SCOTUS May Gut Voting Rights Act & Elon Musk Pay Package

Act claim. And the remedy in most cases will be that a district has to be drawn that has a majority members of your race in that district so that you can elect the candidate of your choice, and the Supreme Court is basically considering upending that entire regime and saying, no, it is not an appropriate remedy to intentionally use race, even if it's as a remedy for that vote dilution violation that a court has found and did.

of principle here. But as you suggested, the folks on the other side of the case argued, Hey, the way the Voting Rights Act works is that you only draw a majority block of a majority Hispanic district if, based on current conditions, what's going on there is having a racially discriminatory effect. So that notion of you know, hey, the discrimination we dealt with decades ago is no longer

there is sort of baked into the test. You have to prove based on the way voting happens now that there is still racial discrimination going on.

Justice Elena Kagan kind of made that point we were talking about earlier, that hey, this only happened, these intentionally crafted majority black, majority Hispanic districts only happened after a court has found there is racial discrimination going on, that black voters, that their votes aren't counting the same as white voters, or Hispanic voters aren't having their votes kind of the same way, So a lot of pushback there.

Justice Kagan also asked the lawyer defending the Voting Rights Act to talk about the consequences of this, and she talked about just how big the consequences could be for minority this around the country, not just at the congressional level, but state local as well.

The majority also sort of fell back on this decision from a few years ago that I'm sure you recall, where the Court said, we're not going to police partisan jury manderin if a state or another jurisdiction wants to carve up its districts for political reasons in a certain way, it is free to do so. The Constitution does not

put any limits on that. So some of the conservatives today were falling back on the idea that what's really going on here is partisan jerrymandering, not racial jerrymandering.

in those jurisdictions. So that was one big decision, and then a more recent one just a few years ago, was the Court making it harder to show that voting rules as opposed to the maps are discriminatory. So I'm talking about things like rules governing the collection of mail

ballots or the location of a polling place. The Court put in place a much tougher test to show that those changes are violations of the Voting Rights Act, and since then there has not been a successful claim of that type in court.

that would still be there. But you know how much that would matter as a practical matter, that's an open question. This will probably be one of those things where we'll just kind of have to wait and see what the court's ruling says and how it works out in practice.

rules the way they have been now. That case, as the Chief Justice pointed out today, didn't call into question, wasn't designed to potentially overturn any of the Court's precedents, unlike the current case. So I put that out there only to sort of say that the Chief Justice and Justice Kavanaugh, at least in that case, were acting a

little bit cautiously. They weren't moving too quickly. It's possible, although it wasn't really apparent, but it's possible in those instincts will will come into play and the two of them might be interested in crafting a more narrow ruling here.

majority black, majority Hispanic districts is unconstitutional. So they have now set themselves up for a potentially much bigger ruling, and one that could overturn a Supreme Court president or two.

Republican run state. The Trump administration is on Louisiana side, arguing that the second majority black districts should be thrown out. So it was pretty apparent to people who was on what side of this case.

in time for the election. And if as they rule quickly, if they rule in December, then a lot of books are concerned that it will spark a whole new round of mid decade redistrict team even in actually in some states have already done it, like you know, Texas and Missouri could both if they weren't constrained by the Voting Rights Act, they could eliminate other majority Blacker majority Hispanic districts.

the stability of our board of directors. The future of Tesla and the future of your investment are in your hands and require you to participate in the shareholder vote. We are counting on you to make your voice heard well.

that director's conflicts of interest tainted the decision. Joining me is business law professor Eric Talley of Columbia Law School. So, Eric, what was the Delaware Supreme Court considering in the oral arguments?

after finding a fiduciary duty problem. And then what do we make of the second stockholder vote that took place in June twenty twenty four, six months after the original opinion. Did that somehow kind of overturn the opinion or at least overturn any possible remedy beyond just a small amount. And so the lawyers from both sides were arguing all three of these points, and any one of them or some combination of them could factor into a potential reversal.

But my guess is it's going to be one of these three points.

You know, according to the the appellance, you know, five years of working for the company and not getting paid anything. That was not something that the trial court asked for argumentation like if this, if this package wasn't fair, what would have been fair compensation? They never went there, And that's in part because the defendants in this case never raised what a second best type of compensation package would

look like. At the time, that made sense to me, because it's hard to defend a big compensation package by then, you know, painting a target on your back by saying, Okay, you know, here's the really fair part. So I kind of understand why they didn't bring it forward. But the Chancellor, in her opinion, said, you didn't give me any alternatives other than recision to say, okay, here's here's at least

something that I can award to pay you back. So that's going to be interesting and it may actually, you know, my senses is probably the strongest argument that the appellants have here. The other one that I think is pretty interesting is what do you make of these votes after the fact, Right, You've got a trial that completely comes out in favor of the plaintiffs, and you know, just before the the award argumentation, Tesla has a second vote.

And the question is, well, how does that second vote that now has not only you know, more disclosures, but it even has been trial cord opinion from the original trial. Does that second stockholder vote fix all of these problems? And I think that the Tesla parties, the directors, and Tesla itself, we're saying, yeah, that should essentially undo or

at least limit what is available as a remedy. If the stockholders vote again now with full information and they say no, we are okay with that initial compensation package, Now, that could end up having some traction as well. First of all, because I think most people sort of agree that that second vote, you know, you had the entire opinion that was attached to the proxy materials that were sent out, and it got pretty much exactly the same

percentage vote. And so it may well be the case that the Supreme Court says, Okay, look, the trial court probably couldn't do something about an event that happened after the trial court opinion. That's something for an appeal, But now we want to remand it for the trial court to think about it. There is one very old case in Delaware that basically says that that's a potential thing

to do. That involved executive compensation packages that were approved or ratified by shareholders after a trial court had said now those are improper, And interestingly enough, that case was being overseen by the father of the current Supreme Court Chief Justice CJ.

of the award. So it may well be the case that the Supreme Court says, now we don't have anything to overturn in that trial court opinion, but now we want to remand it so that the Chancellor can consider what, if any effect would there be of this vote. And you know, that could end up causing yet another sort of trial on the merits, which would give us at least something to talk about for the next couple of years.

opinion in that trial court record below. You know, I've taught that opinion many times. It's pretty easy to teach because it pretty much followed you very very conventional textbook

Delaware legal principles at every at every ground. I think most of the people that complain about the opinion don't complain about the judge following the flow chart of what doctrine tells you you're supposed to do as much as making factual determinations that you know, at least some people the defendants and I guess some others who were kind of you know, thought that the Musk parties had the

stronger hand that they disagreed with those factual holdings. So I think the Tornetta folks, the plaintiffs in this case, did a pretty good job of sort of saying, look, there really wasn't that much remarkable about the legal reasoning below, and if you're going to overturn factual findings, there's a very high bar to do that. And that's not really where we are directing our boat. You know, the plaintiffs in this case, who were you know, basically responding to

the appeal. It's much more of a black box to how the Court's going to deal with this second stockholder vote, whether that somehow reaches back to ratify things earlier on. That's something that Chancellor McCormick basically refused to comment on at any length, given that the trial had already concluded

that there already was a breach of fiduciary duties. But it would be, you know, something that the Supreme Court could send back to her, and that was probably something that the plaintiffs in this case didn't have as much of an answer to. But it was also the you know, the very time limited argument, so they spent more time on the first part. So you know, I could see that ratification vote being a grounds for reversal, I could

also see a partial reversal. It says, we're not going to reverse the outcome of the finding that there was a breach of fiduciary duty, but when you rescinded the pay package, it was going to be important to lay out some sort of a restitutionary award that would put mister Musk in, you know, that would make him whole at least relative to before that compensation package was granted. And he's not at this point because he you know,

now effectively worked five years for free. And so my sense is that if there's a reversal, you'll probably see a reversal on one of those two grounds, and not as much a reversal that tries to dive back into the logic in the original opinion. You know, the one part that they could reverse in the original opinion is Chanser McCormick's, you know, finding that that Musk, while only owning about twenty one percent of the company, was such a superstar CEO that he just had undue influence at

least over this transaction. You know, is the first time this idea of superstar CEOs had been used in a case, and so they might sort of say no that and it's from an academic article that a couple of law professors wrote. They might say, no, that's just not a sufficiently predictable or clear test, and they might overturn on that basis. But if I were going to bet on what grounds that they would use if they overturned, I

don't think it would be that. I think it's going to be more maybe that this I can shareholder vote was an effective one, or that, you know, when you rescind a pay package, that the court has to then sort of take a briefing on what the appropriate amount that mister Musk should be paid if it's not from his you know, written contract to make him whole for and so he doesn't end up giving away his services having given away his services for free for five years.

by a lower court judge twice. The world's richest person claims he hasn't been paid for seven years of work as Tesla's CEO, even after reaching all the performance targets to trigger a payout that Bloomberg estimates would be worth

about one hundred and twenty five billion dollars. During oral arguments before Delaware's highest court today, lawyers for Tesla and Musk argue that the pay plan approved by Tesla's board should be reinstated, in part because shareholders had voted for it twice, including after Delaware Chancery Court Judge Kathleen McCormick rejected it after concluding that the process for rewarding Musk was flawed by a conflicted board of directors and inadequate

disclosures that were provided about Musk's compensation. I've been talking to Columbia Law School business professor Eric Talley. Eric, we've been talking about some possible decisions. Do you think that most likely any decisions going to involve sending it back to the trial court.

mister Musk. That's going to require additional testimony, some expert witnesses saying, Okay, here's what a fair amount would be if you're going to disallow the contract. Here are some you know, market comparables out there or some other measuring stick for the value that you delivered to Tesla. So

that's going to be a very factually rich area. The appellance in this case had sort of said, it's just, you know, the plaints themselves didn't offer that, and therefore you should basically say, you know, it's impossible and there should just be nothing more than nominal damages. My sense is that if if they reverse on that ground, they're going to have to send it back to the trial court to fight that battle out. The second stockholder ratification that may be a little bit more of a clean vote.

If the Supreme Court says, well, there has been a second vote and that acts to sort of, you know, to sort of undo at least either liability or just the remedy from the original transaction, that one they might be able to remand and say, we think the known facts from that second stockholder vote are clear enough that it basically absolves the company and mister Musk and the directors from liability, and we're going to instruct the Chancellor to hold that it had you know, a ratification effect,

and to re implement the original conversation package. So I think that one probably could give rise to the cleanest form of reversal that wouldn't require a lot more work at the trial court level. But it also is you know, that sort of reasoning is going to req aquire them to think pretty seriously about how do they create new law related to you know, having a second or maybe a third or maybe a fourth stockholder vote each time you know there's an infirmity, do you just go back

to the stockholders and try again. One of the things that chance for McCormick had made pretty clear in her prior opinions, is that, you know, if you had a law that basically just kept giving the defendants a second life, a third life, a fourth life, it's a process that has no logical endpoint because they can keep going back to the well and trying to get yet another stockholder

vote until finally they hit pay dirt. So that's going to be something that the Supreme Court will have to think through if they want to reverse on the grounds

of that second stockholder vote fixing things. So it makes it messy in a different way, even though they could possibly do it in a way that doesn't cause the whole case to go back into trial court for a protracted, you know, new proceeding, which you know, at this stage probably you know, a lot of a lot of folks would like to avoid and explain.

And in fact, mister Musk has a new compensation package that was that was authorized under the Texas Corporate Code and it itself could be subject to challenge, but we don't know exactly what the rules would be like, so you know, to essentially judge the processes and the substance

of that executive compensation challenge. I think everyone expects that Texas courts, you know, they're kind of advertising themselves as being more friendly to corporate controller and CEOs and manager types, so everyone sort of as a best guess, thinks that they would be more friendly to the same set of facts if adjudicated in Texas. But you know, the wild card on this is that we just don't have much

Texas law to depend on. And in fact, if you look into Texas corporate law, as often as not, its cites to Delaware as being kind of its instructional load star that it's going to follow. So in order for us to not have better predictions about how Texas law would come out. We're going to need more cases to be adjudicated in Texas, and you know, if this new compensation package gets challenged, then you know that's going to be a kind of dead center. Won't be very helpful

to the current parties. But for the future, we'll kind of get a little bit of a sense of how Texas courts would deal with these things differently than Delaware courts.

of Delaware over the longer haul. I would be surprised to see Delaware lose too much of its perch in a really short order form simply because there aren't that many. You know, Texas's remains a bit of a wild card. Even Nevada is reconstituting a bunch of its systems as well, so it's a bit of a wild card as well. So we really haven't seen the kind of a huge

outflow that everyone was saying would take place. By the same token, it has ticked up a little bit compared to before, you know, January twenty twenty four, which is

when trial court opinion came out. But you know, some of this I think probably is in part kind of an orchestrated, you know, political statement rather than you know, trying to trying to really sort of get a sense of, you know, what the compared to what question, like what are what are we get into if we go to Texas and leave Delaware and they're you know, I think it's like in some ways everyone's got reads the tea leaves a little bit differently, just because there aren't very

many tea leaves down there to read.

sort of fleshed out in the courts. But you know, on some level that's just that's a different case, and this is all about the compensation aspect of it. So I don't expect that they're going to collide very much other than the fact that you know, we've got pretty much the same larger than life personality in the court that is kind of the center of attention in both cases.