A Delaware judge has confirmed his ruling that Tesla must void Elon Musk’s billion-dollar pay package.
Chancellor Kathleen St. Jude McCormick on Monday rejected a request from lawyers for Musk and Tesla’s corporate directors to vacate an earlier ruling from 2024 that would have required the company to cancel the unprecedented pay package. Was.
McCormick also rejected an equally unprecedented and large fee request from plaintiff lawyers, who argued they were entitled to legal fees in the form of Tesla stock worth more than $US5 billion ($A7.8 billion). The judge said lawyers were entitled to a fee award of $US345 million ($A535 million).
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The ruling came in a lawsuit filed by a Tesla shareholder who challenged Musk’s 2018 compensation package.
McCormick concluded in January that Musk created the historic pay package by sham negotiations with directors who were not independent. The compensation package initially had a potential maximum value of about $US56 billion ($A87 billion), but that amount has fluctuated over the years depending on Tesla’s stock price.
Following the original court ruling, Tesla shareholders met in June and approved Musk’s 2018 pay package for the second time by an overwhelming margin.
Defense lawyers then argued that the second vote made clear that Tesla shareholders, with full knowledge of the flaws in the 2018 process that McCormick pointed out, were adamant that Musk deserved the pay package. He asked the judge to vacate his order directing Tesla to cancel the pay packages.
McCormick, who was skeptical of the defense’s arguments during the August hearing, said in Monday’s ruling that those arguments were fatally flawed.
“The large and talented group of defense companies got creative with the ratification argument, but their unprecedented principles run counter to many strands of established law,” McCormick wrote in a 103-page opinion.
The judge said, among other things, that a shareholder vote cannot stand alone and ratify a disputed controlling-control transaction.
“Even though a shareholder vote could have a ratifying effect, it could not do so here because of several material misstatements in the proxy statement,” he said.
Musk expressed disagreement with the decision in a post on his owned social media platform X.
“Shareholders should control a company’s votes, not judges,” he wrote.
McCormick, meanwhile, found that a $US5.6 billion ($A8.7 billion) fee request by shareholder lawyers, which at one point rose to $US7 billion ($A11 billion) based on Tesla’s trading price , gone too far.
“As a matter of excessive compensation, this was a bold question,” McCormick wrote.
Tesla shareholder lawyers argue that their work resulted in a “huge” benefit to Tesla returning shares that otherwise would have gone to Musk and diluting the stock held by other Tesla investors.
Using the difference between the stock price at the time of McCormick’s January decision and the strike price of about 304 million stock options granted to Musk, they value that gain at $US51.4 billion ($A79.7 billion).
