Delaware Court Upholds Decision Voiding Musk’s Massive Tesla Compensation Deal

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A Delaware judge on Monday reaffirmed her decision to invalidate Elon Musk’s multibillion-dollar Tesla compensation package, rejecting arguments from company directors while also significantly reducing requested legal fees in the landmark corporate case.

Chancellor Kathaleen St. Jude McCormick stood by her January ruling that Musk engineered his 2018 pay package through sham negotiations with non-independent directors. The package, initially valued at approximately $56 billion, was challenged in a lawsuit filed by a Tesla stockholder.

“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 in her 103-page opinion, dismissing Tesla’s argument that a subsequent shareholder vote in June 2023 legitimized the compensation plan.

The court also addressed the plaintiff attorneys’ unprecedented request for $5.6 billion in legal fees, which they justified based on the estimated $51.4 billion in value returned to Tesla shareholders. McCormick called this “a bold ask” in a case about excessive compensation, instead awarding $345 million – approximately half the record $688 million awarded in 2008 Enron litigation.

“The fee award here must yield in this way, because $5.6 billion is a windfall no matter the methodology used to justify it,” McCormick wrote, while acknowledging the attorneys achieved “a total victory.”

Tesla’s defense had argued that the June 2023 shareholder vote, which again approved Musk’s package by an overwhelming margin, demonstrated stockholder support despite the procedural flaws identified in McCormick’s January ruling. However, the judge noted that “a stockholder vote standing alone cannot ratify a conflicted-controller transaction” and cited “multiple, material misstatements in the proxy statement.”

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