CHARLES R. BREYER, District Judge.
This case consists of a securities action against Tesla, Inc., in which a purported class of plaintiff shareholders ("Plaintiffs") alleges that Tesla and its officers
In addition, both parties request judicial notice of a variety of documents that Tesla filed with the SEC, public statements that Tesla made, news reports on Tesla, and Tesla's stock information. Def. Request for Jud. Notice (Dkt. 51); Pl. Resp. to Def. Request for Jud. Notice & Pl. Request for Jud. Notice (Dkt. 56). As the Court did before,
The Court assumes the parties' familiarity with the factual background of this case as described in this Court's Order on the previous Motion to Dismiss. Order at 2, 5-9.
The Court granted the first Motion to Dismiss with leave to amend because, "while Plaintiffs claim that Tesla and its officers . . . fell short of their production goals, a firm's failure to meet projections is only actionable if the firm did not accompany those projections with meaningful qualifications. Because Plaintiffs fail to allege that Defendants made any projections that were not so qualified, their claims fail."
To support the claim that Defendants misled investors about Tesla's progress in producing the Model 3, the SAC newly alleges that Defendants communicated to the public in the spring and summer of 2017 that it had a planned timeline for the automated production of the Model 3 by the end of 2017 and that that plan was on track. SAC ¶¶ 19-28, 124-26, 132-37, 239-48; Opp. at vii. Despite these statements, Plaintiffs urge, Tesla was not "on track" with that plan, and thus was conveying materially false statements to investors. Opp. at vii. The specifics of those allegations are discussed below.
In reviewing a motion to dismiss, a district court is usually limited to the facts stated in the complaint.
Defendants again ask the Court to take judicial notice as well as incorporate by reference thirty-five documents that contain public statements made by Tesla and its officers regarding Model 3 production. Request for Jud. Notice at 9;
Defendants' Exhibits 1-15, 17-19, 21-25, 33, and 34-36, and Plaintiffs' three exhibits are all documents that Tesla filed with the United States Securities and Exchange Commission or earnings conference call transcripts. Bretan Decl; Goldberg Decl. The Court has already determined that these categories of documents are "appropriate subjects of judicial notice" because, "[g]iven that Tesla publicly filed these documents, their accuracy cannot reasonably be questioned." Order at 4;
The Court also takes notice of the articles and reports incorporated by reference in the SAC, which Defendants have included in their request for Judicial Notice. Bretan Decl. Exh. 26-31. Plaintiffs do not oppose judicial notice of these statements for the limited purpose of determining what statements Tesla made to the market. Pl. Resp. to Def. Request for Jud. Notice & Pl. Request for Jud. Notice at 4. The Court thus takes judicial notice of these exhibits for this limited purpose. The Court declines to take judicial notice of the remainder of Defendants' exhibits because they are not relevant to the Court's analysis below.
Defendants have filed a Motion to Dismiss the SAC. There are four main points of dispute: (1) whether the SAC adequately pleads falsity, (2) whether the SAC adequately pleads scienter, (3) whether the SAC adequately pleads loss causation, and (4) whether the SAC adequately pleads control person liability. As with the Order Granting the FAC, this Motion will be granted on the issue of falsity without reaching the issues of scienter or loss calculation because Plaintiffs have failed to plead any material misstatement that was not accompanied by meaningful qualification.
To withstand a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Dismissal may be based on either "the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory."
Following dismissal, a court "should liberally allow a party to amend its pleading."
Plaintiffs' claims arise under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. SAC Counts I, II; 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. Section 10(b) makes it unlawful "to use or employ in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of" SEC rules. 15 U.S.C. § 78j(b). Rule 10b-5 proscribes, in connection with the purchase or sale of any security, (1) employing any device, scheme, or artifice to defraud; (2) making a material misstatement or omission; or (3) engaging in any act, practice, or course of business which operates or would operate a fraud or deceit upon any person. 17 C.F.R. § 240.10b-5. To state a claim under § 10(b) and Rule 10b-5, a plaintiff must allege "(1) a misrepresentation or omission of (2) material fact (3) made with intent (4) on which the plaintiff justifiably relied (5) that proximately caused the alleged loss."
The Private Securities Litigation Reform Act of 1995 ("PSLRA") imposes strict pleading requirements on a plaintiff. First, a plaintiff must identify "each statement alleged to have been misleading" and "the reason or reasons why [that statement was] misleading." 15 U.S.C. § 78u-4(b)(1). If an allegation is based on omitted facts, a plaintiff must show that it "would have been viewed by the reasonable investor as having significantly altered the `total mix' of information made available."
In addition, the PSLRA carves out a safe harbor from liability for statements that are identified as "forward-looking" and are "accompanied by meaningful cautionary statements." 15 U.S.C. § 78u-5(c)(1)(A)(i). A forward-looking statement is "any statement regarding (1) financial projections, (2) plans and objectives of management for future operations, (3) future economic performance, or (4) the assumptions `underlying or related to' any of these issues."
Plaintiffs argue that the SAC sufficiently alleges that Defendants made statements that are "provably false"—that is, statements about the state of the world as it was at the time the statements were made, not projections about the future.
Plaintiffs argue that the May statements conveyed to the market that "best-case, Tesla required ten to eleven months from the beginning of installation to mass production." Opp. at 4-5. Plaintiffs further allege that, despite that representation, Tesla did not start installing "automated production equipment" in early May 2017. Opp. at 5; SAC ¶¶ 248. "As of May 3, 2017, therefore, Tesla could not reach mass production of the Model 3 until, at earliest, March, 2018."
In rejecting a version of this argument before, this Court determined that statements that Tesla was "on track" "fall solidly within the category of forward-looking statements regarding plans and objectives for future operations" because, "[w]ere the Court to adopt Plaintiffs' conclusion, the distinction between present statements and forward-looking statements would collapse." Order at 9-10 (citing
Plaintiffs argue that that holding does not control the SAC because the newly-alleged May statements "informed investors both that installation of automated equipment would take at least four to five months . . . and the ramp up from the start of automated production to mass production would take six months." Opp. at 4. This was inconsistent, Plaintiffs urge, with Tesla's "Plan" at that point in time.
According to Plaintiffs, Defendants had a plan to mass produce the Model 3 by December 2017. Opp. at 4. Plaintiffs' basis for the claim that Tesla had a plan to being mass production around December 2017 is that a former employee, FE1, had told Musk that automated production before then would be impossible. SAC ¶ 17; Opp. at 6 n.25, 19 Plaintiffs argue that Defendants "verbalized" that plan, which "confirmed FE1's production plan timeline" by announcing in May that they had "started the installation of Model 3 manufacturing equipment at the Fremont Factory and Gigafactory 1, and we are on-track for start of Model 3 production in July 2017." SAC ¶¶ 18-19. So, on Plaintiffs' view, the May "on track" statements are not forward-looking because they are descriptive of Tesla's "Plan" at the time, which had a much longer timeline for automated production.
There are at least two problems with this argument. First, Plaintiffs' assertion about the existence of a "Plan" is entirely specious. There are no allegations that the timeline FE1 told Musk in 2016 was Tesla's actual timeline—or "Plan." Plaintiffs do not allege that Defendants actually made statements telling the public or investors about this above-described "Plan" to begin mass automated production in December. Reply at vii, 1-2;
Pointing to the statements that Tesla was "on track" for July 2017, Plaintiffs further argue only that "[i]t is unreasonable to infer anything other than that this sentence is telling investors that production in July will be automated," and "Plaintiffs are entitled, as a matter of law, to [the] inference" that Defendants had adopted FE1's statements in 2016 about the feasibility of a timeline for full automated assembly line production as Tesla's own timeline Plan. Opp. at xii n.10. To the contrary, however, it is unclear how statements that Tesla was "on track" to start Model 3 production in July 2017 could be read as "tying July automated production to the ability to mass produce in 2017." Opp. at 10. The May statements do not say that Tesla was going to have the ability to mass produce Model 3s, only that it was on track to
That leads to the second key problem with Plaintiffs' argument: It conflates production with automated mass production. The SAC repeatedly alleges that when Defendants referred to the initial production of the Model 3 in July 2017, Defendants meant "automated production."
The question then, as with the FAC, is whether the statements are "accompanied by meaningful cautionary statements" that would land them within the PSLRA's safe harbor provision. 15 U.S.C. § 78u-5(c)(1)(A)(i); Opinion at 9. On that issue, this Court has already held that Tesla did make meaningful cautionary statements. Order at 6-11. Nor do Plaintiffs now offer any argument to the contrary.
Plaintiffs also point to statements in early August 2017, that Tesla believed it was "on track to achieve a 5,000 unit week by the end of this year," SAC ¶¶ 128, 260; was "making great progress on the battery front,"
These allegations are identical to those Plaintiffs made in their FAC. FAC ¶¶ 111, 117-98, 225-27, 235. The Court found that these statements were all forward-looking and accompanied by meaningful cautionary statements. Order at 9-10. Plaintiffs offer no argument that that conclusion does not fully control here.
Because none of Plaintiffs' new allegations alter this Court's previous Order's reasoning that the Plaintiffs have failed to meet the falsity requirement because all of the challenged statements were forward-looking and accompanied by meaningful cautionary qualifications, Order at 9-13, Plaintiffs' claims once again fail. As this Court noted the first time around, "Federal securities laws do not punish companies for failing to achieve their targets." Order at 1. And, like in the previous Order, because Plaintiffs have not alleged sufficient facts to meet the falsity standard, the Court need not address scienter or loss causation.
The final issue is whether or not to grant Plaintiffs leave to amend their Complaint. Such leave is to be given "liberally,"
Plaintiffs argue that if the Motion is granted, it should be with leave to amend. But they point to nothing that would affect the foregoing analysis. Rather, they seek leave to amend to include evidence of an HBO interview that Musk did in which he said that Tesla was near "death" because of its liquidity crisis, Opp. at viii n.2, and evidence of an Offering Circular, which Plaintiffs argue "provides Tesla motive to lie during the Class Period about their failure to meet their Plan's July 2017 benchmarks,"
For the foregoing reasons, the Court GRANTS the Motion to Dismiss with prejudice. The Court also GRANTS in part and DENIES in part the parties' Requests for Judicial Notice.
Defendants correctly point out that Plaintiff offers no basis for its statement that "production car" is a term of art, and, even if it were, Defendants also indicated in their public disclosures that their facilities were not fully automated at the time. Bretan Decl. Exh. 19 at 32, 41-42; Mot. at 15; Reply at 6-7. And so it is unreasonable to infer from Tesla's statement at the July launch event that Tesla was representing that it had a fully completed automated assembly line.