WEBVTT - Judge Voids Musk's Multibillion Dollar Pay Package Again 0:00:03.200 --> 0:00:08.000 This is Bloomberg Law with June Brusso from Bloomberg Radio. 0:00:09.960 --> 0:00:13.039 For a second time, a judge has voided the multi 0:00:13.080 --> 0:00:17.680 billion dollar pay package awarded by Tesla to Elon Musk 0:00:17.760 --> 0:00:21.439 in twenty eighteen. The stock options package would be the 0:00:21.520 --> 0:00:25.800 highest pay package ever for a US corporate executive, worth 0:00:25.880 --> 0:00:30.320 fifty six billion dollars when Delaware Chancery Court Judge Kathleen 0:00:30.440 --> 0:00:35.000 McCormick first canceled it in January, and worth one hundred 0:00:35.159 --> 0:00:38.519 one point five billion when she voided it a second 0:00:38.560 --> 0:00:42.519 time on Monday. The judge ruled that Tesla's board was 0:00:42.640 --> 0:00:47.400 improperly influenced by Musk and capitulated to his terms when 0:00:47.400 --> 0:00:51.199 it adopted the billionaire's plan in twenty eighteen. But not 0:00:51.240 --> 0:00:55.240 to worry. Even without those billions, Musk is still the 0:00:55.280 --> 0:00:58.840 wealthiest person in the world. In fact, his wealth hidden 0:00:58.960 --> 0:01:02.240 all time high last month. Joining me is business law 0:01:02.280 --> 0:01:05.959 professor Eric Tally of Columbia Law School. Eric, this is 0:01:06.000 --> 0:01:09.760 the second time she rejected the pay package as excessive. 0:01:10.040 --> 0:01:11.320 Explain how we got here? 0:01:11.720 --> 0:01:16.200 Well, Remember, in January twenty twenty four, Chancellor McCormick issued 0:01:16.240 --> 0:01:19.200 a ruling on the merits after a full blown trial 0:01:19.280 --> 0:01:23.680 that basically said the twenty eighteen grant of the compensation 0:01:23.800 --> 0:01:27.880 package to mister Musk was invalid because it breached various 0:01:27.880 --> 0:01:30.440 types of fiduciary duties and it was not cured by 0:01:30.720 --> 0:01:36.080 an informed shareholder vote, and at that moment the Chancellor said, 0:01:36.240 --> 0:01:39.880 this means that the pay package is boyd. However, the 0:01:39.959 --> 0:01:42.280 case wasn't done yet, because at the end of any 0:01:42.319 --> 0:01:44.800 of these cases, sometimes they settle, sometimes they make it 0:01:44.840 --> 0:01:47.840 to a final adjudication on the merits. The lawyers for 0:01:47.880 --> 0:01:50.400 the plaintiff have to make a fee pedition because most 0:01:50.400 --> 0:01:54.280 of the time litigation in these areas is not kind 0:01:54.320 --> 0:01:57.360 of the standard private party litigation, but you actually have 0:01:57.440 --> 0:02:01.280 to get up an approved feel from the court and 0:02:02.040 --> 0:02:05.240 that makes it kind of like class action litigation. It's 0:02:05.240 --> 0:02:08.560 effectively a type of a contingency fee, but it's all 0:02:08.680 --> 0:02:10.400 up to the court. And so that was the one 0:02:10.560 --> 0:02:13.880 thing remaining to have happened, and it typically doesn't happen 0:02:13.880 --> 0:02:17.480 at the same time. So while Chancellor McCormick was waiting 0:02:17.560 --> 0:02:21.080 for briefing on how much of a fee the lawyers 0:02:21.080 --> 0:02:24.440 for the plaintiffs should get, that's when Tesla decided that 0:02:24.480 --> 0:02:27.919 they were going to put the same compensation package up 0:02:27.960 --> 0:02:31.200 for a revote, which they'd ended up doing in June, 0:02:31.720 --> 0:02:34.720 just weeks before the hearings on the the allocation was 0:02:34.760 --> 0:02:39.519 supposed to be conducted, and stockholders in those June meetings 0:02:39.639 --> 0:02:43.240 voted overwhelmingly both to move the company to Texas and 0:02:43.360 --> 0:02:47.680 to ratify or re ratify the pay package. So this 0:02:47.800 --> 0:02:50.239 threw kind of an interesting, you know, kind of wrench 0:02:50.320 --> 0:02:53.200 in the works with respect to the one thing that 0:02:53.320 --> 0:02:55.600 was left to have happened, which is a few award, 0:02:55.880 --> 0:02:59.519 Because now Tesla was saying, hey, this new stockholder vote 0:02:59.840 --> 0:03:03.160 indicates that, you know, there really wasn't any benefit to 0:03:03.240 --> 0:03:06.519 this outcome, and in fact, you should revisit the prior 0:03:06.600 --> 0:03:08.680 holding in the light of the fact that our stockholders 0:03:08.680 --> 0:03:11.480 have just chimed in again and said, you know, seventy 0:03:11.480 --> 0:03:14.600 two percent said we we approve it. So that ended 0:03:14.680 --> 0:03:17.919 up making this more complicated and pushed the release of 0:03:17.960 --> 0:03:21.920 this opinion into the Monday after Thanksgiving. I'm just going 0:03:22.000 --> 0:03:25.520 to guess that Chancellor McCormick did not have a leisurely 0:03:25.600 --> 0:03:27.040 and fundal places giving weekend. 0:03:27.360 --> 0:03:30.359 Did she revisit her whole opinion from before, or did 0:03:30.400 --> 0:03:34.000 she just look at the question of whether the second 0:03:34.080 --> 0:03:38.560 shareholder vote gave grounds for her to reassess her earlier ruling. 0:03:39.240 --> 0:03:42.280 Yeah, her opinion that she released the most recently. The 0:03:42.320 --> 0:03:44.760 second opinion kind of did two things. First of all, 0:03:44.760 --> 0:03:47.520 it had to take on this question about whether this 0:03:47.840 --> 0:03:51.440 new shareholder vote was going to have any bearing on 0:03:51.960 --> 0:03:55.280 her original opinion, and if it didn't, didn't have any 0:03:55.360 --> 0:03:59.240 bearing on the nature and the amount of compensation that 0:03:59.320 --> 0:04:01.600 she was going to give to the plaintiffs attorneys. And 0:04:01.640 --> 0:04:04.960 in both cases she basically pushed back on the motions 0:04:05.040 --> 0:04:08.320 that Tesla had filed, saying, no, this does not cause 0:04:08.400 --> 0:04:12.880 me to go back and revise my January opinion. In fact, 0:04:12.960 --> 0:04:15.840 that cow has long been out of the barn, and 0:04:16.200 --> 0:04:18.960 as of the time it was issued, this fact didn't 0:04:19.000 --> 0:04:21.400 even exist. So it's not like, oh, we're finding out 0:04:21.440 --> 0:04:23.760 new information that really should have been part of the 0:04:23.760 --> 0:04:26.839 original case. This is a response to the original case, 0:04:27.000 --> 0:04:28.960 and therefore it doesn't affect that outcome. 0:04:29.200 --> 0:04:29.360 Now. 0:04:29.400 --> 0:04:31.920 The second thing that she also did, she said, you know, 0:04:32.080 --> 0:04:37.240 the stockholder vote itself doesn't somehow vitiate the idea that 0:04:37.360 --> 0:04:41.000 when the plaintiffs brought this case and won it, that 0:04:41.200 --> 0:04:46.320 they created value for the stockholders and for the company 0:04:46.360 --> 0:04:49.279 by basically causing what would have been a very large 0:04:49.360 --> 0:04:51.960 chunk of the company's value to be paid out to 0:04:52.040 --> 0:04:54.640 Elon Musk. So the first part of the opinion, she 0:04:54.720 --> 0:04:57.680 basically says that stockholder vote is not going to have 0:04:58.240 --> 0:05:02.039 an effect on how I decided the original opinion or 0:05:02.080 --> 0:05:05.719 whether I think the outcome created a benefit to stockholders. 0:05:05.960 --> 0:05:07.920 And then the second part of the opinion she had 0:05:07.960 --> 0:05:10.400 to turn to the task which was all along the 0:05:10.440 --> 0:05:12.480 original task that she was going to have to take on, 0:05:12.760 --> 0:05:17.000 which is how much to compensate the attorneys for you 0:05:17.040 --> 0:05:19.800 know what was really kind of an outright win at 0:05:19.839 --> 0:05:22.720 the trial court level that resulted in, you know, essentially 0:05:22.800 --> 0:05:25.920 a clawing back or a failure to let go of 0:05:26.040 --> 0:05:29.320 I guess, you know, just around fifty billion dollars worth 0:05:29.480 --> 0:05:31.840 of options that we're going to go in the direction 0:05:32.080 --> 0:05:32.960 of mister Musk. 0:05:33.640 --> 0:05:38.000 The plaintiff's lawyers wanted billions of dollars. As I recall, 0:05:38.520 --> 0:05:40.400 how did the judge make that determination? 0:05:41.400 --> 0:05:44.880 That was itself kind of an interesting dance off because 0:05:45.440 --> 0:05:50.640 in Delaware there's there's traditionally this this approach to saying okay, 0:05:50.680 --> 0:05:53.480 look we've got to figure out what is fair compensation 0:05:53.640 --> 0:05:55.760 to lawyers, and there are kind of two ways to 0:05:55.800 --> 0:05:57.479 do it. One way is just to figure out, okay, 0:05:57.480 --> 0:06:01.200 what's a good hourly fee for lawyers, and then just 0:06:01.240 --> 0:06:03.360 figure out how many hours they worked and give them 0:06:03.560 --> 0:06:06.279 the multiplication or the product of those two things. And 0:06:06.320 --> 0:06:09.599 that's what's known as a load storm approach. And Delaware 0:06:09.640 --> 0:06:12.280 has long resisted that, I think in part because they 0:06:12.320 --> 0:06:15.480 don't want to create incentives to just work like crazy 0:06:15.480 --> 0:06:18.400 on very very low value lawsuits and say, well, here's 0:06:18.400 --> 0:06:20.480 our hourly rate and we've got a success. You know, 0:06:20.520 --> 0:06:22.839 we won a dollar and fifty cents, and we should 0:06:22.839 --> 0:06:25.760 get you know, our full hourly fees to do it. 0:06:26.000 --> 0:06:29.320 So what Delaware has largely opted for is what's known 0:06:29.360 --> 0:06:33.000 as a percentage of the benefit approach, you know, and 0:06:33.360 --> 0:06:36.200 it's a monetary payment, it would be a percentage of that. 0:06:36.560 --> 0:06:39.080 In this case, it was a cancelation of an options 0:06:39.120 --> 0:06:42.160 package worth around fifty billion dollars at least it has 0:06:42.240 --> 0:06:45.240 measured at the time of the litigation. And so that's 0:06:45.360 --> 0:06:47.599 kind of where, you know, as clear as she was 0:06:47.640 --> 0:06:50.560 going to have to head. But the problem is that 0:06:50.600 --> 0:06:54.919 this was such a large magnitude event, right, the avoiding 0:06:55.000 --> 0:06:57.920 of around a fifty billion dollar pay package. That when 0:06:57.920 --> 0:07:01.120 you kind of plug that into the usual and customary 0:07:01.240 --> 0:07:05.440 formulas for how much should plane's attorney get, it was 0:07:05.480 --> 0:07:09.040 going to yield something, you know, probably around eighteen to 0:07:09.080 --> 0:07:11.720 twenty billion dollars for the plaintiffs because they saw it 0:07:11.800 --> 0:07:13.320 all the way through to the very end, and that's 0:07:13.320 --> 0:07:16.920 when you get the most attractive type of compensation. So 0:07:17.000 --> 0:07:19.800 even the plane's attorneys realized that that probably was not 0:07:19.880 --> 0:07:22.120 going to have legs and was going to get beat back. 0:07:22.240 --> 0:07:24.320 So they kind of did a little bit of sort 0:07:24.360 --> 0:07:27.480 of self flagellation of their own to try to you know, 0:07:27.760 --> 0:07:30.200 beat that number down into something that was at least 0:07:30.200 --> 0:07:32.840 a little closer to what we've seen historically, which has 0:07:32.920 --> 0:07:35.160 never been in the billions of dollars. And they came 0:07:35.240 --> 0:07:37.480 up with a figure of about five and a half 0:07:37.520 --> 0:07:40.280 billion dollars that was still huge, in an order of 0:07:40.320 --> 0:07:42.560 ninety tude more than we'd seen in any other case 0:07:43.000 --> 0:07:45.440 in Delaware. And that's even after you know, sort of 0:07:45.440 --> 0:07:48.160 tying their hands behind their back, you know, tying bean 0:07:48.200 --> 0:07:51.160 bags to their legs, and you know, kind of weighing 0:07:51.160 --> 0:07:53.200 themselves down, and they still only got it down to 0:07:53.240 --> 0:07:58.080 about five billion dollars, and obviously Tesla was resisting that heavily. 0:07:58.760 --> 0:08:01.440 They tried to argue that the stockholder boat in the 0:08:01.480 --> 0:08:05.040 summer was further evidence that there wasn't any value from 0:08:05.040 --> 0:08:08.240 the cancelation, and the court pushed back on that, but 0:08:08.440 --> 0:08:13.000 it then sort of gave rise to this hard dilemma 0:08:13.080 --> 0:08:16.920 about whether you go with that five billion dollars, and 0:08:17.000 --> 0:08:21.680 Chanceer McCormick sort of post holes in the plaintiffs attorney's 0:08:21.760 --> 0:08:24.480 theory about how to get there, because you know, she said, look, 0:08:24.520 --> 0:08:27.000 they're clearly trying to get themselves to a smaller number 0:08:27.080 --> 0:08:29.640 that's more palatable, but the way that they're getting there 0:08:29.680 --> 0:08:32.600 just seems kind of arbitrary. But then the defendants, from 0:08:32.679 --> 0:08:37.760 from their perspective, Tesla was offering some other approaches that 0:08:38.360 --> 0:08:41.600 seemed a little bit ad hoc to Chancellor McCormick as well. 0:08:42.080 --> 0:08:44.080 And so at the end what she had decided to 0:08:44.120 --> 0:08:46.800 do is she ended up kind of doing something interesting. 0:08:46.920 --> 0:08:49.800 She said, Look, what I'm going to do is I'm 0:08:49.800 --> 0:08:53.000 going to base only for the attorney compensation part. I'm 0:08:53.000 --> 0:08:56.199 going to base that on what as of the date 0:08:56.360 --> 0:08:59.280 of the grant of the options back in twenty eighteen, 0:09:00.200 --> 0:09:02.840 kind of the best estimates at that period of time 0:09:03.160 --> 0:09:05.360 are going to yield, which is sort of in the 0:09:05.559 --> 0:09:08.760 low two billions, like two point three billion dollars. And 0:09:08.760 --> 0:09:11.000 then she said, and then I'm going to apply kind 0:09:11.000 --> 0:09:13.520 of the low end of the standard percentages as you 0:09:13.600 --> 0:09:16.760 get from that, which is fifteen percent, and that out 0:09:16.840 --> 0:09:19.120 landed her on a number of three hundred and forty 0:09:19.120 --> 0:09:21.760 five million dollars. Now, the way that she got there, 0:09:22.040 --> 0:09:24.080 you know, even other parts of her opinions that you 0:09:24.080 --> 0:09:26.480 shouldn't be reaching back to the grant date to figure 0:09:26.520 --> 0:09:29.280 out stuff. But it turns out that if you did 0:09:29.280 --> 0:09:31.920 that and got that number and took fifteen percent of 0:09:31.920 --> 0:09:34.240 it and got three hundred and forty five million dollars, 0:09:34.559 --> 0:09:36.720 that puts you in the ballpark of some of the 0:09:36.880 --> 0:09:39.719 larger fee awards that have been on the books. It's 0:09:39.760 --> 0:09:42.000 within spitting distance of a bunch of them. So the 0:09:42.160 --> 0:09:45.120 number at least under the finger and the wind approach 0:09:45.480 --> 0:09:48.480 kind of looks closer than what either the plaintive attorneys 0:09:48.559 --> 0:09:51.320 or the defendant attorneys were offering up as alternatives. 0:09:51.600 --> 0:09:54.160 So let me ask you this about her decision as 0:09:54.200 --> 0:09:57.920 a whole. Was she saying that no matter what the 0:09:58.040 --> 0:10:01.760 second vote was, no matter how it was conducted, that 0:10:01.960 --> 0:10:04.720 it wouldn't change her opinion, or was she saying that 0:10:05.160 --> 0:10:08.800 there was a problem with the second vote, that shareholders 0:10:08.840 --> 0:10:12.559 were given misleading information. I mean, which was it? 0:10:12.960 --> 0:10:15.560 As much as I disliked this statement, June, it's yes. 0:10:15.720 --> 0:10:16.480 And so. 0:10:18.000 --> 0:10:20.080 There was a part of her opinion that said, look, 0:10:20.600 --> 0:10:23.560 the idea that even if this was a fully you know, 0:10:23.640 --> 0:10:27.760 sort of coherent and solid stockholder vote, the idea that 0:10:27.800 --> 0:10:31.360 you would put this forward after we've had a full 0:10:31.400 --> 0:10:34.400 adjudication on the merits just doesn't make sense from the 0:10:34.440 --> 0:10:37.480 standpoint of Delaware law, first of all, or really no 0:10:37.679 --> 0:10:41.599 procedural precedents for you know, putting the toothpaste back in 0:10:41.679 --> 0:10:46.200 the tube with later occurring facts like a later shareholder's vote, 0:10:46.280 --> 0:10:50.040 And the only sort of situations where that has actually 0:10:50.160 --> 0:10:53.800 happened that you can find in Delaware law often relate 0:10:53.880 --> 0:10:56.680 to facts that existed at the time of trial, but 0:10:56.760 --> 0:10:59.520 somehow they didn't make it into the record, and maybe 0:10:59.520 --> 0:11:01.760 there was some kind of a defect in discovery or 0:11:01.800 --> 0:11:04.760 someone's withholding facts or something like that. And so there 0:11:04.760 --> 0:11:07.160 are some precedents that will essentially say, Okay, we're going 0:11:07.200 --> 0:11:09.760 to revisit the holding because we learned something later on. 0:11:10.000 --> 0:11:12.720 But it's always been something that you could have known 0:11:12.760 --> 0:11:14.320 at the time of trial, and this is something that 0:11:14.360 --> 0:11:17.440 didn't occur until five months at least after the opinion 0:11:17.600 --> 0:11:20.040 came out. The other thing is that this idea of 0:11:20.080 --> 0:11:25.360 a stockholder vote basically helping to fix a fiduciary duty issue. 0:11:25.640 --> 0:11:28.640 That's what's known amongst lawyers as an affirmative defense, and 0:11:28.720 --> 0:11:31.080 what that means is planets are going to come forward 0:11:31.120 --> 0:11:34.000 with whatever claim they're going to have, and then you 0:11:34.080 --> 0:11:37.640 can bring this forward to basically say, yeah, that might 0:11:37.679 --> 0:11:40.160 have happened, but we got this stockholder vote and that 0:11:40.200 --> 0:11:43.640 should either protect us or in some cases immunize us 0:11:43.920 --> 0:11:47.400 from having to bear liability. And therefore it's kind of 0:11:47.400 --> 0:11:50.000 an interesting thing with an affirmative defense. It's up to 0:11:50.040 --> 0:11:53.400 the defendants to put forward that defense at the time 0:11:53.440 --> 0:11:55.400 of trial, and you've got to do it in a 0:11:55.400 --> 0:11:58.560 timely way, and historically, if you don't raise it at 0:11:58.600 --> 0:12:01.360 the time of trial, can't raise it later on. And 0:12:01.400 --> 0:12:04.160 so she said, look, this is something that didn't even 0:12:04.559 --> 0:12:07.760 happen at the time or before trial. It happened five 0:12:07.840 --> 0:12:11.040 months after trial. You obviously didn't and couldn't raise it 0:12:11.120 --> 0:12:13.920 at the time, and now you're doing this thing and 0:12:14.000 --> 0:12:15.960 raising it five months later. But it wasn't part of 0:12:16.000 --> 0:12:19.720 your defense of the trial itself, and therefore it doesn't 0:12:19.760 --> 0:12:22.439 really count. And then the last reason why, she sort 0:12:22.440 --> 0:12:24.079 of said, look, you know, independent of whether it was 0:12:24.080 --> 0:12:27.360 a misleading or not, the best a stockholder vote can 0:12:27.400 --> 0:12:31.680 do in this case, because remember her original opinion found 0:12:31.720 --> 0:12:35.439 that mister Musk was a controlling stockholder. It turns out, 0:12:35.480 --> 0:12:39.480 under Delaware law, stockholder approval of some transaction with a 0:12:39.520 --> 0:12:43.080 controlling stockholder doesn't get you completely out of the woods 0:12:43.360 --> 0:12:47.600 of sort of the most intensive standard of review, it's 0:12:47.640 --> 0:12:50.640 sometimes known as the entire fairness doctrine. It helps you 0:12:50.640 --> 0:12:53.800 a little bit, it'll flip a burden in that case, 0:12:54.240 --> 0:12:57.000 but it's not going to basically be caused to dismiss 0:12:57.120 --> 0:13:00.760 the action. So based on just kind of pretty standard 0:13:00.800 --> 0:13:05.320 approaches under what's known as the ratification doctrine, none of 0:13:05.360 --> 0:13:09.040 these things really worked. And then adding on top of it, 0:13:09.160 --> 0:13:12.480 she said, look, in this new vote in June, there 0:13:12.480 --> 0:13:15.760 were problems with that as well. Right, the original vote 0:13:15.760 --> 0:13:18.400 back in twenty eighteen, she said didn't count because there 0:13:18.400 --> 0:13:22.240 were not adequate disclosures to the stockholders. Well, she went 0:13:22.320 --> 0:13:25.240 through this new set of disclosures, this new set of 0:13:25.360 --> 0:13:28.640 proxy materials from the spring of twenty twenty four and 0:13:28.679 --> 0:13:31.400 said that the way that the vote was being characterized 0:13:31.400 --> 0:13:35.000 to stockholders was just just inaccurate. That it would fix 0:13:35.120 --> 0:13:38.240 or it would cure or it would remedy the prior 0:13:38.440 --> 0:13:41.120 finding of a breach of the duciary duty. And it 0:13:41.160 --> 0:13:43.880 doesn't under Delaware law right as I said earlier, it 0:13:43.960 --> 0:13:46.960 only flips the burden. If anything, I mean, it may 0:13:47.040 --> 0:13:48.960 not have any effect at all. So you know, she 0:13:49.000 --> 0:13:52.040 basically used the first part of that section to say 0:13:52.200 --> 0:13:54.440 this has no effect, and then when you made a 0:13:54.440 --> 0:13:58.040 disclosure to stockholders saying this would have complete effect, you 0:13:58.120 --> 0:14:01.880 were actually materially misstating law. So she ends up also 0:14:01.920 --> 0:14:07.040 saying that the proxy materials themselves were also inaccurate and misleading. 0:14:07.200 --> 0:14:10.240 Coming up next, but will Elon Musk get his pay 0:14:10.320 --> 0:14:14.560 package anyway? This is bloomberg. For the second time, a 0:14:14.600 --> 0:14:19.240 Delaware Chancery Court judge has voided the multi billion dollar 0:14:19.360 --> 0:14:23.200 pay package awarded by Tesla to Elon Musk. I've been 0:14:23.200 --> 0:14:27.840 talking to Columbia Law School professor Eric Tally. Tesla's board 0:14:27.960 --> 0:14:31.520 says it will appeal the ruling to the Delaware Supreme Court. 0:14:31.960 --> 0:14:34.760 Do you think her decision will stand up on appeal? 0:14:35.320 --> 0:14:38.600 Well, it's an interesting thing. Look everything about Chancellor McCormick's 0:14:38.640 --> 0:14:42.840 original decision, you can justify it, right, it's on reasonably 0:14:42.880 --> 0:14:44.920 solid ground. Yeah, a lot of people been talking about 0:14:44.960 --> 0:14:48.680 this case, and you know, there's definitely room for disagreement 0:14:48.880 --> 0:14:52.120 on some of the issues in that January twenty twenty 0:14:52.120 --> 0:14:56.400 four liability opinion. But you know, the factual findings that 0:14:56.480 --> 0:14:59.120 she made are going to be very hard for the 0:14:59.160 --> 0:15:02.480 Supreme Court to unseat. So it's really a question about 0:15:02.480 --> 0:15:06.800 whether she adequately described the law or whether the Delaware 0:15:06.840 --> 0:15:09.960 spreing Court decides they want to change the precedent on 0:15:10.040 --> 0:15:13.080 the occasion of this case. I think in terms of 0:15:13.160 --> 0:15:16.760 kind of you know, articulating Delaware law, for the most part, 0:15:16.840 --> 0:15:19.360 she kind of stuck the landing in this January twenty 0:15:19.600 --> 0:15:23.480 twenty four opinion. There's new stuff in the newest opinion, 0:15:23.680 --> 0:15:27.160 and particularly you know the question of whether the stockholder 0:15:27.240 --> 0:15:31.120 vote has any effect and would cause a judge under 0:15:31.160 --> 0:15:34.360 Delaware law to have to go back and revisit the 0:15:34.480 --> 0:15:38.120 liability finding. And so there's a possibility that the Dellar 0:15:38.160 --> 0:15:42.440 Spreme Court could reverse some component of the original There's 0:15:42.480 --> 0:15:45.360 probably two or three places where I would expect to 0:15:45.440 --> 0:15:47.960 push on that original holding, and then they might push 0:15:48.080 --> 0:15:51.160 once again on this question of whether a later occurring 0:15:51.280 --> 0:15:54.680 stockholder vote can somehow kind of you know, get us 0:15:54.680 --> 0:15:57.080 back to the future as it were, and be treated 0:15:57.120 --> 0:16:02.240 as a contemporaneous stockholder vote. Their possibility, quite frankly, is 0:16:02.280 --> 0:16:05.000 that Tesla, now that it's a Texas company, they just 0:16:05.040 --> 0:16:08.200 submit to the stockholders a proposal that, out of gratitude, 0:16:08.200 --> 0:16:12.480 we should give mister Musks formally voided compensation award back 0:16:12.520 --> 0:16:15.240 and have yet a third vote. To the extent that 0:16:15.240 --> 0:16:17.720 that gets challenged, it would have to be challenged. In Texas. 0:16:17.720 --> 0:16:20.040 We don't know an awful lot about the brand new 0:16:20.080 --> 0:16:22.800 Texas business courts, but one thing that's been true about 0:16:22.800 --> 0:16:25.440 the courts is they've been courting Elon Musk, and so 0:16:26.000 --> 0:16:27.920 it may well be that he's got a more friendly 0:16:28.000 --> 0:16:30.120 venue and that will be allowed to go through. And 0:16:30.360 --> 0:16:33.800 you know, quite frankly, even under Delaware law, I think 0:16:33.800 --> 0:16:36.280 it's arguably the case that if they put this in 0:16:36.280 --> 0:16:38.880 front of the stockholders as a brand new package as 0:16:38.880 --> 0:16:43.880 opposed to an attempt to fix a previously invalidated package, 0:16:44.000 --> 0:16:47.120 they're not going to be putting toothpaste back in the tube. 0:16:47.160 --> 0:16:49.440 It's just a brand new transaction. If they did it right, 0:16:49.480 --> 0:16:52.239 even under Delaware law. My sense is that they probably 0:16:52.320 --> 0:16:54.560 could manage to make it enforceable. 0:16:55.200 --> 0:16:57.360 That sounds easier, So why appeal. Then? 0:16:57.520 --> 0:16:59.880 The two downsides I guess from Tesla's and mister m 0:17:00.280 --> 0:17:02.720 perspective is that the tax treatment won't be the same. 0:17:02.800 --> 0:17:06.000 Right when you award an options package at the time 0:17:06.680 --> 0:17:09.680 of the original grant, the tax treatment of it and 0:17:09.720 --> 0:17:11.720 the valuation of it, it's going to be much lower 0:17:11.760 --> 0:17:14.600 in terms of its valuation. When you do it after 0:17:14.720 --> 0:17:16.879 it's realized all of the benefit, it's going to be 0:17:16.920 --> 0:17:19.080 a much larger tax hit. And the other thing is 0:17:19.119 --> 0:17:21.320 that if they decided to do that, then that would 0:17:21.400 --> 0:17:24.120 leave alone the attorney the award, which in this case 0:17:24.200 --> 0:17:27.400 is you know, almost three and fifty million dollars. That's 0:17:27.400 --> 0:17:29.800 a big award. It's not as nearly as big as 0:17:29.800 --> 0:17:32.520 the planets had asked for, so you know, It could 0:17:32.600 --> 0:17:34.760 be that the test the board just asides, all right, 0:17:34.880 --> 0:17:37.040 maybe will appeal this. It depends on how much we 0:17:37.160 --> 0:17:40.160 just don't want the attorneys to be receiving anything in 0:17:40.160 --> 0:17:43.399 this case, in which case they may continue to fight back. 0:17:44.040 --> 0:17:45.880 Do you have any doubt that the board is going 0:17:45.880 --> 0:17:48.840 to get Musk the pay package he wants one way 0:17:48.920 --> 0:17:49.359 or another. 0:17:49.760 --> 0:17:52.240 It seems given the nature of the vote in the 0:17:52.280 --> 0:17:54.880 summer that that it's likely they're going to be able 0:17:54.880 --> 0:17:56.840 to get it, whether they do it as a new 0:17:56.960 --> 0:17:59.760 transaction or to try to go back and you know, 0:17:59.840 --> 0:18:04.919 and appeal. The issue of whether a retroactive vote after 0:18:05.160 --> 0:18:09.679 an invalidated grant can somehow reach back and fix the 0:18:09.680 --> 0:18:12.520 infirmities at the beginning, I think that latter course, and 0:18:12.560 --> 0:18:14.679 you know, it's conceivable the Delaware Supreme Court might go 0:18:14.720 --> 0:18:16.800 in that direction. But it does seem to me that 0:18:16.840 --> 0:18:19.879 at least on that issue, Chancellor McCormick has a decent 0:18:19.880 --> 0:18:22.840 amount of precedent and kind of logic on her side that, 0:18:22.920 --> 0:18:25.840 you know, like litigation would basically just never end if 0:18:25.880 --> 0:18:27.960 every time you've got an adverse judgment, you could just 0:18:27.960 --> 0:18:30.639 have yet another stockholder vote, And if that was problematic, 0:18:30.680 --> 0:18:32.919 then have another stockholder vote on that. It's kind of like, 0:18:33.240 --> 0:18:34.920 I guess, it's not turtles all the way down, it's 0:18:34.920 --> 0:18:36.960 stockholder votes all the way down. So I think she 0:18:37.040 --> 0:18:39.600 makes a pretty powerful point in the opinion that this 0:18:39.640 --> 0:18:42.159 would not be the best way to design a system 0:18:42.160 --> 0:18:45.439 of adjudication. But you know, they proposed this as a 0:18:45.440 --> 0:18:48.679 brand new package. I can see putting that together in 0:18:48.720 --> 0:18:51.879 ways that are fully informed and make it completely enforceable. 0:18:52.280 --> 0:18:55.160 And like I said, it wouldn't even now be under 0:18:55.200 --> 0:18:57.440 Delaware law. If it or a brand new paypack is 0:18:57.480 --> 0:19:00.159 it would be granted pursuing to the laws of the 0:19:00.160 --> 0:19:03.840 state in which Tesla is currently incorporated, which is Texas, 0:19:04.040 --> 0:19:04.640 outside of. 0:19:04.640 --> 0:19:07.479 Musk I know that you know Texas is putting on 0:19:07.640 --> 0:19:10.840 a push with these business courts. Do you see a 0:19:10.840 --> 0:19:15.000 lot of companies changing their incorporation to Texas from Delaware? 0:19:15.119 --> 0:19:17.399 Well, certainly there's a lot of kind of puffer fishing 0:19:17.440 --> 0:19:19.680 about it, right, sort of saying, look, we're going to 0:19:19.760 --> 0:19:23.399 leave Delaware. It's an odd situation, however, because one of 0:19:23.400 --> 0:19:27.399 the things that is tough about this case, this specific case, 0:19:27.800 --> 0:19:30.880 is that you got the CEO of the company who 0:19:31.000 --> 0:19:35.960 is clearly an iconoclastic and well known and in many 0:19:36.000 --> 0:19:40.240 ways quite idiosyncratic person who you know, was you know, 0:19:40.320 --> 0:19:42.679 basically sort of saying, look, I'm just going to bargain 0:19:42.680 --> 0:19:46.160 with myself and the usual rules of Delaware law shouldn't 0:19:46.160 --> 0:19:48.960 apply to me, and Chancellor McCormick kind of applied the 0:19:49.040 --> 0:19:51.639 usual rules of Delaware law to him, and you know, 0:19:51.760 --> 0:19:55.480 arguably that maybe even more than arguably that precipitated their 0:19:55.520 --> 0:19:58.760 departure from Delaware. If you were to take a different 0:19:58.840 --> 0:20:01.800 CEO who was in it is exceptional and quite as 0:20:01.840 --> 0:20:06.680 idiosyncratic as Elon Musk. There actually may be some value 0:20:06.760 --> 0:20:09.440 to having some of the some of the strings that 0:20:09.600 --> 0:20:14.200 Delaware attaches to things like compensation packages or other conflicted 0:20:14.280 --> 0:20:18.240 sorts of transactions, because almost all these more lesser light 0:20:18.400 --> 0:20:21.280 CEOs and boards are going to have to be going 0:20:21.280 --> 0:20:24.879 out and getting investments from people, and they're going to 0:20:24.920 --> 0:20:27.359 have to be talking people into parting with their money 0:20:27.680 --> 0:20:30.639 and investing it in this company. And to the extent 0:20:30.720 --> 0:20:34.479 that those prospective investors are you know, looking into their 0:20:34.480 --> 0:20:36.480 magic eight ball and saying, well, look, in the future, 0:20:36.960 --> 0:20:40.280 you know, Delaware law actually does impose some requirements on 0:20:40.320 --> 0:20:44.639 you that may make them more willing to invest and 0:20:44.760 --> 0:20:47.200 lock up their money for an extended period of time 0:20:47.440 --> 0:20:49.560 because of those strings. And so, you know, there is 0:20:49.600 --> 0:20:52.320 a sense that if Delaware were trying to kind of 0:20:52.400 --> 0:20:54.440 get it right, so to speak, it's not going to 0:20:54.520 --> 0:20:57.440 get it right for every company, but it may make 0:20:57.480 --> 0:20:58.960 a lot of sense to try to get it right 0:20:59.000 --> 0:21:01.800 for most of the companies that it has, you know, 0:21:01.920 --> 0:21:05.960 over one hundred years of you know, effectively adjudicating their claims. 0:21:05.960 --> 0:21:08.040 There's you know, kind of a reason Delaware became the 0:21:08.119 --> 0:21:12.879 dominant locus for incorporations because of the predictability of their 0:21:13.000 --> 0:21:16.199 judges and the expertise of their judges. And I'm not 0:21:16.240 --> 0:21:19.000 aware of any state that at least yet can claim 0:21:19.200 --> 0:21:21.639