SCOTUS May Gut Voting Rights Act & Elon Musk Pay Package | Bloomberg Law
Summary
Supreme Court Case: The Supreme Court's conservative justices are considering limiting the Voting Rights Act, potentially impacting the creation of majority-minority voting districts.
Voting Rights Act Implications: The case could lead to significant changes in how racial discrimination in voting is addressed, with concerns about the potential for increased partisan gerrymandering.
Elon Musk's Compensation: Delaware's highest court is reviewing Elon Musk's 2018 Tesla pay package, which was previously rescinded due to alleged fiduciary breaches and inadequate shareholder disclosure.
Shareholder Votes: The court is considering whether a second shareholder vote, which approved Musk's compensation package with full disclosure, can rectify previous procedural issues.
Legal Precedents: The case may set new legal precedents regarding executive compensation and shareholder ratification in corporate governance.
Corporate Relocation: Discussion on the potential impact of Tesla's relocation to Texas on future derivative challenges, given Texas's less established corporate legal framework compared to Delaware.
Market Impact: The outcomes of these legal proceedings could influence corporate governance practices and shareholder engagement strategies in the U.S.
Transcript
This is Bloomberg Law with June Graasso from Bloomberg Radio. The Supreme Court's conservatives appeared ready today to gut a key tool that's been used to root out racial discrimination in voting for more than half a century. During oral arguments, the six conservatives suggested they'll restrict the creation of majority black or Hispanic voting districts and gut the voting rights act. The central legislation of the civil rights movement. Joining me is Bloomberg News Supreme Court reporter Gregor. So Greg, explain the issue in the case. Yeah. So, the issue is basically that under the Voting Rights Act since the 1980s, there's been basically a test that if you're a racial minority, you can go to court and say this map illegally dilutes my vote. And if you meet certain criteria in this test to show that there's like racially polarized voting in the in the state or jurisdiction, that you can win a Voting Rights 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 all the conservative justices seem to be on the same page? >> Well, it sure seems like all six conservatives are interested in limiting the Voting Rights Act and putting real restrictions on the requirement that sometimes states have to draw majority minority districts to ensure that racial minorities aren't uh suffering discrimination. So, Justice Kavanaaugh talked about, you know, these race-based remedies should not be indefinite, should have an end point, but in these cases, aren't the plaintiffs showing that there is race-based discrimination going on? >> Yeah, that is the counter to Justice Kavanaaugh. So undoubtedly what Justice Kavanaaugh is thinking about is what the court said in the affirmative action case from a couple years ago where the court basically said, you know, it might have been constitutional previously, but at some point these what they consider to be racial preferences have to come to an end. And he's thinking about that same sort 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 black or 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. >> There was push back from the court's three liberals. What was their point? >> So yeah, a couple different points. Justice Sonia Sudaayor at one point said you're effectively killing section two. You're that's the effect of your position. Section two is one of the big prongs of the Voting Rights Act. Justice Elena Kagan kind of made that point we were talking about earlier that hey this only happens 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 as white voters or Hispanic voters aren't having their votes counted the same way. So a lot of push back there. Uh, Justice Kagan also asked the lawyer defending the Voting Rights Act to talk about the consequences of this and and she talked about just how big the consequences could be for minority districts around the country, not just at the congressional level, but state and local as well. >> What else were the conservatives concerned about besides, you know, a time limitation? Did anyone actually feel that there wasn't race-based discrimination in voting anymore? The big thing that the the conservative justices seemed to be concerned about was that there was discrimination going on, but it was going on the other direction. That when a state is intentionally creating a majority black, majority Hispanic district, that is discrimination and that is really worrisome and and unconstitutional. 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 gerrymandering. 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 gerrymandering, not racial gerrymandering. >> Just to remind us, the Supreme Court has taken out in recent years two parts of the Voting Rights Act already. >> Yeah. So, the the big one that everybody remembers is this case called Shelby County. And that basically nullified the so-called pre-clance regime under which a lot of jurisdictions, mostly in the South, had to go to either the Justice Department or a federal court to get clearance before they changed their voting rules because of the history of of discrimination in those 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 to maps are discriminatory. So I'm talking about things like rules governing the collection of of mail ballots or you know the location of a polling place. The court put in place a much tougher test to 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. >> If the Supreme Court's conservatives do away with this part of the Voting Rights Act as well, does that mean that anything goes in drawing these maps? >> It's hard to say for sure. That is certainly the concern of of folks on on the other side of the case. Undoubtedly, the court will at least leave some theoretical room to say that there's intentional discrimination going on, and the state wouldn't be able to explicitly say we're doing this for racial reasons. We're drawing the lines this way. That's actually precluded under the Constitution in the 15th Amendment. So, that would still be there, but you know, how much that would matter as a practical matter, that's an open question. This 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. >> I mean, is there any chance that there'll be a very narrow ruling? >> There's certainly a chance. And, you know, keep in mind that just a couple years ago, the court had a case that, you know, if I described the circumstances, you'd say it's very, very similar. about Alabama and whether Alabama had to create a second majority black district, which is exactly what's going on in Louisiana. And in that case, the Chief Justice and Justice Kavanaaugh sided with the liberals and said, "We're going to basically keep the 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 court's precedents, unlike the current case. So, I I put that out there only to to sort of say that the Chief Justice and Justice Kavanaaugh, at least in that case, were acting a little bit uh cautiously. They weren't moving too quickly. It's possible, although it wasn't really apparent today, but it's possible those instincts will will come into play and and the two of them might be interested in crafting a more narrow ruling here. >> I think a lot of the liberals and voting rights advocates were looking at that case and saying, "Well, that was just a couple of years ago. They're not going to change it now, are they? But apparently the chief justice saw a difference in the cases. >> Yeah. And you know, remember this Louisiana case was argued last term and the court didn't decide it. And when it was argued initially, the the question before the court was pretty narrow. And at the end of the term, the court said, "We're not going to decide it. We're going to consider a broader question." And that broader question ended up being whether this whole practice of creating intentionally creating majority blacks, 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. >> We're used to them overturning one, but two in one, that would be something. So now, was it acknowledged that this kind of ruling by the Supreme Court gutting this part of the Voting Rights Act would help Republicans? >> That did come out. I don't know if I would say acknowledged, but at least at at the very end, the lawyer for the NAACP legal defense fund who was defending the second majority black district in Louisiana did allude to the political impact and the potential impact on the Supreme Court's legitimacy if it decided such a partisan issue in a such a major way. It was not explicitly Republican versus Democrats in this argument, but it wasn't lost on anybody. Louisiana is a Republican run state. The Trump administration is on Louisiana's side arguing that the second majority black district should be thrown out. So, it was pretty apparent to people who was on what side of this case. >> And I will add that the six conservatives are Republican appointees. Just putting it out there. And could the court rule fairly quickly quickly in terms of the way the Supreme Court operates >> uh within a couple months so that this a new map in Louisiana can be put in place in time for the November election because you know they had that the whole overhang of the PCEL doctrine kind of out there and if they wait until too late then there's real questions about whether the ruling could force a new map in time for the election and if but if they rule quickly if they rule in December Then a lot of folks are concerned that it will spark a whole new round of mid decade redistricting. Even actually in some states that have already done it like you know Texas and Missouri could both if they weren't constrained by the voting rights act um they could eliminate other majority black or majority Hispanic districts. >> Thanks so much Greg. That's Bloomberg Supreme Court reporter Greg store. Coming up next on the Bloomberg Law Show. Delaware's highest court considers Elon Musk's 2018 $55 billion Tesla pay package. I'm Jun Grao and you're listening to Bloomberg. Tesla has launched an ad blitz not aimed at consumers to try to get them to buy cars or products, but aimed at its shareholders to try to get them to improve CEO Elon Musk's new $1 trillion pay package. On November 6th, we'll hold our annual shareholders meeting. This year, we have some critical measures on the ballot. We have a bold and ambitious plan to drive Tesla's next wave of growth and value creation for you, the owners of the company. To execute on this plan and to continue to realize extraordinary shareholder value, we need to put in place the adequate incentive structure for our CEO and ensure 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, Tesla shareholders will vote in November on what would be the largest pay package in corporate history for Musk. In the meantime, in Delaware's highest court today, Musk and Tesla are still fighting over Musk's 2018 multi-billion dollar pay package. A Delaware judge had rescended that $55 billion package after finding that shareholders had not been properly informed about the plan when they approved it and that director's conflicts of interest tainted the decision. Joining me is business law professor Eric Thally of Colombia Law School. So Eric, what was the Delaware Supreme Court considering in the oral arguments? It was a hodgepodge of things that were brought forward by the Tesla directors as well as the company itself, but it basically circulated around some aspects that involved revisiting the trial court's holding that there was a breach of fiduciary duty uh associated with Mr. Musk's compensation agreement. And they got into that a little bit, but the more interesting parts, I think, had to do with the remedy that Chancellor McCormack imposed, which was to resend the the agreement after finding a fiduciary duty problem. And then what do we make of the second stockholder vote that took place in June 2024, 6 months after the original opinion? Did that somehow kind of overturn the opinion or at least overturn any possible remedy beyond just, you know, 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. >> So you think they're going to reverse? >> I don't know for sure. I think that the uh probably the strongest argument that the Tesla appellants had had to deal with the remedy in the case. Chancellor McCormack rescended the compensation package after finding that there was not a you know adherence to fiduciary principles. Typically what happens after a recision of a contract is you try to put the parties back in the position they were in before the contract got entered into. But Mr. Musk is out, you know, according to the the the appellants, you know, 5 years of working for the company and not getting paid anything. That was not uh 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 uh 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 I kind of understand why they didn't bring it forward. Uh, 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 I can award to pay you back." So, that's going to be interesting. And it may actually, you know, my sense is 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 you've got a trial that completely comes out um in favor of the plaintiffs and you know just before the fee award argumentation Tesla has a second vote. Uh and the question is well how does that second vote that now has not only you know more disclosures but it even has the trial court opinion from the original trial. Does that second stockholder vote fix all of these problems? And and I think that the Tesla parties, the directors and and Tesla itself were 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. Um, 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 um 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 uh says that that's a potential thing to do that involved executive compensation packages um that were approved or ratified by shareholders after a trial court had said no those are improper. And interestingly enough that case was being overseen by the father of the current Supreme Court chief justice CJ side. his father was the chancellor of the of the chancery court and in that case that was from basically the 1950s the Supreme Court and then the trial court basically held at least that for some component of an executive compensation package a later occurring stockholder vote can basically fix the infirmity um at least in terms of the nullification 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. Jim >> what do you think was the best argument that the plaintiffs made? Well, I think the best arguments that the plaintists made, they first, you know, tried to defend the opinion below. And I will say that there were some factual conclusions in the opinion below, like that Elon Musk was a controller and that the directors were beholden to him when they were negotiating this uh contract. Those were factual findings that uh you know, you can overturn them on appeal, but only if they're clearly wrong. But based on those factual findings, the chancellor's opinion in that trial court uh record below, you know, I've taught that opinion many times. It's pretty easy to teach because it pretty much followed, you know, 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 you judge following the flowchart of what doctrine tells you you're supposed to do as 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 that the Musk parties had the stronger hand that they disagreed with those factual holdings. So, I think the Tornetta folks, the 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 uh 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, that plaintiffs in this case who were, you know, basically responding to the appeal. It's much more of a black box as to how the court's going to deal with this second stockholder vote and whether that somehow reaches back to ratify things earlier on. That's something that Chancellor McCormack basically refused to comment on at any length uh given that the trial had already concluded that there already was a breach of fiduciary duties. But it would be um you know something that the Supreme Court could send back to her and that would that was probably something that the the plaintiffs in this case didn't have as much of an answer to. But it was also the you know was a very time limited argument. So they spent more time on the on the first part. So you know I could see that ratification vote being a grounds for reversal. I could also see um a partial reversal that says we're not going to reverse the outcome of the finding that there was a breach of fiduciary duty. But when you rescended the pay package, it was going to be important to lay out some sort of a restitutionary award that would put Mr. Musk in, you know, that would make him whole, at least relative to before that compensation package was granted. And 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 the one part that that they could reverse by in the original opinion is Chancer McCormick's, you know, finding that that Musk while only owning about 21% of the company was such a superstar CEO that he just had undue influence at least over this transaction. um you know it's the first time this idea of superstar CEOs had been used in a case and so they 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 uh 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 second shareholder vote was was an effective one or that um you know when you resend pay package that the court has to then sort of take a briefing on what the appropriate amount that that Mr. Musk should be paid if it's not from his, you know, written contract, you know, to make him whole for and so so he doesn't end up giving away his services, having given away his services for free for 5 years. >> Coming up next on the Bloomberg Law Show, I'll continue this conversation with Columbia Law School professor Eric Thally. Why Musk and Tesla are returning to Chancery Court in Delaware on October 22nd? And are other Delaware corporations following Musk to Texas? I'm June Graasso and you're listening to Bloomberg. [Music] Elon Musk resumed his legal fight to reinstate a record setting 2018 Tesla pay package that was thrown out 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 $125 billion. During oral arguments before Delaware's highest court today, lawyers for Tesla and Musk argued 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 McCormack rejected it after concluding that the process for rewarding Musk was flawed by a conflicted board of directors and inadequate disclosure. exposures that were provided about Musk's compensation. I've been talking to Columbia Law School business professor Eric Thally. Eric, we've been talking about some possible decisions. Do you think that most likely any decision is going to involve sending it back to the trial court? Well, the interesting thing about it is I I think even these later two approaches, the one that doesn't attack the the logic of the original opinion, but but talks about either remedy or the effect of the second ratification vote. I think they have to, you know, if they reverse on either one of those things, they're going to have to remand it to the trial court for a little bit more work to do. The one in which, you know, they have to come up with a fair restitutionary amount for Mr. 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 for the value that he delivered to Tesla." So, that's going to be a very factually rich area. the appellants in this case had sort of said it's just you know the the plaintiffs themselves didn't offer that and therefore you should basically say you know you it's it's impossible and there should just be nothing more than nominal damages. My sense is that if they 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 you know has been a second vote and that acts to sort of you know to to sort of undo uh at least either liability or just the remedy from the original transaction. That one they might be able to re remand and say we think the known facts from that second stockholder vote are clear enough that it basically absolves the company and Mr. 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 and to reimplement the original compensation package. So, I think that one probably could give rise to the cleanest form of of reversal that wouldn't uh require a lot more work at the trial court level. But it also is, you know, that sort of reasoning is going to require 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? And one of the things that Chancellor McCormack had made 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 um something that the Supreme Court will have to think through if they want to reverse on the grounds of 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. Um, which, you know, at at this stage probably, you know, a lot of a lot of folks would like to avoid >> and explain why Musk won't see this kind of derivative challenge in Tesla's new home of Texas. >> Yeah. Well, we don't know for sure yet. I mean, one of the things that's kind of interesting about Texas is that it has a very very thinly developed set of precedents um out there now. Uh the Texas business courts have, you know, have ramped up and, you know, are now in operation. There still aren't that many precedents out there. So, I think there's a um it's in some ways a big wild card about exactly what those Texas business courts would do. Um and in fact, Mr. Musk has a new compensation package that was um that was um authorized under the Texas corporate code um and it itself could be subject uh to challenge but we don't know exactly what the rules u would be like. So, you know, to to to essentially judge uh 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 controllers and CEOs and manager types. So everyone sort of as a best guess thinks that they would be more friendly uh to um uh to the same set of facts if adjudicated in Texas. But you know the 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 it cites to Delaware as being kind of its instructional load star that it's going to follow. So in order for us to know 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 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. >> Has Delaware lost a lot of corporations to Texas? No, there are very few that have gone to Texas, as a matter of fact. Um, in part because people don't know exactly what to expect. There have been a there's been a a more of a trickle out of Delaware and into um Nevada. And that's in some part because Nevada's been around as a longtime um wouldbe competitor to Delaware. Um, you know, some of this I think is probably, you know, a version of uh virtue signaling, right? sort of publicly, you know, showing support for people including Mr. Musk who have been critics of Delaware over the longer hall. I would be surprised to see Delaware lose too much of its perch in a really short order um form simply because there aren't that many, you know, Texas is remains a bit of a wild card. Even Nevada is reconstituting a bunch of its systems as well, so it's a bit of an a wild card as well. Um, so we we really haven't seen the kind of an uh huge outflow that everyone was saying would take place. By the same token, it has ticked up a little bit that um compared to before, you know, January 2024, which is when the 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 um, 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 do we get into if we go to Texas and leave Delaware and there, 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. And it's amazing to me that but Musk and Tesla are going to be back in the chancery court on October 22nd and Musk's acquisition of Twitter is still a point of contention. >> Yeah, it is still a point of contention on some on some level of obviously the deal itself long ago closed and that part of it went away. But, you know, during this period of time, there were people that were buying and selling stock based on um, you know, statements that Mr. Musk was making sometimes over Twitter, sometimes elsewhere. Um, and some of that subsidiary stuff that is still being 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 I don't expect that they're going to collide very much. uh other than the fact that you know we've got pretty much the same larger than-l life personality in the court that is kind of the center of attention in both cases. >> I can't disagree with that. Thanks so much, Eric. That's Professor Eric Thally of Columbia Law School. And that's it for this edition of the Bloomberg Law Show. Remember, you can always get the latest legal news on our Bloomberg Law podcast. You can find them on Apple Podcast, Spotify, and at www.bloomberg.com/mpodcast/law. bloomberg.com/mpodcast/law. And remember to tune in to the Bloomberg Law Show every week night at 1000 p.m. Wall Street time. I'm June Graasso and you're listening to Bloomberg. [Music]
SCOTUS May Gut Voting Rights Act & Elon Musk Pay Package | Bloomberg Law
Summary
Transcript
This is Bloomberg Law with June Graasso from Bloomberg Radio. The Supreme Court's conservatives appeared ready today to gut a key tool that's been used to root out racial discrimination in voting for more than half a century. During oral arguments, the six conservatives suggested they'll restrict the creation of majority black or Hispanic voting districts and gut the voting rights act. The central legislation of the civil rights movement. Joining me is Bloomberg News Supreme Court reporter Gregor. So Greg, explain the issue in the case. Yeah. So, the issue is basically that under the Voting Rights Act since the 1980s, there's been basically a test that if you're a racial minority, you can go to court and say this map illegally dilutes my vote. And if you meet certain criteria in this test to show that there's like racially polarized voting in the in the state or jurisdiction, that you can win a Voting Rights 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 all the conservative justices seem to be on the same page? >> Well, it sure seems like all six conservatives are interested in limiting the Voting Rights Act and putting real restrictions on the requirement that sometimes states have to draw majority minority districts to ensure that racial minorities aren't uh suffering discrimination. So, Justice Kavanaaugh talked about, you know, these race-based remedies should not be indefinite, should have an end point, but in these cases, aren't the plaintiffs showing that there is race-based discrimination going on? >> Yeah, that is the counter to Justice Kavanaaugh. So undoubtedly what Justice Kavanaaugh is thinking about is what the court said in the affirmative action case from a couple years ago where the court basically said, you know, it might have been constitutional previously, but at some point these what they consider to be racial preferences have to come to an end. And he's thinking about that same sort 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 black or 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. >> There was push back from the court's three liberals. What was their point? >> So yeah, a couple different points. Justice Sonia Sudaayor at one point said you're effectively killing section two. You're that's the effect of your position. Section two is one of the big prongs of the Voting Rights Act. Justice Elena Kagan kind of made that point we were talking about earlier that hey this only happens 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 as white voters or Hispanic voters aren't having their votes counted the same way. So a lot of push back there. Uh, Justice Kagan also asked the lawyer defending the Voting Rights Act to talk about the consequences of this and and she talked about just how big the consequences could be for minority districts around the country, not just at the congressional level, but state and local as well. >> What else were the conservatives concerned about besides, you know, a time limitation? Did anyone actually feel that there wasn't race-based discrimination in voting anymore? The big thing that the the conservative justices seemed to be concerned about was that there was discrimination going on, but it was going on the other direction. That when a state is intentionally creating a majority black, majority Hispanic district, that is discrimination and that is really worrisome and and unconstitutional. 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 gerrymandering. 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 gerrymandering, not racial gerrymandering. >> Just to remind us, the Supreme Court has taken out in recent years two parts of the Voting Rights Act already. >> Yeah. So, the the big one that everybody remembers is this case called Shelby County. And that basically nullified the so-called pre-clance regime under which a lot of jurisdictions, mostly in the South, had to go to either the Justice Department or a federal court to get clearance before they changed their voting rules because of the history of of discrimination in those 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 to maps are discriminatory. So I'm talking about things like rules governing the collection of of mail ballots or you know the location of a polling place. The court put in place a much tougher test to 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. >> If the Supreme Court's conservatives do away with this part of the Voting Rights Act as well, does that mean that anything goes in drawing these maps? >> It's hard to say for sure. That is certainly the concern of of folks on on the other side of the case. Undoubtedly, the court will at least leave some theoretical room to say that there's intentional discrimination going on, and the state wouldn't be able to explicitly say we're doing this for racial reasons. We're drawing the lines this way. That's actually precluded under the Constitution in the 15th Amendment. So, that would still be there, but you know, how much that would matter as a practical matter, that's an open question. This 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. >> I mean, is there any chance that there'll be a very narrow ruling? >> There's certainly a chance. And, you know, keep in mind that just a couple years ago, the court had a case that, you know, if I described the circumstances, you'd say it's very, very similar. about Alabama and whether Alabama had to create a second majority black district, which is exactly what's going on in Louisiana. And in that case, the Chief Justice and Justice Kavanaaugh sided with the liberals and said, "We're going to basically keep the 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 court's precedents, unlike the current case. So, I I put that out there only to to sort of say that the Chief Justice and Justice Kavanaaugh, at least in that case, were acting a little bit uh cautiously. They weren't moving too quickly. It's possible, although it wasn't really apparent today, but it's possible those instincts will will come into play and and the two of them might be interested in crafting a more narrow ruling here. >> I think a lot of the liberals and voting rights advocates were looking at that case and saying, "Well, that was just a couple of years ago. They're not going to change it now, are they? But apparently the chief justice saw a difference in the cases. >> Yeah. And you know, remember this Louisiana case was argued last term and the court didn't decide it. And when it was argued initially, the the question before the court was pretty narrow. And at the end of the term, the court said, "We're not going to decide it. We're going to consider a broader question." And that broader question ended up being whether this whole practice of creating intentionally creating majority blacks, 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. >> We're used to them overturning one, but two in one, that would be something. So now, was it acknowledged that this kind of ruling by the Supreme Court gutting this part of the Voting Rights Act would help Republicans? >> That did come out. I don't know if I would say acknowledged, but at least at at the very end, the lawyer for the NAACP legal defense fund who was defending the second majority black district in Louisiana did allude to the political impact and the potential impact on the Supreme Court's legitimacy if it decided such a partisan issue in a such a major way. It was not explicitly Republican versus Democrats in this argument, but it wasn't lost on anybody. Louisiana is a Republican run state. The Trump administration is on Louisiana's side arguing that the second majority black district should be thrown out. So, it was pretty apparent to people who was on what side of this case. >> And I will add that the six conservatives are Republican appointees. Just putting it out there. And could the court rule fairly quickly quickly in terms of the way the Supreme Court operates >> uh within a couple months so that this a new map in Louisiana can be put in place in time for the November election because you know they had that the whole overhang of the PCEL doctrine kind of out there and if they wait until too late then there's real questions about whether the ruling could force a new map in time for the election and if but if they rule quickly if they rule in December Then a lot of folks are concerned that it will spark a whole new round of mid decade redistricting. Even actually in some states that have already done it like you know Texas and Missouri could both if they weren't constrained by the voting rights act um they could eliminate other majority black or majority Hispanic districts. >> Thanks so much Greg. That's Bloomberg Supreme Court reporter Greg store. Coming up next on the Bloomberg Law Show. Delaware's highest court considers Elon Musk's 2018 $55 billion Tesla pay package. I'm Jun Grao and you're listening to Bloomberg. Tesla has launched an ad blitz not aimed at consumers to try to get them to buy cars or products, but aimed at its shareholders to try to get them to improve CEO Elon Musk's new $1 trillion pay package. On November 6th, we'll hold our annual shareholders meeting. This year, we have some critical measures on the ballot. We have a bold and ambitious plan to drive Tesla's next wave of growth and value creation for you, the owners of the company. To execute on this plan and to continue to realize extraordinary shareholder value, we need to put in place the adequate incentive structure for our CEO and ensure 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, Tesla shareholders will vote in November on what would be the largest pay package in corporate history for Musk. In the meantime, in Delaware's highest court today, Musk and Tesla are still fighting over Musk's 2018 multi-billion dollar pay package. A Delaware judge had rescended that $55 billion package after finding that shareholders had not been properly informed about the plan when they approved it and that director's conflicts of interest tainted the decision. Joining me is business law professor Eric Thally of Colombia Law School. So Eric, what was the Delaware Supreme Court considering in the oral arguments? It was a hodgepodge of things that were brought forward by the Tesla directors as well as the company itself, but it basically circulated around some aspects that involved revisiting the trial court's holding that there was a breach of fiduciary duty uh associated with Mr. Musk's compensation agreement. And they got into that a little bit, but the more interesting parts, I think, had to do with the remedy that Chancellor McCormack imposed, which was to resend the the agreement after finding a fiduciary duty problem. And then what do we make of the second stockholder vote that took place in June 2024, 6 months after the original opinion? Did that somehow kind of overturn the opinion or at least overturn any possible remedy beyond just, you know, 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. >> So you think they're going to reverse? >> I don't know for sure. I think that the uh probably the strongest argument that the Tesla appellants had had to deal with the remedy in the case. Chancellor McCormack rescended the compensation package after finding that there was not a you know adherence to fiduciary principles. Typically what happens after a recision of a contract is you try to put the parties back in the position they were in before the contract got entered into. But Mr. Musk is out, you know, according to the the the appellants, you know, 5 years of working for the company and not getting paid anything. That was not uh 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 uh 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 I kind of understand why they didn't bring it forward. Uh, 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 I can award to pay you back." So, that's going to be interesting. And it may actually, you know, my sense is 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 you've got a trial that completely comes out um in favor of the plaintiffs and you know just before the fee award argumentation Tesla has a second vote. Uh and the question is well how does that second vote that now has not only you know more disclosures but it even has the trial court opinion from the original trial. Does that second stockholder vote fix all of these problems? And and I think that the Tesla parties, the directors and and Tesla itself were 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. Um, 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 um 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 uh says that that's a potential thing to do that involved executive compensation packages um that were approved or ratified by shareholders after a trial court had said no those are improper. And interestingly enough that case was being overseen by the father of the current Supreme Court chief justice CJ side. his father was the chancellor of the of the chancery court and in that case that was from basically the 1950s the Supreme Court and then the trial court basically held at least that for some component of an executive compensation package a later occurring stockholder vote can basically fix the infirmity um at least in terms of the nullification 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. Jim >> what do you think was the best argument that the plaintiffs made? Well, I think the best arguments that the plaintists made, they first, you know, tried to defend the opinion below. And I will say that there were some factual conclusions in the opinion below, like that Elon Musk was a controller and that the directors were beholden to him when they were negotiating this uh contract. Those were factual findings that uh you know, you can overturn them on appeal, but only if they're clearly wrong. But based on those factual findings, the chancellor's opinion in that trial court uh record below, you know, I've taught that opinion many times. It's pretty easy to teach because it pretty much followed, you know, 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 you judge following the flowchart of what doctrine tells you you're supposed to do as 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 that the Musk parties had the stronger hand that they disagreed with those factual holdings. So, I think the Tornetta folks, the 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 uh 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, that plaintiffs in this case who were, you know, basically responding to the appeal. It's much more of a black box as to how the court's going to deal with this second stockholder vote and whether that somehow reaches back to ratify things earlier on. That's something that Chancellor McCormack basically refused to comment on at any length uh given that the trial had already concluded that there already was a breach of fiduciary duties. But it would be um you know something that the Supreme Court could send back to her and that would that was probably something that the the plaintiffs in this case didn't have as much of an answer to. But it was also the you know was a very time limited argument. So they spent more time on the on the first part. So you know I could see that ratification vote being a grounds for reversal. I could also see um a partial reversal that says we're not going to reverse the outcome of the finding that there was a breach of fiduciary duty. But when you rescended the pay package, it was going to be important to lay out some sort of a restitutionary award that would put Mr. Musk in, you know, that would make him whole, at least relative to before that compensation package was granted. And 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 the one part that that they could reverse by in the original opinion is Chancer McCormick's, you know, finding that that Musk while only owning about 21% of the company was such a superstar CEO that he just had undue influence at least over this transaction. um you know it's the first time this idea of superstar CEOs had been used in a case and so they 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 uh 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 second shareholder vote was was an effective one or that um you know when you resend pay package that the court has to then sort of take a briefing on what the appropriate amount that that Mr. Musk should be paid if it's not from his, you know, written contract, you know, to make him whole for and so so he doesn't end up giving away his services, having given away his services for free for 5 years. >> Coming up next on the Bloomberg Law Show, I'll continue this conversation with Columbia Law School professor Eric Thally. Why Musk and Tesla are returning to Chancery Court in Delaware on October 22nd? And are other Delaware corporations following Musk to Texas? I'm June Graasso and you're listening to Bloomberg. [Music] Elon Musk resumed his legal fight to reinstate a record setting 2018 Tesla pay package that was thrown out 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 $125 billion. During oral arguments before Delaware's highest court today, lawyers for Tesla and Musk argued 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 McCormack rejected it after concluding that the process for rewarding Musk was flawed by a conflicted board of directors and inadequate disclosure. exposures that were provided about Musk's compensation. I've been talking to Columbia Law School business professor Eric Thally. Eric, we've been talking about some possible decisions. Do you think that most likely any decision is going to involve sending it back to the trial court? Well, the interesting thing about it is I I think even these later two approaches, the one that doesn't attack the the logic of the original opinion, but but talks about either remedy or the effect of the second ratification vote. I think they have to, you know, if they reverse on either one of those things, they're going to have to remand it to the trial court for a little bit more work to do. The one in which, you know, they have to come up with a fair restitutionary amount for Mr. 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 for the value that he delivered to Tesla." So, that's going to be a very factually rich area. the appellants in this case had sort of said it's just you know the the plaintiffs themselves didn't offer that and therefore you should basically say you know you it's it's impossible and there should just be nothing more than nominal damages. My sense is that if they 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 you know has been a second vote and that acts to sort of you know to to sort of undo uh at least either liability or just the remedy from the original transaction. That one they might be able to re remand and say we think the known facts from that second stockholder vote are clear enough that it basically absolves the company and Mr. 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 and to reimplement the original compensation package. So, I think that one probably could give rise to the cleanest form of of reversal that wouldn't uh require a lot more work at the trial court level. But it also is, you know, that sort of reasoning is going to require 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? And one of the things that Chancellor McCormack had made 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 um something that the Supreme Court will have to think through if they want to reverse on the grounds of 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. Um, which, you know, at at this stage probably, you know, a lot of a lot of folks would like to avoid >> and explain why Musk won't see this kind of derivative challenge in Tesla's new home of Texas. >> Yeah. Well, we don't know for sure yet. I mean, one of the things that's kind of interesting about Texas is that it has a very very thinly developed set of precedents um out there now. Uh the Texas business courts have, you know, have ramped up and, you know, are now in operation. There still aren't that many precedents out there. So, I think there's a um it's in some ways a big wild card about exactly what those Texas business courts would do. Um and in fact, Mr. Musk has a new compensation package that was um that was um authorized under the Texas corporate code um and it itself could be subject uh to challenge but we don't know exactly what the rules u would be like. So, you know, to to to essentially judge uh 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 controllers and CEOs and manager types. So everyone sort of as a best guess thinks that they would be more friendly uh to um uh to the same set of facts if adjudicated in Texas. But you know the 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 it cites to Delaware as being kind of its instructional load star that it's going to follow. So in order for us to know 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 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. >> Has Delaware lost a lot of corporations to Texas? No, there are very few that have gone to Texas, as a matter of fact. Um, in part because people don't know exactly what to expect. There have been a there's been a a more of a trickle out of Delaware and into um Nevada. And that's in some part because Nevada's been around as a longtime um wouldbe competitor to Delaware. Um, you know, some of this I think is probably, you know, a version of uh virtue signaling, right? sort of publicly, you know, showing support for people including Mr. Musk who have been critics of Delaware over the longer hall. I would be surprised to see Delaware lose too much of its perch in a really short order um form simply because there aren't that many, you know, Texas is remains a bit of a wild card. Even Nevada is reconstituting a bunch of its systems as well, so it's a bit of an a wild card as well. Um, so we we really haven't seen the kind of an uh huge outflow that everyone was saying would take place. By the same token, it has ticked up a little bit that um compared to before, you know, January 2024, which is when the 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 um, 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 do we get into if we go to Texas and leave Delaware and there, 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. And it's amazing to me that but Musk and Tesla are going to be back in the chancery court on October 22nd and Musk's acquisition of Twitter is still a point of contention. >> Yeah, it is still a point of contention on some on some level of obviously the deal itself long ago closed and that part of it went away. But, you know, during this period of time, there were people that were buying and selling stock based on um, you know, statements that Mr. Musk was making sometimes over Twitter, sometimes elsewhere. Um, and some of that subsidiary stuff that is still being 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 I don't expect that they're going to collide very much. uh other than the fact that you know we've got pretty much the same larger than-l life personality in the court that is kind of the center of attention in both cases. >> I can't disagree with that. Thanks so much, Eric. That's Professor Eric Thally of Columbia Law School. And that's it for this edition of the Bloomberg Law Show. Remember, you can always get the latest legal news on our Bloomberg Law podcast. You can find them on Apple Podcast, Spotify, and at www.bloomberg.com/mpodcast/law. bloomberg.com/mpodcast/law. And remember to tune in to the Bloomberg Law Show every week night at 1000 p.m. Wall Street time. I'm June Graasso and you're listening to Bloomberg. [Music]