Dec. 3 (UPI) — A Delaware judge has again turned aside Tesla’s attempt to pay its chief executive officer, Elon Musk, a massive compensation package valued at tens of billions of dollars.
The package, consisting of 12 tranches of Tesla stock options, was valued at $56 billion in 2018 when Tesla’s board of directors had awarded it to Musk. However, shareholder Richard Tornetta filed litigation against the largest-ever executive compensation package, arguing that it was unfair.
In January, Chancery Court Chancellor Kathleen McCormick ruled in favor of Tornetta, finding the board, under Musk’s influence, had arrived at an “unfair price” for the package and ordered the world’s richest man to return what he had already received from it.
Lawyers for Musk and Tesla then moved to revise her opinion to consider a June shareholder vote that approved the reinstatement of Musk’s compensation package.
In her ruling on Monday,which reaffirms her earlier decision, McCormick praised the defense lawyers for being “creative” with their argument, but found “their unprecedented theories go against multiple strains of settled law.”
She said their argument had four “fatal flaws.” The first was the defendants have no grounds for flipping her decision based on evidence they created after the trial.
The second was their defense was not timely, with the third was that a stockholder vote cannot ratify a conflict-controller transaction.
The fourth flaw in their argument was that even if a stockholder vote could ratify the transaction, it would have been nullified based on “materially false or misleading” information given to stockholders concerning the vote.
“Each of these defects standing along defeats the motion to revise,” she said.
Tesla criticized McCormick’s ruling on X, which Musk also owns, while stating they will appeal her decision.
“A Delaware judge just overruled a supermajority of shareholders who own Tesla and who voted twice to pay @elonmusk what he’s worth,” the company said in a statement.
“This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners — the shareholders.”
Musk also commented on the ruling, stating: “Shareholders should control company votes, not judges.”
In her ruling, McCormick ordered Tesla to pay $345 million in lawyer fees — much less than the $5.6 billion the plaintiffs had requested.
McCormick said Tesla may choose to pay the fee in cash of freely tradable share.
Lawyers representing Tornetta said in a statement Monday that they are “pleased” with McCormick’s ruling.
“We hope that the Chancellor’s well-reasoned decision will end this matter for the shareholders of Tesla. However, if defendants choose to further delay implementation of this judgment by appealing it, we look forward to the privilege of defending the Court’s thoughtful and well-grounded opinions on appeal to the Delaware Supreme Court,” Lawyers from the firm of Bernstein Litowitz Berger & Grossmann said.