Elon Musk’s efforts to get his massive $56 billion 2018 Tesla pay package reinstated was rejected by a Delaware judge on Monday.
The decision, issued by Delaware Chancery Court Judge Kathaleen St. J. McCormick, comes after a majority of Tesla shareholders in August reauthorized the compensation package during the electric vehicle maker’s annual meeting.
After it was initially approved in 2018, the pay package sparked a lawsuit from some Tesla shareholders who accused Musk and Tesla’s board of directors of breaching their duties and unjustly enriching the billionaire. In January 2024, McCormick had ruled that Musk and his company failed to prove that the huge payout was legally warranted, prompting Musk to take the issue back to his shareholders in August.
In her Dec. 2 decision, McCormick said that Musk had asked the court “to flip its decision and enter judgment in their favor.”
She added, “The motion to revise is denied,” citing what the judge described as “at least four fatal flaws” in arguments from Musk’s attorneys.
“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 noted.
Tesla did not immediately respond to a request for comment.
Shares of Tesla fell slightly in after-hours trading, dipping $4.74, or 1.3%, to $352.35. The stock has gained 47% in the last month, buoyed by investor optimism that President-elect Donald Trump’s victory at the polls will help boost Tesla’s prospects, given Musk’s support for his campaign.
The stock options Tesla granted to Musk were initially worth $2.6 billion but had soared to $56 billion when McCormick blocked the package in January, according to Bloomberg News.
“No basis in the common law”
Musk’s attorneys had argued that the second vote made clear that Tesla shareholders, with full knowledge of the flaws in the 2018 process that McCormick had earlier pointed out, were adamant that Musk is entitled to the pay package. They asked the judge to vacate her order directing Tesla to rescind the pay package.
Among the issues in their latest arguments, McCormick wrote, was a lack of procedural grounds for “flipping the outcome of an adverse post-trial decision based on evidence they created after trial.”
She also objected to Musk’s attempt to recertify the pay package through another shareholder vote, which she wrote his attorneys had argued served as “common law ratification.”
“What the defendants call ‘common law ratification’ has no basis in the common law — a stockholder vote standing alone cannot ratify a conflicted-controller transaction,” she noted. “[E]ven if a stockholder vote could have a ratifying effect, it could not do so here due to multiple, material misstatements in the proxy statement.”
McCormick also rejected an equally unprecedented and massive fee request by plaintiff attorneys, who argue they were entitled to legal fees in the form of Tesla stock valued at more than $5 billion. The judge said the attorneys were entitled to a fee award of $345 million.
Despite the setback, Musk remains the world’s wealthiest person, with a net worth of $343 billion, according to the Bloomberg Billionaires Index.
contributed to this report.
