliminary understanding; and that the fund and Musk had substantial resources available. The evidence also showed that investors had expressed support and that other steps remained before any transaction could be completed. The court therefore found substantial evidence supporting a finding that the tweets were not materially false to a reasonable investor, even though the “funding secured” statement was factually false because the funding was not technically secured.
The court also relied on evidence that Tesla’s stock price increased after Musk’s August 13 blog post, which provided additional information about the fund’s interest and the proposed transaction. That reaction could support an inference that the market’s response to the August 7 tweets was driven by the possibility of taking Tesla private at $420 per share, rather than by the statements about secured funding or confirmed investor support.
Reliance and Loss Causation
The court denied judgment as a matter of law on both the fraud-on-the-market presumption of reliance and individual reliance. Materiality is part of the fraud-on-the-market presumption, and the jury could also have found that the defendants rebutted the presumption by showing that the challenged statements did not affect Tesla’s stock price. Individual reliance likewise required a material misstatement, which the jury could reasonably find was absent.
The court further explained that Littleton had not established a basis for resolving loss causation in his favor. The jury could have found that his expert did not separate the price effect of the allegedly false statements from the effect of Musk’s true statement that he was considering taking Tesla private at $420 per share.
New-Trial Request
The court denied a new trial because the verdict was not against the clear weight of the evidence and did not result in a miscarriage of justice. The court rejected Littleton’s argument that the evidence conclusively established materiality or that only damages remained for a jury to decide.
The court also rejected Littleton’s challenges to three aspects of the jury instructions: the instruction telling jurors to assume falsity and reckless conduct while deciding other issues, the instruction concerning whether Musk acted knowingly, and the refusal to give Littleton’s proposed instruction concerning the Saudi Arabian Public Investment Fund’s absence from trial. The court concluded that the instructions correctly explained the issues remaining for the jury and that it had not abused its discretion in refusing the missing-witness instruction.
Costs
The defendants sought taxable costs under Rule 54(d), which generally creates a presumption favoring an award of costs to the prevailing party. The court found that the case’s substantial public importance and the closeness and difficulty of the issues outweighed that presumption. The court treated the possible chilling effect as neutral and found that Littleton had not shown limited financial resources or a financial hardship from paying costs. Even so, considering the case as a whole—including the court’s earlier findings concerning falsity and scienter—the court concluded that each party should bear its own costs.
Disposition
Judge Edward M. Chen denied Littleton’s motion for judgment as a matter of law and for a new trial. The court also denied the defendants’ motion for costs and ordered each party to bear its own costs. The order disposed of Docket Nos. 657, 685, and 689.
Read the full 25-page opinion on CourtListener, the free public archive maintained by the Free Law Project.