Haque v. Tesla Motors, Inc.
CA 12651-VCS
| Del. Ch. | Feb 2, 2017Background
- Plaintiff Shahid Haque is a Tesla shareholder who sought inspection of Tesla’s books and records under 8 Del. C. § 220 by two demands (June 2015 and July 2016) to investigate alleged misstatements about production capacity and demand.
- Haque alleged Tesla repeatedly blamed missed delivery guidance on production/supply issues while actually concealing weaker demand, and sought documents covering quarters from 2014 Q3 through 2016 Q2.
- Tesla produced a limited set of documents, refused further production, and denied Haque stated a proper purpose under Section 220, prompting this Chancery action.
- The parties tried the case on a stipulated paper record. The court evaluated whether Haque demonstrated a “credible basis” to infer mismanagement or wrongdoing sufficient to justify inspection.
- The court reviewed Tesla’s public statements, production/delivery figures, analyst pieces, a customer/industry context, and selective biography excerpts relied on by Haque, and found the evidence insufficient.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Haque stated a proper purpose under §220 (credible basis to infer wrongdoing) | Haque argued discrepancies in Tesla’s production vs. delivery statements across 2014–2016 (and cited analyst reports/biography) create a credible basis to investigate whether Tesla fabricated production problems to mask weak demand. | Tesla argued Haque offered only suspicion, mischaracterized disclosures, relied on hearsay (biography) and press/short-seller pieces, and failed to show any credible evidence of deceit or mismanagement. | Court held Haque failed to meet the credible-basis threshold; Section 220 inspection denied. |
| Specific quarter-by-quarter alleged misstatements (2014 Q3–Q4, 2015 Q1, 2016 Q1–Q2) | Haque pointed to gaps between production and delivery, timing of shutdowns/ramps, and internal capacity inferences as inconsistent with Tesla explanations. | Tesla provided plausible operational explanations (pipeline inventories, scheduled retools, supply-chain complexity, late-quarter ramps) and contemporaneous disclosures supporting its statements. | Court found Tesla’s explanations credible; numerical discrepancies and forecasting misses did not establish a credible inference of wrongdoing. |
| Use of third-party materials (biography, analyst/press reports, short-seller pieces) | Haque relied on a Musk biography and negative analyst/press items to corroborate a pattern of misstatements. | Tesla argued these are hearsay, rank speculation, or biased reporting and cannot substitute for credible documentary or testimonial evidence. | Court rejected reliance on the unverified biography and press/short-seller reports as insufficient to create a credible basis. |
| Breadth of demand and whether overbroad | Haque sought broad records across multiple quarters to investigate systemic misconduct. | Tesla contended the demand was overbroad and not supported by a proper purpose. | Court did not reach the overbreadth argument because it concluded Haque failed the proper-purpose threshold. |
Key Cases Cited
- Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117 (Del. 2006) (investigating wrongdoing is a proper purpose but plaintiff must show a credible basis to infer mismanagement)
- Central Laborers’ Pension Fund v. News Corp., 45 A.3d 139 (Del. 2012) (Section 220 standing and purpose requirements)
- Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563 (Del. 1997) (plaintiff must show a credible basis to infer possible mismanagement warranting further investigation)
- City of Westland Police & Fire Ret. Sys. v. Axcelis Tech., Inc., 1 A.3d 281 (Del. 2010) (discussing balance between shareholder access and protection against fishing expeditions under §220)
- Malone v. Brincat, 722 A.2d 5 (Del. 1998) (directors’ honesty in public communications as a component of fiduciary duty)