Tornetta update

Welcome to shareholder Primacy from freefloat media, podcast about activist investing security law, and all the ways. The financial and legal worlds, intersect and Collide in I'm here with and Lipton law professor at Tulane in New Orleans who teaches in research and securities and business law. She holds up the legal end of our little podcast here, and that's Michael Van and activist investor who lives and works in Chicago. He covers the financial side of our podcast. Yes, I do though, today. It's going to be a little more legalistic than than Fryer ones because once again, we're going to talk about tornado VMAs and then he doesn't want to endless endless fodder for commentary doesn't want. It's like a bad Penny. It just keeps coming back but it's really fun. Actually there's a lot of interesting stuff going on. This is of course, the case that challenged this Mega executive comp Equity award to Tessa CEO, Elon Musk, from 2018. And there was some interesting stuff, a few days, yes, the new decision that came out. That gives everyone a lot to think about regarding Tesla and Delaware and all those kinds of subjects Boards of directors and all sorts of fun stuff to consider. So one more bite at this little apple at the, this fascinating, important case. Let's real quickly just recap what happened last week. Happened. Last week was That Chancellor McCormick finally is your opinion on the shareholder revote to approve, musk's PayPal. So, we talked about this in our very first episode, but for anyone who needs to catch up Tesla's board, agreed to a compensation package for Elon Musk in 2018, and the package was performed in space for every 50 billion dollars, he added to Tesla's market capitalization, you get more stock and in total, if you hit all the Milestones, he'd received the equivalent of about what was then 56 billion dollars in stock, I think at current prices. It's similarly about 100 billion dollars. Yeah, so this paper puzzle, that's at a good run. In the past, this proposal was submitted to shareholders in 2018 and they approved it but a shareholder. Sword was. Captured by Elon Musk and the shareholder vote. That was in favor of it was not fully informed. And there was a whole trial, a bench trial meaning, no jury because that's how things work in Delaware, but a whole chance to record is no, no, juries, it's only the judges. So leave the judge said, the whole trial was held before Chancellor McCormick and the shareholder one Chancellor McCormick agreed that the board was not independent. And the shareholder vote was not informed and that meant that under Delaware law there was no independent decision maker at the company who had a probe, this PayPal package. And without an independent decision-maker at the company to approve this PayPal package that under Delaware law. Left it to the court because there's no one else the shareholders can't do it in the board. Can't do it. So the court had to decide whether the package was fair and Chancellor McCormick determined? No, it wasn't fair. Yes! The shareholders got tremendous value. There is no question they did. But it wasn't obvious. They needed to pay Elon Musk quite so much to get there. He might run for Less. That was basically the logic. or more specifically as well, the board Chancellor McCormick also found in the fact that the board didn't negotiate this, they didn't have a fiduciary duty to negotiate hard and then negotiated like not at all and that's the point that like normally we would defer to the boards, like we wouldn't Even ask this question. The only reason we're even here with what Chancellor McCormick thinks is because the board essentially was captured by musk so that left it to Chancellor McCormick to step in. And she concluded that since he owned 22% of Tesla and 2018. He already had plenty of incentive to increase Tesla's market capitalization. Every time he increased it like for every Milestone, he got 10 billion dollars additional wealth without any additional grants at all. So Chancellor McCormick about this, you can't prove to me that this was necessary to pay him quite so much. So she rescinded the pay package and normally when that happens the losing side just appeals and his case to the Delaware Supreme Court. But in doing that test Tesla tried to redo the exact same package. They figured at the problem here was a captured board and a misleading proxy statement, maybe they could fix those things. So they created a new board special committee. Only one person which we've talked about. We talked about one personally and this Committee of one person had a very limited mandate she was Only supposed to evaluate whether the grant should be restored. She wasn't supposed to evaluate the amount and terms of the Grant and I don't really understand what you do that. How you do that? But that's what you did. She was supposed to write that was the committee's mission. Go ahead. Exactly to decide whether it be restored without actually, evaluating its substantively and she recommended it be restored and the shareholders voted to restore it. And so Tesla went back before Chancellor McCormick and argued. See now the shareholders were caught work, we're kosher we do see Cheryl, there's love it. Alright, the attached her opinion to the proxy statement so that they could so that they see hiding, nothing, everything you found is, right? Just closed here. And so, therefore, we've corrected all the flaws in the original process. So, Chancellor McCormick had to decide whether this new vote would force her to revise, her original judgment and restore musk's pay. And either way she had to make a decision about what kind of attorneys fees would be paid to the plaintiff's attorneys and that's what she reached last week and she held no must She basically said, get out of my courtroom. I don't I don't want to see you about this again. Remember what I said. So just for timing perspective, the the original opinion that she issued about the independence and so forth. Was in January, it was January of this year Tesla. Then held this vote at its regular June. Shareholder me? Yeah. Yeah, it was yes. So I guess the proxy statement came out in April, right? Actually was so the disclosures were in April and then everyone voted in June, they voted again, they supported it just like the supported in 2018. They then right away. Tesla marching in court and said, see, we got this positive vote and Chancellor McCormick, said, okay, see you in August, And then in August, they had a hearing about the arguments about whether this vote in fact, made everything kosher again. And now, finally after three, four months, Jennifer McCormick. Has now issued her opinion based on what she heard at the hearing, and all the briefs and all that stuff. Exactly. Okay good. So and the hearing covered two things first, the hearing said, the vote didn't matter and then the hearing also said, these are the legal fees that people can get exactly what happened with legal fees. Well, oh no wonder the legal fees and not the opinion itself. Oh, no reason for the opinion. Sure, why? That's oh, yeah, that's good point. Let's, let's talk about the basis for rejecting. This overcoming vote and there was, there was a lot of news. After the vote came out, you know. It must was jumping up and down saying, see her holders, love me. And there was she I guess that Chancellor received thousands of letters, a lot of it was also about fees. It was a lot of it was like we don't we did not want this case, so therefore don't pay them, right? Yeah, but but in an unusual twist Tessa shareholders really, I mean, they basically were protesting to Chancellor McCormick. Hey, this is what we want and just Montgomery, said not so fast people and what was the basis for? Not so fast people. Okay, so the short version and again, we we talked about this in our first episode because she kind of was telegraphing her thinking at hearing but she held two little too late. The revoke was the equivalent of Tesla. Introducing new evidence to the Court new Fast heard of interesting. And there is a procedure for introducing new facts to a trial court, and it's not after the trial is over in a vertical history. So, Tesla wanted to hold another shareholder vote with better disclosures. The time to do that was before the trial, not after. And there are a lot of practical reasons for this rule waiting until after trial wasted judicial resources at waste the courts time and that might sound like unimportant. But I assure you there is a huge legal infrastructure built up around. I'm forcing litigants not to waste the Court's time. There are lots of legal rules that say, make your argument at the appropriate time or lose it precisely because courts have a lot of cases and it's really important. They have a clear idea of the issues they have to decide right plus allowing defendants Tesla to raise all these new arguments with new facts. That's prejudicial to the plaintiff because the plaintiff thought this was over they developed a whole trial strategy based on the record that existed at the time. And now there are all these new facts to examine and this is a point that the court made explicitly when plants attorneys take these cases, they're on contingency, they get paid a percentage of what they win and they get Buckets zero if they lose now, we get a broader media debate about the value of shareholder litigation in general. But Delaware has institutional settled on a system where shareholder litigation is a crucial part of how shareholders rights are protected. So let's start as that is Baseline. It's important, shareholders can bring their cases, but these attorneys who work on contingency. They're not even going to take good cases. If they think they have to take. She's huge risks at trial. And expend all this money to win. And then instead of getting paid the company just says, okay. Wait, let's have another vote and do it again like that we're having or bring some other evidence, or some other facts. Exactly. So like that will prevent plainness attorneys from even risking a lawsuit in the first place. And so those were the reasons she refused to restore the pay package. There were some other reasons, but those are really the headline reasons that were the important ones. One. There was one that in my read of the her opinion, she just issued there was one about the disclosure that I don't think was quite expected. It was she didn't really tell a graph that I don't. Yeah, yeah. So this is Like 107, so, okay, we have talked on this show a lot about cleansing conflicted, transactions in controlling shareholders. So, normally if there's a conflicted transaction with a director, just one director, you either need independent shareholder approval or independent border approval, but if it's a controling shareholder you need both shareholder approval and board approval, and and, or independent, you know, and Tesla. And she had concluded previously that Elon Musk counted as a controlling shareholder. So he needed both the independent Board of the independence holder approval. He didn't have either. So it doesn't really matter that she called him a controlling shareholder because she concluded he didn't have either. But Theoretically, because he's a controlling shareholder, he needed, both independent board approval and independent shareholder approval. So, Tesla argued. Well, now we have that, we have a new vote, we have an independent committee. So now we got this independent board approval through this one person. And we got disinterested shareholder approval through the shareholder vote and McCormick held. Well no, because that whole transaction was still tainted by the original Grant. This special committee person, she didn't reevaluate the grant so that in original Grant was still tainted by said, she didn't hire a competition so forth. So that meant from McCormick's perspective, even if Wilson Thompson and Collins as like like even if like the board thing was cured, like the whole situation was tainted, which ultimately meant that even the best shareholder. Vote, couldn't restore the PayPal package because musk was a controller and you didn't fix the board level price. So ironically then the final aspect of the Decision was since a shareholder vote in this circumstance, could never have cured the problem because Wilson Thompson never Revisited. The original package McCormick held that therefore, the proxy statement was misleading, because it said, if the shareholder vote, it'll fix everything and McCormick said, no, it wasn't fix everything. It never was going to fix anything. So, you've now said, so now you've lied to shareholders by giving them the sense that their vote was worth more than it actually was. Now, obviously that language is, is circular because if the Delaware Supreme Court disagrees with her about whether the pay package can be restored with the new vote, then the proxy statement wasn't misleading, but I actually think that's really less important than the, than the headline, which is you can't do this this late in the game. Right. All right. So So, that's the, that's the, that's the reasoning for rejecting this vote. Exactly. It's cover for a sec, because you also mentioned that, and this is a huge part of these proceedings. This is how much the lawyers get paid. And they were, they were looking at a lot of money for a moment and they're still looking a lot of it. Absolutely, right? No, okay. Yeah. There are people who specialize in the awards and they are not named and Lipton so I don't have a whole lot of insight here. But the headline here is the plane is attorneys argued that they got 56 billion dollars for the stockholders because of their efforts. Tesla was spared having to pay Elon musk's the equivalent of 56 billion dollars. So they were asking they said for a very modest 10% of that I think. Yeah. Right. Just a little, just a fraction. Yes. Yeah. 5.6 billion in Tesla stock or or alternatively, a billion dollars in cash, she didn't give them that, she awarded 345 million, which Tesla can pay in, either stock or cash, which is a lot less than the ask. But I think the biggest award in Delaware history. Right. That says, the biggest award, a legal Feast of legal fees. Absolutely. But here's what really stood out for me. One of the arguments over the fee was, how much benefit to the attorney's really achieved for shareholders? Because the idea here is the higher benefit. They get for shareholders the higher, the fee. So the share in that exactly. So the plaintiff's attorney said this, is we got 56 billion. That's what we got for shareholders. And the defense argued, they didn't really achieve that much benefit. And part of the reason they didn't was because this wasn't anything shareholders value, this wasn't something that the market took seriously, and the defense evidence was look at the stock price. If shareholders really thought that this was a valuable win, then you would expect Tesla stock to go up when the verdict was announced and that didn't happen here, right? But McCormick pointed out, you can't really gauge the value of The Verdict by the stock price reaction because Elon Musk tweeted these confounding things. When, as soon as the verdict came out, he tweeted he'd moved the company to Texas. He tweeted, if he didn't get his stock, he wouldn't develop AI. So maybe the market was reacting to his Threats and not the actual verdict. You can't tell what the Pure Stock, Price reaction to the world, because Elon Musk was treating and I think she would have reached the same conclusion, regardless, but it's just funny that he was specifically foiled by bad tweets. And and that's and that's a very common problem in trying to use share price. It's always a problem, but it's just not trying to assess the impact of events studies are, they're good, but they're, they really vary and event studies done by the Chancery Court. It's a big thing. It's Always. Elon Musk specifically shot himself in the foot with bad tweets, which is yes, at least according to her, right? So we're down to 345 million dollars in legal fees and there was just an alternate formula that she employed to get there. I know she used the grant date value, right? So yeah, she's saying they won 56 billion. She said they won like functionally two billion which is about what the grant was worth at the time. It was well that was that was the accounting charge that Tesla took When they? Book the Grant in 2018 and that in fact is what they will. Whenever this is final. That's what their accountants will require them to reverse. So they're going to get a non-cash at the time, was a non-cash charge of about 2.3 billion dollars and then sometime, when this all gets wrapped up and assuming it stands, which we're going to talk about in a moment that it'll be A little it'll be about a 2.3 billion dollar, non cash gain, that's to base her feet off of right. Cool. Why don't we, I'm we want to talk about what kind of next both in Delaware, I think. And then all so next for the company and Tesla and his and more comp for Elon, let's, let's do that after a quick break. Shareholder Primacy is brought to you by free float, analytics.com. The only free database of corporate directors, their influence and their performance. If you want to Stocker retirement, plan go to free float. Analytics.com and look up which of your elected directors are performing well, which aren't use your vote in the alternative democracy and get your data at free. Float analytics.com. Now, back to the show, It. Okay, welcome back to shareholder Primacy. I'm Lipton here with Mike Levin and we're still talking about tornetta. There's a lot lot to think about here. We left talking about what had happened. Let's talk about what might happen next first in Delaware. Yeah, clearly I mean, it must cities are doing this, right? It's not done. He's gonna appeal. He said he tweeted when the opinion came out in January. I'm gonna appeal. I think he tweeted last week, I'm gonna appeal. So what does that look like? Okay, this is gonna appeal. So when it does, the Delaware Supreme Court has to consider whether a McCormick was correct. The first time whether this paper was unfair after trial, and they'll all get to consider what effect if any this new vote had. So both of those issues will be before the Delaware Supreme Court and I Hate making predictions because how embarrassing if I'm wrong but I know we're gonna we're gonna talk. We're good. Let's let's make a prediction Tesla's. Not going to win on the Revit issue. Oh yeah, wins on appeal. It's going to be about the original trial ruling Okay. Yeah, I mean, what, why not on the? I mean, that you're seeing pretty confident, and I'm I, I share your confidence on the revote issue again, not the lawyer in the podcast, but everything I read and saw suggested that the revote did not make this original breach of fiduciary duty, any better and then there was some additional flaws in the revote. Well, that's exactly the issue. Yeah, so you have to think of it this way. So, McCormick didn't even address all the arguments about the revote, for example, the plaintiffs argued that even if you can reverse a verdict this way in theory, that this particular vote wasn't good enough. Why? Because musk coerced the shareholders, he kept threatening that. If he didn't get his Paypal package back, he would refuse to develop AI a Tesla. And so, a shareholder vote, can't ratify anything if shareholders are being blackmailed. What about that? Special Committee Member Wilson. She really independent, what if she was behold in the bus because she was getting hundreds of millions of dollars to stop and McCormick didn't even address these arguments because she didn't have to, but if the Delaware Supreme Court, decides actually, we think in theory, you can undo a trial verdict with a new vote, then it's going to have to address these arguments that the vote was coerced, the special committee was beholden, but it can't address those arguments not really because that requires facts factual determinations. A hearing what did musk say how was it perceived by investors? What was Wilson. Thompson's mindset and the Delaware Supreme Court. Can't take new evidence. So now it has to remain to McCormick. I'm going to say romance, that's the verb. We're gonna remain it. Exactly. And that's the problem. Any new vote at this stage. The plaintiffs have to, at least be permitted to argue that the proxy was misleading, or the vote was to whatever and there's no way to decide that without a whole new trial. So now we're just endlessly. Trying this one case, which is exactly why you don't allow the new vote, the Supreme Court Justice sensitive to this, to use of judicial resources, as Chancellor McCormick. At the case would never end. So, Tesla was really doomed on this, when they're attorney conceited, as he absolutely had to do. There was no, And he had to see it that when the plane is challenged, the new vote as coerced. Those allegations had to be evaluated the same way. You would a shareholder complaint, which is a pretty loose standard where you allow a lot of inferences in the plaintiff's favor. So but a complaint is just the beginning of a lawsuit. After that, you have Discovery depositions, you've document review. There's no way Tesla. Could seriously expect that we're going to do all that again and again and again. So that's why I don't think this argument can win. If Tesla wins the appeal, it's going to be because of arguments about the original trial, not the revoke and and those are arguments revolved around and you and I have talked about this offline and I've read about it. In particular, I think the main one has to do with the nature and extent of musk's control again. No, I mean it's been we've talked about controlling shareholders lot, but I keep trying to avoid talking about that with this case because I don't think it matters in this case. Remember if you are not a controlling shareholder, if you're just an ordinary director, you can get your conflicts cleansed either by the independent boards or by the disadvantage. If you are conflicted, you need both. The problem is that musk didn't get either according to her, so you can call him a conflicted controller or you can call him just a conf. The director, it doesn't matter. He didn't have an independent board approval, and he didn't have disinterested shareholder approval according to McCormick, so, I as far as the appeal goes, I mean again I don't like making predictions but here's how I see things. She reached certain factual conclusions about the board being captured by musk. Not just, they didn't negotiate, but they didn't negotiate because he completely controlled their deliberation. So she read those and she made factual conclusions that the proxy was misleading. In general, the Delaware Supreme Court on appeal should defer to those findings. She was the fact finder, she took evidence and the Delaware Supreme Court tends to. It doesn't have to but like completely accept them but it tends to defer to her factual findings. So I think those stands. Now there are places where one could quibble she found the proxy statement was misleading because it described the board members as independent when they were in fact, captured by musk. Now one could reasonably argue that the ties among board members was already known to the shareholders like nobody was fooled and thought that this board wasn't captured by Kimball musk on the board. Yeah, well, there was all the community, there are all his associates. You could say he's reasonably say that nobody was misled by this proxy statement that the committee was independent because everybody knows of course, nobody's independent on that board. So you could argue there's nothing materially misleading in the proxy statement but that wasn't the only basis for finding the proxy statement was misleading. She also found it was misleading because it obscured the fact that his entire Package was proposed by musk as you said, without any board pushback. And actually, what I love is that the original draft of the proxy made it clear. That musk was the one who proposed this pay package and they board didn't change it later. They changed the proxy statement language to obscure. That musk was the one who came up with this, which, I mean, she didn't find it but that to me suggests, there was actually an intent to mislead shareholders. Yes. So these kinds of factual determinations was the board captured and was the proxy statement. Misleading the Delaware Supreme Court's going to review them with deference and I think they're like likely to stand but those are facts. They led to specifically legal conclusions. The court couldn't defer to the board's judgment because the board was captured and the court couldn't defer to the shareholder's Judgment because the shareholders was misled, right, right. So that left it to the court to judge is this pay package Fair? Normally you defer to the boards or you defer to the shareholders but you can't hear. So up to now. The court has to decide is this pay package fair, that piece was the pay Fair, despite the problems and how it was negotiated. I think that's the place where it's most likely, the Delaware Supreme Court disagrees with her, her logic, as I said was musk, could have increased Tesla's market capitalization anyway. He had a lot of incentives to do that. He didn't need 56 billion dollars. I don't know if the Delaware support Supreme Court's going to see at the same way. So the court it has to defer to her factual findings, but I don't think it has to defer to that General balance. Was this Fair given these facts so I hate predicting outcomes. But if you held a gun to my head, I'd say that's the spot where she's most likely to be reversed if she's reversed at all. Not saying she's going to be a verse. But if she's Reversed. That's where I see it happening. Got it. How long, how long is this gonna take? Oh, at least a year. It's, we're gonna be here for a while, you're in Delaware. Okay. Let's um, The the next move assuming we're we're done talking about Delaware. Yeah, that's that's all right for now. You know, there's been and I thought about this as a shareholder too and I don't want to pay mosque anything more because he's not really, he's not really there much these days. He hasn't come to the office. Yeah. But I still think. Yeah. Nonetheless. You could say he's pretty much working for Tesla and his current role with it. Sure. He's, yes, he's currently his current, his current doing some good for Tesla by his current assignment Washington. Yeah. But anyway, yeah. But the question, everyone's asking now is, well, if the board can't reinstate the old package, could it just say today? Okay, today in 2024, we're giving you this grant of stock. Can it do that? I mean, absolutely the board. Again. Subject to, you know, they need for approval, which has been the board has complete latitude, and how they compensate people. Okay. And, you know, the board gave him in 2018 grant, that was fair value at 2.3 billion That Grew and grew and grew, they could easily. There is nothing to prevent them particularly as respect shareholder sentiment. From doing that. Again, I mean Tesla's had an unbelievable run in the past year it's up it basically doubled this year. So shareholders in Tesla are elated. You know again whether they're related because they finally figured out cars, which they quite really haven't quite yet. Because you know, there's all this, you know, Potential Prospect, you know, again, Tesla trades much more like a tech company than a car company, though. Basically, it's in the business of making cars. So my sense is that shareholders will gladly? I mean, they'll approve. Anything look if they approved a movie, anything from Delaware to Texas and we ratify this after this, that will approve a new package. Okay, what does that look like? What does that look like in 2024 handing him? What is now? 100 billion dollars worth of stock? That that's a big problem. Okay, there's there's actually two problems with that at least two problems. First, is that the Cost to test. Tesla is immense. In 2013, at 2018, as we talked about the cost at the time, was about two billion 2.3 billion dollars and that's a non-cash charge. It was just basically the cost of equity was the fair value because it was an option, right? Because maybe he didn't get it. So it's really not 56 billion because of the uncertainty of whether he At the time, I haven't seen a reanalysis of this at the time in January when the opinion first came out and people were starting to re-estimate. Okay, let's suppose and this is before they moved to Texas, the Texas move, doesn't matter to this particular question. There was an estimate that just redoing this grant the exact same 12 trensch of equity and basically it's it's about 300 million dollars. 300 million tests, a shares at the time would have cost Tesla about 25 billion dollars in Grant date, fair value non-cash but a huge accounting charge. Okay, it's probably higher now because of the runoff in because the stock does the state. Yeah, it's because it's worth more now. So and and there's a I mean part of the promise that Tesla the Tesla board probably can't. It look, Elon doesn't need it. He wants it because he wants control over the company, not because he needs the money. All right, he likes the money too, he likes the money, but he's got I mean look, he's monetizing all sorts of him. He's about to, you know, you know, he raised another round in in xai, that just raised a huge amount of money that, you know, space SpaceX is worth, you know, more than, you know. It's it's and then his investment in Tesla at this point. So, but it's mostly because he wants the control, all right. Again in the shareholder are totally happy, having him have that but the the grant date fair value of an equivalent. You know 300 million shares is probably you know 50 60. It's a huge amount of billions of dollars that like overwhelms Tesla economics. Right? The charge that that quarter comes through is going to be one of the ugliest in history. It's not cash and so forth and shelters kind of understand it, but you can't look beyond the fact that we're still doing with a car company, right? That's got some really cool AI rather than a tech company that continues to carry multiples and valuations that make it look a lot more, like, you know, Microsoft and Facebook, then, you know, GM and GM instantes. So anyway, so that's That's economically. What shareholders are looking at, assuming that the boy and it's a good assumption that the board's going to want to do this, the board does whatever Tesla, the Deportes does, whatever Elan asks, and if he says, look, I want my control right now. His Cheryl things I think is somewhere in the range about that. Assuming this sticks, the Decision takes away from a million shares, his 400 million shares, remain, I think a 10 or 11 or 12%. And he has said publicly, he wants about 20%, that's what it takes him. That's because the motivate him, and that's because he left Delaware. If he had stayed in Delaware, he could form a shareholder agreement and give him the same of course, but now that they're in Texas. Let's let's, you know. I my assumption is a test is Harold. Is that the board's gonna give him some something that was gonna look like it, maybe after the appeal. But it's, it's gonna look like some and immediately someone's gonna try to sue it. So as soon as stop it and that's where things get really interesting because they're suing in where text Texas. Exactly. So yeah, the new business court. So let's talk about that for a second. All right, exactly. So Tesla isn't a Delaware company anymore. It's a Texas company. Any new award that's giving a must today is going to be subject to test, Texas law and any challenges to it by a new shareholder, which certainly be tempted. Well, I'd be brought in Texas Courts so that, okay, so they're a couple of levels on that. So first, that's already gonna hurt any new planets chances because Tesla has Texas. Sorry, is these specialized business courts, but they're very very new. The judges are appointed for only two years at a time, which means that they're very much under the control of Governor Abbott. And I think we've all been consuming and I think Tesla has been assuming That these judges are not going to be very sympathetic to shareholder claims brought against the state's favorite son. So the issue here is we're already got judges who we can assume or not going to be particularly welcoming to new claims. And at the same time, Texas's law is actually pretty underdeveloped. Everyone's law is underdeveloped except Delaware's. So there are a lot of questions about how courts would interpret Texas law and there are a couple of different issues here but the really big one is Independence. If Cheryl's want to bring a name, they will have to show that the board members are not independent of Elon musk's. So now we have to ask. What is independence mean in Texas? We know what it means in Delaware. It means that there's a reasonable doubt. Someone can be impartial when making a decision. And we said on prior shows, this is actually a very fact, specific standard Delaware doesn't just look at things like business relationships. But also how business intersects with personal relationships to figure out if two people are too close to be able to consider matters and partially like, in one case, two people co-owned an airplane together and they were assumed to have a very close friendship because people own airplanes together. They either like, you know, they've got a coordinate that in another case. Two board members. Visited each other's homes, grilled steaks, and I swear to God castrated calves together. Excellent. Excellent. And Delaware said, well if your castrating calves, get ready. If you're going to be doing doing doing animal husbandry that way together, I suppose that means you're not independent. Okay, it's a Delaware looks at these Relationships and says, okay, you're too close to be impartial, but taxes has a statute on this and Texas is statute. Says Independence means. No, and I'm quoting Business Financial, or familial relationship with someone that would affect their judgment, and no relationship that has one person under the controlling influence of someone is that different from Delaware law? Well, Business Financial familial that sounds like narrower than Delaware because it doesn't seem to include friendships Business Financial does not sound like, you know, castrated Cavs together at least, not on its. But then there's that extra piece the existence of controlling influence, you're not independent, if you're under the controlling influence of someone that could include personal relationships, but sounds to me. Yeah. Like a very high bar because and there's no law yet and he, I actually did like, I mean, I didn't research this the way, an actual plaintiff, who was litigating the case? So there might be out there that I didn't find but I couldn't find any case law that interprets this language and this is exactly the kind of flexibility that would protect musk because the judges are inclined to be sympathetic in the first place but there's a punchline. When Tesla asked shareholders to vote to really relocate the company to Texas, it included these reports in the proxy statement on what the impact would be on shareholder rights. And the reports that was from the committee from the committee wrote. These reports not an expert from a professor and then there were issue and all these different commentary. Like what is this mean for shareholder rights? And it said, explicitly that. Texas provides substantially equivalent litigation rights. So if I'm a stockholder bringing a lawsuit, I would argue Tesla is actually barred from arguing and a Texas court. That Texas has a materially different standard of Independence and Delaware does that's what I'd argue that Tesla is now bound to that representation that shareholders have the same rights and you did this. I mean there's I mean, a while ago you in fact were in helped write these arguments practice. So, yes. So that's what I'd argue but we'll see what happens. So, that's interesting. So Essentially and there's lots of states that do this that say, we're going to defer to Delaware law. Yeah. Texas always has in the past. It's looked to Delaware case law. Right? Right, right. So, so there's a lot of states that sort of copy or follow or emulate Delaware law, because it's so established and so forth and Incredibly underdeveloped, outside and Texas. Create Texas. In fact did this for a while, then they created these new business courts, which I'm sure got elon's attention. Said, oh cool. I can I can do anything I want now. But but The the challenge is is that he disclosed to shareholders or the company disclosed to shareholders that. In fact, you're we're all we're going to move here and our and we're promising, you know, but we believe you know. So like right commitment that we will we will follow we will not be any worse than Delaware which is basically we're going to continue to follow Delaware, law know. Yeah. And that's what I would imagine plays for, you know. Of course, Tesla will say look this was a prediction of what courts would do not a promise. Well but it will still, you know? I I would be funny to see a play out that way and it could Wow. All right. All right. So we have, we have, we're going to wait for this appeal. We're going to wait a while for this appeal and we're going to also see what happens next and my guess in Texas. That is and my guess is that Tesla probably will wait until after this appeal gets worked out very positive. I mean, if Delaware Supreme Court reverses and gives them the money right. They don't want it. They didn't want to give to I mean they could they could try to do something funky like make a new award contention on the work out of the appeal. But no one, no one wants to go there and again Elon doesn't need the money. He just wants to control. He kind of has to control so he's not going to worry too hard about it for now. So and then there's all sorts of implications that we can talk about like what this all means for Delaware and so forth, but let's, let's do that in another time. Let's do that in there, right? So how's that sound? All right. Let's um, Let's wrap up. I'm tired. Okay, so there's a lot there's a lot to think about here. Okay. It's been terrific talking about this. This is shareholder. Primacy hosted by any Lipton and me Mike Levin. I'm an independent activist investor and advisor to investors about their activists and situations, and of course, is the Michael and Fleischman, professor in business line entrepreneurship at Tulane law school, and an affiliate of two lanes, Murphy Institute, but not for the rest of the month. Because classes are over and gets to, and gets to just write your papers and tidy up and great exam and great. You can find me Mike at the activist investor.com and ask God that's tulane.edu. Our podcast is produced and distributed by free flow media. Thanks for listening. Let's talk again.