Musk Superfans, Meme-Stock Traders Crash US Business Court Norms

Meme stock traders come to the country’s premier venue for corporate litigation on a mission to—well, there’s a lot going on here.

Tesla Inc. superfans vow to protect Elon Musk from the judge who doesn’t think he’s worth $56 billion. Retail investors want a reckoning for the movie theater chain they say treats them like “a piggy bank.”

They’re little guys saving their beloved brands from “a broken system” perpetuated by “bad actors” on Wall Street. They do their own research. They’re an online army. They want their money back. They don’t care so much about winning.

The movement converging on Delaware’s Court of Chancery is an “eruption of human passion and emotion,” said one such investor, Brian Tuttle, a 44-year-old disc jockey from Sarasota, Fla. “Sometimes participation is more important.”

This army of superfans is audaciously disrupting a court already straining to resolve complex corporate disputes in a state where almost 70% of Fortune 500 companies are incorporated. The court was reassigning some breach of contract lawsuits to another state court, to ease its workload, even before cases involving AMC Entertainment Holdings Inc., former president Donald Trump‘s media company, and Musk’s pay package hit its dockets.

The true believers flood the courts with letters and pleadings written in an amateur’s best approximate legalese, sometimes if not always heeding advice to be “VERY RESPECTFUL.” The court, more used to hearing disputes about buyout battles and self-dealing by billionaires, had to appoint a special master to summarize correspondence from almost 3,000 retail investors objecting to AMC’s plan to recapitalize by diluting their shares. One of those investors re-ups her objection Wednesday in an appeal before the Delaware Supreme Court.

Ashley Hinck, a Xavier University professor who studies fandom, says meme stock followers expect to control outcomes for their companies and will fight any executive or institution they perceive as standing in their way.

Superfans think “if we can exert power over what toys make it to market, or what storylines make it into a TV show, or which candidates are elected to office, let’s also exert power over how courts rule on our fan object and our favorite company,” she said.

Crashing the Gates

Chancery Court judges consider what’s fair to everyone involved in a disputed transaction. They weigh the obligations executives and corporate boards owe to shareholders, and may find financial damages aren’t the only way to fix something that investors have flagged as wrong.

But for meme stock traders, the court itself looks more like the problem. Often they eschew lawyers to help them navigate the court’s decorum.

Musk fans are bombarding the Chancery Court’s chief judge with protest letters over her ruling throwing out Musk’s $56 billion executive pay package. Chancellor Kathaleen St. Jude McCormick, who’s considering whether attorneys who mounted the successful challenge should be compensated with Tesla stock, asked lawyers on both sides what to do because she wasn’t reading them. Tesla’s attorneys are organizing all the letters for potential use in upcoming arguments over the lawyer fees, but there’s disagreement over whether the court should consider them at all.

McCormick’s chambers didn’t respond to a request for an interview.

A Georgia couple demanding the court order AMC to give them internal records aligned their self-represented effort with other meme stock traders trying “to see justice prevail and protect our investments and the integrity of our stock market.” The couple later said they would withdraw their records request.

Unlike pension funds and other institutional investors that zero in on returns, meme stock enthusiasts often “care more about the name behind a company, being a savior, going against the system,” said Nicole Iannarone, a Drexel University law professor. The Chancery court’s legal mechanisms addressing breaches of fiduciary duty or other corporate governance claims don’t necessarily address the expectations of these amateur traders, she said.

“Whether they’ll be satisfied with how they’re heard, and the results, remains to be seen,” Iannarone said. “I don’t think they will, because the law of corporation doesn’t necessarily match their motivation for investing.”

AMC Appeal

The AMC appeal is led by Rose Izzo, a retail investor who argues a pension fund colluded with AMC to dilute its meme stock base in a settlement that allowed the theater chain to convert its preferred equity units into common stock.

In approving the settlement, Vice Chancellor Morgan T. Zurn sided with “pessimists” at the expense of “optimists” who deserve their day in the court, Izzo’s attorneys said in a brief to the supreme court.

Tuttle attempted to intervene in the AMC litigation as a self-represented litigant. He’s also one of two investors representing themselves in a case alleging dilution by Hycroft Mining Holding Corp., which became a meme stock after AMC bought a stake in it.

He’s also closely watching a cluster of cases before the court about Trump’s Truth Social platform. He finds a common thread through the litigation that’s attracted meme-stock attention: “‘elites abusing responsibility given to govern over the common man, to take advantage of what they deem as nothing more than a piggy bank to be exploited for personal gain,” he said in an email to Bloomberg Law.

‘A Little Bit Unusual’

There are four parallel Delaware lawsuits concerning the merger between the company that runs Truth Social and a publicly traded special purpose acquisition company, or SPAC. The transaction handed Trump stock worth billions of dollars, a potential windfall he could use to confront mounting legal bills connected to multiple civil and criminal cases.

Those lawsuits, marked by the meme stock’s volatility, hold the potential for more antics from Trump, whose deposition was recently postponed over a scheduling conflict involving his criminal hush-money trial in New York. Although the litigation is only a few months old, Zurn is already weighing whether the former president violated a court order by countersuing in Florida.

The Trump disputes in Delaware haven’t yet drawn the level of amateur investor interest as the AMC and Tesla cases, but that shouldn’t be mistaken for normalcy. There’s a chaotic array of claims and counterclaims among Trump associates, SPAC investors, and two Truth Social co-founders who were contestants on Trump’s reality TV show “The Apprentice.”

Zurn showed some frustration as she tried to wrangle Trump’s attorneys into predictable procedure in one of those lawsuits at multiple hearings in April.

“I’d like to keep this as usual as possible,” Zurn said, declining to allow Trump’s attorneys to call witnesses at a preliminary injunction hearing—a request she deemed “a little bit unusual.”

She’s also rejected a request from the ex-Apprentice contestants to halt the Florida case, saying it would be “a remarkable thing for a state court to do” to another state court.

She’s admonished attorneys in the case to “leave politics out of it,” and shut down anyone attempting to argue out of turn.

“If you could just on a go-forward basis wait until I give you the go-ahead until you pipe up, that would be really helpful,” she said in a recent hearing to one of Trump’s attorneys.

Help Wanted

Meanwhile, the court’s seven judges await help.

In a budget request to lawmakers earlier this year, Delaware Supreme Court’s chief justice asked to add two more Chancery Court magistrates to handle books-and-records requests and less demanding problems.

Whether the meme stock phenomenon reflects a passing fad or a permanent feature of financial markets, many of the dynamics behind it likely pose a lasting challenge for McCormick and her colleagues.

Online mobs mobilized through social media, tech platforms that let people trade stock in their underwear, and the growing contingent of investors who care as much about making a statement as making money—"I guess that’s what true shareholder democracy” looks like, said Carliss Chatman, a Southern Methodist University law professor.

“Delaware judges are taking into consideration, even if it’s not explicit, the idea that shareholders don’t look the way they used to look,” she said. “There are so many hedge funds and retirement funds, in addition to retail investors—it’s not just the top 2% owning stock anymore.”