Page 1
Ninth Circuit Finds No Instructional Error in Shareholders’ Action Against Musk, Tesla
By a MetNews Staff Writer
|
|
|
ELON MUSK Tesla CEO
|
The Ninth U.S. Circuit Court of Appeals has rebuffed a challenge to a jury verdict, based on asserted instructional error, in favor of carmaker Tesla and its CEO, Elon Musk, in a class action by shareholders who claim they were duped by false tweets.
Coming first was an announcement by the entrepreneur that he was taking the company private and had “funding secured.” That representation by Musk—reputedly the wealthiest person in the world, with assets of $290 billion—was made on what was then known as Twitter (now “X”), on Aug. 7, 2018.
It was followed by a tweet later that day proclaiming, “investor support is confirmed.”
The price of Tesla stock soared in light of the tweets but the $60 billion buy-out did not occur. Suit was brought under 17 CFR § 240.10b-5, a rule supplementing the Securities Exchange Act of 1934, proscribing “manipulative and deceptive devices” in connection with sales of securities.
A jury found in favor of the defendants on Feb. 3, 2023. Appealing, the plaintiffs assert that District Court Judge Edward M. Chen of the Northern District of California was remiss in denying motions for a new trial and for judgment as a matter of law in light of instructional error creating juror confusion.
Appellant’s Contention
Lead plaintiff Glen Littleton argued on appeal:
“In its jury instructions, the District Court committed a fundamental error of law by requiring Plaintiff to prove that Defendant Elon Musk not only acted with deliberate recklessness when making false statements about a potential go-private transaction for Tesla, Inc. on August 7, 2018, but also that Plaintiff had to prove Musk acted knowingly. This double requirement is contrary to the well-settled law of this Circuit. Defendants’ attempt to defend the instruction are unavailing as the misstatement of the law (or, at a minimum its confusion) is facially apparent and its prejudice self-evident considering the centrality of the issue of scienter to securities fraud claims.”
Scienter, he maintained, “is a critical issue in a Rule 10b-5 securities class action.”
Ninth Circuit’s Opinion
Affirmance came Wednesday in a memorandum opinion signed by Judges Gabriel P. Sanchez and Jennifer Sung and Senior Judge Richard R. Clifton.
They said the controversy on appeal concerns three sentences. Chen told jurors that Musk’s state of mind might have bearing on whether he “knew the statements were untrue when he made them”; he said jurors should “decide whether [Musk] knew that the statements were untrue”; and instructed the jury to “decide whether Mr. Musk acted knowingly.”
The judges noted that Chen also directed the jury to assume that Musk acted with “at least reckless disregard.” They wrote:
“Littleton argues that the challenged sentences impermissibly heightened his burden at trial and confused the jury.
“We disagree. Because the district court found that Musk had, at a minimum, tweeted recklessly, the jury did not need to consider knowledge for the scienter element of Littleton’s Rule 10b-5 claim.”
They added:
“When considered as a whole, the instructions here informed the jury of the proper legal standard: scienter for a Rule 10b-5 claim could be proven by establishing a defendant’s recklessness or knowledge….In accordance with the district court’s prior finding, the instructions appropriately directed the jury to assume recklessness. Guided by these instructions, a jury would have found scienter established.”
If there was instructional error, the judges observed, it was harmless. They explained:
“A substantially greater portion of the trial was devoted to the element of materiality than the element of scienter. A jury considering the evidence—which included testimony about a “handshake deal” to take Tesla private and about a rise in Tesla’s stock price after Musk’s August 13th blogpost—could reasonably have found that the essential element of materiality was not established, defeating Littleton’s claim.”
The case is In re Tesla, Inc., Securities Litigation, 23-16010.
The 2018 posts on Twitter led to a settlement with the Securities and Exchange Commission under which Musk paid a $20 million fine and stepped down as chairman of Tesla, while remaining CEO.
Musk bought Twitter in 2022 for $44 billion, with the Securities and Exchange Commission now probing that transaction.
Copyright 2024, Metropolitan News Company