Well, an awful lot, naturally, but Imma return to two of my favorite Musk subjects, namely, the pay package that was rescinded by Chancellor McCormick in Tornetta v. Musk, and the Twitter takeover.

So, Tornetta! Where we last left things, Chancellor McCormick had rejected Musk’s attempt to restore the pay package through shareholder ratification (Me and Mike Levin devoted a whole podcast to that decision, here). With that decision, and her award with attorneys’ fees, the case was finally over, and the defendants were able to appeal.

Which they did earlier this week.

Now, notices of appeal are usually sparse and rather dry reading, but not this time. To wit:

PLEASE TAKE NOTICE that Defendants-Below/Appellants Elon Musk, Robyn M. Denholm, Antonio J. Gracias, James Murdoch, Linda Johnson Rice, Brad W. Buss, and Ira Ehrenpreis, hereby appeal to the Supreme Court of the State of Delaware from (i) the December 13, 2024 Order and Final Judgment entered by the Honorable Kathaleen St. J. McCormick (the “Judgment”), (ii) the December 2, 2024 Opinion Awarding Attorney’s Fees and Denying Motion to Revise the Post-Trial Opinion (the “Ratification Opinion”), (iii) the January 30, 2024 Post-Trial Opinion (the “Post-Trial Opinion”), (iv) the September 20, 2019 Opinion on Defendants’ Motion to Dismiss the Complaint (the “Motion to Dismiss Opinion”), and (v) all other rulings and interlocutory orders made appealable through the Judgment in and for New Castle County, by the Delaware Court of Chancery in C.A. No. 2018-0408-KSJM. A copy of the Judgment is attached hereto as Exhibit A. A copy of the Ratification Opinion is attached hereto as Exhibit B. A copy of the Post-Trial Opinion is attached hereto as Exhibit C. A copy of the Motion to Dismiss Opinion is attached hereto as Exhibit D.

The defendants can always change their minds about it, and maybe they’re just keeping their options open, but what this suggests is they plan to make an issue not just of the trial verdict, and not just of the ratification decision, but of the original denial of the motion to dismiss (which was when the case belonged to Vice Chancellor Slights, and I blogged about it here).

The thinking, I assume, is that if they prevail on the argument that the case should have been dismissed on the pleadings, then everything else is erased – the whole trial, the whole decision on ratification, and everything else.

That is an … aggressive argument, and also one that smacks a little bit of desperation. After all, it’s far easier to reverse a dismissal ruling (which is reviewed de novo) than it is to reverse trial findings (which are reviewed for clear error). Does this suggest Musk’s attorneys aren’t confident they get a reversal of the trial verdict? Or are they just hedging their bets? I suppose we have to wait for the briefing to get a better sense.

But that’s not all –

A while back, when Brazil ordered the seizure of Starlink’s assets to force Twitter to comply with court orders, I blogged about corporate separateness as applied to Elon Musk.

That was intended more as a hypothetical than anything else, but of course, since Elon Musk finds it necessary to hit every unit in the BizOrgs (and Sec Reg and M&A) syllabus, it’s now come to life.

Namely, in the wake of the Twitter takeover, Musk ordered that, well, a lot of Twitter’s contracts be broken, which led to a lot of litigation. One of those cases, Arnold v. X Corp., alleges that pre-Musk Twitter made promises about employee severance that post-Musk Twitter is obligated to honor. And the employees argue that Elon Musk, along with Twitter, is personally responsible for the debt on – you guessed it – a veil-piercing theory. The plaintiffs say:

Plaintiffs alleged that Musk, through X Holdings I and its successors, owns more than 50% of Twitter (and its successors) and dominates Twitter’s decisionmaking and operations. Plaintiffs also alleged Musk intermingled his companies’ assets, treating them as one and the same – and as extensions of himself – despite their ostensibly separate corporate existences.

Plaintiffs have also sufficiently alleged it would be inequitable to allow Musk to use the corporate form to escape liability. By intermingling his corporate assets in the alleged conduct without formally having Twitter contract with the employees of his other companies, Musk has created a situation where – absent claims against Musk himself – the corporate defendants could argue the discriminatory or other wrongful activity was engaged in by Tesla, Space X, or Boring Company employees working as Musk’s agents, not Twitter’s. Indeed, Defendants would have every incentive to do so. The only way to avoid such a shell-game is to recognize that Musk’s decision to treat his various corporations as interchangeable personal playthings opens him to personal liability for their actions. Moreover, as Plaintiffs alleged, Musk has repeatedly asserted that the debt load created by his acquisition of Twitter has driven Twitter to the edge of bankruptcy. Musk chose to saddle Twitter with crushing debt despite having more than enough money to pay Twitter’s purchase price with no debt. That is sufficient to allege that Twitter was undercapitalized, and that allowing him to use that (perhaps deliberate) undercapitalization to avoid liability for obligations taken on in that very acquisition would be inequitable and unjust. No more is necessary at the pleading stage.

Now, the standard for pleading veil piercing is very high, and one could reasonably question whether this was sufficient except, well … from the magistrate decision recommending the claims be sustained:

It is clear from Musk’s opening brief that he knew that Plaintiffs’ justification for keeping claims like Count III and IV alive as to him related to Plaintiffs’ assertions in the FAC about veil piercing/alter ego liability. … Yet for some reason, Musk only made arguments about this veil piercing/alter ego issue in a footnote in that opening brief. And even there, in that two-sentence footnote, Musk made only one brief merits-based assertion as to why the veil piercing allegations in the FAC would be insufficient to plausibly allege alter ego liability: i.e., that “Plaintiffs fail to explain [in the FAC] how respecting the corporate form would lead to an ‘injustice’ or ‘inequitable’ result’ as is necessary to pierce the corporate veil[.]”

Arguments raised solely in footnotes are considered waived or forfeited. This policy is understandable, in part because when a party makes arguments like these only in a footnote, such arguments tend to be sparse and unhelpful—and they end up leading to insufficient and unhelpful briefing on important legal matters. Indeed, that exactly is what happened here, due to the fact that Musk did not sufficiently address the veil piercing/alter ego issue in his opening brief.

Therefore, since Musk waived or forfeited any argument that Counts III and IV should be dismissed due to Plaintiffs’ failure to plausibly assert that Twitter’s corporate veil should be pierced, his motion to dismiss these counts should be denied. The Court thus recommends denial of Musk’s motion to dismiss with respect to Plaintiffs’ breach of contract and promissory estoppel claims in Counts III and IV.

Arnold v. X Corp., No. 23-528-JLH-CJB (D. Del. Jan. 08, 2025).

So. There it is.

And another thing: Mike Levin and I open 2025 with a Shareholder Primacy podcast about aiding and abetting fiduciary breaches, and the empty voting saga at Masimo. Available here on Spotify, here on Apple, and here on YouTube.

My last post on the Corporate Transparency Act (the “CTA”) was just more than a month ago. What a difference a month makes! It seemed like every time I sat down to write an update, something changed . . . . As I head off to the Association of American Law Schools annual meeting in San Francisco, I thought I would offer a quick set of links for you to enjoy if you want to briefly catch up. You can find a nice summary here. But the essence is as follows.

Following the nationwide injunction prohibiting enforcement of the CTA early last month, the U.S. government appealed. On December 23, a motions panel of the United States Court of Appeals for the Fifth Circuit granted the government’s emergency motion for a stay pending appeal. The court’s order also expedited the appeal to the next available oral argument panel. On December 26–a mere three days later, the Fifth Circuit vacated that stay, reviving, in effect, the U.S. District Court’s nationwide injunction against the government’s enforcement of the CTA. Got that? (Feel free to read it again.)

On December 31 (happy new year!), the U.S. Solicitor General applied to the U.S. Supreme Court to stay the District Court’s injunction in full or in part (as it affects those other than the plaintiffs in the action) and effectively requested that the Court grant certiorari before the Fifth Circuit reaches its judgment as to whether the District Court had the authority to order a universal injunction. The Court has ordered a response by 4:00 p.m. on Friday.

I will not bore or entertain you with the details of what all this back–and-forth means for filers who had not yet complied with their CTA filing obligations. A series of American Bar Association listserv message strings attests to some complexity in threading that needle–and in giving competent and useful counsel to clients on the same. (FinCEN’s website offers guidance that continues to be updated.) Instead, I will just advise that folks keep eyes and ears open as things continue to unfold. And I will endeavor to offer more here as time allows (if I can keep up).

Thing One:  SEC Commissioner Mark Uyeda recently posted this dissent regarding an SEC enforcement action against Cantor Fitzgerald. The action accused Cantor Fitzgerald of taking SPACs public while already having begun to have substantive negotiations with potential merger targets.  Commissioner Uyeda argues that in the context of SPACs – which are designed to merge with someone eventually – preliminary negotiations with targets should not be considered material until they are close to reaching binding contract.

John Jenkins at Deal Lawyers Blog points out Uyeda’s views may be more representative of what we can expect from the incoming administration.  And I particularly note as much because (as Uyeda mentions) the SEC settled an enforcement action against Digital World Acquisition Corp. for failing to disclose discussions with Trump Media before the DWAC IPO. 

Notably, the case against Patrick Orlando, the former DWAC CEO, was filed last year and continues to be litigated. 

Thing Two: I was fascinated by this Bloomberg story about ATIC, the main insurance company for taxis/rideshares in New York, which recently was declared insolvent. (Anyone who teaches Walkovsky v. Carlton can’t help but be interested in NYC taxi insurance regulation.)

Anyway, the main takeaway is that ATIC was, functionally, a Ponzi scheme – its reserves were always insufficient, so claims were paid out of premiums paid by other drivers – which meant, among other things, that ATIC’s low rates drove others out of the market, and also that ATIC (like all Ponzi schemes) depended on a growing customer base.  So, it benefitted when Uber and Lyft entered the market, and then stalled out when NY capped the number of new vehicle licenses.  But most astonishingly, politicians and regulators have known about ATIC’s finances for literally decades, and failed to act – even to the point where the state insurance department simply failed to publish required examinations.

Thing Three:  Not a corporate case, but a heartbreaking Delaware case. Chancellor McCormick regretfully denies a request for a TRO to allow a plaintiff access to the remains of his beloved horse: “There is no doubt that Mr. Marckese would dig up that entire acre himself, given access and a shovel.”

Litigation limiting bylaw and charter provisions are something of a running interest of mine – I have four different papers discussing them, more or less, and here is the latest of many blog posts on the subject – so I was tickled when I discovered In re Cerence Stockholder Derivative Action, 2024 WL 5187699 (D. Mass. Dec. 20, 2024), where the company had two different forum selection provisions, one in the charter and one in the bylaws, and they were not the same.

Conflicting provisions in the charter and bylaws?  That’s how we know these things have really gone mainstream.

So.  Cerence is incorporated in Delaware, and has a charter provision, adopted when it went public as a spinoff in 2019, requiring:

Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee or stockholder of the Corporation to the Corporation or the Corporation’s stockholders … shall be the Court of Chancery of the State of Delaware, in all cases to the fullest extent permitted by law, or, if the Court of Chancery or the State of Delaware does not have jurisdiction, any other state or federal court located within the State of Delaware.

Then, in 2022, the Seventh and Ninth Circuits issued decisions addressing bylaws that required all derivative claims be heard in Delaware’s Court of Chancery.  By their terms, these bylaws applied to both state and federal derivative claims, but because Chancery has no jurisdiction to hear Exchange Act claims, they functionally acted as a waiver for derivative federal claims.  As I blogged (and blogged and blogged) at the time, the Seventh Circuit refused to enforce one bylaw, while the Ninth Circuit upheld another.

Also in 2022, the plaintiffs filed their derivative Section 14(a) claims against Cerence in the District of Massachusetts.  The case was stayed in favor of a related securities class action.

In 2023, the company – acting, I can only assume, in response to the Seventh and Ninth Circuit rulings and not to the derivative lawsuit, I think? – amended its bylaws to add a new forum provision that said:

Unless the Corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, the Exchange Act, or the respective rules and regulations promulgated thereunder.

This was funny because the original charter provision was just fine as it was; you get the sense that the bylaw was drafted by someone who was unaware of what the charter actually said. So, the charter would require all derivative actions to be filed in the state of Delaware – state or federal court – while the bylaws would require that all federal claims be filed in some federal court somewhere.

Well, Massachusetts is, indeed, somewhere, so when the stay was lifted and litigation got going again, and Cerence moved to dismiss the derivative action in favor of Delaware on the basis of the charter provision, the plaintiffs said, but no!  The bylaws – which you just passed – permit our claims to advance right here.  Cerence responded, naturally, that when the charter and bylaws conflict, the charter controls.

The court held that, read correctly, the provisions did not conflict at all.  The charter required claims to be filed in a Delaware court unless the company consented in writing; the bylaw was the equivalent of just such a consent; therefore, the plaintiffs were permitted to advance their claims in any federal court, including a federal court in the Bay State.

Q.E.D.

The National Center for Public Policy Research has sponsored a series of conservative shareholder proposals asking companies to reconsider their diversity programs. The one recently offered at Costco is typical:

It’s clear that DEI holds litigation, reputational and financial risks to the Company, and therefore financial risks to shareholders.

And yet Costco still has such a program, though it was apprehensive enough to recognize this as it recently and quietly rebranded its DEI program to “People and Communities.”  But sticking a new label on discriminatory practices does not protect Costco and its shareholders from these risks….

With 310,000 employees, Costco likely has at least 200,000 employees who are potentially victims of this type of illegal discrimination because they are white, Asian, male or straight.  Accordingly, even if only a fraction of those employees were to file suit, and only some of those prove successful, the cost to Costco could be tens of billions of dollars.

Resolved: Shareholders request that the Board conduct an evaluation and publish a report, omitting proprietary and privileged information, on the risks of the Company maintaining its current DEI (including “People & Communities”) roles, policies and goals.

Costco’s response was not:

The proponent professes concern about legal and financial risks to the Company and its shareholders associated with the diversity initiatives. The supporting statement demonstrates that it is the proponent and others that are responsible for inflicting burdens on companies with their challenges to longstanding diversity programs. The proponent’s broader agenda is not reducing risk for the Company but abolition of diversity initiatives. A 2023 federal district court decision, in a case brought by the proponent, noted that the proponent had “published a document called ‘Balancing the Boardroom 2022,’ which describes its shareholder activism as ‘fighting back’ against ‘the evils of woke politicized capital and companies.’ [The proponent went] on to describe ‘CEOs and other corporate executives who are most woke and most hard-left political in their management of their corporations’ as ‘inimical to the Republic and its blessings of liberty’ and ‘committed to critical race theory and the socialist foundations of woke’ or ‘shameless monsters who are willing to sacrifice our future for their comforts.'” National Center for Public Policy Research v. Schultz, E.D. WA. (Sept. 11, 2023)….

We believe that the proponent’s request for a study reflects a policy bias with which we disagree and that further study and reporting would not be an efficient use of Company resources.

Tl;dr version: