WILMINGTON, Delaware – Elon Musk has taken on Detroit’s automakers, short sellers and securities regulators. This week, the Tesla boss will face an unlikely opponent in court – a thrash metal drummer who hopes to strip Musk of his $56 billion salary.
The lawsuit will see the world’s richest person square off against one of the electric carmaker’s smallest investors, Richard Tornetta, who owned just nine shares when his lawsuit was filed in 2018.
Tornetta is suing Musk and the Tesla board of directors on behalf of the company in a so-called shareholder derivatives lawsuit. If successful, Musk’s 2018 stock award package will be rolled back, benefitting Tesla. Tornetta does not seek any compensation for itself.
In the past, cases brought by investors with an almost insignificant economic interest in the litigation have been criticized by business groups as “fellow actions”. Such lawsuits often end quickly with a non-monetary settlement and payment to the attorneys representing the plaintiff.
“This case is different,” said Jessica Erickson, a professor at the University of Richmond School of Law who specializes in shareholder disputes.
Tornetta’s case survived a motion to dismiss in 2019 and faces a week-long trial that begins Monday in Wilmington, Delaware and will include live testimony from Musk, who bought Twitter for $44 billion last month.
The pay package was widely criticized, and California’s teacher pension scheme, known as CalSTRS, was among the investors who voted against it.
Legal experts said such large shareholders are unlikely to sue, as it could trigger a backlash from Musk and cut off management access.
CalSTRS declined comment.
It’s unclear why Tornetta brought the case. He did not respond to a request for comment, and his attorneys declined to comment.
Tornetta’s company makes aftermarket audio equipment for car customizing enthusiasts. He posts light-hearted videos online with his company co-founder about their devices or glitches, including Tornetta describing how he set his eyebrows on fire.
Tornetta also appears in videos of him 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.”
Tenfold increase in share price
Tornetta’s lawsuit claims Musk dictated the terms of the pay package to a board committed to the billionaire and claims it was then subjected to a vote by shareholders, who were misled about the difficulty of meeting certain goals.
The controversial pay package allows Musk to buy 1% of Tesla stock at a deep discount each time escalating performance and financial goals are met; otherwise Musk gets nothing. Tesla has met 11 of the 12 targets, according to court documents, as its value has briefly increased from $50 billion to more than $1 trillion.
Musk and the directors argue in court filings that the package focused Musk on Tesla at a difficult time and resulted in a 10-fold increase in its stock price.
Lawyers handling cases like Tornetta’s are not paid by the plaintiff. If the lawsuit is successful, they will ask the judge to order the defendant to pay their fees, which can run into the millions. It’s unclear how much the law firms might ask if Tornetta prevails.
Tornetta and his attorneys at Friedman Oster and Tejtel; Bernstein Litowitz Berger & Grossman; and Andrews and Springer have been on the case for four years, hiring experts and making more than a dozen affidavits.
Tornetta is also a plaintiff in another case that survived a motion to dismiss and is due in court next year to challenge the sale of Pandora Media Inc. to Sirius XM Holdings Inc.
Lawmakers and judges have for decades hoped to encourage the biggest investors like Vanguard to take the lead in shareholder class action lawsuits and derivatives lawsuits like Tornetta’s, without much luck.
“Perhaps sometimes mutual funds want to bring cases, but they need a relationship with management,” said Sean Griffith, a professor at the Fordham Corporate Law Center. “You might be lucky if other people do it on your behalf.”