On August 24, 2018, Northern District of California Judge Charles Breyer dismissed the securities class action lawsuit pending against Tesla. Wait. What? Wasn’t that Tesla lawsuit just filed? O.K. turns out, it wasn’t that lawsuit against Tesla that was dismissed, it was a prior lawsuit. The dismissal order was entered in the lawsuit filed against the company in October 2017 alleging misrepresentations in connection with the company’s production of its Model 3 sedan, not the recent lawsuit filed against the company just a few days ago in connection with Elon Musk’s now-infamous take-private tweets. Judge Breyer, in recognition of the possible confusion about which case his order related to, said at the outset of his opinion that his ruling was in the “non-Twitter related securities action against Tesla (emphasis in the original).”  Despite the absence of a relation to Musk’s recent Twitter storm, the opinion still makes for some interesting reading. Judge Breyer’s opinion can be found here.

In his amended complaint in the Model 3 production-related securities suit, the plaintiff alleged that contrary to defendants’ representations that Tesla was prepared for the launch of its Model 3 sedan, in reality, Tesla had severely inadequate inventory and was woefully unprepared to launch Model 3 sedan as anticipated, and that the company fell short of its production goals.

In his August 27 order, Judge Breyer said that “a firm’s failure to meet projections is only actionable if the firm did not accompany those projections with meaningful qualifications.” Because, Judge Breyer said, the plaintiffs fail to allege that the defendants “made any projections that were not so qualified, their claims fail.” The federal securities laws “do not punish companies for failing to achieve their target.” Judge Breyer granted the defendants’ motion to dismiss, but with leave to amend.

One particular feature of Judge Breyer’s question was how he dealt with the defendants’ request that the court take judicial notice of 33 documents that, Judge Breyer said, contain public statements made by Tesla and its offices regarding Model 3 production. The question of judicial notice at the trial court level at the motion dismiss state in the Ninth Circuit is a particularly hot issue now, because of the Ninth Circuit’s decision earlier this month in the Khoja v. Orexigen Therpeutics case in which the appellate court decried the use of extraneous matter in connection with securities suits dismissal motions.

Notwithstanding the appellate court’s hostility to extraneous matter, he largely granted the defendants’ motion. For many of the exhibits, Judge Breyer noted that they are publicly filed statements and therefore appropriate subjects of judicial notice under Fed. R. Evid. 201(b). The other documents were conference call transcripts. With respect to all of these documents he noted that “while the complaint does not specifically incorporate these documents by reference, they constitute the subject matter of the claim: Tesla’s public statements.” Judge Breyer said that the reason he was considering these documents in connection with the motion to dismiss “for the sole purpose of determining what representations Tesla made to the market” and he added that he is “not taking notice of the truth of any facts asserted” – citing as he did so the Ninth Circuit’s opinion in Orexigen Therapeutics. On the one hand, one may say that the Ninth Circuit’s opinion didn’t seem to give Judge Breyer much pause; on the other hand, he did emphasize that he was considering the matter just for purposes of determining what was said, not for determining the truth of what was said.