Judge reaffirms ruling invalidating Musk’s multibillion-dollar Tesla pay package

DOVER, Del. — A Delaware judge has reaffirmed her ruling that Tesla must revoke Elon Musk’s multibillion-dollar pay package

Chancellor Kathaleen St. Jude McCormick on Monday denied a request by attorneys for Musk and Tesla’s corporate directors to vacate her ruling earlier this year requiring the corporation to rescind the unprecedented pay package.

McCormick also rejected an equally unprecedented and massive fee request by plaintiff attorneys, who argued that they were entitled to legal fees in the form of Tesla distribute 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 shareholder who challenged Musk’s 2018 compensation package.

McCormick concluded in January that Musk engineered the landmark pay package in sham negotiations with directors who were not independent. The compensation package initially carried a potential maximum worth of about $56 billion, but that sum has fluctuated over the years based on Tesla’s distribute worth.

Following the court ruling, Tesla shareholders met in June and ratified Musk’s 2018 pay package for a second period, again by an overwhelming spread.

Defense attorneys then argued that the second vote makes obvious that Tesla shareholders, with packed knowledge of the flaws in the 2018 procedure 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’s ruling that those arguments were fatally flawed.

“The large and talented throng of defense firms got creative with the ratification argument, but their unprecedented theories leave against multiple strains of settled law,” McCormick wrote in a 103-page view.

The judge noted, among other things, that a shareholder vote standing alone cannot ratify a conflicted-controller trade.

“Even if a shareholder vote could have a ratifying result, it could not do so here due to multiple, material misstatements in the proxy statement,” she added.

Meanwhile, McCormick found that the $5.6 billion fee request by the shareholder’s attorneys, which at one period approached $7 billion based on Tesla’s market activity worth, went too far.

“In a case about excessive compensation, that was a bold inquire,” McCormick wrote.

Attorneys for the Tesla shareholder debate that their work resulted in the “massive” advantage of returning shares to Tesla that otherwise would have gone to Musk and diluted the distribute held by other Tesla investors. They worth that advantage at $51.4 billion, using the difference between the distribute worth at the period of McCormick’s January ruling and the strike worth of some 304 million distribute options granted to Musk.

While finding that the methodology used to compute the fee request was sound, the judge noted that the Delaware’s Supreme Court has noted that fee award guidelines “must gain to the greater policy concern of preventing windfalls to counsel.”

“The fee award here must gain in this way, because $5.6 billion is a windfall no matter the methodology used to justify it,” McCormick wrote. A fee award of $345 million, she said, was “an appropriate sum to reward a total win.”

The fee award amounts to almost exactly half the current record $688 million in legal fees awarded in 2008 in litigation stemming from the collapse of Enron.