Bleichmar, Fonti & Auld Partners on the Billion-Dollar Tesla Settlement that Stunned Delaware

George Bauer, Derrick Farrell, Nancy Kulesa, Joseph Fonti and Javier Bleichmar. Photo by Nick Coleman.

In December 2024, headlines rang out with the news that a Delaware judge had rejected Elon Musk’s bid to reinstate his $56B compensation package as Tesla CEO. The media had been following the compensation case, decided twice by Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery, closely and loudly – focusing on the case’s impact on Musk himself.

But just a month later, Chancellor McCormick made another ruling on a Tesla case that had flown much more under the media’s radar. When she approved a staggering nearly $1B settlement in a Tesla board compensation derivative litigation, that stopped Delaware’s changemakers – from the legal industry to corporate leaders – in their tracks.

The case was litigated by counsel including the team at leading shareholder-side firm Bleichmar Fonti & Auld (BFA). Working on behalf of their longtime client, the Police & Fire Retirement System of the City of Detroit, the firm and co-counsel were litigating against not Musk specifically, but Tesla’s board of directors. The plaintiffs alleged that the auto company’s board breached fiduciary duty by overcompensating themselves each year from 2017 to 2020.

In an innovative resolution reached shortly before trial, key board members agreed to pay back stock and options valued at $735M and forgo three years of pay, amounting to an additional estimated $184M. All told, the settlement value clocks in at over $919M. In addition, the settlement mandates substantial corporate governance reforms, including requiring an independent compensation consultant to review and assess director compensation for the next five years – and share those assessments with stockholders for review.

BFA turned heads with the result – which is not atypical for the firm. Founded in 2014 by Javier Bleichmar, Joseph A. Fonti and Dominic J. Auld, BFA was born out of a young partnership that had worked together for more than a decade at competitor shareholder firms. The trio were successful together: They were on the team representing the Ontario Teachers' Pension Plan Board in a securities class action in the U.S. District Court for the Eastern District of Virginia – the “Rocket Docket,” where the BFA lawyers have returned multiple times since. The team secured a $97.5M settlement, one of the largest settlements in the district at the time.

So, they launched their own firm, focusing on highly selective litigation. “We wanted to run a place where every time we filed a case, we could stand up in court and feel like, ‘Yes, we believe in this case,’” Bleichmar says. “We don't look for easy cases. We look for cases where we think our skill can really change the magnitude of recovery.”

They quickly assembled a team of like-minded litigators, securing significant results in the securities space from the jump. Upon launching, the firm acted as co-lead counsel in a major securities action arising out of the bankruptcy of global financial derivatives broker MF Global – netting a total settlement of $234M. Over the last decade, the firm has shone in the securities space: In 2022, after five years of litigation, the firm secured a $420M settlement in a securities class action on behalf of investors in Teva Pharmaceuticals Industries over allegations that Teva had inflated generic drug prices. The result is among the largest securities class action settlements in the District of Connecticut.

That focus on client service, creative work and high-profile cases quickly gained traction nationwide. In 2016, the New York City-based firm went bicoastal, establishing an office in Oakland, Calif., that focuses on consumer, privacy and antitrust cases. The firm has since added offices in Westchester County, Toronto and Delaware.

It was a unique case, so it took some research and some deep thought. There's really not a roadmap to this case, but we recognized that the board was being paid outsized compensation and that it was at the expense of investors.

“Fundamentally what we do involves intervening when investors are being lied to in some form or another. When we push a case, we believe there is a misleading sense of what the company was telling the public,” Bleichmar says.

Now, they’re taking that outlook and broadening the umbrella to include an increased emphasis on corporate governance work. The launch of the firm’s Wilmington, Delaware office in 2023 cemented that commitment, along with the hiring of Delaware veteran Derrick Farrell to head the practice group. Farrell is a regular in the Delaware Court of Chancery and has appeared multiple times before the Delaware Supreme Court. Notably, he was on the team for the lead plaintiff in In re: Dell Technologies Inc. Class V Stockholders Litigation, in which Dell agreed to pay a staggering $1B cash.

The expansion of the firm’s corporate governance practice is a symbiotic pairing with the securities work, the lawyers say. “Our purpose as a firm is always to protect investors, and specifically our clients who are public pension funds, for public safety personnel like police officers, firefighters, teachers, union workers, tradesmen and tradeswomen all across America,” says partner Nancy Kulesa, who specializes in securities litigation and the role of client relationships in case selection.

Those clients are just as benefitted by corporate governance claims as they are securities actions, she explains. “The investments that we seek to protect on their behalf are their hard-earned retirement dollars. So whether in the form of a securities case and getting them a return on funds that were wrongfully lost or getting corporate governance changes implemented that ensure the company will be well-run, efficiently run and run with ethics – these things are all very important to our clients.”

Currently in Delaware, Farrell is serving as co-lead counsel in the high-profile Boeing shareholder derivative litigation surrounding alleged systemic issues resulting in 737 MAX crashes. It’s familiar territory for Farrell, who previously took on a Section 220 case against the company.

The emphasis in each of these cases is on impactful litigation that shapes corporate culture and integrity. As for Tesla, “Our client in this case, the Police & Fire Retirement System of the City of Detroit, was very happy to be in the driver’s seat, making change on behalf of its members and on behalf of investors,” Kulesa says.

We spoke with Bleichmar, Fonti, Kulesa, Farrell and partner George Bauer, who as a group spearheaded the case from its nascent stages through to the notable settlement.

Lawdragon: With this result on the heels of your 10th anniversary, how is the Tesla litigation representative of the firm’s efforts over the last decade?

Joe Fonti: The result was a real testament to everything that defines our firm – having the right people in place, dramatically changing the value proposition of the case by our hard work and dedication and supporting a client that believed in us. It was really the culmination of a lot of the sacrifice, effort and risks we took over the years, and bringing in a group of people that could deliver.

Javier Bleichmar: We hire some of the best lawyers around. One phrase that I always come back to is intellectual honesty. It's a critical value of the firm, but one aspect to believing in intellectual honesty is that, as a process matter, we want to be right in the courts publicly. At the end of the day, we’re a plaintiffs’ firm. We're not playing defense, we're playing offense, and so we have to be right. Every single one of our lawyers is absolutely excellent, and that's how you get good results.

LD: Ms. Kulesa, can you tell me a bit about how you began working on the case?

Nancy Kulesa: I was contacted by co-counsel, who were former colleagues of mine. BFA quickly launched an investigation into the matter, and we believed in the merits early on. It was a unique case, so it took some research and some deep thought. There's really not a roadmap to this case, but we recognized that the board was being paid outsized compensation and that it was at the expense of investors. We also realized that the vote on director compensation was not disinterested.

Our clients know us for only bringing the most meritorious cases to them. So I think when we bring a case to them, they really do listen. The Police & Fire Retirement System of the City of Detroit was a long-term client of the firm’s, and they also had long-term holdings in Tesla. So realizing that Tesla didn't have the best corporate governance, I think the fund decided that they wanted to be at the forefront of effectuating change.

LD: And how did the case progress from those early stages?

George Bauer: I think this case is a really shining example of our firm's philosophy in practice, that when we litigate these cases, we litigate them hard and we litigate them with an eye not to resolving them easily and quickly, but of taking them all the way.

Working with experts, we had to develop our own theories of liability and of damages. What is excessive compensation for a director? How was their compensation excessive? What would be the damages that you would apply for compensation? We had to navigate all of those issues without a roadmap, and we did that effectively. And we did that with the goal of taking the case to trial if we needed to. We had opportunities to resolve the case earlier, and we declined because we believed in the case. We were able to maximize the value for the clients, the stockholders and build a precedent for these types of cases going forward.

LD: Outside of the lack of roadmap, what were the other challenging aspects of the case?

GB: We're not the only ones who litigated the case with the eye to going all the way. We were litigating against Tesla. They have some of the most top-notch attorneys in the world, and we met them blow by blow. We never wavered; we never backed down. And that goes back to the philosophy of the firm. We're fighters. When we have a case that we believe in, when we have clients who believe in our case, we don't stop until we get the results that those clients deserve.

The result was a real testament to everything that defines our firm – having the right people in place, dramatically changing the value proposition of the case by our hard work and dedication and supporting a client that believed in us.

JB: The other thing I would add is that board comp cases are usually not seen as significant cases. That didn’t make a lot of sense to us. The board sits in a place where they're supposed to be looking at not just maximizing value, but conscientiously making sure that the company's growing at a good pace and that the shareholders are taking the right amount of risk. So why would people who are effectively gatekeepers be given the incentive of millions and billions in compensation and options, which would create exactly the wrong incentive? We came to the realization that this was completely backwards. You don't want the board member to be swinging for home runs all the time. That's not what they're there for.

LD: What was most fulfilling about the results of the Tesla litigation outside of the historic value of the settlement?

GB: From the Tesla case, I think we can look at the takeaways in terms of micro and macro benefits. I think at the micro level at Tesla specifically, we got in place very meaningful corporate governance reforms. It changes the culture. They’re only in place for five years, but that change of culture for five years could have a material impact, both in terms of what directors do going forward, but also what stockholders expect them to do going forward.

The macro piece of it, I think, is the precedential value of what we've established for other cases. We've given a roadmap for other types of cases, but we've also established the precedent of, "This is the type of remedy that you should go for. These are meaningful benefits and if you fight hard enough for it, you can achieve that."

LD: Mr. Farrell, tell me about coming over to the firm not long before the Tesla case settled.

Derrick Farrell: Since I was starting a practice group essentially from scratch, the fact that the cupboard wasn't bare, so to speak, was a really big draw for me. And Tesla wasn't just any case in the pipeline; it was a very significant case. But it really flew under the radar. So when the Tesla settlement came out, everybody I knew in town was really shocked that we got this enormous recovery, and that had two significant impacts on the Delaware office. One, it gave us credibility with other firms. In Delaware, you often have to work with other firms. It's extremely rare for a firm to be on their own. And so having credibility with other firms is very important. It also gave us a whole lot of credibility with the court.

The other thing that drove me to join the firm was the clients, because Nancy and Erin [Woods] have done a really fantastic job of building a large set of clients at BFA. So getting the office off the ground, having the institutional clients was extremely important and made my job and building this practice quite quickly much easier.

LD: What’s it been like building the office and working with this team?

DF: We've been very successful. We've gotten now, I believe, four cases over a motion to dismiss in two years. We've also staffed up the office with experts in Delaware law pretty quickly, starting with our associate Robert Lackey, who has done a great job of adding value to the Delaware practice. Then my partner Matt Miller, who has been really instrumental, and David MacIsaac, who is one of the best in the business.

JB: Derrick is being a little humble. He's been able to attract really great talent. These are all people that he worked with in the past and they're following him to come over. And that's something that speaks volumes to Derrick's ability and track record.

Ultimately, a company that is well-governed is going to be less inclined to engage in malfeasance.

LD: Can you tell me a bit about the Boeing case you’re leading now?

DF: As was widely publicized back in January 2024, a door plug blew off an Alaska Airlines Boeing 737 MAX aircraft mid-flight. I view the blowout as a symptom of the problem, not the actual problem. Since the door plug blowout happened, multiple whistleblowers have come forward about the disastrous state of the Boeing factory.

We joined with another group that had filed a case out in the Eastern District of Virginia in the rocket docket, and we filed breach of fiduciary duty claims and federal claims there. The court's already ruled the federal claims are moving forward. We're in the middle of discovery. We refiled Delaware claims in Delaware where “Boeing One” was decided in 2019, and we had a lead battle against some really prestigious firms, and we won the lead battle. Not only did we win the lead battle, but it's the only time I can remember when every single factor the court considers in deciding lead went in our favor. One of the big factors in that was, again, the clients, because we have a huge client in the Boeing case and it's overseen by a state Attorney General's Office, and the court was very impressed by the fact that we had the Attorney General involved in this very high-profile matter. So again, the clients are very, very important to this practice.

JF: The Boeing case is actually being coordinated not only with the Delaware team, but with the securities team in New York, which is a testament to how integrated the firm can be when you have the right people.

DF: That integration has been really critical to getting this practice to where it is today. We've been so fortunate. With being so successful, there's a lot going on. Especially when you're litigating in the EDVA rocket docket, you need a lot of resources to make that happen.

LD: Ms. Kulesa, from a client perspective, how are dialogues about corporate governance cases different from around a securities case when you're putting forward a client conversation? What does it mean to them?

NK: Long-term holders want to make sure that the companies they are invested in are well-governed. Ultimately, a company that is well-governed is going to be less inclined to engage in malfeasance. I think it's very important that we are watching that for our clients and that we make them aware.

LD: How is the expansion of the corporate governance practice important for the firm at this moment and looking ahead to the future?

JF: We launched the firm from scratch and became a significant force in shareholder litigation. We may be the first to do that in over a generation. We see the Delaware team’s office and practice area as the most recent chapter of that narrative. We’re here to serve our clients. We’re getting results, setting the benchmark for what it means to get a good result and making our intellectual capital the most valuable thing that we can offer clients and cases.