A Tale of Two Cases: The Shared Stakes in Musk's Appeal and SB21

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Those amendments themselves were largely, although not solely, a reaction to the Tornada decision.
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So the forces of the world that wanted the Tornada decision overturned had two paths to follow, and they followed both.
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One was to just directly appeal, well, first of all, to try to get overturned through a second shareholder ratification and to try to get Chancellor McCormick to change her mind on that basis or change her ruling, but then to delve to the Delaware Supreme Court.
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So that would be the purely judicial route.
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But they also, there was an organized effort to change the statutory law in Delaware as applied to controlling shareholders.
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You're listening to Bite-Sized Business Law, where we discuss big issues in small doses.
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This podcast is sponsored by the Fordham University School of Law Corporate Law Center, which is run by Fordham Law Professor Richard Squire, and me, your host Amy Martella.
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Okay, let's get down to business.
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Welcome back to Bite-Sized Business Law.
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Today's guest has joined us to discuss the initial challenge to Elon Musk's pay package at Tesla and its resulting strike down by the Delaware Chancery Court, Musk's second attempt at keeping his money with the shareholder ratification vote, and separately the passage of Delaware's controversial new law SB21.
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Today we are finally going to put it together in the last installment of this saga when we travel to the Delaware Supreme Court.
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Of course, I am talking about none other than Richard Squire, professor of business law here at Fortnum, and the faculty director of the Corporate Law Center.
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Richard, how are you?
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Amy, I'm good.
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I'm sad, though, that this is probably going to be our last podcast episode on the Elon Musk kind of adventure through the Delaware courts and also the Delaware legislature.
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It's been a fascinating series of cases and legislative developments, and it's been the gift that keeps on giving.
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But it looks like it's finally over.
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Yeah, it really has been quite a journey.
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And it's been going on for about two years.
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We'll talk about the dates a little bit later, but it's taken us very far.
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We've had some very interesting episodes on it.
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So I'm happy to wrap it up today, but I agree.
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It's kind of bittersweet.
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So why don't you explain to our listeners to start exactly which two cases we'll be talking about today and why it makes sense to discuss them together?
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The two cases that we're going to talk about today are both from the Delaware Supreme Court and both from the last few months, last three or four months.
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And they both deal with ramifications of the decision by Chancellor McCormick, the Chancellor of the Delaware Chancery Court, in two decisions back in 2024 to, as you said, throw out a very large pay package that Tesla had awarded to Elon Musk, who's a board member and its chief executive officer.
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They were really, to be more specific, they were compensation packages for very large amounts of stock options.
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At one point, when fully exercised, they would have given him an increase in wealth of more than$50 billion.
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But they were connected to extremely large and ambitious performance targets.
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So he's always had out of this world ambitions, Elon Musk.
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And so this pay package was out of this world in two senses.
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First of all, the amount that was being granted to him, the economic value, but also what he had to do to achieve it, which is cause the growth of Tesla.
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And it's not just that he had to cause Tesla to grow by 10% or 20% or 50%.
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He had to cause it to increase in size multiple times based on its market capitalization.
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So every time it would double in size from a base market capitalization of about$50 billion, he would get another tranche of these stock options.
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And there were a total of 12 tranches.
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So he had to multiply it basically to take what was one company and make it into 12 car companies in terms of size.
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And so very ambitious, Tesla did, through his leadership, achieve the growth, the maximum growth that could be awarded under his package.
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And so he earned all of the stock options.
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But Chancellor McCormick ruled that the Tesla Board of Directors had breached its fiduciary duties in awarding this huge grant of stock options.
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It had a fiduciary duty of loyalty to the corporation and its shareholders.
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And of course, Musk is one of those shareholders, the largest of them, but he only had about 22% of the shares.
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The remaining 78% of the shareholders were supposed to be protected by the board of directors of Tesla against massive dilution of their shareholdings through these stock option grants.
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And she held that the board failed to discharge its duty of loyalty to the corporation and its those shareholders in granting this massive compensation package, mainly on the view that they had submitted to Musk's control.
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She cited various facts from the negotiations over, or what she thought in many ways was a lack of real negotiations over the pay package that indicated to her that they were under Musk's control and therefore had not discharged their duties.
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So the board breached its duties in granting the stock options, and therefore she ordered that the pay package be rescinded, simply that the stock options be canceled.
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What is rescission exactly?
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I mean, it's a very basic legal concept, and she that's what she ordered here.
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But explain to our listeners what is rescission.
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Right.
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So there's different ways that you can get a remedy if you are a plaintiff in a lawsuit, or different ways that you can be compensated or achieve some kind of outcome that you think will provide you with relief for a wrong.
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Law students tend to learn first about compensatory damages.
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So if you and I enter a contract and I breach it, I may have to pay you damages equal to the benefits that you lost or the expected benefit you were going to get from the contract if I had performed.
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Rescision, and particularly this case it was equitable rescission, is an attempt not to, as expectation damages would be, to put the aggrieved party in the position that, in this case, she would be if the contract had been performed.
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But rescision rather attempts to put all the parties back into the position that they were ex ante before the transaction in question ever occurred.
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So for a breach of fiduciary duties based on a transaction like the one in this case, it would be putting both Tesla and its shareholders and Musk all in the position back they were in before, before the stock option grant was ever made.
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In practical terms, that simply meant canceling all the stock options.
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So the way that he saw it, and the way he argued it and Tesla did as well, was that it meant that he worked all those years trying to make the company larger and successfully making the company larger without any compensation for doing so that would be tied to those specific efforts.
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Okay.
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So she grants the plaintiff's request for rescission.
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That's right.
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And what happens next?
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Because it comes back to the chancery a few months later.
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Right.
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So under Delaware law and the law of other states as well, there are certain types of transactions that allegedly are breaches of fiduciary duties, either by a board of directors or by a controlling shareholder, that nonetheless can be ratified or cleansed by a vote of the disinterested shareholders.
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So the idea is you go to the shareholders and say, look, there's allegedly some concern about this transaction.
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It involves what looks like a conflict of interests.
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We, the board of directors, however, still think it's in your best interests, but we're going to ask you to ratify it.
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When first granted, before even this matter got to court, the shareholders had ratified this very large pay package from Musk by Musk's votes wouldn't count, so he abstains.
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But if we just look at the disinterested shareholders, in the vicinity of about two-thirds of holders of about two-thirds of the shares voted in favor.
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Now, Chancellor McCormick had ruled that that vote didn't count because it wasn't adequately informed.
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The shareholder voters weren't told about all of the inadequacies that she found in the negotiation process.
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So, in what I thought was a pretty clever move, the defendants in the case, the board and Musk, of course, said to the shareholders, well, here's her opinion.
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So it just sent them a proxy statement saying we'd like you to vote again on the very same pay package.
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Chancery has ruled that you were inadequately informed, and she documents all the way that you were inadequately informed, the things you should have known about in her opinion.
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So here it is.
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Read the opinion.
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Now, once you've read it, you should be fully informed according to her logic, and then vote again and tell us whether you think now that you have all the facts in front of you, you want Musk to get this pay package.
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And the vote went Musk's way again by almost exactly the same number.
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So it had no effect one way or the other.
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And then the company and Musk went back to the court and said, look, you should reconsider the outcome because you rule that the shareholder vote was inadequately informed.
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Well, now we know it.
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We did have a fully informed vote based on everything you thought the shareholders should know, and they ratified the pay package anyway.
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So at a minimum, that should cause you to reconsider what the right remedy should be and whether there is an actionable breach of fiduciary duties after all.
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So in her second opinion in the case, second large opinion, sometimes called Tornetta 2, she said, sorry, that's ineffective for a variety of reasons.
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Some are procedural about whether she had the power to reopen the case at that point after entering a final judgment.
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Also, some substantive concerns.
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She thought again there were problems with the shareholder vote.
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She thought the proxy statements contained, even with her opinion being included, new inaccurate or misleading statements and so on.
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So ultimately she threw that out.
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So as far as she was concerned, the board had breached its fiduciary duties, and the right remedy was to just throw out the pay package altogether.
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So Musk gets nothing.
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Musk gets nothing.
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Okay.
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So you were right in that the first case that came before Chancery was in January of 2024.
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And then the second case was decided in December of 2024.
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So inside a year.
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Right.
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We're going to get back to SB21, but just so people understand the timing, only a few months later, that's when this law is passed, passes the Delaware General Assembly, right?
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Right.
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It was passed by the legislature in February and signed by the governor, I think, shortly thereafter.
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Okay.
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So that's in the meantime.
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That happens before Tornetta goes up to the Supreme Court on appeal.
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So Musk appeals this decision by Chancery.
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That's right.
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Directly to the Supreme Court.
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That's because Chancery appeals go right to the Supreme Court, right?
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That's right.
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In Delaware, that's right.
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And that opinion is issued in December of 2025, which we already showed you like the speed with which Delaware deals with this.
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On two years, it was heard, reheard, appealed, and the decision was issued.
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It's really remarkable.
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So yeah, one of the benefits that Delaware cites and lawyers who want their clients to incorporate their firms in Delaware site is that the Delaware courts, first of all, are very competent in matters of business law substantively.
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They really understand business law well.
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But also they're speedy.
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You don't sit in limbo, in litigation limbo for years and years waiting to know how a court's going to rule.
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The pace of Tornetta, although speedy by the standards of any other jurisdiction, was actually a little bit on the slow side for Delaware.
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Chancellor McCormick had the case for almost a year before she made her first decision, which is unusual.
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Any other court, it would still be pretty quick.
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It was unusual, but it was a very complex case, and her original opinion is more than 160 pages, so it's a good reason for that.
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And then we were waiting for a while for the Delaware Supreme Court, but waiting for a while in Delaware means we were waiting for months after the arguments were made.
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And whereas, again, with any other court, you might wait for years.
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So yes, by the standard of any other court, this would be very quick.
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For Delaware standards, it was a bit dog ears, however, but there was a lot of complexity here in moving parts.
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Okay, but we did finally get this decision.
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So tell us, what did the Supreme Court decide in this appeal?
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Right.
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So on the appeal of the Tornado decision itself, and it should be kept in mind here, and then we're going to get back to these amendments, the SB21 amendments, which legislatively largely overruled many aspects of the Tornado decision.
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Still, the Delaware Supreme Court had a case to hear because the SB21 amendments themselves explicitly said they don't apply to litigation that's already pending before the Delaware courts on the effective date, which was February of last year.
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And that would include the Tornada case.
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So the Tornada case itself is not mooted by the amendments.
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Well, there's a lot of different ways the court could have come about the decision.
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What was interesting is that the court focused on something that had not been a big focus in Chancellor McCormick's opinions, which was the remedy that was sought by the plaintiffs, which was rescission of the full pay package, as you and I just talked about earlier.
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So the remedy, again, was full cancellation of the pay package.
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And the court said that's not the right remedy here because equitable rescission requires that the parties be put back into their position that they were ex ante before everything began.
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And the court said that's simply impossible here.
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Elon Musk works for six years, investing his time into making Tesla a much more profitable, larger company, and those efforts largely paid off.
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And so there's no way you can give him all of his time back and all of his labor back.
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And so it would be, you could portray it as he did all of that work without any consideration.
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And because you can't restore all of his labor to him and all of his effort, it's improper to just simply cancel the pay package altogether without attempting to provide some other type of compensation.
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So I think the court would agree, it would have to agree, because I think it did hold that the pay package was improper in a substantive matter, that some other maybe smaller pay package would be appropriate based on quantum marrow it, which is the a measure of the value actually added by his efforts.
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But he clearly added value through his efforts, and so the compensation can't be zero.
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Therefore, the remedy ordered by Chancellor McCormick was improper.
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Now you may think, well, okay, why not then order a different?
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So cancel the pay package, but give him some other type of compensation, maybe pick the largest pay of any CEO in America and give that, require Tesla to give that to him for his six years of work, something like that.
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The Supreme Court went on and said, the burden is on the plaintiff in a case like this one to identify the proper remedy.
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And here the plaintiff didn't identify any other remedy.
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The plaintiff simply said, the only thing I'm asking for is rescission, full rescision of the pay package.
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Chancellor McCormick said, well, I don't have anything else on the record, any other kind of remedy to look at here.
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The only one the plaintiff has offered is uh rescission, and the plaintiff is one on the substance, so I'm gonna grant rescission.
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And she said further, maybe if there had been some other remedy that could be appropriate, the defendants could have identified it.
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So Musk and the board could have come to forward and say, so argued in the alternative, basically, saying, first of all, we think that there was no problem with this pay package as it was.
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However, if you were to find that there was a breach of fiduciary duties, here is the alternative compensation package that we would think would be appropriate.
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And the defendants didn't argue for anything like that.
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And so she said, since the defendants didn't seek any alternative remedy or offer one, the plaintiffs didn't offer one, I'm stuck with the rescind remedy sought by the plaintiffs, and therefore I'm going to grant it.
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And the Delaware Supreme Court said that's wrong.
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It was the burden on the plaintiff to identify the alternative remedy when rescission was inappropriate.
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Rescision was inappropriate here, so the rescission remedy is thrown out.
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The Supreme Court then further said, now in a situation like this, where there has been an injury shown, but there's no viable remedy that's been identified, we will award nominal damages of one dollar.
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So Musk gets his pay package, but some defendant, it could be him, has to pay into the corporation one dollar as compensation for the breach of fiduciary duty.
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So basically he got the full compensation back.
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At some point in the opinion, they mentioned that in one of the initial pleadings, the plaintiff did ask for the first three tranches to possibly be canceled.
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But then later took that out of their argument and just went for the full Monty, just full rescission.
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Yeah.
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So the plaintiff abandoned that remedy as an alternative.
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Because it was abandoned, Chancellor McCormick didn't rule on it as an alternative.
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And so the Supreme Court didn't reach it.
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It doesn't strike me as here, it would have been entirely impossible for the Supreme Court to remand the case and for it a fashion to have a different remedy.
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So it could have said, look, Chancellor McCormick have signed the burden incorrectly.
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The burden shouldn't have been on the defendant, the burden should have been on the plaintiff to identify a proper remedy, in light of the fact proper meaning not rescission, as we have now held.
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But because the plaintiff did succeed on the merits, we will give the plaintiff a chance to reply it.
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So hearings could have been ordered for an alternative remedy, but the Delaware Supreme Court decided it just wanted to close the case at this point and order those damages.
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And there's some interesting language at the end of the opinion indicating this interest in closing the case, because there was another issue that the Delaware Supreme Court had to rule on in this final appeal, which was the plaintiff's attorney's fees.
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Yes.
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So this is a derivative suit.
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And in a derivative suit, if a benefit is conferred on the corporation, then the plaintiff can ask the court to order that the corporation pay for the plaintiff's attorney on the theory that the lawsuit is for the benefit of the corporation.
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And so the corporation should pay for the attorney that brought the lawsuit.
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And the Delaware Supreme Court did hear a plaintiff's attorney award an amount for the plaintiff's attorney, but it was an adjustment to the amount that had been ordered before, because the amount that had been ordered before was based on the value of the rescinded stock options, and they're no longer rescinded.
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So there's a really interesting story here.
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The original ask by the plaintiff's plaintiff's attorney, I should say, was for$5.6 billion in fees, representing about 10% of the market value of the stock options that it was tried to get canceled, that he was trying to get canceled through the lawsuit.
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Chancellor McCormick rejected that, but instead took 15% of the original accounting value of the stock options, which was a much lower number.
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And she came up with$235 million in fees.
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And so it was still a very big number, but a lot less than the plaintiffs had originally asked for.
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Here, the Delaware Supreme Court said, no, no, no, that's too much.
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We instead are going to accept a lodestar method.
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You look at the hours worked by the plaintiff's attorneys, you apply a normal hourly fee, and then you might multiply it by a factor to reflect complexity and risk and so on, and we will accept$54.5 million in attorney's fees, which interestingly was about 1% of what the plaintiff's attorney originally asked for.
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So instead of getting$5.6 billion, he ends up getting$54.5 million, which is still a lot of money, obviously.
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Now, the Delaware Supreme Court could have said, we will remand to the Chancery to do this calculation, but we don't want her to do any more work on this.
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So there's some interesting language here where the court said, although we ordinarily remand for a recessment of fees, we make an exception based on the length of this litigation and not to burden the court of chancery, which has devoted enormous time and attention to this case over many years at great personal sacrifice.
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Basically, the idea there being, she's done enough work on this.
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She has suffered because of this, not only the work on the case, but also Elon Musk said very unflattering things about her in the media and so on.
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And so we're going to relieve her of having to deal with this anymore.
00:19:25.279 --> 00:19:35.279
But in that could be read as an implicit reason why there was also no remand to try to find not only what the court was talking about here, which is a different amount in attorney's fees, but also maybe a different remedy.
00:19:35.599 --> 00:19:36.880
Yeah, that makes a lot of sense.
00:19:37.119 --> 00:19:41.759
Going back to something you said earlier, you explained that they focused very narrowly here on the remedy.
00:19:42.000 --> 00:19:43.440
They have this interesting line, though.
00:19:43.680 --> 00:19:52.880
Although the justices have varying views on the liability determination, we agree that rescission was an improper remedy, therefore it chose that narrower path to resolve this appeal.
00:19:53.039 --> 00:19:58.799
So you think we can read into this that they agree with McCormick's assessment of whether there was a breach.
00:19:58.960 --> 00:20:01.759
Obviously, we must, because they gave nominal damages.
00:20:04.640 --> 00:20:04.880
Yes.
00:20:04.960 --> 00:20:08.400
So I mean there's a little bit of ambiguity there about what exactly that means.
00:20:08.480 --> 00:20:16.640
Although the justice have varying views on the liability determination, that could simply, again, be a reference to the remedy, right?
00:20:16.799 --> 00:20:23.200
That there is the amount of liability rather than the finding that there is a breach of fiduciary duties.
00:20:23.359 --> 00:20:28.880
There is a footnote here that tries to explain the defendants offered three paths this court could adopt.
00:20:29.039 --> 00:20:32.480
It could be you could overturn the entire fairness standard, which would be the substance.
00:20:32.640 --> 00:20:37.599
Second holding precision was an improper remedy, or third finding that the second stockholder vote ratified the transactions.
00:20:37.759 --> 00:20:41.039
So there were different options that the court could go with here.
00:20:41.279 --> 00:20:46.480
Clearly, it went with option two that uh rescind was an improper remedy.
00:20:46.640 --> 00:20:51.519
So you might read that as saying we're not reaching the merits on these other questions.
00:20:51.680 --> 00:21:02.079
But again, I think you have to, in order, first of all, to order nominal damages, but also more importantly, maybe in terms of the economics of it, to order that the plaintiff's attorneys get any kind of payout.
00:21:02.400 --> 00:21:05.519
The Delaware bench is a very tight-knit community.
00:21:05.759 --> 00:21:07.519
The Delaware bar in general is small.
00:21:07.759 --> 00:21:11.119
Do you think there was anything political at work here in terms of that?
00:21:11.359 --> 00:21:17.759
I mean, you don't want to overturn the Chancery's decision on the substance, but you go with the remedy.
00:21:17.920 --> 00:21:19.440
Do you think any of that was at work here?
00:21:19.920 --> 00:21:28.640
Yes, I think it is easy to tell a political story about this decision, in which kind of everybody gets something.
00:21:28.880 --> 00:21:32.160
So, first of all, Musk gets his pay package back, minus a dollar.
00:21:32.319 --> 00:21:33.680
By the way, it's not just minus a dollar.
00:21:33.839 --> 00:21:41.519
Musk being the 21% shareholder also means effectively he's paying 21% of that attorney's fee award to the plaintiff.
00:21:41.680 --> 00:21:44.880
So, you know, 10 million or so of that is out of his pocket.
00:21:45.039 --> 00:21:47.759
You know, that's a rounding error for someone like Elon Musk.
00:21:47.839 --> 00:21:49.920
So he gets his stock options.
00:21:50.079 --> 00:21:54.799
The plaintiff attorney gets something here, not as much as he originally hoped, but still more than$50 million.
00:21:55.200 --> 00:21:56.240
So that's not bad.
00:21:56.400 --> 00:21:59.759
And in a way, Chancellor McCormick gets her reputation protected.
00:22:00.400 --> 00:22:02.079
In the area where it would be most important.
00:22:02.240 --> 00:22:12.880
Now, there was an aspect of her holding that was overturned, which is basically you could say it as her analysis of the appropriateness and also of the application of the burden of proof on the remedy.
00:22:13.039 --> 00:22:24.400
But that's not a core corporate law question that we normally think that Delaware judges and especially Delaware chancery judges are supposed to be experts on.
00:22:24.640 --> 00:22:50.160
So it doesn't call into question in any meaningful way her ability to do what we normally think of as people go to Delaware in order to get judges who can do it well, which is to analyze fiduciary duties properly, to understand the complexities of corporate transactions, to protect shareholders sufficiently, but also at the same time to protect managers against overreaching shareholders.
00:22:50.319 --> 00:22:59.519
So kind of in the core stuff that I teach when I teach corporate law here, she was affirmed across the board effectively, or at least not overturned across the board.
00:22:59.680 --> 00:23:07.759
I never teach my students in my corporations class about what's the right remedy to this level of detail and when is equitable rescision appropriate and so on.
00:23:08.000 --> 00:23:11.440
You could say that she was overturned on a procedural technicality.
00:23:11.599 --> 00:23:28.079
Now, as it happened, it was a massive technicality that swung the whole outcome of the case, but in no way are kind of her bona fides as a corporate law expert, as someone who is capable of making top-level Delaware quality corporate law called into question.
00:23:28.240 --> 00:23:44.480
So in that way, she gets something, or you might think the Delaware Chancery Court gets something, which is protection against allegations in a way of competence or being biased and left wing, as Musk and others accused them of being her and the others of being after this decision.
00:23:44.720 --> 00:23:50.720
There is protection by the Delaware Supreme Court of the Chancery's court's reputation in that corporate area.
00:23:50.880 --> 00:23:55.119
So, in a way, like I said earlier, it's almost like it's like everybody gets something here.
00:23:55.200 --> 00:23:56.960
It's a bit of a Santa Claus ruling.
00:23:57.119 --> 00:23:58.559
Everybody gets a gift of some type.
00:23:58.880 --> 00:24:00.240
Okay, so everyone got something.
00:24:00.400 --> 00:24:02.400
That was the end of the Tornada journey.
00:24:03.039 --> 00:24:07.119
So not even two months later, the Supreme Court issued another really important decision.
00:24:07.519 --> 00:24:10.960
And that was the case of Rutledge versus Clearway Energy.
00:24:11.200 --> 00:24:11.440
Right.
00:24:11.680 --> 00:24:13.200
Tell us what was going on there.
00:24:13.759 --> 00:24:18.000
That was a constitutional challenge to the SB21 amendment.
00:24:18.079 --> 00:24:23.599
So this is a challenge to the legislative amendments that you and I mentioned earlier in this conversation.
00:24:23.839 --> 00:24:29.279
Those amendments themselves were largely, although not solely, a reaction to the Tornada decision.
00:24:29.440 --> 00:24:36.960
So the forces of the world that wanted the Tornada decision overturned had two paths to follow, and they followed both.
00:24:37.119 --> 00:24:48.960
One was to just directly appeal, well, first of all, to try to get overturned through a second shareholder ratification and to try to get Chancellor McCormick to change her mind on that basis or change her ruling, but then to delve to the Delaware Supreme Court.
00:24:49.119 --> 00:24:51.119
So that would be the purely judicial route.
00:24:51.279 --> 00:24:59.359
But they also, there was an organized effort to change the statutory law in Delaware as applied to controlling shareholders.
00:24:59.519 --> 00:25:07.440
Controlling shareholders did not have before the legislation any what are called statutory safe harbors for self-dealing decisions.
00:25:07.519 --> 00:25:11.599
There were safe harbors for directors who engage in self-dealing.
00:25:11.680 --> 00:25:22.559
And the idea here was that if a corporation engages in a transaction with one of its directors, there's a self-dealing problem because the director runs the corporation, he is effectively on both sides of the transaction.
00:25:22.720 --> 00:25:24.799
There are common law ways to deal with this.
00:25:24.960 --> 00:25:32.559
Some of those common law, what are called safe harbors or cleansing kind of procedures, were eventually codified in the Delaware statute.
00:25:32.720 --> 00:25:44.000
And that the procedures basically said if the fact of the conflict of interest is made known to the other directors, the one who doesn't have the conflict of interest, and they, in good faith, approve the transaction anyway.
00:25:44.319 --> 00:25:50.480
Or if the transaction, the conflict of interest is identified and made known to the shareholders and they ratify it.
00:25:50.640 --> 00:26:01.920
So the shareholder ratification procedure again, if that were followed, then the statute said those would be safe harbors insulating the transaction against subsequent challenge on breach of fiduciary duty grounds.
00:26:02.160 --> 00:26:17.440
There had been similar safe harbors developed by the Delaware courts, both independent committee of the directors and also shareholder ratification, for addressing what allegedly was going on in Tornado, which was self-dealing by a controlling shareholder.
00:26:17.599 --> 00:26:19.519
But they had not made it into the statute yet.
00:26:19.599 --> 00:26:20.799
So they were common law.
00:26:20.960 --> 00:26:36.000
And as we saw from the common law, the Tornado decision, and also some other decisions dealing with self-dealing by controlling shareholders, the ability of the defendants in these cases, the controlling shareholders and the other directors, to achieve a safe harbor was more difficult.
00:26:36.160 --> 00:26:39.200
It was a higher standard that the Delaware courts were applying.
00:26:39.359 --> 00:26:48.000
As a practical matter, the ability to show in one of these lawsuits, if you're the defendant, that you've satisfied a safe harbor is very useful because almost always it is pre-trial.
00:26:48.319 --> 00:26:52.640
So you can get a case dismissed, the motion to dismiss, or maybe it's summary judgment if necessary.
00:26:52.880 --> 00:26:58.160
But usually if you can show a safe harbor, you win, you win pretty early, and it doesn't cost you very much money.
00:26:58.319 --> 00:27:06.720
Whereas if you can't show the satisfaction of a safe harbor, then we go to trial to determine the entire fairness of the transaction that can be drawn out, very expensive, and so on.
00:27:06.880 --> 00:27:08.720
So this is a big deal for defendants.
00:27:08.799 --> 00:27:10.559
They want to be able to satisfy these safe harbors.
00:27:10.640 --> 00:27:19.519
And the perception was in Tornetta and other cases that the common law, judge-made safe harbors for self-dealing by controlling shareholders, they were too difficult to satisfy.
00:27:19.680 --> 00:27:33.599
So SB 21 codified for the first time safe harbors for controlling shareholders into Delaware law and did it in a way that made it, they were more lenient, they were easier to satisfy than the courts had been ruling.
00:27:33.759 --> 00:27:44.640
This almost certainly means, by the way, that if because of several of the aspects of SB21, that if SB21 had been applicable to the Tornada case, in other words, if the defendants in Tornado v.
00:27:44.720 --> 00:27:50.160
Musk had been able to avail themselves of those statutory safe harbors, they almost certainly would have won the case.
00:27:50.319 --> 00:27:55.200
So it was almost like it was a legislative overruling of Tornada and some other decisions as well.
00:27:55.279 --> 00:27:56.240
But that was one it was.
00:27:56.319 --> 00:28:02.160
So you might say, well, why didn't the Delaware Supreme Court just say, hey, it's been overruled by the legislature?
00:28:02.400 --> 00:28:13.119
And the reason is that the statute itself said these changes don't apply to any litigation that is occurring that is before the courts as of the effective date, which is February of last year.
00:28:13.200 --> 00:28:14.720
And that certainly applied to Tornado.
00:28:15.039 --> 00:28:18.079
So the Delaware Supreme Court had to reach the merits of the case.
00:28:18.319 --> 00:28:37.359
But interestingly, the fact that SB21 was subsequently held by the Delaware Supreme Court to be constitutional means that the impact of its holding on the merits is limited because most cases going forward will be under SB 21, and therefore those safe harbors will be available.
00:28:37.680 --> 00:28:40.799
The ruling, however, on SB21 itself was different.
00:28:40.880 --> 00:28:54.640
So this is the one you asked me about, which is the recent decision, the Rutledge case, a different case where there had been a lawsuit brought alleging breach of fiduciary duties, and the defendant said, well, we are protected by the safe harbors.
00:28:54.799 --> 00:29:06.319
And what was interesting about the particular fact pattern here is the alleged illegal action occurred before SB21 went into effect, but the lawsuit wasn't brought until after it went into effect.
00:29:06.480 --> 00:29:10.799
And so that carve out on SB21 for pending litigation didn't apply.
00:29:11.039 --> 00:29:17.599
Where that carve out for pending litigation doesn't apply, the amendments also said we have it they have retroactive effect.
00:29:17.759 --> 00:29:21.839
So they affect transactions that occurred even before the amendments themselves were made.
00:29:21.920 --> 00:29:26.640
So the defendants said we can avail ourselves of these new statutory safe harbors.
00:29:26.880 --> 00:29:30.880
And according to the plain language of the statute, that they were right, they could.
00:29:31.039 --> 00:29:36.000
So they argued, well, the amendments created in the safe harbors are unconstitutional.
00:29:36.240 --> 00:29:37.759
They violate Delaware law.
00:29:38.000 --> 00:29:42.079
And the Chancery judge certified that question directly to the Delaware Supreme Court.
00:29:42.160 --> 00:29:45.920
And the Delaware Supreme Court held, no, no, in the case said, no, no, it's fine.
00:29:46.079 --> 00:29:47.920
SB21 is fully constitutional.
00:29:48.319 --> 00:29:52.720
And so they ruled that it's fully constitutional, the safe harbors, you know, they don't cut down.
00:29:52.799 --> 00:29:55.839
Because the argument is what, that it cut down on the chancery's equitable powers or something?
00:29:56.079 --> 00:29:57.200
Yeah, there were two arguments.
00:29:57.359 --> 00:29:59.839
They were similar kind of in their tone, however.
00:30:00.160 --> 00:30:04.400
The Chancery Court is created by the Delaware Constitution.
00:30:04.480 --> 00:30:11.039
And the Delaware Constitution has language that says something that's like all equitable power will be given to the Chancery Court.
00:30:11.200 --> 00:30:31.359
And so the argument in the main constitutional argument in the case was because the amendments reduce the ability of the Chancery Court to order remedies for breach of fiduciary duties, basically because they create these safe harbors, it is impinging upon the constitutional equitable powers of the chancery court.
00:30:31.519 --> 00:30:38.079
Because the constitution says that the exclusive equitable powers are in the Chancery Court in Delaware, that can't be done by statute.
00:30:38.160 --> 00:30:42.160
It would have to be done, these amendments would have to be done by a constitutional amendment.
00:30:42.319 --> 00:30:57.119
The Delaware Supreme Court said, what we really worry about here, what really would be unconstitutional and would threaten that statutory language, would be any stripping of equitable power from the chancery judge and giving it, let's say, or chancery court, giving it to another court altogether.
00:30:57.279 --> 00:31:05.359
So there were some earlier cases where the family courts in Delaware have been given jurisdiction over certain equitable style cases.
00:31:05.440 --> 00:31:08.559
And the argument had been made, you can't do that under the Constitution.
00:31:08.640 --> 00:31:11.279
If it's equitable, it has to be in the Chancery Court.
00:31:11.440 --> 00:31:16.319
So here the Supreme Court said these amendments don't remove any cases from the Chancery Court.
00:31:16.400 --> 00:31:17.839
There's no stripping of jurisdiction.
00:31:18.079 --> 00:31:25.440
Basically, what it's doing is just applying substantive rules about how the court will apply the law to certain facts.
00:31:25.680 --> 00:31:31.599
I'm not a constitutional law expert, so I can just describe the results as that.
00:31:31.839 --> 00:31:39.599
I will also just observe that there is a kind of line-drawing problem that you could get to, I think, in some of these cases.
00:31:39.759 --> 00:32:00.799
You can imagine a statute that says we're not officially stripping the Chancellery Court of jurisdiction in these cases, but nonetheless substitutively could make it so difficult for a plaintiff to win a case that it would be effectively the same thing, would be extinguishing a set of causes of action altogether, that it would be stripping through substantive changes in the law.
00:32:00.960 --> 00:32:04.799
And the court didn't really address that potential line drawing problem.
00:32:04.960 --> 00:32:10.000
It simply said it's a difference in kind here rather than a matter of degree.
00:32:10.160 --> 00:32:14.079
This is defined in the substantive law rather than stripping of jurisdiction, and so there's no problem.
00:32:14.319 --> 00:32:23.119
There was a second argument in the case having to do with the retroactivity language, where except for cases already pending in February of last year, the statute is retroactive.
00:32:23.200 --> 00:32:25.279
And the court said, yeah, yeah, that's no big deal.
00:32:25.519 --> 00:32:27.759
This kind of thing happens all the time under the law.
00:32:27.920 --> 00:32:32.240
And again, it was not an extinguishing of a cause of action altogether.
00:32:32.400 --> 00:32:33.839
It's a similar kind of logic.
00:32:33.920 --> 00:32:38.240
It was simply a change in terms of how the cause of action will be interpreted.
00:32:38.400 --> 00:32:40.000
And so that's kosher as well.
00:32:40.319 --> 00:32:40.480
Yeah.
00:32:40.640 --> 00:32:47.200
In fact, I feel like parties fight all the time when statutes are silent as to retroactivity about whether it has retroactive application.
00:32:47.279 --> 00:32:49.200
So this it was nice that they included in here.
00:32:49.359 --> 00:32:51.279
And the Supreme Court, of course, affirmed.
00:32:51.519 --> 00:33:01.119
So, okay, so you had the Supreme Court had these two cases before them for a while together, and they gave Musk his money back and they affirmed the constitutionality of SB 21.
00:33:01.359 --> 00:33:01.519
Right.
00:33:01.759 --> 00:33:09.039
How much of this is a product of all the pressure that we have been talking about for the last few years about Dexit, about companies leaving Delaware?
00:33:09.279 --> 00:33:11.039
How much does that context matter here?
00:33:11.599 --> 00:33:16.160
It's impossible to look at all this and not think about the political context.
00:33:16.319 --> 00:33:22.079
You of course want to believe that judges are immune to political considerations.
00:33:22.319 --> 00:33:25.519
Although sometimes judges explicitly say, I do think about politics.
00:33:25.839 --> 00:33:31.920
Specifically, I think about whether uh a certain decision this court might make might undermine its perceived legitimacy.
00:33:32.079 --> 00:33:34.319
We know that Chief Justice Roberts of the U.S.
00:33:34.400 --> 00:33:45.519
Supreme Court talks about the legitimacy of the Supreme Court, and so for that reason wants to be modest in his rulings, wants to not overturn Congress when it's not necessary, for example.
00:33:45.759 --> 00:33:54.559
But for the most part, maybe beyond concerns of the perception of legitimacy or actual legitimacy, we want to think courts are just applying the law as written.
00:33:54.799 --> 00:33:59.039
Politics is for the elected branches, it's for the governor and the legislature.
00:33:59.279 --> 00:34:28.239
Nonetheless, it is also true that this is a lucrative franchise for the state of Delaware, realized largely through its courts, which is having corporations that have their headquarters in other states that were founded in other states, deciding that, especially when it's time to go public, they want to reincorporate in the state of Delaware because they want to avail themselves of the statute, but I would say even more importantly of the judges, the perception that they have the virtues that I mentioned earlier in terms of competence, speed, and so on.
00:34:28.480 --> 00:34:51.119
And so when the judges are ruling on things like does Musk keep his pay package and is SB21 good law, it would be impossible, I would think, for them not to think, well, gee, if I were to rule in a controversial way politically, could that endanger Delaware's position as the favored jurisdiction for uh incorporation, especially of large publicly traded companies?
00:34:51.280 --> 00:34:59.599
And so given that additional consideration, you might think it would have been very hard for the Delaware Supreme Court to throw out SB-21.
00:34:59.760 --> 00:35:23.679
SB21 was, everybody agreed, it was a reaction to lower court and also Delaware, earlier Delaware Supreme Court decisions that were considered to be too, let's say, pro-plaintiff in this kind of derivative litigation, that the legislature decided we need to rein in the courts a little bit here, and it was explicitly thinking about and concerned about loss of Delaware's position and all of the franchise tax revenue that comes with it.
00:35:23.840 --> 00:35:29.840
And so those considerations, it would be impossible to imagine that they didn't, the judges weren't thinking about them.
00:35:30.000 --> 00:35:35.519
And it would have made a ruling that SB21 was unconstitutional all the more shocking.
00:35:35.599 --> 00:35:39.119
Because in a way, you can think of SB21 as a checks and balances process.
00:35:39.280 --> 00:35:42.800
The courts do some things, the legislature doesn't like them, so the legislator corrects.
00:35:43.199 --> 00:35:49.199
If the courts then throw that out, it's almost like you could argue then the checks and balances are breaking down, right?
00:35:49.360 --> 00:35:55.440
Because the very ability of the legislator to check the courts is not being recognized by the courts.
00:35:55.599 --> 00:35:57.360
Now, that could be an overstatement.
00:35:57.599 --> 00:36:02.320
The Supreme Court could have said in the Rutledge case, do this by a constitutional amendment.
00:36:02.480 --> 00:36:05.280
We're not completely unfettered in our powers as a judiciary.
00:36:05.360 --> 00:36:11.039
We're just saying that certain powers are protected by the Constitution and they can't be amended simply by statute.
00:36:11.199 --> 00:36:17.920
But maybe seeing, okay, we get the message, you know, legislature, governor, you didn't like where we were going with some of these decisions.
00:36:18.000 --> 00:36:19.679
You amended the statute.
00:36:19.920 --> 00:36:20.800
We hear you.
00:36:21.039 --> 00:36:26.480
Unless there was a very clear violation of the Constitution and the statute, we're going to uphold it.
00:36:26.639 --> 00:36:31.039
We don't see any clear violation of the statute, of the constitution, and so we are going to uphold it.
00:36:31.199 --> 00:36:33.519
That explains upholding SB21.
00:36:33.679 --> 00:36:35.760
What about throwing out Musk's pay package?
00:36:35.840 --> 00:36:42.639
You might say, well, it could have split the baby and kept that in place, even while saying, but it's not going to apply going forward.
00:36:42.880 --> 00:36:57.679
But I do think it's also important to recognize that what is considered to be, I think, the most valuable thing about Delaware as a location to incorporate is the value of the judges and their ability to give decisions that business people are going to recognize as being valid.
00:36:57.840 --> 00:37:04.239
Chancellor McCormick's decision is controversial, and it's not merely controversial among people like Elon Musk.
00:37:04.480 --> 00:37:08.960
Many academics looked at it and said, she may have gone a little too far here.
00:37:09.039 --> 00:37:14.960
This was a fairly aggressive application of the law of fiduciary duties that's applied to controlling shareholders.
00:37:15.119 --> 00:37:19.199
I personally, and in our previous podcasts, our listeners can go back and listen to it.
00:37:19.440 --> 00:37:21.840
I don't think it was a particularly good decision.
00:37:22.159 --> 00:37:46.239
Given that the decision itself, its consequences at least, were still in effect, the throwing it out, admittedly, on a technicality and a procedural technicality, still could be interpreted as a signal to the world that says, look, if one of our judges does something that is by some measure of consensus going too far, even the courts themselves will eventually kind of put things right.
00:37:46.480 --> 00:37:50.320
You don't have to go to the legislature to get an amendment to throw it out.
00:37:50.559 --> 00:38:03.519
It could be interpreted that way as well, while at the same time, as I mentioned before, having a very significant face-saving component for the chancellor by leaving a lot of her opinion, I think the kind of the mainland, the heartland of the opinion intact.
00:38:03.920 --> 00:38:13.920
So what was so unsatisfying for me about the Supreme Court's decision to take the narrower path was I thought we were going to get a better understanding of what counts for transaction specific control.
00:38:14.239 --> 00:38:15.119
We don't, though, right?
00:38:15.199 --> 00:38:18.880
So are we still going by McCormick's metric system there or what?
00:38:19.280 --> 00:38:24.079
Yeah, we are, but only to the extent that the safe harbors aren't going to apply.
00:38:24.239 --> 00:38:28.719
Also, there's a slight arguable imperfection in SB21.
00:38:28.960 --> 00:38:33.360
It purports to define what a controlling shareholder is.
00:38:33.440 --> 00:38:44.719
And that definition would make it so that Musk clearly would not be a controlling shareholder because he didn't have enough votes, nor did he have any contractual power to appoint in the majority of the board.
00:38:44.880 --> 00:39:05.679
Now, when I first read SB21, I thought, well, wait a minute though, the way this reads is that it's not establishing a blanket definition of controlling shareholder for Delaware law going forward, but it could be read instead simply to be saying, if you want to avail yourself of a safe harbor, you can, if you satisfy this definition of a controlling shareholder.
00:39:05.920 --> 00:39:12.960
It could then be read to say, if you don't satisfy this definition of a controlling shareholder, then the safe harbors simply aren't available to you.
00:39:13.119 --> 00:39:17.199
But you still could be defined as a controlling shareholder by our courts.
00:39:17.360 --> 00:39:20.960
And then the safe harbors just are, like I said, then none of the statute applies.
00:39:21.119 --> 00:39:28.880
It's a little bit unusual in a safe harbor statute, or a safe harbor set of amendments, I should be more specific, but it's a provision, section 144 of the Delaware Code.
00:39:28.960 --> 00:39:41.039
It's a little bit unusual within a provision of a statute that is just creating safe harbors to create a definition that would apply outside the context of the safe harbors, if that makes sense from a legal perspective.
00:39:41.199 --> 00:39:47.360
And so I know a few commentators, academic types, law professor types, have said that's all that's really being done there.
00:39:47.519 --> 00:40:05.440
And so her transaction-specific control analysis still applies in situations where you would have someone like Musk who wouldn't be eligible for the safe harbors under the amendments because he wouldn't satisfy the statutory definition of a controlling shareholder for those purposes.
00:40:05.679 --> 00:40:12.800
I, however, think that it is unlikely that the Delaware courts going forward would do something like that, would say, you know what?
00:40:12.960 --> 00:40:15.280
This is a 21% shareholder.
00:40:15.360 --> 00:40:16.400
That's what Musk was.
00:40:16.559 --> 00:40:22.159
You can't even be a controlling shareholder for purposes of the safe harbors unless you have at least 33% of the shares.
00:40:22.320 --> 00:40:31.920
So he's not eligible for the statutory safe harbors, but we could still find him to be a controlling shareholder based on what Chancellor McCormick said, based on transaction-specific control.
00:40:32.320 --> 00:40:40.159
I think that there is a technical reading of the amendments that might permit that, but it is contrary to the spirit of the amendments.
00:40:40.320 --> 00:40:46.639
Clearly, what the legislature was trying to do was make sure that Tornado Musk, the Vrievask, and similar cases never happened again.
00:40:46.880 --> 00:40:49.199
And so there would be a certain audacity to it.
00:40:49.280 --> 00:40:57.760
It would be a way of saying we're going to find a technical flaw in the way the statute was written in order to deny the legislature the outcome that it wanted.
00:40:57.920 --> 00:41:05.280
And so, therefore, I think that her opinion on the substance was largely rendered moot by the amendments.
00:41:05.440 --> 00:41:18.800
And so all of that interesting language about transaction-specific control is still good law, but only for a very narrow set of cases that are within the statutory carve-out for pending cases.
00:41:18.880 --> 00:41:23.360
And so quickly over time, it's not going to apply to any cases going forward.
00:41:23.599 --> 00:41:29.199
There was another aspect of her opinion, and I was more disappointed in this, maybe, and this is where a lot of your disappointment also applied.
00:41:29.440 --> 00:41:37.440
I thought her analysis of the significance of the second shareholder vote was very interesting, the shareholder ratification after the fact.
00:41:37.599 --> 00:41:42.239
Nothing in the SB21 amendments has anything to say about that one way or the other.
00:41:42.480 --> 00:41:54.079
And so that ruling by her very much was on a question that easily could come up again in future cases and would be something that SB21 doesn't throw out.
00:41:54.320 --> 00:42:05.199
And so it would have been nice for the Delaware Supreme Court to weigh in on that, say we agree with her, and then give the reasons why we agree that that second after-the-fact shareholder vote was ineffective.
00:42:05.440 --> 00:42:16.079
I think it's hard again to read the opinion of the court without finding that it affirms her holding that the ratification was ineffective, but it does so without any explanation.
00:42:16.320 --> 00:42:34.400
And so we don't get any kind of analysis of what I thought was a very, first of all, creative move by the defendants in the case, and also an opinion by her, a set of reasons given by her on why she wasn't going to honor that second ratification, that was subject to debate and might have benefited from further kind of judicial analysis.
00:42:34.559 --> 00:42:44.320
So there, that I think that was, I was particularly disappointed about that, that the court didn't reach, in terms of its language, substantively, the merits of that particular aspect of her holdings.
00:42:44.559 --> 00:43:03.199
One other thing I'll just note, there's another, I think, very controversial aspect of the Delaware Supreme Court decision, not uh Rin Rutledge affirming SB21, but back to the Tornad opinion, which is the awarding of attorney's fees, even of$54 million, which was a lot less than what the Cormac had awarded or what the plaintiffs originally had asked for.
00:43:03.360 --> 00:43:07.760
But how do you justify$54.5 million out of Tesla's pockets?
00:43:07.920 --> 00:43:15.760
Again, as we said earlier, normally the standard where the corporation on a derivative suit pays for the plaintiff's attorney is that there's been some benefit conferred on the corporation.
00:43:15.920 --> 00:43:17.280
Well, what's the benefit here?
00:43:17.599 --> 00:43:20.400
The originally challenged pay package was restored.
00:43:20.480 --> 00:43:24.880
So Musk gets his pay, which means that the other shareholders get their shares diluted.
00:43:25.119 --> 00:43:28.400
And the alternative remedy was one dollar in damages.
00:43:28.639 --> 00:43:40.559
So one more dollar goes into Tesla, goes into its treasury, but I don't know how you say that a dollar collected in damages justifies a$54.5 million attorney's fee that Tesla has to pay for.
00:43:40.719 --> 00:43:43.039
It clearly is much poorer as a result of that.
00:43:43.119 --> 00:43:52.559
And it was poorer even before we count the plaintiff's attorney because Tesla would have also been paying for its own attorneys in the case and also for the director's attorneys in the case.
00:43:52.719 --> 00:43:57.679
So it was paying basically the attorneys on both sides, so tens of millions of dollars in attorney's fees.
00:43:57.840 --> 00:43:59.599
And in the end, all it has to show for it is one.
00:44:00.159 --> 00:44:03.920
Dollars in damages recovered, and it now has left Delaware.
00:44:04.000 --> 00:44:05.599
It has reincorporated in Texas.
00:44:05.679 --> 00:44:06.559
It's not coming back.
00:44:06.719 --> 00:44:10.000
So, how in the world, what's the benefit to the corporation or its shareholders?
00:44:10.159 --> 00:44:13.519
This is what the Delaware Supreme Court said on that.
00:44:13.679 --> 00:44:19.199
We find that the plaintiff's council is entitled to a cash payment reflecting council's Lodestar and a four times multiplier.
00:44:19.280 --> 00:44:31.119
Although the plaintiff failed in his main objective of achieving a complete rescision of the 2018 grant and received nominal damages, Tesla and its stockholders benefited by council's efforts.
00:44:31.440 --> 00:44:39.840
How exactly how did they how in the world did Tesla and Cheryl's benefit from the efforts of counsel is here asferring to the plaintiff's attorney, Tornetta's attorney?
00:44:40.000 --> 00:44:42.320
Well, that's all it says in the body text of the opinion.
00:44:42.400 --> 00:44:45.760
Then we get a footnote where there's a citation of another opinion.
00:44:45.920 --> 00:44:51.440
It says CEG Inray Investment Bank Corp, Incorporated Shareholders Litigation.
00:44:51.519 --> 00:45:02.960
And then our parenthetical after the citation with a quotation is observing that lessons were learned as a result of this case, and that that alone is a benefit to this company and its stockholders.
00:45:03.199 --> 00:45:10.880
So$54.5 million worth of lessons were learned by Tesla and its shareholders.
00:45:11.199 --> 00:45:17.119
I don't understand what is the$54.5 million lesson that Tesla learned in this case.
00:45:17.360 --> 00:45:22.960
I would think that Tesla and the shareholders would say, we learned that we don't want to be incorporated in Delaware, right?
00:45:23.119 --> 00:45:25.280
And say, well, hey, we we taught you that, right?
00:45:25.360 --> 00:45:26.480
Now you know better, right?
00:45:26.559 --> 00:45:30.639
But that would be a little bit like you're wandering into my neighborhood.
00:45:30.800 --> 00:45:32.320
Let's say, Amy, I live here in the city.
00:45:32.400 --> 00:45:34.480
You wander into my neighborhood and I mug you.
00:45:34.719 --> 00:45:44.960
And then a court later says, Well, Richard, you should give some of the money back, but you get to keep some of it because you taught Amy a good lesson, which is that you live in a dangerous neighborhood and she shouldn't wander into that neighborhood.
00:45:45.119 --> 00:45:48.880
It's like, well, it's dangerous because people like me are mugging people, right?
00:45:49.039 --> 00:45:54.400
So I would think that Tesla would say, all we learned is that Delaware is a dangerous neighborhood.
00:45:54.639 --> 00:45:59.039
And it's dangerous precisely because a plaintiff's attorneys like this mug corporations sometimes.
00:45:59.199 --> 00:46:00.639
We got mugged, we left.
00:46:00.800 --> 00:46:06.480
And so it's perverse to say that we learned any kind of lesson that would justify an award of attorney's fees.
00:46:06.719 --> 00:46:13.679
But as I said earlier, this opinion has a bit of a Santa Claus kind of quality, which is everybody, including the lawyer, gets a gift.
00:46:14.000 --> 00:46:16.400
Yeah, it's so tough too, because everyone's a lawyer.
00:46:16.559 --> 00:46:17.920
So the judges are lawyers.
00:46:18.079 --> 00:46:24.079
Everyone here is trying to recognize that they worked hard for years and years and spent time in the world.
00:46:24.239 --> 00:46:29.280
Like if we had citizen judges like a justice of the peace, they would have just said, sorry, you lost.
00:46:29.599 --> 00:46:30.960
You're not getting attorney's fees for that.
00:46:31.199 --> 00:46:32.320
So that's an interesting interpretation.
00:46:32.400 --> 00:46:35.840
You so you you think that this is kind of a professional conflict of interest here.
00:46:36.000 --> 00:46:36.960
Judges are attorneys.
00:46:37.440 --> 00:46:38.000
They know each other.
00:46:38.320 --> 00:46:38.800
And so they're right.
00:46:38.880 --> 00:46:42.239
So they know the, you know, they're going to uh look out for the attorney's interests.
00:46:42.559 --> 00:46:44.079
That's an interesting possibility.
00:46:44.320 --> 00:46:46.960
There's a related kind of uh consideration.
00:46:47.599 --> 00:46:52.400
One of the uh influential political groups in Delaware is the plaintiff's bar.
00:46:52.719 --> 00:46:56.880
And so they can't be entirely disappointed in a case like this either.
00:46:56.960 --> 00:47:17.119
And so whereas the SB21 legislation seemed to be a SOP for the defendant's bar and for the defendants themselves and for non-attorneys like Elon Musk, it is important that other political actors who do have a certain amount of influence, whether it's proper influence or not, is another question, also get a certain amount of benefit as well from the process.
00:47:17.280 --> 00:47:20.320
So it kind of to some extent keeps the peace politically.
00:47:20.639 --> 00:47:22.559
Yeah, like you said, everyone got something here.
00:47:22.800 --> 00:47:23.760
Everyone got something here.
00:47:23.840 --> 00:47:24.480
Well that's right.
00:47:24.800 --> 00:47:28.960
Richard, thank you so much for as always explaining these issues to us in such a coherent way.
00:47:29.119 --> 00:47:35.039
We're sad to be at the end of our Tornado journey, but I'm sure we will be into something else very soon.
00:47:35.360 --> 00:47:45.039
Given how controversial Musk is just as a person, I'm wondering if whether at some point there's going to be a litigation in Texas, his new corporate home involving him.
00:47:45.280 --> 00:47:54.000
That'll be very interesting because we don't know nearly as much about the Texas courts as we do about the Delaware courts in terms of applying corporate law, but Texas is trying to attract more corporations.
00:47:54.159 --> 00:47:55.920
So far, it hasn't been super successful.
00:47:56.079 --> 00:47:57.039
Dexit hasn't happened.
00:47:57.119 --> 00:48:08.079
Uh, Andrew Verstein, that professor at UCLA, a law professor, recently posted data showing that since the start of 2025, there's actually been an influx of corporations into Delaware.
00:48:08.239 --> 00:48:10.960
So rather than DEXIT, it's a new Delaware invasion.
00:48:11.119 --> 00:48:16.800
Corporations are entering at a faster pace than recent years, both in absolute numbers and also relative to other states.
00:48:17.039 --> 00:48:21.679
One interpretation could be that SB21 had the desired effect.
00:48:21.920 --> 00:48:28.639
It reassured the corporate directors and also the lawyers that represent them that Delaware still is a good place to incorporate.
00:48:28.880 --> 00:48:34.719
And so Musk was not basically a Moses kind of leading his people to a new promised land.
00:48:34.880 --> 00:48:43.760
His corporations left, a few others left for Texas, but Delaware is still going to be the center of most activity, it seems corporate law activity going forward.
00:48:44.159 --> 00:48:44.800
Yeah, I think that's right.
00:48:44.880 --> 00:48:52.559
I mean, you know you have this favorable, a little bit more business-friendly statute, and you still have the deep expertise of the Delaware both bench.
00:48:52.800 --> 00:48:53.119
That's right.
00:48:53.280 --> 00:48:54.159
Why not come to Delaware?
00:48:54.480 --> 00:48:54.639
Yes.
00:48:54.719 --> 00:49:05.920
And I also think you have in the final Tornetta outcome a signal from the Delaware Supreme Court that says, even beyond what the legislature will do, we are sensitive to the possibility.
00:49:06.000 --> 00:49:11.119
And when there's an arguably controversial decision with this much impact, we will take a close look at it.
00:49:11.360 --> 00:49:15.280
Our chancellor, as respected as she is otherwise, is not the final say.
00:49:15.679 --> 00:49:16.000
Okay.
00:49:16.159 --> 00:49:17.039
All right, Richard.
00:49:17.199 --> 00:49:17.519
Thank you.
00:49:17.599 --> 00:49:18.159
You're the best.
00:49:18.400 --> 00:49:19.360
Thanks, Amy.
00:49:22.559 --> 00:49:27.920
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00:49:28.079 --> 00:49:30.960
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00:49:31.119 --> 00:49:35.760
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