Tesla: Business Days for Me, But Not for Th--
Just as I'm About to Post...
What follows may sound like obsessive nuttery over inane minutiae (very on brand for me, of course), but in reality, it is relevant to disclosure of information at the highest-level concerning a settlement of three-quarter billion dollars, requesting attorneys’ fees of nearly a quarter-billion dollars.
To be clear, I strongly support the plaintiffs’ bar. I believe they should be paid well for their work. This is not about tearing them down. This is about making sure that settlements are properly vetted and are in the best interests of stockholders and the corporation. If anyone understands that large sums of money can distort incentives for human beings, it is the plaintiffs’ bar. They crow about this phenomenon all the time. They get it.
So, yes. This is in the weeds, but this is nonetheless big-picture important. It’s also indicative of wide-spread issues that have to be fixed on a broader level, because it’s certainly not an isolated incident of objectors getting frozen out for timing issues. High quality objections are part of a healthy class action and derivative litigation ecosystem. We must allow time and space for them.
What am I crowing about? Well, let’s back up a tiny bit. Tesla directors agreed to settle the largest derivative case in Delaware history a few months back, which I discussed in a lot of detail. It seemed sus. When the scheduling order for the settlement fairness hearing was filed, the timeline was tight. Sure, it followed the model order, but the model order is pretty tight, especially when there are holidays and unnecessarily sealed filings are involved, and particularly when you insert creative definitions of “business days” in your stipulation. Between filing the opening brief under seal and then filing a public version with no apparent redactions twelve days later, leaving objectors ten days with the brief to file their objections, the “60-day notice period” felt a lot more like a “10-day notice period” to me.
In an attempt to keep life interesting, the website for the benefit of educating Tesla stockholders about the Tesla Detroit Derivative Action Settlement has now been updated to say that today is the deadline for objections to the settlement, which is what one would have thought were the case, as I originally did when using normal business days calculations under the Delaware Court of Chancery rules. But of course, then with the help of some smart friends, I realized that according to the weirdest provision in the Stipulation, the deadline actually should have been yesterday, which is in fact what the website said, up until about … yesterday. But now the website has been changed to say that the deadline is today.
Are you confused yet?
Me too.
Keen-eyed reader Anthony Rickey pointed out one possible reason for this eleventh hour change. The plaintiff’s opening brief, which — for what it’s worth is still not posted on the settlement information website, was filed on August 31st, 2023.
Hmmmm. Interesting. When I pointed out this whole creative-definition of Business Days means that Columbus Day/Indigenous Peoples’ Day (g-d I hate that dichotomous bullshit, which seems to encapsulate everything that is wrong with the hallmarkification of our culture wars, but I digress and fear that someone will take this parenthetical for a reductionist argument in the wrong direction) does not count as a business day, Tony pointed out that this rule should obviously apply to the plaintiff’s filing of their opening brief. And, well, if it did — the plaintiff had filed their brief one day late.
Hmmm. Suboptimal outcome for plaintiff.
So, like manna from the heavens, somehow one day was magically added back to the calculation on the website from somewhere out in the ether. No saying how or why it happened. The calculation in the stipulation with this weird definition of business days still should technically have the deadline be yesterday for objectors, but that calculation would also have the plaintiff’s opening brief have been due on August 30th. And no one likes having filed their brief one day late.
And you know what? With the weird configuration of Labor Day, and the way that Rule 5.1 works, if the plaintiff’s brief had been filed on August 30th, their redacted version would have had to have been filed three days earlier, which would have given objectors nearly 30% more time with the brief with which to contemplate their objections. Non-trivial, I must say.
It’s like it was never meant to happen.
But alas, there’s only so much retconning one can do in the rearview mirror. Sometime between today and two days ago, the website was updated to say that today is the deadline, for all the good that did for objectors, who were certainly dissuaded from objecting when they were told the deadline was yesterday and only had ten days to get their shit together.
Especially when the quarter of a billion dollars in attorneys’ fees — again, I’m not against it, I just think that the whole deal needs to be carefully vetted in light of such a potentially judgment-skewing incentive — is not included in the stipulation, it is first mentioned in the brief … how can ten (or eleven, or twelve, or even twenty, or even thirty?) days be a sufficient amount of time for people to review, consider, determine whether to object, find, retain counsel, have counsel get up to speed, draft an objection, potentially hire an expert, sign the undertaking, get access to and review discovery?
You know, Chancellor McCormick has the Tornetta decision under advisement. And I still can’t help but wonder — apropos of nothing — what is the big freaking hurry here.
Much love,
Chance
P.S. If you’re wondering, so far there has been one objection filed in this case. You can — and should — read it here. It took four attempts to get it through the Register in Chancery’s gauntlet, but nevertheless, he persisted. Not legal advice, but according to many plaintiffs’ attorneys I have spoken with over the years, the best of them will always tell me, “if any objector ever needed to file an objection, especially if they were having problems getting it on file, they can always just send it to me, and I’ll make sure it gets on file for them.” Those are the good ones, as it should be. And, the AMC case’s more rigorous procedures notwithstanding, most folks in the know will still tell you that — particularly in instances where notice has been problematic or delayed — there’s a good chance that even late-filed objections received in advance of the hearing will be heard, so illegitimi non carborundum. Metaphorically speaking, of course.
It strikes me that Vice Chancellor Glasscock's words bear repeating against the backdrop of the fee request here:
“Much of what I do involves problems of, in a general sense, agency: insuring that those acting for the benefit of others perform with fidelity, rather than doing what comes naturally to men and women—pursuing their own interests, sometimes in ways that conflict with the interests of their principals. In this task, I am generally aided by advocates in an adversarial system, each representing the interest of his client. . . . The area of class litigation involving the actions of fiduciaries stands apart from this general rule . . . . Such cases are particularly fraught with questions of agency: among others, the basic questions regarding the behavior of the fiduciaries that are the subject of the litigation; questions of meta-agency involving the adequacy of the actions of the class representative—the plaintiff—on behalf of the class; and what might be termed meta-meta-agency questions involving the motivations of counsel for the class representative in prosecuting the litigation.”
2015 WL 5458041, at *1 (Del. Ch. Sept. 17, 2015), judgment entered sub nom. In re Riverbed Tech., Inc. (Del. Ch. 2015). (Chance quoted the Vice Chancellor in her June 21 post; I simply recalled that she had.)
For those of us whose knowledge of corporate law is minimal, the essay by Issacson, et al., "How much is a $30 million settlement worth?", 41 Del. J. Corp. L. 537 (2017) helpfully identifies the issues in calculating fee awards to class counsel. (The essay is available online; no paywall hides it from view.) The authors opine in the halcyon days of 2017 that Chancery is “receptive to hearing arguments that the actual value of a settlement payment may be more or less than its nominal cash value.” 41 Del. J. Corp. L. at 543. The cases suggested, inter alia, that defendants had the burden of proving “whether and to what extent the settlement payment will be made by the corporation, as opposed to its insurers or co-defendants.” In turn, defendants would be well advised to obtain “an expert declaration explaining how the cash payment translates into a reduction in enterprise value” and how much of any reduction is shouldered by the class. 41 Del. J. Corp. L. at 543. “To the extent they are able to provide the necessary evidence, defendants will have a valuable tool for opposing excessive fee requests.” The dispatch with which this case has moved, as described by Chance, suggests that it will be the rare case in which that “valuable tool” comes out of the toolbox.