By Tom Hals
WILMINGTON, Del. (Reuters) – Directors of Tesla Inc settled a shareholder lawsuit over the company’s 2016 acquisition of SolarCity Corp, leaving Chief Executive Officer Elon Musk as the lone defendant facing claims that Tesla paid $2.6 billion for a worthless solar energy system installer, according to court documents.
The $60 million settlement comes as a 10-day trial is scheduled to start on March 16 in Delaware in which shareholders seek $2.6 billion in damages, the entire cost of the SolarCity deal.
A lawyer for Musk and a spokesman for Tesla did not immediately respond to a request for comment.
Tesla shareholders have alleged Musk breached his fiduciary duties, squandered Tesla’s assets and unjustly enriched himself by pushing to buy the money-losing solar company in which he was the biggest investor.
The settlement covered five current directors: Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Stephen Jurvetson and Kimbal Musk. Brad Buss, who was a director at the time of the SolarCity deal, was also part of the settlement, which was paid from insurance policies, according to court documents.
“Plaintiffs probably think they have a cleaner shot on the merits if the only issues they have to raise are with Elon Musk and Elon Musk’s actions,” said Brian Quinn, a professor at Boston College Law School.
The case was brought in the Court of Chancery in Delaware, where Tesla is incorporated, by an individual investor and five investment funds.
Tesla said in a statement to Reuters in September the allegations were “based on the claims of plaintiff’s lawyers looking for a payday, and are not representative of our shareholders.”
The suit represents another legal headache for Musk, who in the past two years has settled a lawsuit by securities regulators over his use of Twitter and won a defamation trial brought by a British cave explorer.
Musk and the Tesla board also are scheduled to defend Musk’s pay package at a trial in Delaware next year.
At the heart of the current case are allegations that Musk and the other board members did not fully disclose the depth of SolarCity’s problems, or their own conflicts.
SolarCity was founded in 2006 by Musk and his cousins, Lyndon Rive and Peter Rive, who were the company’s CEO and chief technology officer as well as directors. Musk was SolarCity’s chairman and largest shareholder, and five of Tesla’s directors were direct or indirect owners of SolarCity stock.
Entering 2016, SolarCity’s stock was on a sharp downward trajectory and the company was slashing its workforce and bleeding cash.
Tesla touted synergies of combining the companies in the all-stock deal, which was approved by Tesla shareholders.
After the deal closed, Tesla slashed its solar sales force and ended a solar marketing deal with Home Depot Inc. Quarterly solar installations plummeted and are well below levels SolarCity enjoyed in its heyday.
Tesla has said Musk’s involvement in deal discussions and all other material information were accurately described to shareholders in public filings before the deal closed.
On Wednesday, Tesla reported its second straight quarterly profit, sending its stock surging to an all-time high.
(Reporting by Tom Hals in Wilmington, Del.; Additional reporting by Nichola Groom in Los Angeles; Editing by Dan Grebler and Matthew Lewis)