DOVER, Del. — A Delaware judge has reaffirmed her previous decision that Tesla needs to revoke Elon Musk’s multi-billion-dollar compensation package. Chancellor Kathaleen St. Jude McCormick denied a motion from Musk’s legal representatives and Tesla’s board members that sought to overturn her earlier ruling this year that mandated the company to rescind the uniquely large pay package.
In her recent decision, McCormick also dismissed an extraordinary request for legal fees from the plaintiff’s attorneys, who claimed they deserved compensation totaling over $5 billion in Tesla stock. Instead, the judge awarded them a fee of $345 million, which falls significantly short of their expectations.
This ruling stems from a lawsuit filed by a Tesla shareholder who contested Musk’s compensation package established in 2018. McCormick previously concluded that Musk orchestrated the substantial pay package through questionable negotiations with board members who lacked independence. Initially, the package had a possible maximum value of approximately $56 billion, although its worth has varied over time due to fluctuations in Tesla’s stock price.
In the wake of the judge’s ruling, Tesla shareholders convened in June and reconfirmed Musk’s 2018 compensation package by an overwhelming majority. Defense attorneys contended that this second ratification underscores shareholder support for Musk’s compensation, despite acknowledging the issues outlined by McCormick regarding the original approval process. They sought for the judge to nullify her command that Tesla retract the pay package, to which McCormick expressed skepticism during an August hearing.
In her latest statement, McCormick emphasized that the defense’s arguments were fundamentally flawed. “The large and talented group of defense firms got creative with the ratification argument, but their unprecedented theories go against multiple strains of settled law,” McCormick stated in a comprehensive 103-page opinion.
She elaborated, noting that a shareholder vote cannot, on its own, approve a conflicted-controller transaction, adding, “Even if a stockholder vote could influence ratification, it could not apply in this case due to several significant misstatements in the proxy statement.” In response to the ruling, Musk expressed his disagreement via a post on X, the social media platform he owns, stating, “Shareholders should control company votes, not judges.”
Additionally, McCormick assessed the $5.6 billion fee request from the shareholder’s lawyers — which had previously reached nearly $7 billion depending on Tesla’s stock trading price — as excessive. She remarked, “In a case about excessive compensation, that was a bold ask.” The attorneys for the shareholder have maintained that their efforts resulted in a “massive” benefit to Tesla, arguing that they helped return shares that would have otherwise benefited Musk and diluted the equity of other investors. They estimated this return to be valued at $51.4 billion based on the difference between the stock price during McCormick’s January ruling and the strike price of roughly 304 million stock options granted to Musk.
While McCormick acknowledged that the methodology used to calculate the fee request was valid, she pointed out that guidelines established by Delaware’s Supreme Court emphasize the necessity of addressing broader policy concerns to prevent attorneys from receiving windfalls. “The fee award here must yield in this way, because $5.6 billion is a windfall no matter the methodology used to justify it,” McCormick stated, concluding that an award of $345 million was a fitting recognition for the total success achieved.
This fee award nearly equals half of the previous record of $688 million in legal fees granted in 2008 related to the collapse of Enron, signifying the enormity of the financial stakes involved in this case.
