A Delaware judge upheld an earlier decision Monday requiring Tesla to cancel Elon Musk’s multibillion-dollar compensation package.
Delaware Chancellor Kathaleen St. Jude McCormick dismissed a motion from Musk and Tesla’s board members to overturn her previous mandate that rescinded Musk’s lucrative deal. McCormick also denied a request for legal fees from the plaintiff’s attorneys as they sought Tesla stock valued at over $5 billion but will receive $345 million instead.
“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,” McCormick wrote.
McCormick’s 103-page decision noted that a shareholder vote alone cannot legitimize a transaction marred by conflicts of interest. She further stated that even if such a vote could ratify the deal, it would still be invalid here due to numerous substantial inaccuracies in the proxy statement.
A Delaware judge just overruled a supermajority of shareholders who own Tesla and who voted twice to pay @elonmusk what he’s worth.
The court’s decision is wrong, and we’re going to appeal.
This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware…
— Tesla (@Tesla) December 2, 2024
McCormick remarked that the $5.6 billion legal fee proposal by the shareholder’s lawyers, once as high as $7 billion, was ambitious. She emphasized that Delaware’s Supreme Court has highlighted the need to avoid overly generous legal fees, particularly in cases of excessive compensation.
The judge ultimately decided that a $345 million fee was just, nearly matching half of the record $688 million awarded in 2008 following the Enron scandal. This amount, she said, adequately compensates for a complete legal victory.
In response, Tesla took to social media to criticize McCormick’s decision that overruled a supermajority of shareholder votes favoring Musk’s compensation.
“The court’s decision is wrong, and we’re going to appeal,” Tesla wrote. “This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners – the shareholders.”
The case originated from a Tesla shareholder’s lawsuit challenging Musk’s 2018 compensation, which could have reached approximately $56 billion. In her January ruling, McCormick determined that Musk had orchestrated the pay arrangement through sham negotiations with non-independent directors. (RELATED: Elon Musk Demands Shutdown Of Consumer Bureau)
Tesla shareholders backed a $48 billion compensation package for Musk in June. In the same session, they endorsed relocating the company’s incorporation to Texas, affirming the strategy alongside Musk’s substantial earnings.
In July 2022, McCormick oversaw the legal proceedings when Musk attempted to terminate his $44 billion acquisition of Twitter, according to Reuters. She expedited the trial to October, leading Musk to confirm his purchase of the platform, now called X, while emphasizing the need to protect the company and its shareholders from prolonged uncertainty.
Twitter launched legal action against Musk for withdrawing from his $44 billion agreement to acquire the company. Earlier, Musk had finalized this merger deal on April 25, following Twitter’s implementation of a “poison pill” strategy to deter him from increasing his stake in the company.
(Featured Image Media Credit: Steve Jurvetson via Flickr)
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