Tesla is facing a $345M attorney fee and plans to appeal after a Delaware judge rejected Elon Musk’s $56B Tesla pay package despite a shareholder vote.
A Delaware Court judge has again rejected Elon Musk’s $56 billion compensation package. Judge Kathaleen McCormick’s ruling invalidates the compensation agreement, despite shareholders’ efforts to “re-ratify” the agreement. The pay package was invalidated in a previous judgment in January, and McCormick’s ruling follows suit. Another layer has been added to the ongoing legal dispute based on the judge’s decision, and Tesla is anticipated to file an appeal.
Elon Musk’s $56 billion Tesla compensation agreement has been declared invalid by a court ruling
Judge Kathaleen McCormick has denied the tech company’s request to revise her previous decision regarding Elon Musk’s compensation package, as indicated in a court filing on Monday. Tesla’s legal team contended that the recent shareholder vote to “re-ratify” the agreement resolved the court’s concerns from the initial ruling.
Nevertheless, McCormick refuted this argument, asserting that the pay package remained problematic despite the vote.
The judge argued that the CEO’s compensation agreement was unfair due to his influence over the board of directors. In her view, Tesla had yet to guarantee that investors were adequately informed before consented to the compensation package. McCormick reiterated that the board could have selected an appropriate compensation amount, but it ultimately yielded to Elon Musk’s terms, which the court determined to be excessive.
In addition, the judge stated,
“There were undoubtedly a range of healthy amounts that the Board could have decided to pay Musk. Instead, the Board capitulated to Musk’s terms and then failed to prove that those terms were entirely fair.”
Additionally, Tesla is subject to a financial penalty due to legal setbacks. The court granted the plaintiff’s attorneys a $345 million fee in addition to the compensation package ruling. The tech company is required to pay this fee in cash or shares.
The technology behemoth responded by stating,
“This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners – the shareholders.”
Tesla will appeal the ruling at the Delaware Supreme Court
The tech company will appeal the ruling to the Delaware Supreme Court in response to McCormick’s decision. The company had anticipated that the re-ratification by shareholders would enable the deal to proceed; however, McCormick’s decision has introduced additional legal obstacles.
The decision also raises more general inquiries regarding executive compensation and corporate governance in the technology sector. The outcome of the appeal could establish a significant precedent for future cases involving substantial executive pay packages.
In other legal developments, the CEO of the tech giant filed a lawsuit against Microsoft and OpenAI, alleging that the companies were engaging in anti-competitive practices. The lawsuit, filed in the U.S. District Court for the Northern District of California, asserts that OpenAI’s transition to a for-profit model has a detrimental impact on competition in the AI sector. Elon Musk’s legal team contends that OpenAI, which has received a $13 billion investment from Microsoft, has been employing its influence to suppress competitors, such as xAI.
A positive outcome was achieved in a separate legal battle for Musk despite the ongoing legal challenges surrounding his pay package. In a recent case involving the United States, a U.S. District Court judge ruled in Musk’s favor.
Securities and Exchange Commission (SEC). The SEC had requested that the court impose sanctions on Elon Musk for his management of the X acquisition; however, the request was denied. The court observed that Elon Musk had already reimbursed the SEC for expenses associated with a missed meeting.
