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SCOTUS May Gut Voting Rights Act & Elon Musk Pay Package · Bloomberg Law

0:02
Speaker 1: This is Bloomberg Law with June Brossel from Bloomberg Radio.
0:08
Speaker 2: The Supreme Court's conservatives appeared ready today to gut a
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Speaker 2: key tool that's been used to root out racial discrimination
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Speaker 2: in voting for more than half a century. During oral arguments,
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Speaker 2: the six Conservatives suggested they'll restrict the creation of majority
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Speaker 2: black or Hispanic voting districts and gut the Voting Rights Act,
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Speaker 2: the central legislation of the civil rights movement. Joining me
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Speaker 2: is Bloomberg New Supreme Court reporter Greg store So. Greg
0:39
Speaker 2: explained the issue in the case.
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Speaker 3: Yeah, so the issue is basically that under the Voting
0:44
Speaker 3: Rights Act since the nineteen eighties, there's been basically a
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Speaker 3: test that if you're a racial minority, you can go
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Speaker 3: to court and say this map illegally dilutes my vote,
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Speaker 3: and if you meet certain criteria in this test to
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Speaker 3: show that it's like racially polar I've voting in the
1:01
Speaker 3: state or jurisdiction, that you can win a Voting Rights
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Speaker 3: Act claim. And the remedy in most cases will be
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Speaker 3: that a district has to be drawn that has a
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Speaker 3: majority members of your race in that district so that
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Speaker 3: you can elect the candidate of your choice, and the
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Speaker 3: Supreme Court is basically considering upending that entire regime and saying, no,
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Speaker 3: it is not an appropriate remedy to intentionally use race,
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Speaker 3: even if it's as a remedy for that vote dilution
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Speaker 3: violation that a court has found and did.
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Speaker 2: All the Conservative justices seem to be on the same page.
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Speaker 3: Well, it sure seems like all six Conservatives are interested
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Speaker 3: in limiting the Voting Rights Act and putting real restrictions
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Speaker 3: on the requirement that sometimes states have to draw majority
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Speaker 3: minority districts to ensure that racial minorities aren't suffering discrimination.
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Speaker 2: So Justice Kavanaugh talked about, you know, these races based
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Speaker 2: remedies should not be indefinite, should have an endpoint. But
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Speaker 2: in these cases, aren't the plaintiffs showing that there is
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Speaker 2: race based discrimination going on?
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Speaker 3: Yeah? That is the counter to Justice Kavanaugh. So undoubtedly
2:15
Speaker 3: what Justice Kavanaugh is thinking about is what the Court
2:18
Speaker 3: said in the Affirmative Action case from a couple of
2:20
Speaker 3: years ago, where the Court basically said, you know, it
2:23
Speaker 3: might have been constitutional previously, but at some point, these
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Speaker 3: what they considered to be racial preferences have to come
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Speaker 3: to an end. And he's thinking about that same sort
2:32
Speaker 3: of principle here. But as you suggested, the folks on
2:36
Speaker 3: the other side of the case argued, Hey, the way
2:39
Speaker 3: the Voting Rights Act works is that you only draw
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Speaker 3: a majority block of a majority Hispanic district if, based
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Speaker 3: on current conditions, what's going on there is having a
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Speaker 3: racially discriminatory effect. So that notion of you know, hey,
2:54
Speaker 3: the discrimination we dealt with decades ago is no longer
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Speaker 3: there is sort of baked into the test. You have
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Speaker 3: to prove based on the way voting happens now that
3:02
Speaker 3: there is still racial discrimination going on.
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Speaker 2: There was pushback from the courts. Three liberals. What was their.
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Speaker 3: Point, So, yeah, a couple different points. Justice Sonya Sodo
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Speaker 3: Mayor at one point said, you're effectively killing Section two.
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Speaker 3: You that's the effect of your position. Section two is
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Speaker 3: one of the big problems of the Voting Rights Act.
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Speaker 3: Justice Elena Kagan kind of made that point we were
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Speaker 3: talking about earlier, that hey, this only happened, these intentionally
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Speaker 3: crafted majority black, majority Hispanic districts only happened after a
3:34
Speaker 3: court has found there is racial discrimination going on, that
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Speaker 3: black voters, that their votes aren't counting the same as
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Speaker 3: white voters, or Hispanic voters aren't having their votes kind
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Speaker 3: of the same way, So a lot of pushback there.
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Speaker 3: Justice Kagan also asked the lawyer defending the Voting Rights
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Speaker 3: Act to talk about the consequences of this, and she
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Speaker 3: talked about just how big the consequences could be for
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Speaker 3: minority this around the country, not just at the congressional level,
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Speaker 3: but state local as well.
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Speaker 2: What else were the conservatives concerned about, besides you know,
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Speaker 2: a time limitation, Did anyone actually feel that there wasn't
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Speaker 2: race based discrimination and voting anymore?
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Speaker 3: The big thing that the conservative justices seemed to be
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Speaker 3: concerned about was that there was discrimination going on, but
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Speaker 3: it was going on in the other direction. That when
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Speaker 3: a state is intentionally creating a majority black, majority Hispanic district,
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Speaker 3: that is discrimination and that is really worrisome and unconstitutional.
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Speaker 3: The majority also sort of fell back on this decision
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Speaker 3: from a few years ago that I'm sure you recall,
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Speaker 3: where the Court said, we're not going to police partisan
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Speaker 3: jury manderin if a state or another jurisdiction wants to
4:47
Speaker 3: carve up its districts for political reasons in a certain way,
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Speaker 3: it is free to do so. The Constitution does not
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Speaker 3: put any limits on that. So some of the conservatives
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Speaker 3: today were falling back on the idea that what's really
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Speaker 3: going on here is partisan jerrymandering, not racial jerrymandering.
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Speaker 2: Just remind us, the Supreme Court has taken out in
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Speaker 2: recent years two parts of the Voting Rights Act already.
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Speaker 3: Yeah, So the big one that everybody remembers is this
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Speaker 3: case called Shelby County, and that basically nullified the so
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Speaker 3: called preclearance regime, under which a lot of jurisdictions, mostly
5:28
Speaker 3: in the South, had to go to either the Justice
5:30
Speaker 3: Department or a federal court to get clearance before they
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Speaker 3: changed their voting rules because of the history of discrimination
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Speaker 3: in those jurisdictions. So that was one big decision, and
5:41
Speaker 3: then a more recent one just a few years ago,
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Speaker 3: was the Court making it harder to show that voting
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Speaker 3: rules as opposed to the maps are discriminatory. So I'm
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Speaker 3: talking about things like rules governing the collection of mail
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Speaker 3: ballots or the location of a polling place. The Court
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Speaker 3: put in place a much tougher test to show that
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Speaker 3: those changes are violations of the Voting Rights Act, and
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Speaker 3: since then there has not been a successful claim of
6:10
Speaker 3: that type in court.
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Speaker 2: If the Supreme Court's conservatives do away with this part
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Speaker 2: of the Voting Rights Act as well. Does that mean
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Speaker 2: that anything goes in drawing these maps.
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Speaker 3: It's hard to say for sure. That is certainly the
6:25
Speaker 3: concern of folks on the other side of the case.
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Speaker 3: Undoubtedly the Court will at least leave some theoretical room
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Speaker 3: to say that there's intentional discrimination going on, and the
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Speaker 3: state wouldn't be able to explicitly say we're doing this
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Speaker 3: for racial reasons. We're drawing the lines this way. That's
6:43
Speaker 3: actually precluded under the Constitution in the fifteenth Amendment, So
6:47
Speaker 3: that would still be there. But you know how much
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Speaker 3: that would matter as a practical matter, that's an open question.
6:53
Speaker 3: This will probably be one of those things where we'll
6:55
Speaker 3: just kind of have to wait and see what the
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Speaker 3: court's ruling says and how it works out in practice.
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Speaker 2: I mean, is there any chance that there'll be a
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Speaker 2: very narrow ruling.
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Speaker 3: There's certainly a chance. And you know, keep in mind
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Speaker 3: that just a couple of years ago, the Court had
7:15
Speaker 3: a case that, you know, if I described the circumstances,
7:17
Speaker 3: you'd say it's very very similar. It's about Alabama and
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Speaker 3: whether Alabama had to create a second majority Black district,
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Speaker 3: which is exactly what's going on in Louisiana. And in
7:27
Speaker 3: that case, the Chief Justice and Justice Kavanaugh sided with
7:31
Speaker 3: the liberals and said, we're going to basically keep the
7:33
Speaker 3: rules the way they have been now. That case, as
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Speaker 3: the Chief Justice pointed out today, didn't call into question,
7:39
Speaker 3: wasn't designed to potentially overturn any of the Court's precedents,
7:44
Speaker 3: unlike the current case. So I put that out there
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Speaker 3: only to sort of say that the Chief Justice and
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Speaker 3: Justice Kavanaugh, at least in that case, were acting a
7:53
Speaker 3: little bit cautiously. They weren't moving too quickly. It's possible,
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Speaker 3: although it wasn't really apparent, but it's possible in those
8:01
Speaker 3: instincts will will come into play and the two of
8:03
Speaker 3: them might be interested in crafting a more narrow ruling here.
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Speaker 2: I think a lot of the liberals and voting rights
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Speaker 2: advocates were looking at that case and saying, well, that
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Speaker 2: was just a couple of years ago. They're not going
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Speaker 2: to change it now, are they. But apparently the Chief
8:18
Speaker 2: Justice saw a difference in the cases.
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Speaker 3: Yeah, and you know, remember this Louisiana case was argued
8:25
Speaker 3: last term and the Court didn't decide it and when
8:27
Speaker 3: it was argued. Initially the question before the Court was
8:30
Speaker 3: pretty narrow, and at the end of the term the
8:33
Speaker 3: Court said, we're not going to decide it, We're going
8:35
Speaker 3: to consider a broader question. And that broader question ended
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Speaker 3: up being whether this whole practice of creating intentionally creating
8:43
Speaker 3: majority black, majority Hispanic districts is unconstitutional. So they have
8:48
Speaker 3: now set themselves up for a potentially much bigger ruling,
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Speaker 3: and one that could overturn a Supreme Court president or two.
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Speaker 2: We're used to them overturning one, but two and one
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Speaker 2: that would be something. So now, was it acknowledge that
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Speaker 2: this kind of ruling by the Supreme Court gotting this
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Speaker 2: part of the Voting Rights Act would help Republicans that.
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Speaker 3: Did come out. I don't know if I would say acknowledged,
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Speaker 3: but at least at the very end, the lawyer for
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Speaker 3: the NAACP Legal Defense Fund, who was defending the second
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Speaker 3: majority black district in Louisiana did allude to the political
9:21
Speaker 3: impact and the potential impact on the Supreme Court's legitimacy
9:25
Speaker 3: if it decided such a partisan issue in such a
9:28
Speaker 3: major way. It was not explicitly Republican versus Democrats in
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Speaker 3: this argument, but it wasn't lost on anybody. Louisiana's a
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Speaker 3: Republican run state. The Trump administration is on Louisiana side,
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Speaker 3: arguing that the second majority black districts should be thrown out.
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Speaker 3: So it was pretty apparent to people who was on
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Speaker 3: what side of this case.
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Speaker 2: And I will add that the six Conservatives are Republican appointees.
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Speaker 2: Just putting it out there, and could the court rule
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Speaker 2: fairly quickly, quickly in terms of the way the supp
10:00
Speaker 2: Court operates.
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Speaker 3: Within a couple of months, so that this a new
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Speaker 3: map in Louisiana can be put in place in time
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Speaker 3: for the November election, because you know, they had the
10:09
Speaker 3: whole overhang of the Purcell doctrine right kind of out there.
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Speaker 3: And if they wait until too late, then there's real
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Speaker 3: questions about whether they're ruling could force a new map
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Speaker 3: in time for the election. And if as they rule quickly,
10:23
Speaker 3: if they rule in December, then a lot of books
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Speaker 3: are concerned that it will spark a whole new round
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Speaker 3: of mid decade redistrict team even in actually in some
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Speaker 3: states have already done it, like you know, Texas and
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Speaker 3: Missouri could both if they weren't constrained by the Voting
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Speaker 3: Rights Act, they could eliminate other majority Blacker majority Hispanic districts.
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Speaker 2: Thanks so much, Greg, that Bloomberg Supreme Court reporter Greg Store.
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Speaker 2: Coming up next on the Bloomberg Law Show, Delaware's highest
10:51
Speaker 2: Court considers Elon Musk's twenty eighteen fifty five billion dollars
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Speaker 2: Tesla pay package. I'm June gross So and you're listening
11:01
Speaker 2: to Bloomberg. Tesla has launched an ad blitz not aimed
11:06
Speaker 2: at consumers to try to get them to buy cars
11:09
Speaker 2: or products, but aimed at its shareholders to try to
11:13
Speaker 2: get them to improve CEO Elon Musk's new one trillion
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Speaker 2: dollar pay package.
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Speaker 1: On November sixth, we'll hold our annual shareholders meeting this year.
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Speaker 1: We have some critical measures on the ballot. We have
11:28
Speaker 1: a bold and ambitious plan to drive Tesla's next wave
11:30
Speaker 1: of growth and value creation. For you, the owners of
11:33
Speaker 1: the company, to execute on this plan and to continue
11:39
Speaker 1: to realize extraordinary shareholder value, we need to put in
11:42
Speaker 1: place the adequate incentive structure for our CEO and ensure
11:45
Speaker 1: the stability of our board of directors. The future of
11:48
Speaker 1: Tesla and the future of your investment are in your
11:51
Speaker 1: hands and require you to participate in the shareholder vote.
11:54
Speaker 1: We are counting on you to make your voice heard well.
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Speaker 2: Tesla's shareholders will vote in Novae on what would be
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Speaker 2: the largest pay package in corporate history for Musk. In
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Speaker 2: the meantime, in Delaware's highest court today, Musk and Tesla
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Speaker 2: are still fighting over Musk's twenty eighteen multi billion dollar
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Speaker 2: pay package. A Delaware judge had rescinded that fifty five
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Speaker 2: billion dollar package after finding that shareholders had not been
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Speaker 2: properly informed about the plan when they approved it, and
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Speaker 2: that director's conflicts of interest tainted the decision. Joining me
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Speaker 2: is business law professor Eric Talley of Columbia Law School. So, Eric,
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Speaker 2: what was the Delaware Supreme Court considering in the oral arguments?
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Speaker 4: It was a hydpodge of things that were brought forward
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Speaker 4: by the Tesla directors as well as the company itself,
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Speaker 4: But it basically circulated around some aspects that involved revisiting
12:53
Speaker 4: the trial court's holding that there was a breach of
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Speaker 4: fiduciary duty associated with miss Dr Musk's compensation agreement, and
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Speaker 4: they got into that a little bit. But the more
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Speaker 4: interesting parts I think had to do with the remedy
13:08
Speaker 4: that Chancellor McCormick imposed, which was to rescind the agreement
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Speaker 4: after finding a fiduciary duty problem. And then what do
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Speaker 4: we make of the second stockholder vote that took place
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Speaker 4: in June twenty twenty four, six months after the original opinion.
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Speaker 4: Did that somehow kind of overturn the opinion or at
13:28
Speaker 4: least overturn any possible remedy beyond just a small amount.
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Speaker 4: And so the lawyers from both sides were arguing all
13:36
Speaker 4: three of these points, and any one of them or
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Speaker 4: some combination of them could factor into a potential reversal.
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Speaker 4: But my guess is it's going to be one of
13:45
Speaker 4: these three points.
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Speaker 2: So you think they're going to reverse.
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Speaker 4: I don't know for sure. I think that the probably
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Speaker 4: the strongest argument that the Tesla appellants had had to
13:55
Speaker 4: deal with the remedy in the case, Chanceller McCormick rescinded
13:59
Speaker 4: the compensation package after finding that there was not a
14:03
Speaker 4: you know, adherence to fiduciary principles. Typically, what happens after
14:08
Speaker 4: a recision of a contract is you try to put
14:10
Speaker 4: the parties back in the position they were in before
14:13
Speaker 4: the contract got entered into but mister Musk is out.
14:17
Speaker 4: You know, according to the the appellance, you know, five
14:20
Speaker 4: years of working for the company and not getting paid anything.
14:23
Speaker 4: That was not something that the trial court asked for
14:26
Speaker 4: argumentation like if this, if this package wasn't fair, what
14:30
Speaker 4: would have been fair compensation? They never went there, And
14:33
Speaker 4: that's in part because the defendants in this case never
14:37
Speaker 4: raised what a second best type of compensation package would
14:40
Speaker 4: look like. At the time, that made sense to me,
14:42
Speaker 4: because it's hard to defend a big compensation package by then,
14:46
Speaker 4: you know, painting a target on your back by saying, Okay,
14:49
Speaker 4: you know, here's the really fair part. So I kind
14:51
Speaker 4: of understand why they didn't bring it forward. But the Chancellor,
14:54
Speaker 4: in her opinion, said, you didn't give me any alternatives
14:57
Speaker 4: other than recision to say, okay, here's here's at least
15:00
Speaker 4: something that I can award to pay you back. So
15:02
Speaker 4: that's going to be interesting and it may actually, you know,
15:05
Speaker 4: my senses is probably the strongest argument that the appellants
15:09
Speaker 4: have here. The other one that I think is pretty
15:11
Speaker 4: interesting is what do you make of these votes after
15:14
Speaker 4: the fact, Right, You've got a trial that completely comes
15:17
Speaker 4: out in favor of the plaintiffs, and you know, just
15:21
Speaker 4: before the the award argumentation, Tesla has a second vote.
15:25
Speaker 4: And the question is, well, how does that second vote
15:28
Speaker 4: that now has not only you know, more disclosures, but
15:31
Speaker 4: it even has been trial cord opinion from the original trial.
15:34
Speaker 4: Does that second stockholder vote fix all of these problems?
15:38
Speaker 4: And I think that the Tesla parties, the directors, and
15:42
Speaker 4: Tesla itself, we're saying, yeah, that should essentially undo or
15:46
Speaker 4: at least limit what is available as a remedy. If
15:48
Speaker 4: the stockholders vote again now with full information and they
15:52
Speaker 4: say no, we are okay with that initial compensation package, Now,
15:56
Speaker 4: that could end up having some traction as well. First
15:59
Speaker 4: of all, because I think most people sort of agree
16:02
Speaker 4: that that second vote, you know, you had the entire
16:04
Speaker 4: opinion that was attached to the proxy materials that were
16:07
Speaker 4: sent out, and it got pretty much exactly the same
16:10
Speaker 4: percentage vote. And so it may well be the case
16:13
Speaker 4: that the Supreme Court says, Okay, look, the trial court
16:16
Speaker 4: probably couldn't do something about an event that happened after
16:20
Speaker 4: the trial court opinion. That's something for an appeal, But
16:23
Speaker 4: now we want to remand it for the trial court
16:25
Speaker 4: to think about it. There is one very old case
16:28
Speaker 4: in Delaware that basically says that that's a potential thing
16:33
Speaker 4: to do. That involved executive compensation packages that were approved
16:38
Speaker 4: or ratified by shareholders after a trial court had said
16:41
Speaker 4: now those are improper, And interestingly enough, that case was
16:45
Speaker 4: being overseen by the father of the current Supreme Court
16:48
Speaker 4: Chief Justice CJ.
16:50
Speaker 3: Side.
16:50
Speaker 4: His father was the Chancellor of the Chancery Court. And
16:53
Speaker 4: in that case it was from basically the nineteen fifties
16:56
Speaker 4: with the Supreme Court and then the trial court basically
16:58
Speaker 4: held at least that for some component of an executive
17:01
Speaker 4: compensation package, a later occurring stockholder vote that can basically
17:06
Speaker 4: fix the infirmity at least in terms of the nullification
17:10
Speaker 4: of the award. So it may well be the case
17:12
Speaker 4: that the Supreme Court says, now we don't have anything
17:14
Speaker 4: to overturn in that trial court opinion, but now we
17:17
Speaker 4: want to remand it so that the Chancellor can consider what,
17:21
Speaker 4: if any effect would there be of this vote. And
17:25
Speaker 4: you know, that could end up causing yet another sort
17:28
Speaker 4: of trial on the merits, which would give us at
17:30
Speaker 4: least something to talk about for the next couple of years.
17:32
Speaker 2: Jim, what do you think was the best argument that
17:35
Speaker 2: the plaintiffs made.
17:37
Speaker 4: Well, I think the best arguments that the plane has made.
17:39
Speaker 4: They first tried to defend the opinion below, and I
17:42
Speaker 4: will say that there were some factual conclusions in the
17:44
Speaker 4: opinion below, like that Elon Musk was a controller and
17:48
Speaker 4: that the directors were beholden to him when they were
17:51
Speaker 4: negotiating this contract. Those were factual findings that you know,
17:55
Speaker 4: you can overturn them on appeal, but only if they're
17:57
Speaker 4: clearly wrong. But based on those factual findings the Chancellor's
18:02
Speaker 4: opinion in that trial court record below. You know, I've
18:05
Speaker 4: taught that opinion many times. It's pretty easy to teach
18:08
Speaker 4: because it pretty much followed you very very conventional textbook
18:12
Speaker 4: Delaware legal principles at every at every ground. I think
18:15
Speaker 4: most of the people that complain about the opinion don't
18:18
Speaker 4: complain about the judge following the flow chart of what
18:22
Speaker 4: doctrine tells you you're supposed to do as much as
18:25
Speaker 4: making factual determinations that you know, at least some people
18:28
Speaker 4: the defendants and I guess some others who were kind
18:30
Speaker 4: of you know, thought that the Musk parties had the
18:33
Speaker 4: stronger hand that they disagreed with those factual holdings. So
18:36
Speaker 4: I think the Tornetta folks, the plaintiffs in this case,
18:39
Speaker 4: did a pretty good job of sort of saying, look,
18:41
Speaker 4: there really wasn't that much remarkable about the legal reasoning below,
18:46
Speaker 4: and if you're going to overturn factual findings, there's a
18:48
Speaker 4: very high bar to do that. And that's not really
18:51
Speaker 4: where we are directing our boat. You know, the plaintiffs
18:54
Speaker 4: in this case, who were you know, basically responding to
18:57
Speaker 4: the appeal. It's much more of a black box to
19:00
Speaker 4: how the Court's going to deal with this second stockholder vote,
19:03
Speaker 4: whether that somehow reaches back to ratify things earlier on.
19:08
Speaker 4: That's something that Chancellor McCormick basically refused to comment on
19:11
Speaker 4: at any length, given that the trial had already concluded
19:15
Speaker 4: that there already was a breach of fiduciary duties. But
19:18
Speaker 4: it would be, you know, something that the Supreme Court
19:20
Speaker 4: could send back to her, and that was probably something
19:24
Speaker 4: that the plaintiffs in this case didn't have as much
19:27
Speaker 4: of an answer to. But it was also the you know,
19:29
Speaker 4: the very time limited argument, so they spent more time
19:32
Speaker 4: on the first part. So you know, I could see
19:35
Speaker 4: that ratification vote being a grounds for reversal, I could
19:38
Speaker 4: also see a partial reversal. It says, we're not going
19:43
Speaker 4: to reverse the outcome of the finding that there was
19:45
Speaker 4: a breach of fiduciary duty, but when you rescinded the
19:49
Speaker 4: pay package, it was going to be important to lay
19:52
Speaker 4: out some sort of a restitutionary award that would put
19:54
Speaker 4: mister Musk in, you know, that would make him whole
19:57
Speaker 4: at least relative to before that compensation package was granted.
20:01
Speaker 4: And he's not at this point because he you know,
20:04
Speaker 4: now effectively worked five years for free. And so my
20:07
Speaker 4: sense is that if there's a reversal, you'll probably see
20:11
Speaker 4: a reversal on one of those two grounds, and not
20:13
Speaker 4: as much a reversal that tries to dive back into
20:16
Speaker 4: the logic in the original opinion. You know, the one
20:20
Speaker 4: part that they could reverse in the original opinion is
20:24
Speaker 4: Chanser McCormick's, you know, finding that that Musk, while only
20:27
Speaker 4: owning about twenty one percent of the company, was such
20:30
Speaker 4: a superstar CEO that he just had undue influence at
20:33
Speaker 4: least over this transaction. You know, is the first time
20:37
Speaker 4: this idea of superstar CEOs had been used in a case,
20:40
Speaker 4: and so they might sort of say no that and
20:42
Speaker 4: it's from an academic article that a couple of law
20:44
Speaker 4: professors wrote. They might say, no, that's just not a
20:47
Speaker 4: sufficiently predictable or clear test, and they might overturn on
20:51
Speaker 4: that basis. But if I were going to bet on
20:53
Speaker 4: what grounds that they would use if they overturned, I
20:56
Speaker 4: don't think it would be that. I think it's going
20:58
Speaker 4: to be more maybe that this I can shareholder vote
21:01
Speaker 4: was an effective one, or that, you know, when you
21:04
Speaker 4: rescind a pay package, that the court has to then
21:07
Speaker 4: sort of take a briefing on what the appropriate amount
21:11
Speaker 4: that mister Musk should be paid if it's not from
21:15
Speaker 4: his you know, written contract to make him whole for
21:18
Speaker 4: and so he doesn't end up giving away his services
21:22
Speaker 4: having given away his services for free for five years.
21:25
Speaker 2: Coming up next on the Bloomberg Law Show, I'll continue
21:27
Speaker 2: this conversation with Columbia Law School professor Eric Tally. Why
21:32
Speaker 2: Musk and Tesla are returning to Chancery Court in Delaware
21:36
Speaker 2: on October twenty second, and our other Delaware corporations following
21:42
Speaker 2: Musk to Texas, I'm June Grosso and you're listening to Bloomberg.
21:48
Speaker 2: Elon Musk resumed his legal fight to reinstate a record
21:53
Speaker 2: setting twenty eighteen Tesla pay package that was thrown out
21:57
Speaker 2: by a lower court judge twice. The world's richest person
22:01
Speaker 2: claims he hasn't been paid for seven years of work
22:04
Speaker 2: as Tesla's CEO, even after reaching all the performance targets
22:09
Speaker 2: to trigger a payout that Bloomberg estimates would be worth
22:13
Speaker 2: about one hundred and twenty five billion dollars. During oral
22:17
Speaker 2: arguments before Delaware's highest court today, lawyers for Tesla and
22:21
Speaker 2: Musk argue that the pay plan approved by Tesla's board
22:25
Speaker 2: should be reinstated, in part because shareholders had voted for
22:30
Speaker 2: it twice, including after Delaware Chancery Court Judge Kathleen McCormick
22:36
Speaker 2: rejected it after concluding that the process for rewarding Musk
22:40
Speaker 2: was flawed by a conflicted board of directors and inadequate
22:45
Speaker 2: disclosures that were provided about Musk's compensation. I've been talking
22:49
Speaker 2: to Columbia Law School business professor Eric Talley. Eric, we've
22:53
Speaker 2: been talking about some possible decisions. Do you think that
22:58
Speaker 2: most likely any decisions going to involve sending it back
23:01
Speaker 2: to the trial court.
23:03
Speaker 4: Well, the interesting thing about it is, I think even
23:06
Speaker 4: these later two approaches, the one that doesn't attack the
23:10
Speaker 4: logic of the original opinion but talks about either remedy
23:14
Speaker 4: or the effect of the second ratification vote, I think
23:16
Speaker 4: they have to you know, if they reverse on either
23:18
Speaker 4: one of those things, they're going to have to remand
23:20
Speaker 4: it to the trial court for a little bit more
23:22
Speaker 4: work to do. The one in which you know, they
23:24
Speaker 4: have to come up with a fair restitutionary amount for
23:27
Speaker 4: mister Musk. That's going to require additional testimony, some expert
23:31
Speaker 4: witnesses saying, Okay, here's what a fair amount would be
23:33
Speaker 4: if you're going to disallow the contract. Here are some
23:36
Speaker 4: you know, market comparables out there or some other measuring
23:39
Speaker 4: stick for the value that you delivered to Tesla. So
23:42
Speaker 4: that's going to be a very factually rich area. The
23:46
Speaker 4: appellance in this case had sort of said, it's just,
23:48
Speaker 4: you know, the plaints themselves didn't offer that, and therefore
23:52
Speaker 4: you should basically say, you know, it's impossible and there
23:56
Speaker 4: should just be nothing more than nominal damages. My sense
23:59
Speaker 4: is that if if they reverse on that ground, they're
24:02
Speaker 4: going to have to send it back to the trial
24:03
Speaker 4: court to fight that battle out. The second stockholder ratification
24:07
Speaker 4: that may be a little bit more of a clean vote.
24:10
Speaker 4: If the Supreme Court says, well, there has been a
24:14
Speaker 4: second vote and that acts to sort of, you know,
24:16
Speaker 4: to sort of undo at least either liability or just
24:20
Speaker 4: the remedy from the original transaction, that one they might
24:24
Speaker 4: be able to remand and say, we think the known
24:27
Speaker 4: facts from that second stockholder vote are clear enough that
24:31
Speaker 4: it basically absolves the company and mister Musk and the
24:35
Speaker 4: directors from liability, and we're going to instruct the Chancellor
24:39
Speaker 4: to hold that it had you know, a ratification effect,
24:43
Speaker 4: and to re implement the original conversation package. So I
24:46
Speaker 4: think that one probably could give rise to the cleanest
24:50
Speaker 4: form of reversal that wouldn't require a lot more work
24:55
Speaker 4: at the trial court level. But it also is you know,
24:58
Speaker 4: that sort of reasoning is going to req aquire them
25:00
Speaker 4: to think pretty seriously about how do they create new
25:04
Speaker 4: law related to you know, having a second or maybe
25:07
Speaker 4: a third or maybe a fourth stockholder vote each time
25:11
Speaker 4: you know there's an infirmity, do you just go back
25:13
Speaker 4: to the stockholders and try again. One of the things
25:15
Speaker 4: that chance for McCormick had made pretty clear in her
25:18
Speaker 4: prior opinions, is that, you know, if you had a
25:20
Speaker 4: law that basically just kept giving the defendants a second life,
25:23
Speaker 4: a third life, a fourth life, it's a process that
25:26
Speaker 4: has no logical endpoint because they can keep going back
25:29
Speaker 4: to the well and trying to get yet another stockholder
25:31
Speaker 4: vote until finally they hit pay dirt. So that's going
25:34
Speaker 4: to be something that the Supreme Court will have to
25:36
Speaker 4: think through if they want to reverse on the grounds
25:39
Speaker 4: of that second stockholder vote fixing things. So it makes
25:42
Speaker 4: it messy in a different way, even though they could
25:45
Speaker 4: possibly do it in a way that doesn't cause the
25:47
Speaker 4: whole case to go back into trial court for a protracted,
25:50
Speaker 4: you know, new proceeding, which you know, at this stage
25:54
Speaker 4: probably you know, a lot of a lot of folks
25:56
Speaker 4: would like to avoid and explain.
25:58
Speaker 2: Why Musk won't see this kind of derivative challenge in
26:02
Speaker 2: Tesla's new home of Texas.
26:05
Speaker 4: Yeah, well, we don't know for sure yet. I mean,
26:07
Speaker 4: one of the things that's kind of interesting about Texas
26:09
Speaker 4: is that it has a very very thinly developed set
26:13
Speaker 4: of precedents out there. Now. The Texas business courts have
26:17
Speaker 4: you know, have ramped up and you know, are now
26:19
Speaker 4: in operation. There still aren't that many precedents out there,
26:23
Speaker 4: so I think there's a it's in some ways a
26:25
Speaker 4: big wildcard about exactly what those Texas business courts would do.
26:31
Speaker 4: And in fact, mister Musk has a new compensation package
26:34
Speaker 4: that was that was authorized under the Texas Corporate Code
26:40
Speaker 4: and it itself could be subject to challenge, but we
26:44
Speaker 4: don't know exactly what the rules would be like, so
26:47
Speaker 4: you know, to essentially judge the processes and the substance
26:51
Speaker 4: of that executive compensation challenge. I think everyone expects that
26:54
Speaker 4: Texas courts, you know, they're kind of advertising themselves as
26:57
Speaker 4: being more friendly to corporate controller and CEOs and manager types,
27:01
Speaker 4: so everyone sort of as a best guess, thinks that
27:04
Speaker 4: they would be more friendly to the same set of
27:09
Speaker 4: facts if adjudicated in Texas. But you know, the wild
27:13
Speaker 4: card on this is that we just don't have much
27:14
Speaker 4: Texas law to depend on. And in fact, if you
27:17
Speaker 4: look into Texas corporate law, as often as not, its
27:20
Speaker 4: cites to Delaware as being kind of its instructional load
27:23
Speaker 4: star that it's going to follow. So in order for
27:26
Speaker 4: us to not have better predictions about how Texas law
27:29
Speaker 4: would come out. We're going to need more cases to
27:32
Speaker 4: be adjudicated in Texas, and you know, if this new
27:35
Speaker 4: compensation package gets challenged, then you know that's going to
27:38
Speaker 4: be a kind of dead center. Won't be very helpful
27:40
Speaker 4: to the current parties. But for the future, we'll kind
27:42
Speaker 4: of get a little bit of a sense of how
27:44
Speaker 4: Texas courts would deal with these things differently than Delaware courts.
27:48
Speaker 2: Has Delaware lost a lot of corporations to Texas.
27:52
Speaker 4: No, there are very few that have gone to Texas
27:55
Speaker 4: as a matter of fact, in part because people don't
27:57
Speaker 4: know exactly what to expect. There have been a there's
28:00
Speaker 4: been more of a trickle out of Delaware and into Nevada,
28:05
Speaker 4: and that's in some part because Nevada has been around
28:07
Speaker 4: as a long time would be competitor to Delaware. You know,
28:13
Speaker 4: some of this I think is probably you know, a
28:16
Speaker 4: version of virtue signaling right sort of publicly, you know,
28:20
Speaker 4: showing support for people including mister Musco, have been critics
28:24
Speaker 4: of Delaware over the longer haul. I would be surprised
28:28
Speaker 4: to see Delaware lose too much of its perch in
28:32
Speaker 4: a really short order form simply because there aren't that many.
28:36
Speaker 4: You know, Texas's remains a bit of a wild card.
28:39
Speaker 4: Even Nevada is reconstituting a bunch of its systems as well,
28:43
Speaker 4: so it's a bit of a wild card as well.
28:46
Speaker 4: So we really haven't seen the kind of a huge
28:50
Speaker 4: outflow that everyone was saying would take place. By the
28:53
Speaker 4: same token, it has ticked up a little bit compared
28:56
Speaker 4: to before, you know, January twenty twenty four, which is
28:59
Speaker 4: when trial court opinion came out. But you know, some
29:02
Speaker 4: of this I think probably is in part kind of
29:05
Speaker 4: an orchestrated, you know, political statement rather than you know,
29:09
Speaker 4: trying to trying to really sort of get a sense of,
29:12
Speaker 4: you know, what the compared to what question, like what
29:15
Speaker 4: are what are we get into if we go to
29:16
Speaker 4: Texas and leave Delaware and they're you know, I think
29:19
Speaker 4: it's like in some ways everyone's got reads the tea
29:22
Speaker 4: leaves a little bit differently, just because there aren't very
29:24
Speaker 4: many tea leaves down there to read.
29:27
Speaker 2: And it's amazing to me that. But Musk and Tesla
29:30
Speaker 2: are going to be back in the Chancery Court on
29:33
Speaker 2: October twenty second and must acquisition of Twitter is still
29:38
Speaker 2: a point of contention.
29:40
Speaker 4: Yeah, it is still a point of contention on some
29:42
Speaker 4: on some level of that. Obviously, the deal itself long
29:45
Speaker 4: ago closed and that part of it went away. But
29:49
Speaker 4: you know, during this period of time, there were people
29:52
Speaker 4: that were buying and selling stock based on you know,
29:55
Speaker 4: statements that mister Musk was making, sometimes over Twitter, sometimes elsewhere,
30:00
Speaker 4: and some of that subsidiary stuff that is still being
30:03
Speaker 4: sort of fleshed out in the courts. But you know,
30:06
Speaker 4: on some level that's just that's a different case, and
30:08
Speaker 4: this is all about the compensation aspect of it. So
30:11
Speaker 4: I don't expect that they're going to collide very much
30:14
Speaker 4: other than the fact that you know, we've got pretty
30:17
Speaker 4: much the same larger than life personality in the court
30:20
Speaker 4: that is kind of the center of attention in both cases.
30:23
Speaker 2: I can't disagree with that. Thanks so much, Eric. That's
30:26
Speaker 2: Professor Eric Talley of Columbia Law School, and that's it
30:30
Speaker 2: for this edition of The Bloomberg Law Show. Remember you
30:32
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30:35
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30:47
Speaker 2: every weeknight at ten pm Wall Street Time. I'm June
30:50
Speaker 2: Grosso and you're listening to Bloomberg