by WILMINGTON, Del, Nov 11 (Reuters) – Elon Musk has taken on Detroit automakers, short sellers and securities regulators. Next week, the CEO of Tesla ( TSLA.O ) will face an unlikely adversary in court – a thrash metal drummer who hopes to strip Musk of his $56 billion salary.
The lawsuit faces the richest man in the world and one of the electric car manufacturer’s smallest investors, Richard Tornett, who owned only nine shares when he was sued in 2018.
Tornetta sued Musk and Tesla’s board of directors on behalf of the company in a so-called shareholder derivative suit. If successful, Musk’s 2018 equity bailout will be canceled, benefiting Tesla. Tornetta does not claim damages for itself.
Historically, corporate groups have criticized cases brought by investors who have an almost insignificant financial stake in the litigation. Such lawsuits often quickly end in a non-monetary settlement and compensation for the attorneys representing the plaintiff.
“This case seems different,” said Jessica Erickson, a professor at the University of Richmond School of Law who specializes in shareholder litigation.
Tornetta’s case survived dismissal in 2019 and is headed for a weeklong trial that begins Monday in Wilmington, Delaware, with live testimony from Musk, who bought Twitter last month for $44 billion.
The pay package was widely criticized, and the California Teachers Retirement System, known as CalSTRS, was among the investors who voted against it.
Legal experts said such large shareholders are unlikely to sue because it could prompt a recall from Musk and cut off access to management.
CalSTRS declined to comment.
It is unclear why Tornetta raised the issue. He did not respond to a request for comment, and his attorneys declined to comment.
Tornetta’s company manufactures aftermarket audio equipment for car customization enthusiasts. He posts light-hearted videos online with his company’s co-founder about their equipment or mishaps, including Tornetta describing how she burned her eyebrows.
Tornetta also appears in videos drumming at legendary former New York club CBGB with his now-defunct metal band Dawn of Correction, who described their sound as “a quick kick in the face with a steel-toed work boot.”
10-fold INCREASE IN STOCK PRICE
According to Tornetta’s suit, Musk dictated the terms of the pay package to the billionaire’s board and alleges it was then put to a vote of shareholders who were misled about the difficulty of achieving certain goals.
The controversial pay package allows Musk to buy 1% of Tesla stock at a deep discount whenever incremental performance and financial goals are met; otherwise Musk gets nothing. Tesla has met 11 of 12 goals as its value briefly rose to more than $1 trillion from $50 billion, according to court papers.
Musk and executives argue in court that the package kept Musk focused on Tesla during a difficult period and led to a 10-fold increase in the stock price.
Attorneys handling cases like Tornetta’s are not paid by the plaintiff. If the lawsuit is successful, they will ask a judge to order the defendant to pay their fees, which could be in the millions of dollars. It’s unclear how much the law firms could seek if Tornetta wins.
Tornetta and his attorneys at Friedman Oster and Tejtel; Bernstein Litowitz Berger & Grossmann; and Andrews and Springer have held the case for four years, hiring experts and taking more than a dozen depositions.
Tornetta is also a plaintiff in another case that survived a motion to dismiss and is headed to trial next year, challenging the sale of Pandora Media Inc to Sirius XM Holdings Inc ( SIRI.O ).
For decades, lawmakers and judges have hoped to encourage major investors like Vanguard to take the lead in shareholder class actions and derivative lawsuits like Tornetta’s, without much luck.
“Mutual funds may sometimes want to bring cases, but they need a relationship with management,” said Sean Griffith, a professor at the Fordham Corporate Law Center. “They might be happy to have other people do it for them.”
Reporting: Tom Hals in Wilmington, Delaware; Cut to Noeleen Walder and Bill Berkrot
Our standard: Thomson Reuters Trust Principles.
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