(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Alison Frankel

July 23 (Reuters) - It cost him a lucrative law firm

consulting gig, but a retired Delaware law professor won the

right on Monday to argue against Tesla's attempt to bypass a

court decision invalidating CEO Elon Musk's $56 billion pay

package.

Charles Elson, a longtime corporate governance expert from

the University of Delaware, will be allowed to participate as an

amicus, Chancellor Kathaleen McCormick of Delaware Chancery

Court ruled. The judge is weighing the impact of Tesla's

shareholder vote last month to approve a pay package that the

judge invalidated in January.

Elson's newly approved amicus brief refutes Tesla's

theory that fully informed shareholders "ratified" Musk's pay

when they approved his package in June. The professor contends

that Delaware law does not permit the company effectively to

overturn McCormick's January ruling by holding a post-judgment

shareholder vote.

Tesla, as you may recall, went to unusual lengths to try to

block Elson from filing the brief back in May, before its

shareholders voted on Musk's pay.

After Elson's lawyer sent Tesla a draft of the brief, the

company contacted the law firm Holland & Knight, where Elson was

a longtime corporate governance consultant. Holland & Knight

represents Tesla in at least two major employment cases. Tesla,

according to Holland & Knight, alerted the law firm that Elson's

brief created a conflict because its consultant was taking a

position contrary to Tesla's.

Holland & Knight, in turn, sent Elson an email that said

Tesla had threatened to fire the firm if Elson filed the amicus

brief.

Elson opted to resign from his consulting job at Holland &

Knight. He and his lawyer, Joel Fleming of Equity Litigation

Group, subsequently told McCormick in court filings that Tesla

had tried to "bully" Elson into abandoning the amicus brief by

improperly pressuring Holland & Knight.

Holland & Knight told me in May that Tesla did not try to

pressure the firm but simply alerted partners about a potential

conflict. The firm said its email to Elson describing Tesla's

threat to fire Holland & Knight was "incorrect" and that it

independently determined that Elson's proposed brief "would be

inconsistent with our obligations to our client."

Tesla also filed a formal opposition to Elson's brief in the

Chancery Court docket, denying that it leveraged its client

relationship with Holland & Knight to squelch the filing.

More substantively, the company argued that Elson's brief

was "premature, unhelpful and improper" because it purported to

address the impact of Tesla's shareholder vote before the vote

had even taken place.

Tesla insisted that Elson - and not the company - was

behaving improperly, accusing him of using the proposed amicus

brief to attract media attention. Elson's true motive, Tesla

asserted, was "plainly to cast aspersions on Tesla and its

board" ahead of the shareholder vote.

In response, Elson called Tesla's accusation "bizarre" and

"desperate." He said his only intention was to help McCormick

grapple with novel questions of Delaware law. In an accompanying

affidavit, Elson said it was "unfortunate that Tesla and its

counsel have decided to attack me personally rather than

engaging on the merits."

In Monday's order, McCormick described Elson as "a leading

authority on Delaware law" whose previous amicus brief in the

Musk pay case was cited in her January opinion. The judge also

refuted Tesla's argument that Elson's brief was premature,

pointing out that Tesla had already argued in an April 17 letter

to the court that the upcoming shareholder vote was likely to

impact the case.

McCormick did not address the Holland & Knight controversy,

though she brushed aside Tesla's assertion that Elson had an

improper motive for filing the proposed brief in May.

"The brief addresses complicated legal and policy issues

presented by the parties," McCormick said. "The court welcomes

the thoughts of Professor Elson."

Those issues, as my Reuters colleague Tom Hals has reported,

could have multibillion-dollar consequences for Tesla and the

plaintiffs' lawyers who persuaded McCormick to strike down

Musk's pay package.

Here's why. The chancellor, as you know, ruled in January

that Tesla's board breached its duty to shareholders by granting

Musk "unfathomable" compensation. The plaintiffs' lawyers who

brought the case asked McCormick in March to award them Tesla

shares now worth about $7 billion.

Tesla obviously doesn't want to pay billions to those

lawyers, but in addition to the policy arguments you would

expect about unwarranted windfalls, it came up with a really

creative argument: Tesla told McCormick that its shareholder

vote in June cured the purported disclosure problems she

identified in her January ruling.

As a result, Tesla argued, plaintiffs' lawyers are actually

entitled to no more than a nominal fee of about $14 million for

forcing Tesla to beef up its disclosures.

Elson's brief contends that theory is unfounded in Delaware

law. If McCormick ultimately agrees, she's unlikely to adopt

Tesla's argument that its shareholder vote in June transformed

plaintiffs' win into a loss and that shareholder lawyers should

therefore receive only a minimal fee.

Tesla counsel from Sullivan & Cromwell and DLA Piper did not

respond to my query on the new ruling. Elson declined to comment

through his lawyer Fleming. In an email statement, Fleming said,

"It was a bad day for bullies. We had no doubt that Chancellor

McCormick would reject Tesla's attempts to attack and silence a

highly respected law professor."

Plaintiffs' lawyer Gregory Varallo of Bernstein Litowitz

Berger & Grossmann said via email that his side "appreciates the

court's order allowing the filing of Professor Elson's amicus

brief, which we believe correctly describes the Delaware law

pertaining to ratification."

McCormick also ruled on Monday that the U.S. Chamber of

Commerce can file an amicus brief arguing that she should reject

shareholders' multibillion-dollar fee request because it will

encourage plaintiffs' lawyers to bring "ever more frivolous

lawsuits against large corporations in pursuit of the proverbial

pot of gold."

McCormick, who heard several hours of arguments earlier this

month on the fee request, will hold a hearing on Aug. 2 on the

impact of the shareholder vote.

Read more:

Public policy favors $7 billion fee award in Musk pay case,

Tesla shareholder's lawyer says

Tesla told law firm 'relationship about to be terminated' in

spat over law professor brief - email

Tesla shareholders' bid for $6 bln in legal fees over Musk

pay could fan flames for Delaware critics