JPMorgan Chase Bank London Branch v. Tesla, Inc.

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JPMORGAN CHASE BANK, N.A., LONDON BRANCH, Plaintiff, v. TESLA, INC., Defendant.

No. 21 Civ. 9441 (PGG)

United States District Court, S.D. New York

September 12, 2024

MEMORANDUM OPINION & ORDER

Paul G. Gardephe United States District Judge

Plaintiff JPMorgan Chase Bank, N.A. (“JPM”) held warrants to purchase shares in Defendant Tesla, Inc., and attempted to exercise the warrants in 2021. After Tesla refused to permit JPM to exercise the warrants, it brought this action, seeking damages for breach of contract. JPM has moved for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). (Mot. (Dkt. No. 45))

For the reasons stated below, JPM's motion for judgment on the pleadings will be denied.

BACKGROUND

I. FACTS^[1]

A. The Parties and the 2017 Warrant Agreements

Plaintiff JPM is a national banking association headquartered in Columbus, Ohio. (Cmplt. (Dkt. No. 1) ¶ 6; Answer and Counterclaim (Dkt. No. 17) at 27) Defendant Tesla is a Delaware corporation.^[2] (Cmplt. (Dkt. No. 1) ¶ 7; Answer and Counterclaim (Dkt. No. 17) at 27) At all relevant times, Elon Musk was the chief executive officer of Tesla, the chair of its board of directors, and the company's largest shareholder. (Cmplt. (Dkt. No. 1) ¶ 20; Answer and Counterclaim (Dkt. No. 17) at 29)

In 2014, Tesla retained JPM to serve as the underwriter for Tesla in a financial transaction. (Answer and Counterclaim (Dkt. No. 17) at 7-8)

On February 27, 2014 and March 28, 2014 - as part of the larger transaction JPM purchased stock warrants from Tesla.^[3] (Cmplt. (Dkt. No. 1) ¶ 12; Answer and Counterclaim (Dkt. No. 17) at 8, 28) JPM's warrants are governed by warrant agreements that were executed on February 27, 2014 and March 28, 2014: (1) the Base Warrant Confirmation, dated February 27, 2014; and (2) the Additional Warrant Confirmation, dated March 28, 2014 (together, the “Warrant Agreements”).^[4] (Answer and Counterclaim (Dkt. No. 17) at 8; Feb. 27, 2014 Warrant Agreement (Dkt. No. 30-4); Mar. 28, 2014 Warrant Agreement (Dkt. No. 30-5)) The Warrant Agreements give JPM the right to purchase Tesla stock at a designated strike price during the period between June 1, 2021 and July 27, 2021. (Answer and Counterclaim (Dkt. No. 17) at 8)

In the Warrant Agreements, the strike price is set at $560.6388. (See Feb. 27, 2014 Warrant Agreement (Dkt. No. 30-4) § 2 at 3; Mar. 28, 2014 Warrant Agreement (Dkt. No. 30-5) § 2 at 3) Asa “[c]onsequence[] of [an] Announcement Event[],” however, the Warrant Agreements authorize JPM to make a “Modified Calculation Agent Adjustment [to the strike price] as set forth in Section 12.3(d) of the [ISDA] Equity Definitions.” (Feb. 27, 2014 Warrant Agreement (Dkt. No. 30-4) § 2 at 10; Mar. 28, 2014 Warrant Agreement (Dkt. No. 30-5) § 2 at 10; see 2002 ISDA Equity Definitions (Dkt. No. 30-2) § 12.3(d) at 53-54)

Section 2 of the Warrant Agreements defines the term “Announcement Event” as follows:

(1) an “announcement by [Tesla] of any intention to enter into a Merger Event or Tender Offer”;

(2) a “public announcement by [Tesla] of an intention to solicit or to enter into, or to explore strategic alternatives or other similar undertaking that may include, a Merger Event or Tender Offer”; or (3) “any subsequent public announcement of a change to a transaction or intention that is the subject of [such] announcement... (including ... the announcement of a withdrawal from, or the abandonment of discontinuation of, such a transaction or intention); provided that, for the avoidance of doubt, the occurrence of an Announcement Event with respect to any transaction or intention shall not preclude the occurrence of a later Announcement Event with respect to such transaction or intention.”

(Feb. 27, 2014 Warrant Agreement (Dkt. No. 30-4) § 2 at 10; Mar. 28, 2014 Warrant Agreement (Dkt. No. 30-5) § 2 at 10)

After an Announcement Event occurs, the ISDA Equity Definitions - as incorporated in the Warrant Agreements - authorize JPM to

(A) make such adjustment to the exercise, settlement, payment or any other terms of the [stock warrant transaction] as [JPM] determines appropriate to account for the economic effect on the [stock warrant transaction] of such [Announcement Event] and

(B) determine the effective date of that adjustment.

(ISDA Equity Definitions (Dkt. No. 30-2) § 12.3(d) at 53)

The Warrant Agreements and the ISDA Equity Definitions do not specify the methodology that JPM should use in making an adjustment to the terms of the stock warrants, including any adjustment to the strike price. The parties' agreements merely provide that “all determinations made by [JPM] shall be made in good faith and in a commercially reasonable manner.” (Feb. 27, 2014 Warrant Agreement (Dkt. No. 30-4) § 3 at 12; Mar. 28, 2014 Warrant Agreement (Dkt. No. 30-5) § 3 at 12; see also ISDA Equity Definitions (Dkt. No. 30-2) § 1.40 at 18 (providing that “[w]henever [JPM] is required to act or to exercise judgment in any way, it will do so in good faith and in a commercially reasonable manner”))

B. The Alleged “Announcement Events”

The Complaint alleges that in August 2018 Tesla and Musk made several public statements expressing their intention to convert Tesla from a public to a private company. (See Cmplt. (Dkt. No. 1) ¶¶ 19-24, 31; Answer and Counterclaim (Dkt. No. 17) at 10-11, 29-31)^[5]

On August 7, 2018, at about 12:48 p.m. Eastern Daylight Time, Musk posted the following message on his Twitter account: “Am considering taking Tesla private at $420. Funding secured.” (Pltf. Br., Ex. I (Dkt. No. 47-9); see also Answer and Counterclaim (Dkt. No. 17) at 10)

That same day, Musk sent an internal email to Tesla employees, in which he repeated that he was “considering taking Tesla private.” (Pltf. Br., Ex. K (Dkt. No. 47-11) at 1) That email - which was later posted on Tesla's website as a blog post entitled “Taking Tesla Private” - reads as follows:

August 7, 2018

The following email was sent to Tesla employees today:

Earlier today, I announced that I'm considering taking Tesla private at a price of $420/share. I wanted to let you know my rationale for this, and why I think this is the best path forward.

First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best....

Here's what I envision being private would mean for all shareholders, including all of our employees.

First, I would like to structure this so that all shareholders have a choice. Either they can stay investors in a private Tesla or they can be bought out at $420 per share, which is a 20% premium over the stock price following our Q2 earnings call (which had already increased by 16%). My hope is for all shareholders to remain, but if they prefer to be bought out, then this would enable that to happen at a nice premium.

Second, my intention is for all Tesla employees to remain shareholders of the company, just as is the case at SpaceX. If we were to go private, employees would still be able to periodically sell their shares and exercise their options. This would enable you to still share in the growing value of the company that you have all worked so hard to build over time.

Third, the intention is not to merge SpaceX and Tesla. They would continue to have separate ownership and governance structures. However, the structure envisioned for Tesla is similar in many ways to the SpaceX structure: external shareholders and employee shareholders have an opportunity to sell or buy approximately every six months.

Finally, this has nothing to do with accumulating control for myself. I own about 20% of the company now, and I don't envision that being substantially different after any deal is completed.

This proposal to go private would ultimately be finalized through a vote of our shareholders. If the process ends the way I expect it will, a private Tesla would ultimately be an enormous opportunity for all of us... .

Thanks,

Elon

(Id. at 1-2)

In a 3:36 p.m. tweet, Musk “elaborated on his plans to take Tesla private.” He also stated that “Investor support is confirmed. Only reason why this is not certain is that it's contingent on a shareholder vote.” (Pltf. Br., Ex. J (Dkt. No. 47-10)) At the bottom of the tweet, Musk provided a link to the “Taking Tesla Private” blog post on Tesla's website. (Id.)

After Musk issued these statements, Martin Viecha - “Tesla's head of investor relations” - received “inquiries,” including from a Tesla investor. (Answer and Counterclaim (Dkt. No. 17) at 30) Viecha had the following exchange with the Tesla investor:

Viecha: Hey, I'm on a plane to NYC. I'm online though. Did you read our official blog post on this topic?

Investor: I did. Nothing on funding though?

Viecha: The very first tweet simply mentioned “Funding secured” which means there is a firm offer. [Musk] did not disclose details of who the buyer is.

Investor: Firm offer means there is a commitment letter or is this a verbal agreement?

Viecha: I actually don't know, but I would assume that given we went full-on public with this, the offer is as firm as it gets.

(Pltf. Br., Ex. L (Dkt. No. 47-12))

On August 8, 2018 - the next day - six members of Tesla's board of directors “issued a press release confirming that. .. [the board] had . .. begun exploring a plan to go private,” and that it had done so even before Musk's August 7, 2018 tweet. (Pltf. Br., Ex. M (Dkt. No. 47-13)) The Tesla Board's press release was posted on Tesla's website and reads as follows:

Last week, Elon [Musk] opened a discussion with the board about taking the company private. This included discussion as to how being private could better serve Tesla's long-term interests, and also addressed the funding for this to occur. The

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