By Tom Hals
DOVER, Delaware (Reuters) -Elon Musk’s lawyers will urge the Delaware Supreme Court on Wednesday to restore his $56 billion pay package from Tesla, as one of the biggest corporate legal battles enters its final stage nearly two years after a lower court judge rescinded the Tesla CEO’s record compensation.
The outcome could have substantial consequences for the state of Delaware, its widely used corporate law, and its Court of Chancery, a once-favored venue for business disputes that has recently been accused of hostility towards powerful entrepreneurs.
The January 2024 Court of Chancery ruling striking down Musk’s pay has become a rallying cry for Delaware critics. Chancellor Kathaleen McCormick ruled that the Tesla board lacked independence from Musk when it approved the pay package in 2018 and that shareholders lacked key information when they voted overwhelmingly in favor of it. As a result, she applied a demanding legal standard and found the pay unfair to investors.
The defendants, current and former Tesla directors, denied wrongdoing and said McCormick misinterpreted the facts and the law. Musk is not expected to attend.
COMPANIES SWITCH LEGAL HOMES
After the Musk pay ruling, large companies, including Tesla, Dropbox, and the venture capital firm Andreessen Horowitz, switched their legal homes to Texas or Nevada, where courts are friendlier toward directors. Delaware lawmakers responded to the corporate departures, a trend known as “Dexit,” by overhauling its corporate law.
If Musk loses the appeal, he will still reap tens of billions of dollars in stock from the electric vehicle company, which agreed in August to a replacement deal if his 2018 plan is not restored.
The company said the replacement award was meant to retain and focus Musk, who said earlier this year he was forming a new U.S. political party, on transitioning Tesla to robotics and automated driving. Tesla is now incorporated in Texas, where it is far more difficult for a shareholder to challenge board decisions.
Tesla’s board last month proposed a $1 trillion compensation plan, highlighting confidence in Musk’s ability to steer the company in a new direction, even as Tesla loses ground to Chinese rivals in key markets amid softening EV demand.
The five justices on Delaware’s high court will consider the appeal of the pay ruling as well as the $345 million legal fee that McCormick ordered Tesla to pay to the attorneys for Richard Tornetta, who held just nine Tesla shares when he sued to block the pay deal. The court typically takes months to rule.
