Legal Battle Enters Final Stage
Tesla has asked the Delaware Supreme Court to reinstate Elon Musk’s $56 billion compensation package, arguing it should have been restored by a shareholder vote in 2024. The appeal follows a January 2024 Court of Chancery ruling that rescinded the pay package, citing lack of board independence and insufficient shareholder information.
“This was the most informed stockholder vote in Delaware history,” said Tesla attorney Jeffrey Wall. “Reaffirming that would resolve this case.”
Background of the Case
- The original 2018 Tesla board-approved pay plan was challenged by investor Richard Tornetta, who argued that Musk controlled the board and shareholders lacked key information when approving the plan.
- Chancellor Kathaleen McCormick ruled the pay package unfair to investors, applying a strict legal standard and striking it down.
- Tesla’s current and former directors deny wrongdoing, claiming McCormick misinterpreted both facts and law.
The case is seen as one of the largest corporate legal battles in US history, with implications for Delaware corporate law and its Court of Chancery, a venue historically favored for business disputes.
Arguments in the Appeal
Tesla has asked the court to consider three arguments:
- Board independence – Musk, owning 21.9% of Tesla stock in 2018, did not control the board’s compensation negotiations.
- Shareholder ratification – The 2024 vote demonstrated shareholders’ willingness to accept the plan despite legal flaws.
- Improper remedy – Rescinding the pay package does not undo the work Musk accomplished or the gains shareholders received.
Opposing counsel warned that accepting ratification could set a precedent allowing parties to alter legal outcomes post-trial, potentially making lawsuits “interminable”.
Implications of the Ruling
- Tesla, Dropbox, and Andreessen Horowitz have moved legal domiciles to Texas or Nevada, citing Delaware’s court hostility toward directors—a trend dubbed “Dexit”.
- If Musk loses, he will still receive tens of billions in Tesla stock under a replacement deal, which Tesla estimates could cost $25 billion or more in accounting charges.
- Musk remains the world’s richest person, with an estimated fortune of $480 billion.
Tesla has also proposed a $1 trillion pay plan to focus Musk on transitioning the company toward robotics and automated driving.
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