Delaware Court Rejects Tesla’s Bid to Reinstate Musk’s $56B Compensation Deal
In a decisive ruling, Delaware Chancery Court Judge Kathaleen McCormick has reaffirmed her January decision to nullify Elon Musk’s record-breaking $56 billion Tesla pay package—despite shareholders overwhelmingly voting to re-ratify the deal earlier this year. The 103-page opinion, published December 2, delivers a blow to Tesla’s legal strategy and sets the stage for a high-stakes appeal.
Why the Court Stood Firm
Judge McCormick identified four critical flaws in Tesla’s arguments:
Post-Trial Evidence Limitation: Tesla’s attempt to use the June shareholder vote to overturn the ruling violated procedural rules. McCormick stated, “Defendants have no procedural ground for flipping the outcome of an adverse post-trial decision based on evidence they created after trial.”
Invalid Affirmative Defense: Tesla’s legal team framed the shareholder vote as a “common-law ratification,” a defense that cannot be introduced after a trial concludes.
Governance Concerns: The court dismissed Tesla’s claim that shareholders could unilaterally approve the package, citing Musk’s outsized influence over board decisions as a conflict of interest.
Proxy Statement Misstatements: McCormick ruled the shareholder vote was tainted by material inaccuracies in Tesla’s disclosures about the vote’s legal implications.
Key Background
- Origins of the Case: The 2018 pay package, tied to ambitious stock price milestones, was challenged by shareholder Richard Tornetta, who argued negotiations were unfairly skewed by Musk’s dominance over Tesla’s board.
- Shareholder Vote: Tesla re-presented the package to investors in June 2024 after McCormick’s initial ruling, securing 72% approval. The company cited improved transparency, but the judge deemed this irrelevant to the legal defects.
- Texas Reincorporation: Tesla has since moved its legal home from Delaware to Texas, though the appeal will proceed under Delaware law.
What’s Next?
- Appeal Plans: Tesla confirmed it will challenge the decision in the Delaware Supreme Court, calling the ruling “contrary to the will of the shareholders” in a post on X.
- Legal Fees: Plaintiff attorneys were awarded \(345 million—far below their \)5.6 billion request but still among the largest fee awards in corporate litigation history.
Broader Implications
The case underscores growing scrutiny of executive compensation and corporate governance, particularly at Musk-led companies. With Musk now advising President-elect Donald Trump, the outcome could also influence debates over corporate accountability in the new administration.
This story was updated with Tesla’s appeal confirmation.
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