A Visit to Chancery Court

As most followers here know by now, a few weeks ago we prepared and filed an objection to the unprecedented proposed settlement in the TSLA BoD compensation case. Early last week we filed an amended objection, reflecting some comments from the plaintiffs and defendants about the original one.

This interesting and baroque process had its most recent iteration in the hearing before Chancellor Kathaleen McCormick last week, auspiciously on Friday the 13th. We traveled to the hearing to present our objection in person; we've never before had occasion to go. Here we present our lay observations about this curious ritual.

1. We attended to urge the Chancellor to order the parties to revise the proposed settlement to reflect our concerns. Reuters and Bloomberg reported on the hearing and our presentation.
2. The Chancellor scheduled the hearing for a Friday afternoon at 1:30PM, at the end of a long day of a long week in the life of a long, complicated, enormous case. We gathered in a comfortable but hardly spacious courtroom on the top floor of the Williams Justice Center, a modern office building in downtown Wilmington, Delaware that houses not only the Chancery Court but also most other courtrooms for the state. Our case seemed to be the only one for the afternoon, as the rest of the place was largely deserted.
3. Chancellor McCormick runs a pretty tight ship. The hearing started promptly, with both the customary judicial formalities and a rather loose vibe. Lot of "your Honors" but no robes or powdered wigs. The court does not allow electronic devices in the courtroom, as the clerk firmly reminded everyone; Chancellor McCormick kindly allowed me to speak from notes on a laptop. Everyone else used old-fashioned paper, drawn from one or another of many massive binders that litigators have schlepped to court for generations.
4. Chancellor McCormick is ... really nice. Direct and soft-spoken, with a relaxed mien as she questioned attorneys and me. A few times she stifled a yawn, perfectly understandable on a warm Friday afternoon in mid-October.
5. The Chancellor's clerk is a joyful hard-ass. She sternly warned the crowd about etiquette, electronic devices, and comportment of visitors in the tiny (two rows of benches) gallery.
6. We counted 18 lawyers from the three sides (plaintiff, defendant directors, and TSLA itself) and eight firms. Two needed to sit in the gallery when they ran out of chairs in the courtroom. The only TSLA employee was an associate general counsel.
7. The plaintiff attorneys were friendly, saying hello and thanking me for showing up. The defendant attorneys said nothing, say to greet an interested TSLA shareholder or to express gratitude for owning shares in the company.
8. A few reporters attended, with a couple of other curious attorneys in the gallery.
9. One other TSLA shareholder showed up. This poor dude had the notice from TSLA and thought the company was suing him. After the two curious attorneys in the gallery declined to offer any explanation or (of course) advice, we explained to the best of our ability what was going on. He stayed to the end.
10. The plaintiff and defendant attorneys delivered introductory remarks, mostly to summarize the case and highlight the main event (at least for the attorneys), arguments over plaintiff attorney fees.
11. The Chancellor asked to hear our objections. We spoke for about 20 or so minutes, covering the two specific problems we have with the proposed settlement. The Chancellor seemed pleased to have a real live TSLA stockholder in the room to present views about the case, asking a few questions. Also, the plaintiff and defendant attorneys don't cross-examine anyone. We sat down to supportive nods from the curious attorneys and one of the reporters.
12. The Chancellor asked about any other stockholder objections. One defendant attorney received a handwritten note from a stockholder, an elderly retiree with various complaints about TSLA that had nothing to do with the case. The Chancellor asked the attorney to read the note into the record, aloud.
13. After something more than an hour, we took a break. We returned after ten short minutes to hear the plaintiffs argue for a proposed fee of around $230 million, and defendants to oppose it. With one of the largest such payouts ever at stake, the parties showed only a little passion. They mostly went back and forth quietly, taking turns to respond to each other until no one could add anything else. After an hour of debate over fees, everyone had had enough.
14. The Chancellor asked the clerk to check in the hallway if any other stockholders were present to object. The clerk proceeded outside, asked as indicated loudly enough so everyone in the courtroom could hear, and returned, reporting no other stockholders around.
15. The Chancellor wrapped-up ("you've given me a lot to consider"), and thanked everyone for attending, including us by name(!). The whole thing ended shortly before 4:00 PM.

The effort to incorporate stockholder interests in the process and prospective outcome impressed this newcomer to this corner of activism. Maybe it's just gratuitous ceremony and we're simple and naive. Still, her principal job in this matter is to protect TSLA shareholders. She not only takes it seriously (of course), but also took care to let everyone know she takes it seriously.

Chancellor McCormick has 90 days to write an order, although she can take more time if needed. So, we need to wait awhile to see how this works out.