David M. Wagner, v. Tesla, Inc., a Delaware corporation Document 1: Complaint

Delaware Court of Chancery
Case No. 2021-1090-JTL
Filed December 16, 2021

Verified Complaint Pursuant to DEL. C. § 220 to Compel Inspection of Books and Records

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Page 1 EFiled: Dec 16 2021 12:39PM EST
Transaction ID Case No. 2021-1090-
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
DAVID M. WAGNER,
Plaintiff,
v.
TESLA, INC.,
a Delaware corporation,
Defendant.
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VERIFIED COMPLAINT PURSUANT TO
8 DEL. C. § 220 TO COMPEL INSPECTION OF BOOKS AND RECORDS
David M. Wagner (“Wagner” or “Plaintiff”), a stockholder of Tesla, Inc.
(“Tesla” or the “Company”), by and through his undersigned counsel, files this
action against Tesla seeking expedited relief under Section 220 of the Delaware
General Corporation Law, 8 Del. C. § 220 (“Section 220”). Plaintiff alleges, upon
personal knowledge as to himself and his own actions, and upon information and
belief as to all other matters, as follows:
I.
NATURE AND BACKGROUND OF THE ACTION
1.
Elon Musk (“Musk”), Tesla’s founder and chief executive officer, has
made multiple social media posts which have adversely affected the Company’s
stock price and may have violated certain agreements with the U.S. Securities and
Exchange Commission (the “SEC”) and applicable law. If the allegations discussed
Page 2 below are true, in part or in whole, Plaintiff is concerned that Tesla’s Board of
Directors (the “Board”) is failing to exercise proper oversight and management in
breach of their fiduciary duties.
2.
Indeed, Plaintiff has reasonable grounds to believe that members of the
Company’s Board breached their fiduciary duties to the Company and its
stockholders in connection with the events, circumstances, and transactions
described herein.
3.
To investigate, Plaintiff availed himself of the statutory rights provided
to him as a stockholder of a Delaware incorporated company.
4.
On December 2, 2021, Plaintiff served the Board with a Section
demand (the “Demand”) seeking to inspect certain books and records of the
Company and its former entity, a copy of which is attached hereto as Exhibit A.
5.
Plaintiff’s Demand was and is necessary to investigate potential
wrongdoing and safeguard the interests of both the Company and its stockholders.
6.
Rather than comply with its statutory obligations, Tesla refused to abide
by Section 220 and respond appropriately to the Demand. Accordingly, Plaintiff has
been left with no choice but to file the instant action and seek this Court’s
intervention.
Page 3 II.
JURISDICTION
7.
This Court has exclusive jurisdiction to hear and determine this action
pursuant to 8 Del. C. § 220.
8.
III.
Venue is also appropriate pursuant to 8 Del. C. § 220.
PARTIES
9.
Plaintiff is, and has been at all relevant times, a stockholder of Tesla.
10.
Defendant Tesla is a Delaware corporation with its principal executive
offices located at 3500 Deer Creek Road Palo Alto, California 94304. Tesla’s
common stock trades on the NASDAQ Stock Exchange under the ticker symbol
“TSLA.” Its registered agent for service of process is The Corporation Trust
Company, 1209 Orange Street Wilmington, Delaware 19801. Tesla designs,
manufactures, and sells high-performance electric vehicles and electric vehicle
powertrain components.
IV.
FACTUAL BACKGROUND
A.
Musk’s Past Social Media Posts and SEC Scrutiny
11.
In November 2013, Tesla formally notified investors that it would use
Musk’s Twitter account as a formal means of communication to convey “additional
information” about the Company to investors.
https://www.latimes.com/business/story/2020-04-15/tesla-musk-fundingsecured-trial.
Page 4 12.
Musk has a long history of using his Twitter account and tweeting
statements that have a significant effect on the Company’s stockholders and the
Company’s stock price. Musk’s tweets have also been subject to scrutiny and
enforcement actions by the SEC.
13.
As far back as August 7, 2018, Musk falsely tweeted “[a]m considering
taking Tesla private at $420. Funding secured.”14.
In truth, Musk did not have funding in place. Nonetheless, following
Musk’s false tweet, Tesla shares swiftly increased from roughly $340 per share to
almost $390 per share before settling at roughly $380 per share. It should come as
no surprise that investors took note of Musk’s social media posts.
15.
As a result of the false August 2018 tweet by Musk, the SEC filed a
complaint against Musk on September 27, 2018, alleging that Musk violated the
federal securities laws. See SEC v. Musk, No. 1:18-cv-8865-AJN-GWG (S.D.N.Y.).
16.
On September 29, 2018, the SEC and Musk reached a settlement
agreement that was submitted for court approval. On the same day, the SEC filed a
settled complaint against Tesla alleging a violation of the federal securities laws.
17.
On October 16, 2018, the Court entered final judgments against both
Musk and Tesla (the “Final Judgments”). The Final Judgment as to Musk ordered
him to comply with procedures implemented by Tesla that would require him to seek

https://twitter.com/elonmusk/status/1026872652290379776.
Page 5 pre-approval of any written communications that contained or reasonably could
contain information material to the Company or its stockholders.
18.
Similarly, the Final Judgment as to Tesla ordered the Company to
implement mandatory procedures and controls to pre-approve any written
communications by Musk that contained, or reasonably could contain, information
material to the Company or its stockholders.
19.
In addition, Musk was removed as Tesla’s chairman, Musk was forced
to pay a $20 million fine, Tesla was forced to pay a $20 million fine and the
Company agreed to appoint two new independent directors to the Company’s
Board.20.
However, it is unclear whether the Company lived up to its obligations
under the 2018 settlement with the SEC to monitor Musk’s social media posts.
Indeed, in an interview with 60 Minutes that aired in December 2018, Musk stated
that no one reviewed his tweets before he published them.
https://www.sec.gov/divisions/enforce/claims/docs/musk-final-judgment10162018.pdf.
https://www.sec.gov/divisions/enforce/claims/docs/tesla-final-judgment10162018.pdf.
https://www.theverge.com/2018/12/9/18133591/elon-musk-tesla-ceo-60minutes-interview-twitter.
Page 6 21.
Moreover, the SEC announced that on February 25, 2019, it filed a
motion for an order to show cause why Musk should not be held in contempt for
violating the terms of the Final Judgments which required, among other things, Musk
to obtain pre-approval of any written communications that contain, or reasonably
could contain, information material to Tesla or its stockholders.6 In order to resolve
these allegations, the parties entered into a consent motion (the “Consent Motion”)
in April 2019 to amend the Final Judgments.
22.
Among other things, the Consent Motion provides more specificity
regarding certain categories of social media posts by Musk that must be screened
and approved in advance, including tweets about “events regarding the Company’s
securities (including Musk’s acquisition or disposition of the Company’s
securities).”23.
To date, it is unclear who at Tesla, if anyone, is currently reviewing
Musk’s tweets. The last-named general counsel at Tesla was Jonathan Chang, who
left the Company in December 2019. Acting General Counsel Al Prescott departed
Tesla in April 2021.
24.
Matthew Yun Huh was listed as Tesla’s designated disclosure counsel
in May 2020 correspondence when the SEC inquired about a Musk tweet dated May

https://www.sec.gov/litigation/litreleases/2019/lr24413.htm.

https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/rN3rAsRzva0k/v0.
Page 7 1, 2020 that said “Tesla stock price is too high imo.”8 That same day Tesla’s stock
price closed 10% lower than the day before following Musk’s Twitter post. The SEC
asked Tesla whether that tweet had been reviewed or pre-approved; Tesla responded
that it had not, and that the Company considered it to be an amorphous personal
opinion. Matthew Yun Huh no longer works at Tesla, according to Bloomberg.B.
Musk’s November 2021 Tweets
25.
Most recently, on November 6, 2021, Musk posted a poll to his twitter
account and wrote: “Much is made lately of unrealized gains being a means of tax
avoidance, so I propose selling 10% of my Tesla stock. Do you support this?”26.
Musk gave people the option to vote “Yes” or “No”. Some 3,519,
Twitter users responded, and 57.9% of them voted “Yes.”27.
In a subsequent post that same day, Musk wrote “I will abide by the
results of this poll, whichever way it goes.”
https://twitter.com/elonmusk/status/1256239815256797184.
https://www.bloomberglaw.com/bloomberglawnews/securitieslaw/X1FV6K1G000000.

https://twitter.com/elonmusk/status/1457064697782489088.

Id.

https://twitter.com/elonmusk/status/1457066048944066565.
Page 8 28.
In the first day of trading following Musk’s tweets, shares of Tesla
declined 4.8% on November 5, 2021, to close at $1,162.94 per share. Shares of Tesla
dropped an additional 12% on November 6, 2021, to close at $1,023.50 per share.
29.
Thus, the information contained in Musk’s tweets was plainly material
to the Company and its stockholders and had a significant impact on the Company’s
stock price.
30.
Following the Twitter poll, Musk sold 9.2 million shares and collected
roughly $9.9 billion in proceeds.13 The November 2021 tweets by Musk are the latest
in a series of tweets that moved the Company’s stock price.
31.
As a result of these November 2021 tweets and Musk’s prior social
media posts, Musk and the Company may have violated the terms of their
agreements with the SEC and applicable law.
C.
32.
Musk’s Ongoing Posts Continue to Impact Tesla Stock
Musk’s Twitter posts have not ceased, and he continues to make
statements of material import to Tesla and its stockholders.
See
https://www.sec.gov/Archives/edgar/data/1318605/000089924321045944/xslFX03/doc4.xml.
Page 9 33.
Musk’s latest Twitter feud with Senator Elizabeth Warren of
Massachusetts saw Tesla stock drop 9.6% between Monday, December 13 and
Wednesday, December 15.
34.
The feud was over the amount of taxes Musk will pay this year, with
Musk responding to Senator Warren that “if [she] opened [her] eyes for 2 seconds,
[she] would see that he will pay more taxes than any American in history this year.”35.
Undoubtably, a large portion of that tax liability is tied to Musk’s
offloading of Tesla shares as a result of his November 6 tweets about unrealized
gains.
36.
The market again responded with Tesla shares dropping from
$1,016.69 to $975.99 over three days.
37.
In accordance with the foregoing, Plaintiff has a credible basis to
believe that Tesla is, among other things, being mismanaged and the Board and/or
executive officers are failing to adhere to their fiduciary duties nor abiding by the
terms of the regulatory settlement.

https://twitter.com/elonmusk/status/1470898920146542592.
Page 10 V.
SECTION 220 DEMAND
A.
Plaintiff’s Demand
38.
On December 2, 2021, Plaintiff sent by overnight courier to Tesla’s
registered agent for service the Demand seeking to inspect certain books and records
of the Company. See Ex. A. Plaintiff’s Demand was accompanied by a verification
and documents evidencing Plaintiff’s beneficial ownership of Tesla stock. Id.
39.
The Demand sought inspection of Tesla’s books and records related to
the potential corporate misconduct noted above. In the Demand, Plaintiff requested
that the Company produce or allow the inspection of the following documents:
a.
Identification of all e-mail addresses of the individual Board
members use(d) to conduct Company business;
b.
Documents sufficient to identify the individual or individuals
tasked by Tesla with reviewing or pre-approving social media
posts by Musk;
c.
Documents sufficient to identify whether posts made to Musk’s
Twitter account on November 6, 2021 were reviewed or preapproved in advance;
Page 11 d.
e.
Board Materials15 and Senior Management Materials16 relating
to or reflecting:
i.
The Final Judgments;
ii.
The Consent Motion;
iii.
Posts made to Musk’s Twitter account on November 6,
2021;
iv.
Twitter and other social media posts by Musk related to
the Company and/or its share price; and
v.
Policies and procedures relating to the review or preapproval of Twitter or other social media posts by Musk;
All documents produced to any other stockholder or their counsel
in response to a books and records demand relating to the subject
matter of this Demand;
The term “Board Materials” means all documents, regardless of whether they
are in hard copy or electronic form, that were prepared, provided, disseminated, or
discussed in connection with, in anticipation of, or as a result of any meeting of the
Board or any regular or specially created committee thereof (including, without
limitation, all meeting minutes, agendas, transcripts, notes, summaries,
presentations, Board packages, recordings, memoranda, charts, drafts of meeting
minutes where final forms do not exist, exhibits distributed at meetings, or Board
resolutions). This term also includes electronic communications — including,
without limitation, emails, text messages, or other digital communications — sent
to, received by, or copied to any member of the Board in connection with the subjects
discussed in this letter.
The term “Senior Management Materials” means all documents and
communications, regardless of whether they were provided to any member of the
Board, provided to, considered by, discussed by, created by, and/or sent to or by any
named executive officer of the Company — including via emails, text messages, or
other digital communication methods such as instant messaging platforms.
Page 12 B.
f.
All policies, procedures, handbooks, instruction or training
manuals, white papers, policy statements, or other guides relating
to new Board member training or other onboarding procedures,
including any minutes, notes, presentations, or other documents
distributed to any new Board member for the purposes of same;
and
g.
The following documents related to the independence of the
Board:
i.
The most recent director independence questionnaire(s)
for each current member of the Board;
ii.
Any questionnaire(s) completed by a current member of
the Board in connection with the purchase or renewal of
any director and officer liability insurance policy;
iii.
Any questionnaire(s) concerning transactions in Tesla
securities completed by a current member of the Board;
iv.
Documents concerning any evaluation of the
independence of the Board members reviewed by the
Board and/or any of its committees; and
v.
Documents provided by the Board and/or any of its
committees to a stock exchange concerning the
independence of any current member of the Board.
The Demand Seeks Appropriate Books and Records in Furtherance of
Plaintiff’s Proper Purposes
40.
Each of the requests set forth in Plaintiff’s Demand are proper and
specifically tailored to an investigation of Tesla’s books and records for Plaintiff’s
stated purposes. The Demand outlines the following purposes, which Delaware
courts have recognized as proper for the purposes of Section 220:
Page 13 41.
a.
Investigate possible wrongdoing, mismanagement, and/or
potential breaches of fiduciary duties owed to the Company and
its stockholders by its current and/or former officers and
directors;
b.
Obtain information to determine if the Company’s current and/or
former officers and directors have acted in compliance with their
fiduciary duties and;
c.
Determine whether to initiate stockholder derivative litigation
and/or make a litigation demand on the Board or seek other
appropriate relief.
Despite prior enforcement action by the SEC and the terms of the
Consent Motion, Musk remains undeterred and continues to post on Twitter and
social media on matters that are material to Tesla and its stockholders, and which
ultimately have an impact on Tesla’s stock prices. Plaintiff has no reason to believe
the institution of this action will have any effect on such conduct and intends to
investigate all posts that may fall under the Consent Motion or further enforcement
thereof.
42.
The matters described in Plaintiff’s Demand and this Complaint
provide a credible basis from which mismanagement and breaches of fiduciary duty
at Tesla can be inferred.
43.
As such, Plaintiff has met the required burden and the Court should find
that Plaintiff is entitled to inspect the books and records of Tesla as set forth in
Plaintiff’s Demand and in this Complaint.
Page 14 44.
The documents requested are necessary and essential to determine
whether the Board was and is complying with their fiduciary duties.
C.
Tesla Refuses to Respond Appropriately
45.
The Demand was delivered and signed for on December 3, 2021.
46.
To date, Plaintiff has received no response to the Demand.
47.
Tesla has failed to fulfill its obligation to permit Plaintiff to inspect the
books and records identified in the Demand. As a result, Plaintiff has been forced to
file the present action and the Court should enter an order compelling Tesla’s
compliance with its statutory obligations.
CAUSE OF ACTION
(Demand for Inspection of Books and Records Pursuant to 8 Del. C. § 220)
48.
Plaintiff repeats and realleges the allegations set forth in the paragraphs
above, incorporating them by reference as if each paragraph were set forth here in
full.
49.
On December 2, 2021, Plaintiff served the Demand on the Company’s
registered agent for service pursuant to Section 220 seeking to inspect certain books
and records of the Company. See Ex. A.
50.
The Demand complied with the provisions of Section 220, relating to
the form and manner of making a demand to inspect and make copies and extracts
of the requested books and records of Tesla.
Page 15 51.
The Demand identified three proper purposes for the requested
information. The documents identified therein and in this Complaint are essential to
those purposes. See Ex. A.
52.
The Company has refused to comply with its obligations and is
therefore in violation of Section 220 because it has failed to provide the information
and documents requested by Plaintiff in accordance with his statutory rights.
53.
By reason of the foregoing, Plaintiff is entitled to inspect and obtain
copies and extracts of the documents identified in his Demand and in this Complaint,
together with any documents related to forthcoming posts by Musk which contain
information material to Tesla or its stockholders or that would otherwise violate the
terms of the Consent Motion or any further enforcement thereof.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for the following relief:
A)
An order requiring Tesla to permit Plaintiff and/or his designees to
inspect and copy all materials and documents requested in Plaintiff’s Demand and
this Complaint, together with any documents related to forthcoming posts by Musk
which contain information material to Tesla or its stockholders or that would
otherwise violate the terms of the Consent Motion or any further enforcement
thereof;
Page 16 B)
An order directing Tesla to pay reasonable attorneys’ fees and expenses
in connection with Plaintiff’s Demand and any related litigation; and
C)
Such other relief as this Court deems just and appropriate.
HEYMAN ENERIO
GATTUSO & HIRZEL LLP
/s/ Kurt M. Heyman
Kurt M. Heyman (# 3054)
Gillian L. Andrews (# 5719)
300 Delaware Avenue, Suite Wilmington, DE (302) 472-Attorneys for Plaintiff
OF COUNSEL:
POMERANTZ LLP
Gustavo F. Bruckner
Samuel J. Adams
Daryoush Behbood
600 Third Avenue, 20th Floor
New York, NY (212) 661-Dated: December 16,
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