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Musk Divorce Lawyer Top Counsel at Tesla as Legal Woes Mount

April 10, 2018, 2:37 PM

Thorny legal issues are common at trailblazing tech companies, but few can rival Tesla Motors, which has consistently courted controversy and now is buffeted by factors that could edge it toward insolvency.

Its lawyers, led by general counsel Todd A. Maron, have grappled with selling cars directly to consumers, the consequences of fatal crashes, complaints about manufacturing workplace conditions, and shareholder suits stemming from the acquisition of a solar panel installation company. On top of all that, the electric car maker could face additional tariffs in China, where it has substantial sales.

Tesla, which declined requests for Big Law Business to interview Maron or others in its legal department, has an unusual track record for in-house counsel. The Palo Alto company had three straight in its first three years, but no one had the job when it went public in 2010.

In late 2013, founder and chief executive Elon Musk brought Maron in as deputy counsel. A 2003 graduate of New York University School of Law, Maron spent the prior seven years handling divorce and other family matters at Beverly Hills, Calif., boutique family law firm, Jaffe and Clemens. Musk was a client during two divorces.

Maron’s earlier experience as an associate at Irell & Manella, in Los Angeles, was more typical for the general counsel’s position. During his 2 ½ years at Irell, Maron practiced commercial litigation, focusing on intellectual property and securities issues.

Choosing a General Counsel

Corporations are more frequently selecting lawyers from varied backgrounds to fill their top law job.

“More top legal officers are coming from backgrounds other than corporate, including litigation or labor and employment.

It’s not a one-size-fits-all pattern,” said Ryan Whitacre, managing director of Major, Lindsey & Africa’s In-House Practice Group.

“Chief executives often want to choose their own general counsel. They don’t have to be buddies, but it has to be a good fit culturally,” said Whitacre.

“The general counsel is the most important relationship the CEO will have, and it has to be someone who is not just a good lawyer but also someone who can be a business advisor, can handle the board, someone who is a good communicator and spokesman,” Whitacre. “Oh, and someone who can see around corners.”

Handling a Spate of Issues

Maron was promoted to general counsel in late 2014, as Tesla was battling powerful local car dealerships who objected to Tesla skipping over them and having consumers order straight from Tesla showrooms.

When the issue came before the Federal Trade Commission, Maron took on the spokesman’s hat and advocated for the company’s direct sales model on grounds that sales staff at traditional dealers would not want to spend time explaining the car’s technology to prospective buyers, and were accustomed to moving cars off the lot as quickly as possible.

“They make 99 percent of their revenue off gas-powered cars,” Maron said at a January 2016 commission panel discussion.

He also noted that dealers make money from repairs and service.

“We can’t offer that to any franchised dealer, because we only profit in one way: new car sales and new car sales alone,” he said. That’s because Teslas have fewer parts than gas-powered cars, he said, so no regular service visits are needed for engine tune-ups and oil changes.

Maron’s deputy, James Chen, a former Environmental Protection Agency lawyer, worked to stop legislation in Indiana to block people from buying cars from third-party dealerships – like Tesla. The electric car maker’s lawyers were also working in Utah and other states to keep control of its car sales.

Chen, who had been a partner at two major law firms – Crowell & Moring and Hogan & Hartson – later left for a similar job at Faraday Future, an electric car company backed by a Chinese entrepreneur. But Tesla won the day at the FTC, which decided that states should not stand the electric car company sidestepping the established dealerships.

New Legal Challenges

That was a major victory, but amid a plethora of legal challenges, Musk hasn’t been without seasoned counsel. Tesla’s outside firm is Wilson Sonsini Goodrich & Rosati, and chairman Larry W. Sonsini joined the Tesla board back in 2008. The firm, which didn’t respond to a request for an interview, represented Tesla in its $1.5 billion bond offering last year.

The infusion came as Tesla’s in-house counsel is contending with legal issues surrounding efforts to gear up for mass production of a more affordable Tesla, called Model 3, which Musk promised would be available at the end of last year.

But conditions at its Freemont, Calif., factory, where the electric cars were being manufactured, have been the subject of wrangling over accusations that poor workplace conditions have resulted in long hours, preventable injuries and lack of safety, among other issues.

Last year, Maron, whose compensation is not listed in Tesla securities filings, stepped up to rebut accusations that Tesla was in violation of federal labor law for having its factory workers sign a confidentiality agreement that bars them from discussing “everything you work on, learn or observe in your work” that is not already public.

In a letter to California lawmakers, Maron insisted that the pledge was a legitimate effort to stop leaks about product launches and vehicle features that Tesla wanted to keep secret from competitors.

On the legal front, Tesla also will likely be contending with wrongful death claims involving automated electric car crashes. In March, a Tesla driver, who had turned on his Model X sport-utility car’s autopilot, crashed and died.

This was the second time a Tesla driver had died where the auto pilot system was engaged. A federal safety investigation found no flaw in the system but said it lacked safeguards to prevent possible misuse.

Tesla shareholders also filed a class action lawsuit against Musk and the company’s board following the 2016 purchase of SolarCity for $2.6 billion. Musk was the largest shareholder both in Tesla and SolarCity, which was founded by his cousin.

The challenges say that acquisition was a bailout of the troubled solar panel installation company, which has some $3 billion in debt, and the deal breached its duty to shareholders.

Amid these challenges, it may take a true believer to work at Tesla, if Musk’s compensation is any guide.

Musk, who also owns rocket venture company SpaceX, doesn’t take a conventional executive’s paycheck at Tesla but a token salary, which is required by California law. But he could eventually receive billions in compensation if he meets some far-reaching financial milestones – or nothing if he doesn’t.

Top executives around him, including Maron, will be tied to his fate.