Judges Pose Tough Questions for Tesla Shareholders

A federal appeals panel appeared skeptical Thursday of shareholder efforts to revive a securities class action lawsuit challenging Tesla’s 2013 statements that its cars are safe from fires in its lithium batteries.

The class of plaintiffs argued in the 9th U.S. Circuit Court of Appeals that, between August 2013 and November 2013, Tesla failed to disclose the existence and the intensity of multiple battery fires at Tesla facilities during pre-production of the Model S.

Investors alleged Tesla caused a $6.5 billion drop in its market value by lying about its electric cars’ safety.

U.S. District Judge Charles Breyer dismissed the case in 2014 saying he didn’t see evidence that Tesla’s statements about battery fires were false or misleading.

What allegations would you propose to have added to the complaint that would have saved the case? visiting Judge Carlos Lucero of the 10th Circuit asked Matthew Tuccillo, attorney for shareholders.

Tuccillo listed experts and confidential witnesses but Judge Andrew Hurwitz asked whether any of the “new” facts were known to plaintiffs prior to Breyer ordering the case dismissed.

And Judge Susan Graber jumped in to suggest, “It sounds like you were not looking for new evidence during the six months between a motion to dismiss by Tesla and Breyer’s ruling.

“Tesla actively impeded our investigation,” Tuccillo insisted. “We were constantly trying to investigate the case,” he said.

Hurwitz questioned Tesla attorney David Siegel about three fires cited to Tesla batteries, but discounted one as a safety test fire that Tesla started itself to investigate the potential of fires.  Hurwitz noted that the company argued that its cars were safer than gas cars, which have one fire in every 1,300 cars, while Tesla reported one in 8,000.

“Suppose it was two fires in 8,000, does that make the [company] statement misleading,” Hurwitz asked.

“No, it changes the math,” Siegel said.

On rebuttal, Graber again challenged Tuccillo saying he could not count the test fire Tesla set because “setting a car on fire is not the same as it catching fire.”

Hurwitz also suggested the investor class knew the car could catch fire at the time. “You’re not making a car safety argument, you’re making a misleading statement claim.”

The court is expected to issue a written ruling early next year.

Case:  Acar v. Tesla Motors, No. 14-1750


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