The Chancellor Gets a Defense to Musk's Deranged Attacks
Lawyers, law professors, and the Delaware bar have spoken out about Elon Musk's vicious lies smearing Chancellor Kathaleen McCormick. Tesla's board, which should speak loudest, is silent.
It is disgusting, it is delusional, it is dangerous, it is a fabric of lies. But at this point, we can hardly say it is surprising.
It, of course, is the savage attack on a respected jurist by the wealthiest and, closely allied as he is now to our president-elect, most powerful man in the galaxy.
The Actions
On December 2, Chancellor Kathaleen St. Jude McCormick released a 101-page opinion affirming her 200-page January 30 ruling in Tornetta v. Musk1 that voided the Tesla board’s 2018 grant of stock options to Elon Musk (the 2018 Grant).
The December 2 opinion should have surprised no one. The January ruling had methodically spelled out how, in essentially negotiating the 2018 Grant with himself, Musk, who controlled Tesla, had deprived Tesla shareholders of well-established protections guaranteed by Delaware law.
First Reaction: Bitter Complaints & a Secret Plan
Shortly after the January 30 ruling was published, and before he could possibly have had time to read it in its entirety, Musk complained bitterly about the ruling and told his 200 million followers on X: “Never incorporate your company in the State of Delaware.”
The January 30 ruling decided every issue in the case except costs and legal fees. For purposes of judicial economy, Delaware, like most other United States jurisdictions, does not allow final orders until all issues in a case are decided. The Chancellor instructed the parties to brief the issue of legal fees and to agree on a form of final order.
The Tesla board, however, no doubt at the instigation of Musk, secretly began confecting a plan to have the shareholders vote to “ratify” the 2018 Grant. Tesla’s lawyers set about drafting a lengthy proxy statement, which was finally revealed when Tesla filed the statement on April 29, setting the shareholder vote for June 13.
The proxy statement was introduced by a letter from Tesla Chair Robyn Denholm which, in a few short paragraphs, contained four plain falsehoods.2
There were many obvious problems with this “ratification” gambit.
It was an attempt to manufacture new evidence after a ruling had already been made.
It was an attempt to raise a so-called affirmative defense years after the deadline had passed.
It was an attempt to use the doctrine of common law ratification to cure a “conflicted controller” breach of fiduciary duty.
And it was an attempt to use a proxy statement chock full of materially misleading statements to accomplish all these impermissible things.3
In short, the “ratification” gambit employed numerous stratagems that the Delaware Supreme Court (and courts in many other states) have long recognized as legally defective. The Chancellor invited briefing on the “ratification” issue, and conducted a lengthy hearing in August (detailed at length in this Substack post).
Surprising not a single halfway intelligent human who had carefully followed the case, the Chancellor, in her December 2 101-page opinion, ruled that the gambit was legally ineffective. The only reason her opinion needed to be so long, and took several months to write, was the incredible complexity of the legal fees issue (the Chancellor awarded $345 million, which was significantly less than the amount sought by plaintiff).
Second Reaction: Dangerous & Defamatory Attacks
Musk immediately renewed his attacks on the Chancellor, with attacks that are even more vicious, more unhinged, more arrogant, and more idiotic than his earlier efforts. Taking to his X platform, he:
Accused the Chancellor of “absolute corruption.”
Claimed the Chancellor is “totally crazy.”
Claimed the Chancellor is “a radical far left activist cosplaying as a judge.”
Claimed the Chancellor “is an activist posing as judge.”
Responded “Absolutely” to a post claiming the Chancellor’s decision was “literal corrupt bullshit.”
Thanked his friend, Jason Calacanis, for writing, “DELAWARE IS A DISGRACE” and “WE CANT [sic] HAVE THE CORPORATE STANDARD BE A KANGAROO FUCKING COURT.”
Responded “Lawfare” to a post claiming the Chancellor’s decision was “crazy.”4
Reposted a claim (by the infamous Tesla stock pumper, Cathie Wood) that “Judge [sic] McCormick is an activist judge at its [sic] worst.”
Musk’s attacks on the Chancellor, besides being broadcast to his more than 200 million followers on X, were widely reported at various media outlets.
Each of the statements Musk made or endorsed is flagrantly false. Each is utterly bereft of any evidence to support it.
Far from being an “activist,” the Chancellor’s opinions adhere faithfully to established Delaware law as laid down by the Delaware Supreme Court.
There is nothing in the Tornetta opinions, or in any opinion Chancellor McCormick has ever written, to support the idea that she is “far left” or even “left.” Indeed, none of her opinions evinces even the slightest whiff of a political agenda.
If Elon Musk, Jason Calacanis, or Cathie Wood had even the slightest bit of shame, they would not have made their outrageous and defamatory claims. But each of them is deeply cynical, utterly amoral, and without the slightest compunction about spreading lies.
(Who is the “political activist,” the Chancellor, or Elon Musk?)
Support for the Chancellor
This Tuesday, a hundred or so law professor and lawyers signed a letter to the Delaware State Bar Association, citing the attacks on the Chancellor and (accurately) describing them as “dangerous, defamatory, and one-hundred percent false.” (I am among the signatories.)
The letter noted that Delaware’s judicial ethics rules preclude McCormick from speaking out against Musk’s accusations. It cited an ethical rule, found in the Delaware Lawyers’ Rules of Professional Conduct, which encourages lawyers “to continue traditional efforts to defend judges and courts unjustly criticized.”
The Reuters news service reported on the letter, and interviewed several of the signatories. One of the signatories stated:
“Elon Musk's conduct here is appalling and we should all stand together as lawyers to call it out. Without a strong and bi-partisan response, many of [Musk’s] fan boys will likely blindly agree with (and echo) him, which causes further erosion in our faith in a court system we all rely on.”
Responding to the letter, the Delaware State Bar Association issued a statement that included the following:
“Joining a disturbing trend emerging across the U.S., Delaware’s judges have been unjustly attacked with increasingly polarized rhetoric that goes far beyond any scholarly critique of their rulings and written opinions.
“The Delaware Bar condemns these attacks and stands in support of the Delaware judiciary.
“It is extraordinary that in this State (and Nation) of democratic laws that these words must be said, but it is perhaps a symptom of the constant antagonism and conflict that now permeate all facets of modern American life.”
All very true, of course. But what does it say when the Delaware State Bar Association is to timid to call out Elon Musk by name?
The Lawyers for Musk and His Directors Stay Silent
Before filing her story, the Reuters reporter, Alison Frankel, sent a copy of the letter to Tesla and to several of the firms that represented various defendants in the Tornetta case: Quinn Emanuel Urquhart & Sullivan; Cravath, Swaine & Moore; and DLA Piper. She solicited their comments.
As Frankel reported, neither Tesla nor any of defense lawyers responded. That’s disappointing, but not surprising. There are big fees to be earned. There is an immensely powerful man to placate.
We can, I suppose, take some comfort in the fact that none of the defense lawyers sought to justify, either to Frankel or on any social media site, any of Musk’s accusations.
The Tesla Board: MIA
Until the advent of Elon Musk and Tesla, no public company’s board of directors would ever have countenanced despicable behavior of the type engaged in by Musk. A public apology would immediately have issued. The CEO would have been disciplined or, more likely, fired.
But Tesla’s board of directors has always been populated by cronies and sycophants. It took such a board to allow Elon Musk to negotiate the 2018 Grant with himself. Indeed, it took such a board to close its eyes to the fact that, even without the 2018 Grant, Musk was already amply incentivized by his large stock ownership position in Tesla.
It took such a board to countenance a compensation package that rewarded, above all, increases in Tesla’s share price, and thereby encouraged stock pumping.
This is the board that has allowed Musk to make, and endlessly repeat, utterly fraudulent promises about, for instance, machines that make the machines, full self-driving, robotaxis, and Optimus.
This is the board that has, by its complete subservience to Elon Musk, allowed the share price of Tesla to become utterly detached from economic reality. Which, you may be certain, will not end well.
Neither the Tesla board, nor any individual board member, has had a single criticism to make about Musk’s sick and twisted attacks on the Chancellor.
Credit the board, at least, for consistency.
Readers wanting the background of the Tornetta case can consult Part II of this June 6 Substack post.
The falsehoods are documented in Footnote 75 to the December 2 opinion.
The “ratification” gambit was also almost surely coercive in multiple ways, though the Chancellor determined there was no point in opening the record — thereby creating months more of delay — to develop evidence on that point.
I don’t have a link to the “Lawfare” tweet but I included a screenshot of it in this Substack post.
Thank you Lawrence! You’re one of the few people I trust sees the whole picture, have to look beyond musk’s inner circle of parrots which now includes many of the top podcasters, the incoming president, and twitter army.
Governance, governance, governance. In any company operating anywhere in the world, the board is responsible to shareholders, to employees, the law and the company as legal entity. Not for the first time we can see weak governance has led the company into a near impossible position to defend. Any member of the company should not be in a position to drag the entire entity into a dangerous position and then keep going. Will the board finally do their job?