A Delaware judge has upheld his ruling that Tesla must rescind Elon Musk’s multibillion-dollar pay package.
Chancellor Kathleen St. Jude McCormick on Monday rejected a request by lawyers for corporate executives for Musk and Tesla to reverse her ruling earlier in 2024 requiring the company to reverse the unprecedented pay package.
McCormick also rejected an equally unprecedented and massive fee request by the plaintiffs’ lawyers, who argued they were entitled to legal fees in the form of Tesla shares valued at more than $US5 billion ($A7.8 billion). The judge said the lawyers were entitled to an award of US$345 million (S$535 million).
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The rulings come in a lawsuit filed by a Tesla shareholder who challenged Musk’s 2018 compensation package.
McCormick concluded in January that Musk created the remarkable pay package in sham negotiations with non-independent directors. The compensation package initially had a potential maximum value of about US$56 billion (S$87 billion), but that amount has fluctuated over the years based on Tesla’s share price.
After the initial court ruling, Tesla shareholders met in June and ratified Musk’s 2018 pay package. for the second time, again by a huge margin.
Defense attorneys argued at the time that the second vote made it clear that Tesla shareholders, with full knowledge of the flaws in the 2018 process that McCormick pointed out, were adamant that Musk was entitled to the pay package. They asked the judge to vacate his order ordering Tesla to cancel the pay package.
McCormick, who appeared skeptical of the defense’s arguments during a hearing in August, said in Monday’s ruling that those arguments were fatally flawed.
“A large and talented group of defense firms has been creative in making the case for ratification, but their unprecedented theories run counter to multiple strains of established law,” McCormick wrote in a 103-page opinion.
The judge noted, among other things, that a shareholder vote standing alone cannot ratify a transaction with a conflicting controller.
“Even if a stockholder vote could have a ratifying effect, it could not happen here because of numerous material misstatements in the proxy statement,” she added.
Musk expressed his disagreement with the decision in a post on X, the social media platform he owns.
“Shareholders should control company votes, not judges,” he wrote.
McCormick, meanwhile, found that the US$5.6 billion (S$8.7 billion) fee request from the shareholder’s lawyers, which at one point approached US$7 billion (S$11 billion) based on the trading price of Tesla, goes too far.
“In an overcompensation case, it was a brave question,” McCormick wrote.
Attorneys for the Tesla shareholder said their work resulted in a “tremendous” benefit in returning Tesla shares that would otherwise have gone to Musk and diluted the shares held by other Tesla investors.
They estimate that benefit at US$51.4 billion ($79.7 billion), using the difference between the share price at the time of McCormick’s January decision and the exercise price of about 304 million stock options granted to Musk.
