By Tom Hals
WILMINGTON, Del. (Reuters) – Elon Musk suffered one of the biggest legal losses in US history this week when the Tesla CEO was stripped of his $56 billion pay package in a case brought by an unlikely opponent, a former heavy metal drummer.
Richard Tornetta sued Musk in 2018, when the Pennsylvania resident owned just nine shares of Tesla. The case finally went to trial in late 2022 and on Tuesday a judge sided with Tornetta, voiding the huge pay deal as being unfair to him and all of his fellow Tesla shareholders.
Tornetta could not be reached for comment and his attorney declined to comment.
Until the Tornetta case, Musk prevailed in a series of lawsuits accusing him of defamation, breach of duty to shareholders and violating securities laws.
Based on its online presence, Tornetta appears to have more interest in creating audio equipment for car customization enthusiasts than in pursuing corporate excesses and malpractices.
He has posted light-hearted videos about gadgets he has created or mishaps, even describing how he burned his eyebrows.
Tornetta also appeared in videos playing drums at New York’s legendary former CBGB club with his now-defunct metal band “Dawn of Correction”, which described their sound as “a swift kick to the face with a toe-toed work boot.” steel”.
On social media, Tesla and Musk fans appeared to find the case a travesty of justice and speculated about Tornetta’s intentions and political affiliations, asking how an investor with such minuscule stakes could wield such power.
Delaware corporate jurisprudence is filled with cases bearing the names of individual investors with small equity stakes who ended up shaping American corporate law.
Many law firms that represent shareholders maintain a stable of investors with whom they can work to bring cases, says Eric Talley, who teaches corporate law at Columbia Law School. They can be pension funds with a wide range of stock holdings, but they are also usually people like Tornetta.
The plaintiff signs the paperwork to file the lawsuit and then generally steps aside, Talley says. The investors do not pay the law firm, which is handling the case on a contingency basis, as the lawyers did in the Musk case.
Tornetta benefits from winning the case the same way other Tesla shareholders benefit: by saving the company billions of dollars that a subservient board of directors paid to Musk.
Business groups have long criticized cases brought by individuals as an indication of potentially abusive litigation. Ten years ago, Delaware was plagued by lawsuits led by retail investors who owned a few shares and who challenged the merger agreements. Cases were often quickly resolved with meaningless settlements that always included payments to the attorneys who brought the cases. Delaware judges and lawmakers eventually curbed the practice.
Experts said people like Tornetta are vital to policing boardrooms. Lawmakers and judges have long wanted big investment firms to lead these types of corporate litigation, as they are better equipped to police their lawyers’ tactics. But experts said fund managers don’t want to jeopardize relationships on Wall Street.
So it was up to Tornetta to confront Musk.
“His name is now etched in the annals of corporate law,” Talley said. “My students will be reading Tornetta v Musk for the next 10 years.”
(Reporting by Tom Hals in Wilmington, Delaware; Editing by Noeleen Walder and David Gregorio)