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Legal Document
Delaware Court of Chancery
Case No. 2018-0408-KSJM
Richard J. Tornetta v. Elon Musk

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 EFiled: Jun 20 2024 05:31PM EDT
Transaction ID 73443212
Case No. 2018-0408-KSJM
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

RICHARD J. TORNETTA,
derivatively on behalf of all other
similarly situated stockholders of
TESLA, INC.,

Plaintiff,
C.A. No. 2018-0408-KSJM
v.
ELON MUSK, ROBYN M.
DENHOLM, ANTONIO J. GRACIAS,
JAMES MURDOCH, LINDA
JOHNSON RICE, BRAD W. BUSS,
and IRA EHRENPREIS,
Defendants,

and
TESLA, INC.,
Nominal Defendant.

DEFENDANTS’ MOTION (1) TO SET ASIDE APRIL 11, 2024

SCHEDULING ORDER AND (2) TO SET A SCHEDULE FOR EXPEDITED
BRIEFING ON THE IMPACT OF TESLA STOCKHOLDERS’
RATIFICATION ON THE JANUARY 30, 2024 POST-TRIAL OPINION

Defendants Elon Musk, Robyn M. Denholm, Antonio J. Gracias, James

Murdoch, Linda Johnson Rice, Brad W. Buss, and Ira Ehrenpreis (the “Individual

Defendants”) and Nominal Defendant Tesla, Inc. (“Tesla” or the “Company”)

(collectively, “Defendants”) hereby move (1) to set aside the Amended Stipulation

and Order Governing Briefing On Motion For Award of Attorneys’ Fees and

Expenses, entered on April 11, 2024 (Dkt. 304, the “Scheduling Order”), and (2) to
set a schedule for the parties to brief the effect of the stockholder vote on June 13,

2024 at Tesla’s Annual Stockholder Meeting, during which a majority of

disinterested voting shares ratified Elon Musk’s 2018 Compensation Plan (the

“Ratification”). Plaintiff opposes this request.

A. Introduction

1. In this stockholder derivative action, Plaintiff seeks on behalf of the

Company relief that the Company’s stockholders have now determined they do not

want. At Tesla’s June 13, 2024 Annual Stockholder Meeting, Tesla’s stockholders

exercised their rights by voting to ratify Elon Musk’s 2018 Compensation Plan by a

convincing margin of 72% of disinterested voting shares (i.e., excluding the shares

of Elon and Kimbal Musk). Following the vote, the Ratification is effective and, by

any measure, impacts significantly what remains to be decided in this litigation.

Defendants contend that the consequences of the Ratification alter the course of this

litigation and any relief that is potentially available (and relatedly, any attorneys’

fees that may be awarded to Plaintiff’s Counsel), and thus cannot be ignored in an

action that is supposed to advance the bests interests of the Company. Defendants

respectfully submit that the scope of the Ratification’s impact should be briefed

expeditiously and decided before this Court rules on the two issues contemplated by

the Scheduling Order—i.e., Plaintiff’s Motion for Award of Attorneys’ Fees and

Expenses (Dkt. 296, “Fee Petition”), and the form of any Final Judgment.

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Accordingly, while the impact of the Ratification on the Individual Defendants and

the Company may differ, both move to vacate the current Scheduling Order and for

a new schedule to be entered to address important issues arising from the

Ratification.

2. In prior letters to Your Honor on April 17, April 25, and June 14, 2024,

as well as in Tesla’s May 7, 2024 Consolidated Opposition to the Three Motions and

its June 7, 2024 Opposition to the Fee Petition, Tesla repeatedly took the position

that Ratification by the Company’s stockholders would significantly impact the

claims and issues remaining in this action, including Plaintiff’s Fee Petition and the

timing and topics to be covered in connection with the hearing on the Fee Petition

currently scheduled for July 8, 2024, as well as the substance and content of the

Court’s final judgment. (Dkts. 306, 313, 324, 325, 357 and 378). Ratification has

now occurred, by a convincing margin, and Tesla’s stockholders have voted to honor

the terms of the 2018 Compensation Plan. Accordingly, this Court should first

address the impact of those events before proceeding to any remaining issues in this

case.

B. The Ratification Vote

3. Tesla’s stockholders have now determined, by the overwhelming vote

of 72% of disinterested and voting stockholders that voted for the Ratification at the

June 13, 2024 Annual Stockholders Meeting, to have Tesla honor the 2018

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Compensation Plan, as agreed to in 2018. That fully informed vote offers a

principled resolution to this dispute—one that respects both stockholder democracy

and the complementary roles of this Court and Company stockholders in overseeing

the acts of corporate fiduciaries.

4. Tesla stockholders voted to ratify the 2018 Compensation Plan in what

was a fully informed stockholder vote. The stockholders had before them the terms

of the 2018 Compensation Plan, the approval process for the 2018 Compensation

Plan, the history of this litigation, and the considerations that led the Special

Committee, and subsequently the Board of Directors, to recommend a stockholder

ratification vote. They were also informed by a range of opinions, including reports

by institutional stockholders and other fellow stockholders, independent proxy

advisors that recommended against voting for a ratification, legal commentators, and

widespread news coverage. And, most important, they had before them, in its

entirety, this Court’s comprehensive critique of the 2018 Compensation Plan in its

200-page Post-Trial Opinion, as well as the extensive news coverage of the Opinion.

They still chose to overwhelmingly ratify the Plan. The voting stockholders that

supported Ratification included some of the most sophisticated institutional

investors in the world, including BlackRock and Vanguard. Notably, Vanguard—

the owner of 7% of Tesla shares and having previously voted against the Plan in

2018—explained in an Investment Stewardship Insights memorandum to its

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investors the reasons for its favorable vote this time on Ratification, noting, among

other reasons, that “the unique circumstance of evaluating the plan retroactively

eliminated our concerns that significant pay could be earned without company

outperformance relative to the market or peers,” and that “[Tesla’s] total shareholder

return was in the 98th percentile of all Russell 3000 companies from 2018 through

2023 and there are few companies that have created as much absolute market value

appreciation as Tesla”. 1 Certainly, in light of all this information, the Ratification

was one of the most well-informed stockholder votes in recent memory.

5. Defendants submit that the Ratification vote has controlling and

preclusive effect, and must be given effect by this Court. A foundational principle

of Delaware law is that the stockholder franchise is the cornerstone of corporate

governance, and that the will of the stockholders, as owners of the company, should

be respected. For those reasons, judgment should not be entered in favor of Tesla

on Plaintiff’s claims in the face of Ratification. Nor may Plaintiff’s Counsel seek

some attorneys’ fee award from this Court on the basis of a rescission of the now-

ratified 2018 Compensation Plan. See La. Mun. Police Empl. Ret. Sys. v. Bergstein,

No. 7764-VCL, 2014 WL 4470955, at *2 (Del. Ch. Sep. 10, 2014) (ORDER) (by

1
Vanguard Investment Stewardship Insights: Redomestication and Executive Pay
Proposals at Tesla, Inc., Vanguard (June 2024), https://corporate.
vanguard.com/content/dam/corp/advocate/investment-stewardship/pdf/perspectives-and-
commentary/tesla_insights.pdf.

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securing ratification of allegedly void option plan “defendants mooted the plaintiffs’

claims” and attorneys’ fees governed by mootness theory).

6. Accordingly, judgment should not be entered in favor of Plaintiff to

undo, on behalf of Tesla, that which its stockholders have now reapproved. And

Plaintiff’s Counsel’s request for an award attorneys’ fees is directly impacted by the

now-ratified 2018 Compensation Plan.

C. A Path Forward to Resolve any Remaining Issues

7. On June 14, 2024, Tesla (with the Individual Defendants’ support)

wrote to this Court and proposed that, in view of the Ratification, “that the parties

meet and confer on a proposed path forward, including a potential revised schedule

(subject to approval by the Court) to permit the parties to detail their respective

positions.” (Dkt. 377). In a response on the same day (and before any meet and

confer could take place), Plaintiff’s Counsel wrote the Court to say that Plaintiff

would not consider any modification of the schedule but would “consider in good

faith” any proposal “regarding supplemental briefing”. Plaintiff’s Counsel also

made clear their view that the “purported ‘Ratification’ has no legal effect on this

action,” relying upon the views expressed in the proposed amicus brief of Professor

Charles Elson. (Dkt. 378).

8. On June 19, 2024, the parties’ counsel met and conferred regarding an

expeditious process to address the effect of the Ratification on the Tornetta

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litigation, including whether the July 8 hearing on the Award of Fees to Plaintiff’s

Counsel should be briefly postponed until after the parties have had the opportunity

to brief the significant legal impact of the Ratification. Plaintiff’s Counsel did not

agree to any alteration of the Scheduling Order, but indicated a willingness to agree

to supplemental briefing (limited to no more than 2,500 words per brief) on the

Ratification and its legal effects.

9. Defendants submit that it is not an efficient use of the Court’s and the

parties’ resources to adhere to the current Scheduling Order in view of the

Ratification. The dueling forms of proposed final judgments in respect of the Post-

Trial Decision now due to be filed next week have been overtaken by subsequent

events. The Court should not entertain the pending request by Plaintiff’s Counsel

for an award of attorneys’ fees (and whether or to what extent any benefit was

conferred by the litigation) in the face of Ratification, as Plaintiff’s Fee Petition is

premised on the assertion that Musk would not get paid under the 2018

Compensation Plan and the false proposition that some Tesla shares issued to Musk

were returned to Tesla by virtue of this action (which has not happened and will not

happen).

10. Defendants respectfully submit that this Court should vacate the current

Scheduling Order. In its place, the Court should enter an order setting forth an

expeditious schedule to address the impact of the Ratification. Defendants will

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move for entry of judgment in their favor based upon the Ratification and propose

to submit that motion and an opening brief of no more than 14,000 words on

June 28, 2024. The 2,500-word limit proposed by Plaintiff’s Counsel for

supplemental briefing is inadequate for the importance of the issue at stake and also

unfair to Defendants—indeed, Plaintiff clearly intends to rely upon Professor

Elson’s amicus brief which itself contains more than the 2,500 words that Plaintiff

suggests Defendants should be limited to here.

11. Plaintiff’s Counsel has informed us that they intend to oppose this

motion because they want the remaining issues to be decided expeditiously. But

Defendants already informed Plaintiff’s Counsel that they are prepared to agree to

an expedited schedule, including by filing our opening motion and brief on June 28,

2024. Defendants further propose that Plaintiff submit his Opposition by July 12

and that Defendants Reply by July 19, with a hearing on the motion to take place

thereafter at the Court’s earliest convenience in July.

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 ROSS ARONSTAM & MORITZ LLP

/s/ Garrett B. Moritz

Of Counsel: David E. Ross (Bar No. 5228)
Garrett B. Moritz (Bar No. 5646)
Evan R. Chesler Thomas C. Mandracchia (Bar No. 6858)
Daniel Slifkin Hercules Building
Vanessa A. Lavely 1313 North Market Street, Suite 1001
Justin C. Clarke Wilmington, Delaware 19801
CRAVATH, SWAINE (302) 576-1600
& MOORE LLP
Worldwide Plaza Attorneys for Defendants Elon Musk,
825 Eighth Avenue Robyn M. Denholm, Antonio J. Gracias,
New York, New York 10019 James Murdoch, Linda Johnson Rice,
(212) 474-1000 Brad W. Buss, and Ira Ehrenpreis

DLA PIPER LLP (US)

/s/ John L. Reed

Of Counsel: John L. Reed (Bar No. 3023)
Ronald N. Brown, III (Bar No. 4831)
Brian T. Frawley Caleb G. Johnson (Bar No. 6500)
Matthew A. Schwartz Daniel P. Klusman (#6839)
Matthew L. Strand 1201 North Market Street, Suite 2100
SULLIVAN & CROMWELL LLP Wilmington, Delaware 19801
125 Broad Street (302) 468-5700
New York, New York 10004
(212) 558-4000 MORRIS, NICHOLS, ARSHT
& TUNNELL LLP
William M. Lafferty (Bar No. 2755)
Susan W. Waesco (Bar No. 4476)
Ryan D. Stottmann (Bar No. 5237)
Miranda N. Gilbert (Bar No. 6662)
Jacob M. Perrone (Bar No. 7250)
1201 N. Market Street, 16th Floor
Wilmington, Delaware 19801
(302) 658-9200

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 RICHARDS, LAYTON & FINGER, P.A.

Rudolf Koch (Bar No. 4947)

John D. Hendershot (Bar No. 4178)
Kevin M. Gallagher (Bar No. 5337)
Andrew L. Milam (Bar No. 6564)
One Rodney Square
920 North King Street
Wilmington, Delaware 19801
(302) 651-7700

ASHBY & GEDDES, P.A.

Catherine A. Gaul (Bar No. 4310)

Randall J. Teti (Bar No. 6334)
500 Delaware Avenue, 8th Floor
Wilmington, Delaware 19801
(302) 654-1888

Attorneys for Nominal Defendant

Tesla, Inc.

Dated: June 20, 2024 Words: 1,642 / 3,000

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