JPMorgan’s $162 mln fight with Tesla: simple contract case or revenge plot?

A indication outside JP Morgan Chase & Co. workplaces in New York City, U.S., March 29, 2021. REUTERS/Brendan McDermid

(Reuters) – In each design and substance, JPMorgan Chase Lender and Tesla Inc have radically unique conceptions of their $162 million dispute above warrants that the electric carmaker sold to the bank in 2014.

The most up-to-date filings in the scenario – which began with JPMorgan’s breach of deal grievance last November and escalated in January when Tesla submitted counterclaims – present what I mean.

JPMorgan encouraged U.S. District Choose Paul Gardephe of Manhattan in a letter short last week that it intends to file a motion for judgment on the pleadings. As you know, that’s an strange procedural tactic, trying to get a ultimate determination primarily based only on the lawsuit’s opening grievance and solution to it. But JPMorgan’s attorneys at Davis Polk & Wardwell explained to the judge that this is the uncommon circumstance that can be decided on admitted info and prolonged-founded deal law precedent.

In the bank’s telling, Gardephe can identify without having any discovery how that precedent applies to its 2014 warrants contracts, which necessary Tesla to produce shares to JPMorgan in 2021 if the company’s inventory was buying and selling over the contractual strike price. The contracts gave JPMorgan the authority, as the “calculation agent,” to change the conditions of the offer in the celebration of important corporate transactions, together with the announcement of a merger or tender offer you. And in accordance to JPMorgan, when Tesla’s then CEO Elon Musk tweeted in 2018 that he was considering about taking the company non-public at $420 for each share, his tweet (and the company’s subsequent development of a unique committee to take into account the likely-private proposal) was, as a make any difference of law, an announcement event.

So, the lender instructed the decide, the only concern for him is no matter if JPMorgan created a commercially affordable decision to change the strike rate, very first in reaction to the heading-personal furor Musk prompted with his tweet and then once more when Tesla nixed the thought.

New York law interprets that conventional broadly, JPMorgan argued in past week’s letter quick, and Tesla’s counterclaims failed to allege that the lender took commercially unreasonable motion when it recalculated the strike rate.

“There is no require to squander the court’s or the parties’ time and resources with discovery and trial when Tesla has not offered any plausible factual theory that would defeat JPMorgan’s $162 million damages claim,” the financial institution claimed.

Davis Polk’s letter described the case in matter-of-point language, portraying it as an quickly settled, simple-vanilla contract dispute.

But Tesla’s lawyers at Quinn Emanuel Urquhart & Sullivan, in a vivid and accusatory response submitted on Tuesday, stated it is something but. The Quinn submitting talks about a “brazenly self-serving” plan by JPMorgan to wrest an “improper windfall” from Tesla, on leading of the billions of bucks of shares the automaker delivered to the financial institution when the 2014 warrants expired. Tesla mentioned that JPMorgan’s quick, which Quinn explained as “riddled with mischaracterizations,” in fact demonstrates why the carmaker is entitled to discovery to show its allegation that JPMorgan acted in undesirable faith.

Tesla counsel Alex Spiro of Quinn and JPMorgan attorney Lawrence Portnoy of Davis Polk declined to offer statements in response to my e-mail queries about the bank’s prepared movement for judgment on the pleadings and Tesla’s reaction.

You can notify from Tesla’s counterclaims why it is so eager to receive discovery from JPMorgan. The carmaker, as my colleague Jonathan Stempel documented in January, posits a baroque theory of the situation, in which significant-ranking JPMorgan executives saw the warrants offer as an prospect to correct revenge from Tesla and Musk for icing JPMorgan out of successful finance and underwriting assignments. (The Wall Avenue Journal documented in November on a purported feud amongst Musk and JPMorgan CEO Jamie Dimon, noting that JPMorgan has not labored on any Tesla promotions or securities choices considering the fact that 2016.)

Tesla alleged in its counterclaims that it experienced lived up to its contractual obligations when the warrants expired, delivering the requisite shares to JPMorgan primarily based on the deal’s first strike selling price. The bank’s demand from customers for practically 230,000 supplemental shares – and then, soon after a subsequent operate-up in Tesla’s share value, for $162 million – was “an act of retaliation from Tesla,” the carmaker stated. None of the other banking institutions that had entered warrants contracts with Tesla, the countersuit reported, considered Musk’s 2018 going non-public tweet as an excuse to regulate the strike rate.

JPMorgan has denied Tesla’s accusation of a revenge plot. And in last week’s letter temporary previewing a motion for judgment on the pleadings, the financial institution mentioned the carmaker’s assertion that JPMorgan was performing out of spite or scheming for a windfall was irrelevant as a matter of law.

It’s not negative religion, the bank reported, to act in your very own fascination in exercising deal rights. Tesla was essential to allege not just that JPMorgan’s strike-selling price adjustment turned out to profit the financial institution but that the strategy of adjustment was commercially unreasonable.

Tesla, of training course, claimed in Tuesday’s reaction that it experienced sufficiently alleged deficiencies in JPMorgan’s methodology for recalculating the strike rate. It also mentioned that JPMorgan’s superior religion is not a matter of law but a factual issue that are unable to be made a decision on the pleadings.

Gardephe will very likely program a hearing for the two sides to weigh in right before he decides regardless of whether to entertain official briefing on JPMorgan’s proposed motion to conclude the case without the need of any additional ado. Due to the fact each sides opted to reply the other side’s allegations alternatively than file dismissal motions, discovery will commence up if the decide is not receptive to the bank’s unusual system. We’ll see whose model – and compound – wins out.

Go through more:

JPMorgan sues Tesla for $162 mln immediately after Musk tweets soured warrant deal

Tesla countersues JPMorgan, promises bank sought ‘windfall’ right after Musk tweet

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