985 F.3d 1180
9th Cir.2021Background
- Tesla announced a plan in 2016–2017 to ramp Model 3 production to 5,000 vehicles per week in 2017 and repeatedly reaffirmed that target in SEC filings and earnings calls between May 3 and November 1, 2017.
- Plaintiffs (shareholders, lead plaintiffs Friedman and Srinivasan) alleged defendants (Tesla, Musk, Ahuja) misled investors about the progress of automated assembly and Gigafactory battery production, claiming insiders had warned the 5,000/week goal was impossible.
- The SAC identified 15 challenged statements (May, July, August 2017) and alleged both affirmative misstatements and misleading omissions under §10(b) and Rule 10b-5; it also asserted §20(a) control-person claims.
- The district court dismissed the SAC with prejudice, holding Plaintiffs failed to plead actionable falsity outside the PSLRA safe harbor for forward-looking statements; it declined to reach scienter or loss causation for the pleaded statements.
- On appeal the Ninth Circuit reviewed de novo, focused on falsity and application of the PSLRA safe harbor, and separately considered futility of amendment for an unpled August statement because of loss-causation defects.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Plaintiffs pleaded falsity for May 2017 statements ("on track" to 5,000/wk) | May statements embedded present facts (e.g., installation/progress) that were false; defendants knew goal unattainable | Statements are forward-looking management objectives/assumptions and were accompanied by meaningful cautionary language (PSLRA safe harbor) | Statements are forward-looking; Plaintiffs failed to plead concrete present/factual assertions (except one narrow installation phrase), so falsity not shown; safe harbor applies where appropriate |
| Whether the July "production cars" remark was actionable | "Production cars" implied cars were made on the automated line; that was false | Phrase isn’t reasonably alleged to mean exclusively automated production; plaintiffs must plead that specialized meaning | Insufficient pleading that phrase meant fully automated production; not actionable under PSLRA standards |
| Whether August 2017 statements (reaffirmations, "making great progress," battery comments) were false/misleading | August reiterations concealed existing production/battery problems and thus were misleading about present conditions | August statements were forward-looking or generalized opinions and accompanied by cautionary disclosures; no pled facts showing no progress | Plaintiffs failed to plead falsity for any August statements; forward-looking portions fall within safe harbor and non-forward assertions not plausibly false |
| Whether leave to amend to add an August 2 statement about the "machine-that-makes-the-machine" should be allowed (loss causation) | Plaintiffs sought to amend to allege Tesla falsely claimed the automated machine had been completed and started in July | Even assuming falsity and scienter could be pleaded, the truth was disclosed by the Oct. 6 WSJ article and the market reaction did not show a sustained price decline tied to that revelation; no adequate loss causation | Amendment would be futile: Plaintiffs cannot plead loss causation because the alleged misrepresentation was revealed earlier (WSJ Oct. 6) and the stock rapidly recovered; dismissal with prejudice affirmed |
Key Cases Cited
- Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) (pleading standards and judicial notice in securities fraud complaints)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (standard for evaluating pleadings and scienter inference on motion to dismiss)
- Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175 (U.S. 2015) (when statements of opinion may imply false statements of fact)
- In re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130 (9th Cir. 2017) (PSLRA safe harbor interpretation; mixed forward-looking and present-fact statements)
- Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (U.S. 2008) (elements of a §10(b) claim)
- Berson v. Applied Signal Tech., Inc., 527 F.3d 982 (9th Cir. 2008) (misleading omissions re: backlog and present facts)
- Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049 (9th Cir. 2008) (loss causation requires significant price drop tied to corrective disclosure)
- Mineworkers' Pension Scheme v. First Solar, Inc., 881 F.3d 750 (9th Cir. 2018) (loss causation requires disclosure of the very facts alleged to be concealed)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility pleading standard)