In a recent blog post, I asked "Have the Delaware Courts Become Pro-Plaintiff and Anti-Business?" We have a new data point: Delaware Chancellor Kathaleen McCormick's new decision in Tornetta v. Musk, the long running saga of a random shareholder who owned a handful of Tesla shares serving as the named plaintiff in a class action brought by plaintiff lawyers to challenge Elon Musk's 2018 pay package.
At trial, McCormick treated Musk as Tesla's controlling shareholder, using a theory that pushed the boundary of control to the breaking point. Her trial opinion stands as an example of the reflexive hostility towards controllers that she and at least one other member of the Delaware Chancery Court now routinely display. See my article "A Course Correction for Controlling Shareholder Transactions."
After trial, Tesla has a second shareholder vote on the pay package, which was overwhelmingly approved by the disinterested shareholders. Yet, McCormick has now invalidated that vote as well.
Jonathan Macey has recently observed that "The suspicion towards controlling shareholders in some Delaware courts stands in sharp contrast to the courts’ veneration of the plaintiff’s bar." In context, McCormick's court is clearly one of the ones of which he speaks. And rightfully so.
McCormick's latest opinion continues that trend. The plaintiff lawyers are granted a whopping award of $345 million. Admittedly, she slashed the plaintiff lawyers' initial request for $5.6 billion dollars in fees, which she merely characterizes as a "bold ask," rather than the insanity that it was.
MCCormick then rejects the idea that the lawyers' fees should have any remote resemblance to the number of hours they worked, which absurdly is Delaware law. But the opinion acknowledges that the plaintiff's lawyers claim they worked 19,499.95 hours on the case. That works out to $17,692.31 per hour. Which strikes this observer as being at least as offensive as Musk's allegedly excessive compensation. After all, unlike litigators, at least Musk actually makes something socially useful.
On top of which, the opinion is full of none-too-subtle praise for the plaintiffs' lawyers and lots of none-too-subtle digs at the defense counsel.
It's not too late for the other members of the Delaware courts to undertake a course correction. I've proposed one that would restore a more balanced approach that holds controllers accountable but only when they deserve to held to account.
