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Ex-Tesla Execs Win Reinstatement Of Contract Claims (May 6, 2011)

Law360, New York (May 6, 2011) -- A California appeals court on Thursday dismissed the defamation claims of two Tesla Motors Inc. executives fired in a round of layoffs in 2008 but reinstated claims that the electric-car maker breached a stock options agreement.

Statements Tesla made about a group of 26 fired employees were clearly opinion, not fact, and did not name former Director of Communications David Vespremi and former Chief Information Officer Gene Glaudell directly, entitling the company to free speech protections, the appeals court ruled.

Vespremi and Glaudell joined Tesla in early 2007 but were fired less than a year later. The layoffs were allegedly the result of financial difficulties, but Tesla executives publicly attributed the firings to problems with the employees' performance, the plaintiffs claimed in a July 2008 lawsuit.

“My clients are pleased with the decision because, although the decision of the trial court was not completely reversed, the claim that we believe to be the stronger claim was reversed,” said plaintiffs attorney Yosef Peretz, referring to the allegation that Tesla denied the plaintiffs stock options.

Though the trial court said stock options provisions in Tesla's employment agreements were “clear and explicit,” the appeals court was unsure whether the right to purchase and hold the Tesla stock vested before or after a one-year term.

“I'm confident that the company will ultimately prevail on the remaining breach of contract claim,” said Tesla's attorney, Gary Gansle of Dorsey & Whitney LLP. “[The opinion] was very positive. It tracked the defenses we laid out very closely.”

Thursday's unpublished decision partly overturns an October 2009 trial court ruling dismissing the plaintiffs' third amended complaint. The plaintiffs appealed the dismissal of three of their nine claims — for libel, slander and breach of contract.

The dispute dates back to January 2008, when the plaintiffs were fired and Tesla CEO Elon Musk allegedly told senior staff to avoid talking about the economic reasons for the terminations and instead focus on the job performance of the laid-off workers, the plaintiffs alleged.

The same day, Tesla co-founder Martin Eberhard, who was ousted as CEO, tore into the company on his personal blog and, at least initially, named the 26 fired employees.

“Axing nearly the entire executive staff. . . [and] ripping through the firmware team . . . are all hard to explain,” he wrote. “This is not the way I treat people, that is for sure. Maybe this explains why I got the boot first.”

Tesla spokesman Darryl Siry ultimately told news outlets the layoffs were the result of targeted, performance-based firings and redundancies — but not downsizing, the opinion said.

“Since resources are very precious, this also means that we must make hard decisions where need be and part ways with those whose performance has not matched expectations,” the company said in an email to customers and investors.

But the appeals court found the statements referred to the group of 26 people. When alleged defamation affects a group, plaintiffs face the challenge of showing the words concern them specifically, the appeals court said, citing the California Supreme Court's seminal 1986 decision in Blatty v. New York Times Co.

“The phraseology used by [Tesla] ... was not only broad but also unspecific; the words were obviously intended to refer to all the laid-off Tesla employees, not just to these two [plaintiffs],” the appeals court said.

Vespremi and Glaudell signed at-will employment agreements with stock options clauses entitling them to 40,000 and 100,000 Tesla shares, respectively, but the company returned Vespremi's $12,000 check to buy company stock after he was fired, the plaintiffs said.

Tesla went public in June 2010 in an initial public offering that valued the automaker at almost $178 million. Previously, Toyota Motor Corp. committed a $50 million investment in the automaker.

The plaintiffs are represented by Peretz & Associates.

The defendants are represented by Dorsey & Whitney LLP.

The case is Vespremi et al. v. Tesla Motors Inc. et al., case number A127008, in the Court of Appeals for the State of California, First Appellate District.

By Leigh Kamping-Carder