Court cancels Elon Musk’s $56billion pay deal
Last week, Tesla CEO Elon Musk suffered a significant legal setback when a court nullified his US$56 billion pay package, marking one of the most substantial legal losses in US history. The suit was lodged by Richard Tornetta, a resident of Pennsylvania, who owned just nine shares in Tesla back in 2018.
The case reached trial in late 2022 and the judge sided with Tornetta last Tuesday, ruling that the colossal pay deal was unfair to him and all other Tesla shareholders. Efforts to reach Tornetta for a comment were unsuccessful and his legal representative declined to comment.
Before Tornetta’s case, Musk had successfully defended himself in a series of trials that accused him of defamation, breaking his duty to shareholders and contravening securities laws.
Interestingly, Tornetta seems to be more passionate about designing audio equipment for car-modification enthusiasts than pursuing corporate excess and malpractice. He has posted light-hearted videos about the gadgets he has created and the mishaps he has experienced, including an incident where he singed his eyebrows.
Tornetta has also appeared in videos playing drums at the well-known former New York club CBGB with his now-disbanded metal band Dawn of Correction, which characterised its sound as a swift kick to the face with a steel-toed work boot.
The judgement has stirred significant backlash among Tesla and Musk supporters on social media, with many criticising the decision as a miscarriage of justice and questioning Tornetta’s intentions and political affiliations. They also questioned how an investor with such relatively small holdings could have such a significant impact.
Corporate law
Delaware’s corporate case law records are filled with cases named after individual investors with modest shareholdings who have ended up influencing America’s corporate law. Eric Talley, a corporate law professor at Columbia Law School, explains that many law firms representing shareholders maintain a roster of investors they can collaborate with to bring cases. These investors could be pension funds with a diverse range of stock holdings or individuals like Tornetta.
Talley states that the plaintiffs sign the necessary paperwork to initiate the lawsuit and then generally step aside. The investors do not pay the law firm, which takes the case on a contingency basis, as the lawyers did in the Musk case.
Tornetta benefits from winning the case in the same way as other Tesla shareholders: by saving the company billions of dollars that would have otherwise been paid to Musk by a compliant board of directors.
For a long time, business groups have criticised cases brought by individuals as suggestive of potentially abusive litigation. A decade ago, Delaware was beset with lawsuits led by retail investors owning a few shares challenging merger deals.
These cases were often quickly settled with negligible settlements that always included payments to the attorneys bringing the cases. However, Delaware judges and lawmakers eventually curbed the practice.
Talley believes individuals like Tornetta play an essential role in regulating boardrooms. While lawmakers and judges have long favoured large investment firms leading such corporate litigation, as they are better equipped to monitor their lawyers’ tactics, fund managers are often reluctant to risk relationships on Wall Street, reported Bangkok Post.
In this case, it was left to Tornetta to challenge Musk.
“His name is now etched in the annals of corporate law. My students will be reading Tornetta v Musk for the next 10 years.”
