Elon Musk’s six-year legal battle to save his $56 billion Tesla Inc. compensation package entered its final chapter on Friday, as the world’s richest man made his final arguments to a judge. , the judge ruled that the compensation agreement was defective and dismissed it.
Delaware Chancery Court Judge Kathaleen St. J. McCormick heard arguments on whether shareholders’ June 13 vote to reinstate Tesla’s co-founder’s compensation plan warranted a change in the ruling. Earlier this year, she discovered that the largest executive compensation package in history was undermined by conflicts of interest and improper revelations.
“We’re asking you to let your vote stand,” Tesla lawyer David Ross said at the hearing. He said stakeholders “should not be disqualified” from their decision to approve the pay package simply because the board used a flawed process in setting Musk’s pay.
However, under questioning from McCormick, Ross acknowledged that investor votes were never used to influence post-trial rulings under Delaware law. The judge did not recognize a legal obligation to vote, but she could consider it. If she sticks to her earlier decision, Tesla CEO Musk could eventually appeal to the Delaware Supreme Court.
“The real question is whether shareholders can approve” a director’s breach of legal duty after a judge condemned it after a trial, McCormick said at the hearing, signaling her disapproval of Musk and Trump. Silla’s arguments are met with skepticism.
Musk’s lawyers argued that Tesla investors’ proxy votes addressed concerns raised by the judge, including that company directors who approved the compensation plan were beholden to the billionaire and not concerned with shareholder interests.
Rudolf Koch, a lawyer for Tesla’s board of directors, said if McCormick ignored the June proxy vote, she would run afoul of the state’s corporate code that focuses on protecting shareholders. Koch told the judge, “I don’t understand how Delaware law tells corporate owners that they can’t” determine their own CEO pay.
Tesla investor Richard Tornetta has questioned Musk’s pay as a waste of company assets, and his attorneys have argued that the shareholder vote is irrelevant to the case and the company’s steps to address problems identified by the judge Not enough.
In legal filings, Tornetta’s attorneys argued that the latest proxy vote was prompted by Musk’s threat to leave Tesla if his compensation plan was not reinstated and take away some of the company’s artificial intelligence assets.
During the hearing, Tonetta’s lead attorney Greg Varallo said there were serious questions about the legality of the recent shareholder vote.
“Our laws do not provide for shareholders to veto the courts,” Varallo said, adding that the defense arguments, while creative, were inconsistent with existing corporate regulations.
McCormick said she would try to return a decision in the case “in a timely manner.” The ruling also included her decision, at the request of Tornetta’s lawyers, to use $7 billion worth of Tesla stock to pay the winning attorney’s fees.
McCormick’s Wilmington, Del., courtroom was packed with lawyers, reporters and onlookers for what was likely the last hearing in the case that began with the Tornetta lawsuit in 2018.
The unprecedented court case attracted worldwide attention. More than 8,000 Tesla shareholders wrote to McCormick to share their thoughts on her salary ruling. Musk was so frustrated by the judge’s decision to block pay that he moved Tesla’s registration from Delaware to Texas.
The case is Tornetta v. Musk, 2018-0408, Delaware Chancery Court (Wilmington).
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