SCOTUS May Gut Voting Rights Act & Elon Musk Pay Package

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1:15Sapphire Reserve for Business offers 8x points on all purchases through Chase Travel, 3x points on social media and search engine advertising, airport lounge access, and more. Chase Sapphire Reserve for Business. It's the card that gives back all you put in. Learn more at Chase.com forward slash reserve business. Chase for business. Make more of what's yours. Accounts subject to credit approval. Restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank N.A. Member FDIC. This is Bloomberg Law with June Grosso from Bloomberg Radio. The Supreme Court's conservatives appeared ready today to gut a key tool that's been used to root out racial discrimination in voting for more than half a century.

2:02During oral arguments, the six conservatives suggested they'll restrict the creation of majority black or Hispanic voting districts and gut the Voting Rights Act, the central legislation of the civil rights movement. Joining me is Bloomberg News Supreme Court reporter Greg Storr. So Greg, explain the issue in the case. Yeah, so the issue is basically that under the Voting Rights Act since the 1980s, there's been basically a test that if you're a racial minority, you can go to court and say, this map illiterally dilutes my vote. And if you meet certain criteria in this test to show that there's like racially polarized voting in the state or jurisdiction, that you can win a Voting Rights Act claim.

2:48And the remedy in most cases will be that A district has to be drawn that has a majority members of your race in that district so that you can elect the candidate of your choice. And the Supreme Court is basically considering upending that entire regime and saying, no, it is not an appropriate remedy to intentionally use race, even if it's as a remedy for that vote dilution violation that a court has found. And did all the conservative justices seem to be on the same page? Well, it sure seems like all six conservatives are interested in limiting the Voting Rights Act and putting real restrictions on the requirement that sometimes states have to draw majority minority districts to ensure that racial minorities aren't suffering discrimination.

3:39So Justice Kavanaugh talked about, you know, these race based remedies should not be indefinite, should have an endpoint. But in these cases, aren't the plaintiffs showing that there is race-based discrimination going on? Yeah, that is the counter to Justice Kavanaugh. So undoubtedly what Justice Kavanaugh is thinking about is what the court said in the affirmative action case from a couple years ago, where the court basically said, you know, it might have been constitutional previously, but at some point these, what they consider to be racial preferences, have to come to an end. And he's thinking about that same sort of principle here.

4:17But as you suggested, the folks on the other side of the case argued, hey, the way the Voting Rights Act works is that you only draw a majority black or majority Hispanic district if based on current conditions, what's going on there is having a racially discriminatory effect. So that notion of, you know, hey, the discrimination we dealt with decades ago is no longer there is sort of baked into the test. You have to prove based on the way voting happens now that there is still racial discrimination going on. There was pushback from the court's three liberals. What was their point? So, yeah, a couple of different points.

4:54Justice Sonia Sotomayor at one point said you're effectively killing Section 2. That's the effect of your position. Section 2 is one of the big prongs of the Voting Rights Act. Justice Elena Kagan kind of made that point we were talking about earlier that, hey, this only happened. These intentionally crafted majority black, majority Hispanic districts only happened after a court has found there is racial discrimination going on, that black voters, that their votes aren't counting the same as white voters or Hispanic voters aren't having their votes counted the same way. So a lot of pushback there.

5:31Justice Kagan also asked the lawyer defending the Voting Rights Act to talk about the consequences of this. And she talked about just how big the consequences could be for minority districts around the country, not just at the congressional level, but state and local as well. What else were the conservatives concerned about besides, you know, a time limitation? Did anyone actually feel that there wasn't race-based discrimination in voting anymore? The big thing that the conservative justices seemed to be concerned about was that there was discrimination going on, but it was going on the other direction.

6:08That when a state is intentionally creating a majority black, majority Hispanic district, that is discrimination and that is really worrisome and unconstitutional. The majority also sort of fell back on this decision from a few years ago that I'm sure you recall, where the court said, we're not going to police partisan gerrymandering. If a state or another jurisdiction wants to carve up its districts for political reasons in a certain way, it is free to do so. The Constitution does not put any limits on that. So some of the conservatives today were falling back on the idea that what's really going on here is partisan gerrymandering, not racial gerrymandering.

6:50Just to remind us, the Supreme Court has taken out in recent years two parts of the Voting Rights Act already. Yeah, so the big one that everybody remembers is this case called Shelby County, and that basically nullified the so-called preclearance regime under which a lot of jurisdictions, mostly in the South, had to go to either the Justice Department or a federal court to get clearance before they changed their voting rules because of the history of discrimination in those jurisdictions. So that was one big decision. And then a more recent one, just a few years ago, was the court making it harder to show that voting rules as opposed to maps are discriminatory.

7:34So I'm talking about things like rules governing the collection of mail ballots or the location of a polling place. The court put in place a much tougher test to show that those changes are violations of the Voting Rights Act. And since then, there has not been a successful claim of that type in court. If the Supreme Court's conservatives do away with this part of the Voting Rights Act as well, does that mean that anything goes in drawing these maps? It's hard to say for sure. That is certainly the concern of folks on the other side of the case. Undoubtedly, the court will at least leave some theoretical room to say that there's intentional discrimination going on, and the state wouldn't be able to explicitly say we're doing this for racial reasons.

8:24We're drawing the lines this way. That's actually precluded under the Constitution in the 15th Amendment. So that would still be there, but how much that would matter is a practical matter. That's an open question. This will probably be one of those things where we'll just kind of have to wait and see what the court's ruling says and how it works out in practice. I mean, is there any chance that there'll be a very narrow ruling? There's certainly a chance. And, you know, keep in mind that just a couple of years ago, the court had a case that, you know, if I described the circumstances, you'd say it's very, very similar.

9:02It's about Alabama and whether Alabama had to create a second majority black district, which is exactly what's going on in Louisiana. And in that case, the Chief Justice and Justice Kavanaugh sided with the liberals and said, we're going to basically keep the rules the way they have been. Now, that case, as the chief justice pointed out today, didn't call into question, wasn't designed to potentially overturn any of the court's precedents, unlike the current case. So I put that out there only to sort of say that the chief justice and Justice Kavanaugh, at least in that case, were acting a little bit cautiously.

9:38They weren't moving too quickly. It's possible, although it wasn't really apparent today, but it's possible those instincts will come into play. And the two of them might be interested in crafting a more narrow ruling here. I think a lot of the liberals and voting rights advocates were looking at that case and saying, well, that was just a couple of years ago. They're not going to change it now, are they? But apparently the chief justice saw a difference in the cases. Yeah. And, you know, remember this Louisiana case was argued last term and the court didn't decide it. And when it was argued initially, the question before the court was pretty narrow.

10:14And at the end of the term, the court said we're not going to decide it. We're going to consider a broader question. And that broader question ended up being whether this whole practice of creating intentionally creating majority black, majority Hispanic districts is unconstitutional. So they have now set themselves up for a potentially much bigger ruling and one that could overturn a Supreme Court precedent or two. We're used to them overturning one, but two in one, that would be something. So now was it acknowledged that this kind of ruling by the Supreme Court gutting this part of the Voting Rights Act would help Republicans?

10:50That did come out. I don't know if I would say acknowledged, but at least at the very end, the lawyer for the NAACP Legal Defense Fund, who was defending the second majority black district in Louisiana, did allude to the political impact and the potential impact on the Supreme Court's legitimacy if it decided such a partisan issue in such a major way. It was not explicitly Republican versus Democrats in this argument, but it wasn't lost on anybody. Louisiana is a Republican-run states. The Trump administration is on Louisiana's side arguing that the second majority black districts should be thrown out.

11:28So it was pretty apparent to people who was on what side of this case. And I will add that the six conservatives are Republican appointees, just putting it out there. And could the court rule fairly quickly, quickly in terms of the way the Supreme Court operates? Within a couple months, so that a new map in Louisiana can be put in place in time for the November election, because, you know, they have the whole overhang of the Purcell doctrine kind of out there. And if they wait until too late, then there's real questions about whether the ruling could force a new map in time for the election. And if they rule quickly, if they rule in December, then a lot of folks are concerned that it will spark a whole new round of mid-decade redistricting, even actually in some states that have already done it.

12:16Like, you know, Texas and Missouri could both, if they weren't constrained by the Voting Rights Act, they could eliminate other majority black or majority Hispanic districts. Thanks so much, Greg. That's Bloomberg Supreme Court reporter Greg Storr. Coming up next on the Bloomberg Law Show, Delaware's highest court considers Elon Musk's 2018$55 billion Tesla pay package. I'm June Grosso, and you're listening to Bloomberg. Support for this show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge.

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15:00Make every journey more rewarding with a$300 annual travel credit and access to a network of airport lounges, whether you're looking for pre-flight productivity or time to rest and recharge. Chase Sapphire Reserve for Business. It's the card that gives back all you put in. Learn more at chase.com forward slash reserve business. Chase for Business. Make more of what's yours. Accounts subject to credit approval. Restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank N.A., member FDIC. Tesla has launched an ad blitz, not aimed at consumers to try to get them to buy cars or products, but aimed at its shareholders to try to get them to improve CEO Elon Musk's new$1 trillion pay package.

15:49On November 6th, we'll hold our annual shareholders meeting. This year, we have some critical measures on the ballot. We have a bold and ambitious plan to drive Tesla's next wave of growth and value creation for you, the owners of the company. To execute on this plan and to continue to realize extraordinary shareholder value, we need to put in place the adequate incentive structure for our CEO and ensure the stability of our board of directors. The future of Tesla and the future of your investment are in your hands and require you to participate in the shareholder vote. We are counting on you to make your voice heard.

16:25Well, Tesla shareholders will vote in November on what would be the largest pay package in corporate history for Musk. In the meantime, in Delaware's highest court today, Musk and Tesla are still fighting over Musk's 2018 multi-billion dollar pay package. A Delaware judge had rescinded that$55 billion package after finding that shareholders had not been properly informed about the plan when they approved it and that directors' conflicts of interest tainted the decision. Joining me is business law professor Eric Talley of Columbia Law School. So, Eric, what was the Delaware Supreme Court considering in the oral arguments?

17:08It was a hodgepodge of things that were brought forward by the Tesla directors as well as the company itself. But it basically circulated around some aspects that involved revisiting the trial courts, holding that there was a breach of fiduciary duty associated with Mr. Musk's compensation agreement. And they got into that a little bit. But the more interesting parts, I think, had to do with the remedy that Chancellor McCormick imposed, which was to rescind the agreement after finding a fiduciary duty problem? And then what do we make of the second stockholder vote that took place in June 2024, six months after the original opinion?

17:52Did that somehow kind of overturn the opinion or at least overturn any possible remedy beyond just a small amount? And so the lawyers from both sides were arguing all three of these points, and any one of them or some combination of them could factor into a potential reversal. But my guess is it's going to be one of these three points. So you think they're going to reverse? I don't know for sure. I think that probably the strongest argument that the Tesla appellants had had to deal with the remedy in the case. Chancellor McCormick rescinded the compensation package after finding that there was not an adherence to fiduciary principles.

18:33Typically, what happens after a rescission of a contract is you try to put the parties back in the position they were in before the contract got entered into. But Mr. Musk is out, you know, according to the appellants, you know, five years of working for the company and not getting paid anything. That was not something that the trial court asked for argumentation. Like if this package wasn't fair, what would have been fair compensation? They never went there. And that's in part because the defendants in this case never raised what a second best type of compensation package would look like. At the time, that made sense to me because it's hard to defend a big compensation package by then, you know, painting a target on your back by saying, okay, you know, here's the really fair part.

19:18So I kind of understand why they didn't bring it forward. But the chancellor, in her opinion, said you didn't give me any alternatives other than rescission to say, okay, here's at least something that I can award to pay you back. So that's going to be interesting. And it may actually, you know, my sense is probably the strongest argument that the appellants have here. The other one that I think is pretty interesting is what do you make of these votes after the fact, right? You've got a trial that completely comes out in favor of the plaintiffs. And, you know, just before the award argumentation, Tesla has a second vote.

19:52And the question is, well, how does that second vote that now has not only more disclosures, but it even has been trial court opinion from the original trial, does that second stockholder vote fix all of these problems? And I think that the Tesla parties, the directors and Tesla itself were saying, yeah, that should essentially undo or at least limit what is available as a remedy if the stockholders vote again now with full information and they say, no, we are OK with that initial compensation package. Now, that could end up having some traction as well. First of all, because I think most people sort of agree that that second vote, you know, you had the entire opinion that was attached to the proxy materials that were sent out, and it got pretty much exactly the same percentage vote.

20:39And so it may well be the case that the Supreme Court says, okay, look, the trial court probably couldn't do something about an event that happened after the trial court opinion. That's something for an appeal. But now we want to remand it for the trial court to think about it. There is one very old case in Delaware that basically says that that's a potential thing to do that involved executive compensation packages that were approved or ratified by shareholders after a trial court had said, no, those are improper. And interestingly enough, that case was being overseen by the father of the current Supreme Court Chief Justice, C.J.

21:17Sight. His father was the chancellor of the Chancery Court. And in that case, it was from basically the 1950s, the Supreme Court and the trial court basically held at least that for some component of an executive compensation package, a later occurring stockholder vote can basically fix the infirmity, at least in terms of the nullification of the award. So it may well be the case that the Supreme Court says, no, we don't have anything to overturn in that trial court opinion, but now we want to remand it so that the chancellor can consider what, if any, effect would there be of this vote. And that could end up causing yet another sort of trial on the merits, which would give us at least something to talk about for the next couple of years, Jim.

22:01What do you think was the best argument that the plaintiffs made? Well, I think the best arguments that the plaintiffs made, they first tried to defend the opinion below. And I will say that there were some factual conclusions in the opinion below, like that Elon Musk was a controller and that the directors were beholden to him when they were negotiating this contract. Those were factual findings that you can overturn them on appeal, but only if they're clearly wrong. But based on those factual findings, the chancellor's opinion in that trial court record below, you know, I've taught that opinion many times.

22:34it's pretty easy to teach because it pretty much followed very, very conventional textbook Delaware legal principles at every ground. I think most of the people that complain about the opinion don't complain about the judge following the flowchart of what doctrine tells you you're supposed to do as much as making factual determinations that at least some people, the defendants and I guess some others who were kind of thought that the Musk parties had the stronger hand that they disagreed with those factual holdings. So I think the Tornetta folks, the plaintiffs in this case, did a pretty good job of sort of saying, look, there really wasn't that much remarkable about the legal reasoning below.

23:13And if you're going to overturn factual findings, there's a very high bar to do that. And that's not really where we are directing our boat. You know, the plaintiffs in this case who were, you know, basically responding to the appeal, it's much more of a black box as to how the court's going to deal with this second stockholder vote, whether that somehow reaches back to ratify things earlier on. That's something that Chancellor McCormick basically refused to comment on at any length, given that the trial had already concluded that there already was a breach of fiduciary duties. But it would be something that the Supreme Court could send back to her.

23:49And that was probably something that the plaintiffs in this case didn't have as much of an answer to, but it was also a It was a very time-limited argument, so they spent more time on the first part. So, you know, I could see that ratification vote being a grounds for reversal. I could also see a partial reversal that says, we're not going to reverse the outcome of the finding that there was a breach of fiduciary duty. But when you rescinded the pay package, it was going to be important to lay out some sort of a restitutionary award that would put Mr. Musk in, you know, that would make him whole, at least relative to before that compensation package was granted.

24:29And he's not at this point because he now effectively worked five years for free. And so my sense is that if there is a reversal, you'll probably see a reversal on one of those two grounds and not as much a reversal that tries to dive back into the logic in the original opinion. You know, the one part that they could reverse in the original opinion is Chancellor McCormick's, you know, finding that Musk, while only owning about 21 % of the company, was such a superstar CEO that he just had undue influence, at least over this transaction. the first time this idea of superstar CEOs had been used in a case.

25:08And so they might sort of say, no, that... And it's from an academic article that a couple of law professors wrote. They might say, no, that's just not a sufficiently predictable or clear test. And they might overturn on that basis. But if I were going to bet on what grounds that they would use if they overturned, I don't think it would be that. I think it's going to be more maybe that this second shareholder vote was an effective one, or that, you know, when you rescind a pay package, that the court has to then sort of take a briefing on what the appropriate amount that Mr. Musk should be paid, if it's not from his, you know, written contract, you know, to make him whole.

25:46And so he doesn't end up giving away his services, having given away his services for free for five years. Coming up next on the Bloomberg Law Show, I'll continue this conversation with Columbia Law School Professor Eric Talley, why Musk and Tesla are returning to Chancery Court in Delaware on October 22nd, and are other Delaware corporations following Musk to Texas? I'm June Grosso, and you're listening to Bloomberg. Support for the show comes from Public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions, buying the dip, manually sweeping idle cash, putting on a hedge.

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