Ninth Circuit Tesla Securities Fraud Class Action Case

Case: Friedman v. Tesla, No. 19-15672

Parties: Kurt Friedman (and others similarly situated), Plaintiffs-Appellants; Tesla, Inc., Defendants-Appellees

Ninth Circuit Panel Composition: Wallace (Nixon), Graber (Clinton), and Collins (Trump)

Result: 3-0 affirming district court’s dismissal of Appellants’ class action suit


The Ninth Circuit recently affirmed a district court’s dismissal of a securities fraud class action case that highlights the latitude given to corporate officials to assert and announce ambitious company goals even if the reality on the ground stands in contrast.

In 2016, Tesla announced that it would “mass market” electric vehicles vis-à-vis its Model 3 car. The following year, certain Tesla officers (namely its CEO, Elon Musk) made a number of public statements to investors regarding the production of the Model 3, including that the company was “on track” to meet its Model 3 manufacturing goals. Beset by manufacturing delays, however, Tesla confirmed in a 2017 SEC filing that it would not meet its year-end Model 3 production targets. Appellants, all shareholders of Tesla stock, later filed suit against Tesla, asserting securities fraud claims and alleging that Tesla’s public pronouncements misled investors about the Model 3’s belated manufacturing progress.

After Appellants amended their complaint twice, Tesla moved to dismiss the action for failing to state a claim. The district court granted dismissal, ruling that Appellants failed to plead any material misrepresentation that fell outside of the Private Securities Litigation Reform Act’s (PSLRA) “forward looking” statements carve out—a safe harbor provision that broadly immunizes companies and their officials “when they merely fall short of their optimistic projections.” Specifically, the trial court determined that Tesla’s statements that it was “on track” to meet its Model 3 production goals constituted forward looking statements “accompanied by meaningful cautionary statements” and thus were protected by the PSLRA’s safe harbor provision.

On appeal, Appellants argued that Tesla’s officials knew it was impossible to produce the Model 3 car under Tesla’s asserted timeline and that the company’s public “on track” proclamations were thus not “forward looking” statements protected by the PSLRA’s safe harbor provision. The Ninth Circuit panel firmly rejected this assertion.

In affirming the district court’s ruling, the panel concluded that Tesla’s public statements concerning its Model 3 manufacturing progress (save for one regarding the start of production) “unquestionably” constituted forward looking statements that were not actionable under the PSLRA.

Writing for the unanimous majority and relying on In re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130 (9th Cir. 2017), Judge Collins observed that “it is not enough to plead that a challenged statement rests on subsidiary premises about how various future events will play out over the timeframe defined by the forward-looking statement.” Hence, “[a]ny such schedule about how future production would play out on the way toward the announced goal is simply a set of the ‘assumptions’ about future events on which that goal is based. Like the goal itself, such projected timelines are forward-looking statements.” As the panel emphasized, unlike factual assertions concerning “concrete circumstances that have already occurred”—which would fall outside of the safe harbor—Tesla’s “on track” statements were “forward looking” and thus protected under the PSLRA.

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