DOVER, Del. (AP) 鈥 A Delaware judge has reaffirmed her ruling that Tesla must revoke Elon Musk鈥檚 multibillion-dollar pay package
Chancellor Kathaleen St. Jude McCormick on Monday denied a request by attorneys for Musk and Tesla鈥檚 corporate directors to vacate her ruling earlier this year requiring the company to rescind the unprecedented pay package.
McCormick also rejected an equally unprecedented and massive , who argued that 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.
The rulings came in a lawsuit filed by a Tesla stockholder who challenged Musk鈥檚 2018 compensation package.
McCormick concluded in January that Musk engineered the landmark pay package in with directors who were not independent. The compensation package initially carried a potential maximum value of about $56 billion, but that sum has fluctuated over the years based on Tesla鈥檚 stock price.
Following the original court ruling, Tesla shareholders Musk鈥檚 2018 pay package for a second time, again by an overwhelming margin.
Defense attorneys then argued that the second vote makes clear that Tesla shareholders, with full knowledge of the flaws in the 2018 process that McCormick 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.
McCormick, who seemed skeptical of the defense arguments during an August hearing, said in Monday鈥檚 ruling that those arguments were fatally flawed.
鈥淭he large and talented group of defense firms got creative with the ratification argument, but their unprecedented theories go against multiple strains of settled law,鈥 McCormick wrote in a 103-page opinion.
The judge noted, among other things, that a stockholder vote standing alone cannot ratify a conflicted-controller transaction.
鈥淓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,鈥 she added.
Musk expressed his disagreement with the ruling in a post on X, the social media platform he owns. 鈥淪hareholders should control company votes, not judges,鈥 he wrote.
Meanwhile, McCormick found that the $5.6 billion fee request by the shareholder鈥檚 attorneys, which at one time approached $7 billion based on Tesla鈥檚 trading price, went too far.
鈥淚n a case about excessive compensation, that was a bold ask,鈥 McCormick wrote.
Attorneys for the Tesla shareholder argue that their work resulted in the 鈥渕assive鈥 benefit of returning shares to Tesla that otherwise would have gone to Musk and diluted the stock held by other Tesla investors. They value that benefit at $51.4 billion, using the difference between the stock price at the time of McCormick鈥檚 January ruling and the strike price of some 304 million stock options granted to Musk.
While finding that the methodology used to calculate the fee request was sound, the judge noted that the Delaware鈥檚 Supreme Court has noted that fee award guidelines 鈥渕ust yield to the greater policy concern of preventing windfalls to counsel.鈥
鈥淭he fee award here must yield in this way, because $5.6 billion is a windfall no matter the methodology used to justify it,鈥 McCormick wrote. A fee award of $345 million, she said, was 鈥渁n appropriate sum to reward a total victory.鈥
The fee award amounts to almost exactly half the in legal fees awarded in 2008 in litigation stemming from the collapse of Enron.
Randall Chase, The Associated Press