Martin Eberhard sues Elon Musk and Tesla Motors

[doug]

That's what I'm here for! :biggrin::tongue:

Thanks again, Arnold, for taking the time to provide your educated analysis.

As discussed previously, TM and EM are on fairly solid legal ground on this argument, but it's kind of a dick-ish move (technical legal term :wink over one blog post that was fairly promptly removed upon request. A judge looking to throw a bone to the plaintiff might read into such an agreement a reasonable "cure" provision, meaning that it's not a breach if ME promptly cured the problem by deleting the post (which he apparently did). It will really depend on how hard-ass the judge is and whether s/he will rule on the strict letter of the contract and law, or try to give ME something by ruling for him on this issue.

Again, I haven't read the motions, and likely won't get a chance to any time soon. However, I got the sense from Elon's blog post that he was suggesting Martin's "two refrigerators" post was evidence of continued disparagement against TM.

Elon posted, "... Eberhard wrote a well publicized and needless (a fix was already in progress) negative blog piece regarding the battery coolant pump soon after receiving the car."

I saw Martin's post as more informative than negative, but could it be seen by a judge as disparagement?

Btw, there is a new TM blog post today by Michael Marks. Perhaps the timing of this is to demonstrate that he is still on good terms with the company.

 

[Arnold Panz]

I must have missed something. I thought the main goal of ME's lawsuit was to show that he is entitled to "founder" status, and that EM has harmed his reputation with false statements about his character. So, if this is indeed what happened, how is that an exercise of EM's right to free speech about something in the public interest? How is ME's status relevant to the public interest?.

Sorry for the confusion, but there was a lot to unpack and I didn't want to post to be even longer than it was. ME's status as a "public figure" solely relates to the defamation claim -- there are two standards to sustain a claim of defamation, one for "public figures" and one for non-public figures. Because public figures have access to the press and can better defend themselves, there is a much higher standard that plaintiffs (like ME) are held to in order to sustain a claim of defamation than if they are non-public figures and have been defamed.

The public interest piece is only relevant to the anti-SLAPP counterclaim by EM, and has to do with whether the statements that EM (allegedly) made were about a topic in the public interest. If they were, then ME's very act of bringing the lawsuit is a violation of the law. It's to discourage people from bringing lawsuits against people opining or discussing in public issues important to the general public. I hope that helps clear that up.

First, it looks like you made a typo here, but I can't quite place it. The statement just doesn't make sense. Maybe you meant to say "not defamatory"?
Secondly, I would agree that ME is not necessarily able to be considered a "public figure". Out of the general population, I doubt anyone knew who he was except for us "EV geeks" and the few in the business.

I wonder if there's a chance for ME to argue that the non-disparagement clause was null and void and a tactic to suppress his right to free speech? Just curious as to his options there.

Not so much a typo as an inappropriate use of pronouns.:redface: If I were representing EM, I would have argued, as they did, that ME is a "public figure" and therefore in order for EM to have defamed him, it had to be a recklessly false statement by EM made with malice. However, EM's lawyers didn't really address directly the possibility that ME is not a public figure. If ME isn't a public figure, the standard for defamation is much lower (a knowingly false statement that causes the plaintiff damage -- you don't need the "recklessness" or "malice" for a non-public figure, which is essentially an intention to spread lies about someone). They sort of made the argument in subsequent sections of the motion, but didn't directly address the idea that the court might not consider ME to be a public figure, which would subject ME's claims to the much higher burden on his defamation claim.

I hope that clears that up. :smile:

 

[Arnold Panz]

Having paid Wilson Sonsini bills first hand I can tell you those guys are NOT cheap. I'd not want to be payying that bill if I was ME. Wilson Sonsini had a great cafeteria back in 2000-2002 used to love to stop by for lunch.

AMEN!! I know Sonsini is on the BoD of Tesla, so it's not at all surprising that they're representing them here, but for a case like this in the Bay Area (or anywhere in California), I'd much more likely use one of the employment law boutiques with strong offices in California like Littler Mendelson. Unlike Wilson Sonsini, which is primarily a corporate law shop with a few employment attorneys sprinkled in to handle offshoot cases like this one for clients, those firms are dedicated solely to these types of claims, and have dozens of lawyers who specialize in these types of cases for half the price of a typical Wilson Sonsini lawyer.

(Full disclosure -- I am an in-house attorney and regularly hire law firms of all types, so this is not an endorsement one way or another of any particular firm, but an observation as someone who spends tens of millions a year on outside counsel)

 

[Arnold Panz]

Elon posted, "... Eberhard wrote a well publicized and needless (a fix was already in progress) negative blog piece regarding the battery coolant pump soon after receiving the car."

I saw Martin's post as more informative than negative, but could it be seen by a judge as disparagement?

In the motion just filed by EM and TM, the "disparagement" alleged is that ME criticized TM for "the large number of Tesla Motors employees terminated...and...that these employees were unfairly treated by Tesla Motors." (page 9 of the Demurrer). What's very strong about this argument is that they're quoting ME's Complaint! ME's counterargument was that these statements weren't false, which unfortunately for him is completely irrelevant to whether or not they're disparaging, which ME basically admits that they are in his Complaint. He basically argues that it wasn't that big a deal, and he took the post down when requested. As I said, it's a technical violation of the severance agreement, but if I had been advising TM at the time I definitely would not have advised stopping payments over this because it's petty and will look as such more often than not to many judges.

 

[Serge]

Legal term?

In the motion just filed by EM and TM, the "disparagement" alleged is that ME criticized TM for "the large number of Tesla Motors employees terminated...and...that these employees were unfairly treated by Tesla Motors." (page 9 of the Demurrer).

Arnold, is it implied that voicing any criticism amounts to disparagement? I can understand how criticism based on false information is unjust, but not when it's based on factually correct information.

 

[Arnold Panz]

Arnold, is it implied that voicing any criticism amounts to disparagement? I can understand how criticism based on false information is unjust, but not when it's based on factually correct information.

Completely -- it's the entire point of a non-disparagement clause in a severance agreement. The point for the company is that they don't want former employees, especially former executives (or in this case, CEOs), going around saying bad things about the company, it's product(s), people etc. The whole reason TM wanted that clause in the severance agreement was to avoid precisely what ME did, which is to make negative comments (even if arguably or even objectively true) that would be given great weight by interested parties (potential investors, customers, etc.) precisely because of his prominent former role within the company. Because TM was paying him money, they have the right to restrict his speech in this manner (n.b., for anyone wondering about ME's 1st Amendment rights to free speech, that amendment only protects you from the government restricting your speech, not a private party. If ME wanted to say whatever he wanted about TM after he left, he needn't have accepted their severance money).

Usually, a former employee will want to make this clause mutual, meaning that the company can't say anything negative/disparaging about the employee. So, for example, another potential employer calling for a reference doesn't get any information out of the former employer. Even if the former employer thinks the former employee stinks and is a waste of space, they can't say that (even if it's "true") because it's negative/disparaging. I believe ME's clause was mutual, but once he "broke the seal", the deal was off (at least in TM's mind), so they could say whatever they wanted (as long as it isn't knowingly false).

 

[JRP3]

Having paid Wilson Sonsini bills first hand I can tell you those guys are NOT cheap. I'd not want to be payying that bill if I was ME.

Ignoring the potential philosophical debate regarding "if I was ME" :wink: but ME, (Martin), is not paying Wilson Sonsini. EM, or actually TM, is. Maybe you mixed up the initials.
*Edit: Or maybe I missed your point and you were saying if Martin looses and has to pay the bills.

 

[AnOutsider]

Ignoring the potential philosophical debate regarding "if I was ME" :wink: but ME, (Martin), is not paying Wilson Sonsini. EM, or actually TM, is. Maybe you mixed up the initials.
*Edit: Or maybe I missed your point and you were saying if Martin looses and has to pay the bills.

That's how I read the post. I'd really like to see the whole thing dropped. Whether he sucked as a CEO or not, ME's been dragged through the coals a bit (even with his fanatical support) and it would suck to see him bankrupted on huge legal bills over a weak (and petty) case.

 

[Picasso]

yarp

Ya after reading everything I think it will be ME (Martin), who will end up footing the bill for both partys. And I do agree the best thing for both at this point would be to drop it. I fear Wilson Sonsini and those guys are on my side I pay them! A good number of the angel investors in the bay use them. I wonder if those guys did the spacex articals of incorperation? I find it odd Tesla reused spacex's 99% of it is boiler plate im sure but did ME and the other founders review it? If it was done by Wilson Sonsini I'm sure it has some fun clauses in favor of investors. Those guys love to get in on early rounds and offer them selfs as counsel in exchange for some stock. A payment for services after next round. A company I "co-founded" and later sold and had a small investor vs founder fight forced them to step down as counsel. It knowingly played both sides till we said something. Good times! Wilson Sonsini needs to bring back the free cafe.

 

[dpeilow]

The Associated Press: Another bump in the road for Tesla Motors

"They are sort of dwelling on the past," Tarpenning said. "I wish they would just shake hands."

 

[dpeilow]

Tesla Motors' lawsuit update: Martin Eberhard, Elon Musk have a court date tomorrow — Autoblog Green

 

[AnOutsider]

I want pics of them mean-mugging each other across the courtroom.

 

[OhmExcited]

What happened in court today?

 

[OhmExcited]

Tesla Legal Fight: It's On
No trial date has been set
Updated 3:45 PM PDT, Wed, Jul 29, 2009

A judge is refusing to toss out a lawsuit by a founder of Tesla Motors that accuses the electric car maker and its chief executive of libel, slander and several other allegations.

Martin Eberhard claims CEO Elon Musk unfairly blamed him for Tesla's well-documented financial woes in interviews with the media and in postings on the company's blogs. Eberhard also is suing to recover a $100,000 severance package the company took away from him because Tesla said he violated a non-disparagement agreement.
Yosef Peretz, who represents Eberhard against Tesla and Musk, says a San Mateo County Superior Court judge issued a written tentative ruling Tuesday refusing to toss out the lawsuit. The ruling says it appears Eberhard's lawsuit will prevail.
.....
Tesla Legal Fight: It's On | NBC Bay Area

 

[doug]

Tesla Legal Fight: It's On | NBC Bay Area

Oh, It's On...

It's On - Clips - South Park Studios

Ya see, if you get served, and serve them back, then It's On!


Ok, I guess I should read the article now.



.

 

[dpeilow]

Judge Strikes Claim on Who Can Be Declared a Founder of Tesla Motors

 

[AnOutsider]

I think Elon went in the wrong direction by saying he should be able to be called founder, he should have just said "I can't control the media" or something.

"I find it weird that he thinks he's a founder," said Tarpenning, who added that Musk's involvement with the company was nonetheless vital to its creation. Tarpenning, who left Tesla last year but still retains an ownership interest, said he remains on "pretty good terms" with both men but could not care less about the "founder" label.

"They are sort of dwelling on the past," Tarpenning said. "I wish they would just shake hands."

I'm also a bit confused between the two articles. One reads:

Yosef Peretz, who represents Eberhard against Tesla and Musk, says a San Mateo County Superior Court judge issued a written tentative ruling Tuesday refusing to toss out the lawsuit. The ruling says it appears Eberhard's lawsuit will prevail.

basically saying the judge believes the case has merit, and then:

REDWOOD CITY, Calif.--(BUSINESS WIRE)--A judge has struck down a claim by Martin Eberhard, who asked to be declared one of only two founders of electric car company Tesla Motors Inc.

The ruling Wednesday in San Mateo County Superior Court is consistent with Tesla’s belief in a team of founders, including the company’s current CEO and Product Architect Elon Musk, and Chief Technology Officer JB Straubel, who were both fundamental to the creation of Tesla from inception.

So I guess he only thinks part of it has merit?

 

[DavidV]

Martin Eberhard "demonstrated a probability that he will prevail" in lawsuit against Tesla — Autoblog Green

"Following up on yesterday's decision in a San Mateo, California court, ex-Tesla Motors CEO Martin Eberhard's legal team has issued a statement of its own regarding the lawsuit against Tesla Motors and Elon Musk. While Tesla's official response to the decision obviously focused on the judge's decision not to declare Eberhard as one of only two co-founders, there was more to the decision.

In response to Eberhard's original filing, Tesla filed an anti-SLAPP motion in an attempt to quash the entire suit. The judge declared "an anti-SLAPP motion is not the proper mechanism to use to contest the validity of this cause of action." Aside from the question of founder status, the judge decided that Eberhard's side had established a probability that it could win on the breach of contract and defamation claims. He also declared that based on the information so far, Eberhard's claims were legal and valid to proceed. So unless Musk decides to settle (highly unlikely) this one appears to be far from over. Read Eberhard's statement in full after the jump.

PRESS RELEASE:

Martin Eberhard Clears Roadblocks in Lawsuit Against Elon Musk/Tesla Motors – Eberhard's Lawsuit Gets Green Light to Proceed.

San Mateo, CA-July 29, 2009-In what can only be characterized as a resounding victory today, Martin Eberhard, the cofounder and former CEO of Tesla Motors, has successfully established the legitimacy of his claims of defamation, libel, and breach of contract against Elon Musk and Tesla Motors. His lawsuit will now proceed.

In response to Eberhard's lawsuit filed this past May, Tesla Motors and Elon Musk filed papers on June 29, 2009 seeking to have Eberhard's lawsuit dismissed. They filed an Anti-SLAPP motion, arguing that Martin Eberhard's claims against Elon Musk and Tesla Motors are constitutionally protected conduct, and a demurrer, arguing that even if the facts presented by Eberhard were taken to be true, Eberhard's lawsuit was without legal merit and should not be allowed to proceed.

The first significant ruling in this litigation came this morning at the San Mateo County Superior Court. The honorable Judge John L. Grandsaert denied Tesla Motors's and Musk's Anti-SLAPP motion in its entirety, finding that Eberhard demonstrated a probability that he will prevail on the challenged causes of action.

The court also dismissed most of Tesla Motors's and Musk's demurrer, finding that Eberhard pled legally valid claims against Tesla for several counts of breach of contract, including its illegal cancellation of his severance payments and stock options grants, its failure to deliver to Eberhard the second production Roadster as agreed by contract, and the extensive damages inflicted on Eberhard's car prior to delivery (requiring the replacement of the bumper, the hood, both front fenders, both headlights, the windscreen, and a long list of under-hood components).

Tesla Motors issued a formal statement today stating, "We are pleased that the judge struck down Eberhard's claim asking to be 'declared' one of only two founders of the company." However, while the court today found in favor of Musk/Tesla on this cause of action, its decision underscored the fact that the issue of who is a cofounder is a purely factual question and not one that could be decided on the pleadings as a matter of law at this early stage in the litigation.

Eberhard and his counsel, Yosef Peretz, look forward to litigating this matter, and the other causes of action in Eberhard's lawsuit, on their merits as the case proceeds.

Relevant excerpts from the court's decision can be found below:

MOTION TO STRIKE PORTIONS OF COMPLAINT FILED BY ELON MUSK AND TESLA MOTORS, INC.

• As to the First and Second Causes of Action (Defamation) Plaintiff has established a probability he could prevail on at least some of his defamation/libel claims relating to statements made by MUSK, including but not limited to, that Plaintiff caused the financial issues at TESLA, that he left a "mess" when he left the company, that he caused
the delays in the production of the Roadster, and that MUSK had to spend a lot of time correcting all the errors made by Plaintiff. (Complaint, ¶¶89-102; Exhibits. 24-30.)

• As to the Third Cause of Action (Injunctive Relief), because Plaintiff has shown the probability he may prevail on the merits of a portion of his defamation claims, he may also prevail on his claim for injunctive relief. An injunction which does no more than prohibit Defendants from repeating the defamation is not a prior restraint and does not
offend the First Amendment. (Balboa Island Village Inn v. Lemen (2007) 40 Cal.4th 1141, 1148.)

• As to the Sixth Cause of Action (Declaratory Relief), an anti-SLAPP motion is not the proper mechanism to use to contest the validity of this cause of action. Rather, the separate motion to strike under Code of Civil Procedure §436 et seq contemporaneously filed herewith fully and adequately addresses this dispute.

• As to the Eleventh Cause of Action (Negligence), the Complaint does not predicate this cause of action solely upon Defendants' alleged defamatory statements."

DEMURRER TO COMPLAINT OF EBERHARD FILED BY ELON MUSK AND TESLA MOTORS, INC.

• Defendants' Demurrer to the 3rd and 7th through 9th causes of action of Plaintiff's Complaint is OVERRULED in its entirety."

-- DavidV

 

[Arnold Panz]

I haven't seen the judge's ruling in full, but this is a lot of huffing and puffing by both sides about nothing. The "demurrer" that EM and TM were seeking was basically CA's version of a motion to dismiss. This is an effort by a defendant to claim that, even if everything that ME says in his Complaint is true, there is no possible way that they can prevail on a legal claim and therefore they throw the case out before it even gets started.

It is important to note that, although this is a routine move by defendants for a variety of reasons, it is extremely rare that a demurrer prevails in full. Sometimes, some of the more frivolous claims will get tossed if there are a lot of them, but a ruling like this is not at all unusual. Judges don't want to preclude someone's ability to bring a claim until they're absolutely certain that the claim has no possible merit to it. Any reasonably well-pled claim will survive this stage.

I should note that ME's press release is somewhat misleading. The judge's ruling in no way comments on the merits of ME's claims against EM and TM. Until discovery is conducted and there are actual facts that have been put on the record, the judge makes absolutely no decision on the substance of the claims -- he is only making a technical legal determination based almost exclusively on what ME's lawyers wrote in their Complaint.

On EM's side, the judge's decision to not immediately force EM to stop using the "founder" label is similarly basically a non-event. It would have been shocking if the court had ruled in ME's favor on this point at this stage of the case. These are preliminary moves by both sides at the very beginning of this case to try to sway interested outside third parties (like us!), and plant seeds in the judge's mind about the merit (or lack thereof) of the other side's case.

Without a settlement, this is going to be a long, drawn out process. I couldn't agree more with what Tarpenning said: ""They are sort of dwelling on the past. I wish they would just shake hands." I've said it before and I'll say it again -- the only people who "win" in these types of cases are the lawyers who collect their fees. 99% of the time the parties end the process dissatisfied with the result and wishing they hadn't gone down this road in the first place.

 

[doug]

Well competing press releases means that this has as much to do with the "court of public opinion" as anything else.

Court Gives Green Light for Tesla Founder’s Lawsuit to Proceed - earth2tech.com

In this situation — Tesla filed what’s called an anti-SLAPP (SLAPP stands for Strategic Lawsuit Against Public Participation) motion, arguing that Eberhard’s lawsuit represents an attempt to “curb open discourse” and violate free speech protections — the court requires “only a minimal showing of merit” on Eberhard’s claims to decide the case should not be thrown out before all the evidence has been weighed.

...

But Musk told the AP in an interview this week that he does have claim to the founder label, and Konrad reiterated that argument in our call today. Noting that there are many definitions for “founder,” she paraphrased one from Black’s Law Dictionary: “If you provide virtually all of the seed money for a company, you should be considered a founder,” she said, adding that as chairman, Musk “had a huge role internally even though day to day operations” were handled by company executives. “It’s not like Elon parachuted in.”

The ruling can be found around the middle of the page here: http://www.sanmateocourt.org/director.php?filename=./tentrul/wed.htm

Where's our crack TMC legal team?