Richard J. Tornetta v. Elon Musk

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
KATHALEEN ST. JUDE MCCORMICK LEONARD L. WILLIAMS JUSTICE CENTER
CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734

May 28, 2024

Gregory V. Varallo David E. Ross
Glenn R. McGillivray Garrett B. Moritz
BERNSTEIN LITOWITZ Thomas C. Mandracchia
BERGER & GROSSMANN LLP ROSS ARONSTAM & MORITZ LLP
500 Delaware Avenue, Suite 901 1313 North Market St., Suite 1001
Wilmington, DE 19801 Wilmington, DE 19801

Peter B. Andrews William M. Lafferty
Craig J. Springer Susan W. Waesco
David M. Sborz Ryan D. Stottmann
Andrew J. Peach Miranda N. Gilbert
Jackson E. Warren Jacob M. Perrone
ANDREWS & SPRINGER LLC MORRIS, NICHOLS,
4001 Kennett Pike, Suite 250 ARSHT & TUNNELL LLP
Wilmington, DE 19807 1201 N. Market Street, 16th Floor
Wilmington, DE 19801
Catherine A. Gaul
ASHBY & GEDDES, P.A. Rudolf Koch
500 Delaware Avenue, 8th Floor John D. Hendershot
Wilmington, DE 19801 Kevin M. Gallagher
Andrew L. Milam
John L. Reed RICHARDS, LAYTON & FINGER, P.A.
Ronald N. Brown, III One Rodney Square
Caleb G. Johnson 920 North King Street
Daniel P. Klusman Wilmington, DE 19801
DLA PIPER LLP (US)
1201 N. Market Street, Suite 2100
Wilmington, DE 19801

Re: Richard J. Tornetta v. Elon Musk, et al.,
C.A. No. 2018-0408-KSJM
C.A. No. 2018-0408-KSJM
May 28, 2024
Page 2 of 7

Dear Counsel:

This letter addresses the plaintiff’s four motions filed on April 23, 2024.1

I assume that readers are familiar with the background of this action set out in the

Post-Trial Opinion, which I issued in January.2 Readers might not be familiar with

the litigation events that followed.

The Post-Trial Opinion is not a final, appealable judgment. That is in part

because, generally speaking, a post-trial opinion is not final and appealable under

Delaware law until the court resolves any related application for attorney’s fees and

expenses.3 The plaintiff’s counsel moved for attorney’s fees and expenses on March

1, 2024,4 and the parties stipulated to a July 8, 2024 hearing on the fee petition.

Although the dollar amount requested in the fee petition is unusual, the request

followed the typical procedural storyline.

Then came a plot twist. On April 17, 2024, Tesla filed its preliminary proxy

statement in connection with its annual meeting set for June 13, 2024.5 Through it,

Tesla’s Board of Directors (the “Board”) proposed that stockholders “ratify” Mr.

Musk’s compensation award “under Delaware common law or statutory law” (the

1 C.A. No. 2018-0408-KSJM, Docket (“Dkt.”) 308, 309, 310, 311.

2 Tornetta v. Musk, 310 A.3d 430 (Del. Ch. 2024).

3 Id. at 548 n.939 (citing cases).

4 Dkt. 296, Pl.’s Opening Br. in Support of Application for An Award of Fees and

Expenses (Fee Petition Opening Br.).
5 Dkt. 306 (Letter to The Honorable Kathaleen St. Jude McCormick dated April 17,

2024 from John L. Reed enclosing copy of Nominal Defendant, Tesla, Inc.’s
Preliminary Proxy) (“April 17 Ltr.”), Ex. A (the “Preliminary Proxy”).
C.A. No. 2018-0408-KSJM
May 28, 2024
Page 3 of 7

“Ratification Proposal”).6 The Board also proposed that stockholders vote to approve

moving Tesla’s state of incorporation to Texas (the “Texas Proposal”).7 The Board

attached draft bylaws that will be adopted if stockholders vote in favor of the Texas

Proposal.8 The bylaws contain a forum selection provision designating the newly

formed Business Court in the Third Business Court Division of the State of Texas9 as

the exclusive forum for internal governance disputes.10

On the day that Tesla filed its preliminary proxy statement, three Delaware

law firms entered their appearance as additional counsel to represent nominal

defendant Tesla.11 One wrote to the court stating that the stockholder vote “would

materially impact” the Post-Trial Opinion as well as “the substance and status of” the

fee petition.12 The letter stated that Tesla “may request” that the July 8 hearing be

postponed.13

6 Id. at 84; see also id. at 4 (asking Tesla stockholders to “ratify[] Elon Musk’s
compensation under the CEO pay package that [its] stockholders previously approved
at [its] 2018 special meeting”).
7 Id. (asking Tesla stockholders to approv[e] “moving Tesla’s state of incorporation

from Delaware to Texas”).
8 See Preliminary Proxy, Annex C (“Proposed Texas Bylaws”).

9 See Tex. Gov’t Code Ann. § 25A.002 (creating the Texas Business Court effective

September 1, 2023).
10 Proposed Texas Bylaws at C-27.

11Dkts. 305 (Richards, Layton & Finger, P.A.), 306 (DLA Piper LLP (US)), 307
(Morris, Nichols, Arsht & Tunnell LLP).
12 April 17 Ltr. at 1.

13 Id. at 2.
C.A. No. 2018-0408-KSJM
May 28, 2024
Page 4 of 7

Concerned by this turn of events, on April 23, 2024, the plaintiff filed three

motions: Motion for Expedited Anti-Suit Injunction (the “Anti-Suit Motion”); Motion

for Sequestration and Constructive Trust (the “Sequestration Motion”); and Motion

to Enter Implementing Order And Award Costs (the “Implementing Motion”).14

The plaintiff’s motions all arise from the same apprehension—that the Tesla

stockholder vote “would materially impact” these proceedings because the defendants

will seek to evade judgment if Tesla moves its state of incorporation to Texas. The

Anti-Suit Motion seeks to enjoin the defendants from litigating this action or any

issue relating to this action outside of Delaware.15 The Sequestration Motion asks

the court to sequester or enter a constructive trust over the Tesla common stock

underlying the options at issue to ensure that the Post-Trial Opinion is enforceable.16

The Implementing Motion asks the court to reorder the normal sequence of events

and enter a final order implementing the Post-Trial Opinion “to foreclose any

conceivable argument” that the Post-Trial Opinion is not enforceable.17

Tesla submitted two filings in response to the motions: First, an April 25 letter

concerning scheduling issues and, second, a May 7 omnibus opposition.18

14 Dkts. 308, 309, 310. The plaintiff also moved to expedite the motions to secure a
hearing in advance of the June 13 annual meeting, and I have addressed the motions
promptly, given the relief requested. Dkt. 311.
15 Anti-Suit Mot. at 1.

16 Sequestration Mot. at 1–2.

17 Implementing Mot. ¶ 18.

18 Dkts. 313 (“April 25 Ltr.”), 324 (“Tesla Opp’n”).
C.A. No. 2018-0408-KSJM
May 28, 2024
Page 5 of 7

The individual defendants submitted a separate opposition on May 7.19

The gist of each of the collective defendants’ three responses was that there is zero

cause for the plaintiff’s concern.

In its April 25 letter, Tesla stated that “[i]t is not clear from the [motions] that

there is really anything in dispute”20 and accused the plaintiff of acting with the

ulterior purpose of “influenc[ing] the forthcoming stockholder vote.”21

In its May 7 opposition, Tesla denied any “attempt not ‘to obey the [c]ourt’s

final judgment on the merits.’”22 Tesla stated that:

• “Tesla would still be a Delaware corporation at the time of [the
stockholder vote].”23

• Success on the Ratification Proposal “will not affect any obligations or
liabilities of [Tesla] incurred prior to the conversion or the personal
liability of any person incurred prior to the conversion, nor will it affect
the choice of law applicable to [Tesla] with respect to matters arising
prior to the conversion.”24

• A final implementing order is unnecessary because it would be
“redundant” and “superfluous” and would “serve[] no substantive
purpose.”25

19 Dkt. 325 (“Ind. Defs.’ Opp’n”).

20 April 25 Ltr. at 2.

21 Id.

22 Tesla Opp’n ¶ 16 (quoting Sequestration Mot. ¶ 4.).

23 Id. ¶ 3.

24 Id. (quoting Preliminary Proxy at 60) (emphasis added).

25 Id. ¶¶ 17–19.
C.A. No. 2018-0408-KSJM
May 28, 2024
Page 6 of 7

• That Tesla or the other defendants “might someday seek to avoid this
[c]ourt’s jurisdiction” is “rank speculation[.]”26

• Neither the Ratification Proposal nor the Texas Proposal would
“interfere with this [c]ourt’s jurisdiction over the . . . [f]ee [p]etition or
this [c]ourt’s ability to enter a final judgment so that the case may be
appealed.”27

• The “threat” of the Texas Proposal is “entirely illusory.”28

In their May 7 opposition, the individual defendants stated:

• “[N]either the Ratification nor Texas [Proposals] would interfere with
this [c]ourt’s jurisdiction or its ability to enforce its final judgment, when
entered.”29

I interpret the defendants’ April 25 and May 7 representations to the court to

mean that neither Tesla nor any of the individual defendants have any current

intention of engaging in the conduct about which the plaintiff is concerned. That is:

the defendants do not plan to litigate any matter related to this action anywhere but

Delaware; any litigation related to the effect of the Ratification Proposal, if it is

successful, would be subject to the Delaware forum selection provision in Tesla’s

bylaws;30 the defendants will not argue, based on the lack of an implementing order

alone, that the Post-Trial Opinion is unenforceable or lacks legal effect; the

26 Id. ¶ 25. Tesla made other points too that the court need not reach.
27 Id. ¶ 5.

28 Id. ¶ 23.

29 Ind. Defs.’ Opp’n ¶ 5.

30 Tesla, Inc., Current Report (Form 8-K) (March 30, 2023), Ex. 3.1, Amended
Restated Bylaws of Tesla, Inc., at art. XI, available at
https://www.sec.gov/ix?doc=/Archives/edgar/data/0001318605/000156459023005462/
tsla-8k 20230330.htm.
C.A. No. 2018-0408-KSJM
May 28, 2024
Page 7 of 7

defendants will not file a state or federal action collaterally attacking the Post-Trial

Opinion; and the defendants will not argue that rescission is unachievable solely by

reason of any successful stockholder vote on the Texas Proposal.

If I have interpreted the defendants’ position incorrectly, then defense

counsel—as officers of the court—are duty-bound to correct it. In the meantime, the

defendants’ statements give me great comfort. Based on the defendants’

representations, I am denying the plaintiff’s motions, albeit without prejudice to re-

raise the requests if events warrant.

IT IS SO ORDERED.

Sincerely,

/s/ Kathaleen St. Jude McCormick

Chancellor

cc: All counsel of record (by File & ServeXpress)