Tesla urges Delaware Supreme Court to restore Musk's $56 billion payday
By Tom Hals
DOVER, Delaware (Reuters) -Elon Musk’s $56 billion pay package from Tesla should have been restored by a vote of the company’s shareholders last year, a Tesla attorney argued to the Delaware Supreme Court on Wednesday.
One of the biggest corporate legal battles entered its final stage after a lower court judge rescinded the Tesla CEO's record compensation in January 2024. The company is also appealing a ruling by the lower court that rejected as legally invalid a vote by shareholders to restore the pay package.
“This was the most informed stockholder vote in Delaware history,” Jeffrey Wall, an attorney for Tesla, told the justices. “Reaffirming that would resolve this case.”
The case's outcome could have substantial consequences for the state of Delaware, its widely used corporate law, and its Court of Chancery, a once-favored venue for business disputes that has recently been accused of hostility towards powerful entrepreneurs.
The Court of Chancery ruling striking down Musk's pay has become a rallying cry for Delaware critics. Chancellor Kathaleen McCormick ruled that the Tesla board lacked independence from Musk when it approved the pay package in 2018 and that shareholders lacked key information when they voted overwhelmingly in favor of it. As a result, she applied a demanding legal standard and found the pay unfair to investors.
Musk did not attend the arguments, which were held in a special court to accommodate the 65 people in attendance, mostly lawyers.
The defendants, current and former Tesla directors, denied wrongdoing and said McCormick misinterpreted the facts and the law.
COMPANIES SWITCH LEGAL HOMES
Tesla argued in Dover, Delaware, that the five justices on Delaware's high court had three avenues to reverse the lower court ruling. They could find that Musk, who owned 21.9% of Tesla stock in 2018, did not control the board pay negotiations and that shareholders were fully informed when they voted to approve it that year. They could determine that rescinding the pay was an improper remedy because it did not undo the work that Musk had done or the gains that shareholders had received. Or they could determine last year's ratification vote demonstrated that shareholders wanted to accept the pay deal, despite the legal flaws.
"Shareholders in 2024 knew exactly what they were voting for," Wall said.
Greg Varallo, an attorney for Richard Tornetta, the small investor who brought the case in 2018, said if the court accepted ratification, it would allow a party to change the outcome after a court case had run its course. "Lawsuits would be interminable," he told the justices.
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