A Delaware judge has upheld her ruling from January that rescinded Elon Musk’s estimated $56 billion compensation package from Tesla as the company’s CEO. The Silicon Valley financier’s lawyers brought the case before the judge, Chancellor Kathaleen McCormick, seeking a reversal of her previous decision after shareholders voted this summer in favor of the payment plan. According to the Court of Chancery judge, the request for a reversal set a damaging precedent that undermined the legal process. “Were the court to condone the practice of allowing defeated parties to create new facts for the purpose of revising judgments,” she said in her ruling, “lawsuits would become interminable.”
Elon Musk took to the social media platform that he owns, X (formerly Twitter), in the wake of the decision, saying that “shareholders should control company votes, not judges.” Tesla also posted on the same platform, stating that “the ruling is wrong, and we’re going to appeal.”
McCormick’s original decision in January found that Musk improperly controlled the process that led to his compensation package, after a shareholder named Richard Tornetta filed suit claiming that the plan presented to him and others was misleading. The “kill shot” argument, in McCormick’s own words, was that Tornetta’s lawyers were able to demonstrate how the investors were not told that Musk had come up with the plan himself, and that the board’s members were beholden to him. All but two of Tesla’s eight seats on the board of directors were people who either had close personal relationships with Musk, owed a great deal of their personal wealth to their board seat, or both. Compensation is meant to be negotiated between the board and the CEO, but according to McCormick’s ruling, “they were there to cooperate with Musk, not negotiate against him.”
Part of McCormick’s decision yesterday was also to pay Tornetta’s attorneys $345 million. While the amount is still historic and likely singular in terms of securities litigation, Tornetta’s lawyer, Greg Varallo, had initially sought more than $6 billion. Varallo argued that it was a fair fraction of the value being created for Tesla by rescinding Musk’s pay, and was far lower than the 33% of that value to which they would legally be entitled.
Musk and Tesla will be able to appeal the decision to the Delaware Supreme Court, which is expected to be made official by the end of the week. Tesla’s stock has skyrocketed after Elon Musk gave significant support to Donald Trump’s successful presidential bid, increasing by more than 40% since election day. That has inflated the proposed pay package for Musk to over $100 billion.
