By Rose Krebs

Law360 (March 13, 2020, 1:07 PM EDT ) Caution over COVID-19 and an anticipated large crowd prompted a Delaware vice chancellor Friday to call off a two-week trial set to start Monday, in which Elon Musk was expected to take the stand to defend himself from stockholder claims challenging Tesla's $2.6 billion merger with SolarCity.

In a letter to counsel, Vice Chancellor Joseph R. Slights III said that "after much consideration, and consultation with others here at the court, I have determined that it is best for all that we continue the two-week trial, scheduled to begin next week."

The vice chancellor said a standing order imposed by the Chancery Court last week, which set guidelines for how trials and other court hearings would proceed if there were issues with witnesses or other parties who may have been exposed to the new coronavirus strain, was not invoked.

"Please know that this was not an easy decision to reach, given the time and resources I know you have dedicated to prepare for this trial, and the last-minute nature of this decision," Vice Chancellor Slights wrote.

The vice chancellor said he made the decision "out of an abundance of caution" and in light of Delaware Gov. John Carney's Friday morning emergency declaration that "advises against public gatherings of 100 or more people in non-essential matters."

The Tesla trial was expected to draw a crowd, and witnesses and counsel would be flying in from all over the country and "from beyond our borders," the letter said.

"And while I certainly would not characterize this trial, or any other trial, as 'non-essential,' it is not expedited and no irreparable harm will flow from an adjournment," Vice Chancellor Slights said.

The vice chancellor told counsel he believes he can "reschedule this trial promptly after the concerns regarding COVID-19 have abated."

Musk, whose activity on social media often garners much public attention and has landed him in legal hot water on occasion, chimed in on the COVID-19 crisis last week. In a March 6 tweet that has been liked by 1.7 million Twitter users, retweeted 350,000 times and generated more than 42,000 responses, Musk said: "The coronavirus panic is dumb."

The consolidated investor suit, which dates to 2016, accuses Musk and Tesla's board of unfairly pushing through an overpriced and conflicted deal to buy financially struggling rooftop solar business SolarCity.

Last month, Vice Chancellor Slights denied investors' partial summary judgment motion and Musk's motion on all claims except those related to a valuation analysis and projections as to the financial impact the merger would have on Tesla.

In addition to denying the defendants' motion for summary judgment on all but "discreet claims" related to disclosures about the merger, Vice Chancellor Slights also rejected the investors' bid for an early win, saying they haven't shown there are "no genuine issues of material fact" for the court to determine.

Vice Chancellor Slights said although Musk and the director defendants "raised a provocative argument" as to whether claims related to a controlling shareholder's fiduciary duties to the company's minority shareholders "should remain intact throughout the litigation absent proof of actual coercion," he ruled the claims can proceed to trial.

The decision came after court filings indicated six other Tesla Motors Inc. directors were leaving the company's founder to fend for himself in the stockholder challenge to Tesla's $2.6 billion SolarCity merger by agreeing instead to a separate, insurance-funded, $60 million settlement of their own.

Among the Tesla directors released under the agreement were Elon Musk's brother, Kimbal Musk.

Elon Musk launched an empire built around electric car company Tesla and co-founded SolarCity with two cousins. He was SolarCity's chairman and largest shareholder, with five of Tesla's directors owning SolarCity stock directly or indirectly.

The suit lobbed direct and derivative claims — on the company's behalf — against Musk for breach of fiduciary duty as controlling stockholder of Tesla, and derivative claims against all waste and breach of the duty of loyalty in the SolarCity deal. All were sued directly for breaches of the corporate duty of disclosure and fiduciary duty generally, while Musk and four directors were sued derivatively for unjust enrichment.

The stockholders claimed Musk exercised conflicted control over Tesla to orchestrate a bailout of the solar energy company after a June 2016 blog post announcing the deal, despite holding only 22% of Tesla stock.

During a summary judgment argument in November, attorneys for Musk and the other directors argued the SolarCity acquisition should be given deference by the court because Musk held only 22% of the company's shares and the deal was approved by independent directors.

In his summary judgment ruling, Vice Chancellor Slights said if the investors could prove that Musk was the controlling shareholder at the time of the merger, "his inherently coercive influence over the other Tesla decision-makers, including the disinterested stockholders, justifies, and, indeed, mandates entire fairness review of the merger."

The vice chancellor also cited various case law establishing that a non-majority stockholder can in some instances be deemed to be a controlling shareholder, given factors such as if they effectively control a company's board or management.

Counsel for the parties did not immediately respond to a request for comment Friday.

The investors are represented by Jay W. Eisenhofer, Christine M. Mackintosh, Kelly L. Tucker, Vivek Upadhya and Daniel L. Berger of Grant & Eisenhofer PA, Lee D. Rudy, Eric L. Zagar, Robin Winchester and Justin O. Reliford of Kessler Topaz Meltzer & Check LLP and Randall J. Baron, David T. Wissbroecker and Maxwell R. Huffman of Robbins Geller Rudman & Dowd LLP.

Elon Musk and the other director defendants are represented by David E. Ross, Garrett B. Moritz and Benjamin Z. Grossberg of Ross Aronstam & Moritz LLP and Evan R. Chesler, Daniel Slifkin, Vanessa A. Lavely and Helam Gebremariam of Cravath Swaine & Moore LLP.

The case is In re: Tesla Motors Inc. Stockholder Litigation, case number 12711, in the Court of Chancery of the State of Delaware.

--Additional reporting by Jeff Montgomery. Editing by Orlando Lorenzo.

Update: This article has been updated with background information and counsel information.

For a reprint of this article, please contact reprints@law360.com.