A United States judge on Monday reaffirmed her decision to strike down Elon Musk’s $55.8 billion compensation package at Tesla, rejecting the company’s efforts to reinstate the deal through a shareholder vote.
Chancellor Kathaleen McCormick of Delaware’s Court of Chancery ruled that Tesla’s June shareholder vote aimed at ratifying the compensation package could not overturn her January ruling, which deemed the deal excessive and unfair to investors.
McCormick highlighted several issues with Tesla’s ratification process, including “material misstatements” in documents given to shareholders regarding the implications of their vote.
In her ruling, she stated, “The motion to revise is denied,” and criticized Tesla’s legal team for presenting arguments that conflicted with established legal principles. “The large and talented group of defense firms got creative with the ratification argument, but their unprecedented theories go against multiple strains of settled law,” she added.
Tesla announced plans to appeal the decision in a statement posted on Musk’s social media platform, X. Musk also commented separately, asserting, “Shareholders should control company votes, not judges.”
The court awarded $345 million in attorney fees to lawyers representing Richard Tornetta, a Tesla shareholder who filed the lawsuit. This figure fell significantly short of the $5.6 billion the plaintiffs had sought.
While McCormick acknowledged that the requested amount was technically justified under Delaware law, which ties fees to the benefit achieved, she deemed such a large sum an “excessive windfall.”
Tornetta’s lawsuit argued that the board failed in its duties by approving the pay plan, accusing Musk of exerting undue influence over directors who lacked independence.
He further alleged that Musk had been “unjustly enriched” and sought to invalidate the compensation arrangement, which helped propel Musk to become the world’s wealthiest individual.
Musk defended the plan during a 2022 trial, claiming that Tesla’s investors were “some of the most sophisticated in the world” and capable of monitoring his leadership.
He emphasized that Tesla had been an industry underdog until the success of the Model 3, which he credited for the company’s turnaround. Musk denied playing any role in crafting the pay package or negotiating its terms with board members, despite some being close friends.
The Delaware Court of Chancery, known for its influence in corporate law, is a key venue where many Fortune 500 companies are registered. Following the ruling, Musk reposted comments on X encouraging businesses to consider leaving Delaware.
