Tesla Investor Fights With Musk Over Billionaire’s Pay in Appeal

(Bloomberg) — A Tesla Inc. shareholder urged Delaware’s highest court to uphold a decision that struck down Elon Musk’s record-setting pay package, as the world’s richest person fights to recover it on appeal.

A Delaware Chancery Court judge was right to reject Musk’s bid to revive the Tesla compensation plan through a second shareholder vote, lawyers for Richard Tornetta — the Tesla investor who successfully challenged Musk’s pay — argued in an appeal brief filed Friday in the state’s Supreme Court.

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Musk’s reliance on the second vote as “ratification” of the board’s approval of his pay package has “no basis in Delaware law,” Tornetta’s lawyers said in the brief. They contended that the Chancery Court’s chief judge had properly evaluated the package in deciding whether it was “entirely fair” to investors — the standard she applied under Delaware law.

They also said the judge’s decision to award $345 million in legal fees — among the largest lawyer paydays in US shareholder litigation — was justified under state law.

Musk’s Falling Fortunes

The brief is a response after Tesla, Musk and a group of shareholders appealed the December decision by Chancellor Kathaleen St. J. McCormick rejecting the chief executive’s award for the second time. McCormick found that Tesla directors’ consideration of Musk’s comp plan was flawed by conflicts of interest and that the company hadn’t properly disclosed all its details to shareholders.

The appeal is playing out as Musk has seen his net worth fall sharply amid a steep decline in Tesla’s shares. The electric vehicle company has faced a consumer backlash over his spearheading of a controversial government cost-cutting effort and criticism that it has distracted him from Tesla.

After delivering Tesla’s worst quarter in years, Musk sought to reassure shareholders that he would “significantly” pull back from his work leading the Department of Government Efficiency to spend more time on the car maker. In addition to those duties, Musk, 53, leads SpaceX along with other companies.

His Tesla stock options package is valued at $78 billion as of 2:10 p.m. Eastern time, according to the Bloomberg Billionaires Index. Plunging and soaring with the company’s fortunes, it was valued at about $56 billion at McCormick’s first ruling and $101.5 billion at her second.

Blasting Judge

Musk has lashed out at McCormick and her court on his social media platform, X, urging others to follow his lead and move their incorporation to friendlier courts in Texas or Nevada. Amid that pressure, Delaware last month overhauled its corporate law, potentially making it harder for shareholders to beat executives in court.

Still, companies including MercadoLibre Inc., Latin America’s most valuable firm, are acting to yank their incorporations from the state or weighing a move.

Tesla’s lawyers wrote in their own appellate brief last month that McCormick had defied the will of shareholders who approved the compensation plan again after she rejected it the first time. In a separate brief, Musk himself and other Tesla directors argued that the chancellor’s decision wasn’t fair given the amount of work he put into the company to hit goals set by the package.

The case is In Re Tesla Inc. Derivative Litigation, No. 534, 2024, Delaware Supreme Court.