By Becky Peterson and Sean McLain Aug 3, 2024, 03:50 GMT+5:30 WILMINGTON, Del — A Delaware judge who earlier this year invalidated Elon Mu...
By Becky Peterson and Sean McLain
Aug 3, 2024, 03:50 GMT+5:30
WILMINGTON, Del — A Delaware judge who earlier this year invalidated Elon Musk's multibillion-dollar pay deal is now challenging Tesla's argument that a shareholder vote overwhelmingly re-approving the original deal should influence the court's previous decision.
The judge's comments raise concerns for Tesla, whose lawyers aimed to convince her to allow Musk to retain the record-breaking pay package backed by renewed shareholder support.
Chancellor Kathaleen McCormick did not make an immediate ruling, closing the daylong hearing by stating she would take the case "under advisement" and "it will not end here and now" as requested by the plaintiff's lawyer.
Tesla's lawyers returned to court Friday to argue why the fresh shareholder vote should overturn the judge's January decision. McCormick had ordered the pay package rescinded, citing a tainted process lacking transparency for shareholders.
The case originated from a 2018 lawsuit filed by Tesla investor Richard Tornetta, challenging the pay deal, which over time granted Musk stock options worth tens of billions of dollars.
During the hearing, McCormick scrutinized Tesla's lawyers about the lack of precedent for their request and the extent to which a shareholder vote should override a court decision. She questioned whether siding with the defense would encourage others to use ratification votes to "rescue them from the court."
The plaintiff's lawyers maintained that the second vote had no legal impact on the case.
This courtroom battle has affected Tesla's stock price and raised concerns about the fate of a compensation package intended to keep Musk engaged at the electric-car maker.
Tesla board chair Robyn Denholm and others at the company sought to rally investor support for upholding the original pay deal, which was approved when Tesla was struggling financially and rewarded Musk for hitting specific market value and financial targets.
In June, about 72% of voting Tesla shareholders ratified the 2018 pay package. Musk and his brother Kimball abstained due to their vested interest in the outcome.
Tesla's lawyers argued that the company's position benefits everyone involved, as the court exercised oversight, and "armed with that information, the shareholders made a choice" to keep Musk's original package.
"Ultimately the purpose of this court is to protect the interests and the rights of the shareholders," said Rudolf Koch, a lawyer representing Tesla.
Greg Varallo, lead counsel for the plaintiff, countered that granting Tesla's request would allow companies to use shareholder ratifications to overturn court decisions.
"It's not a giant eraser, and it never was meant to be," he said.
McCormick was less critical of Varallo, whom she had previously ruled in favor of in January.
"Legally, the arguments by the defendants are creative and novel, but I'm skeptical that they can succeed from a legal perspective," said Renee Zaytsev, partner at Boies Schiller Flexner, who represents companies and shareholders in securities litigation.
In addition to disputing the validity of the June vote, lawyers are also debating legal fees for the plaintiff's team. Lawyers for the shareholder who filed the suit are requesting fees almost entirely in 29 million Tesla shares, or $1.4 billion in cash as an alternative.
Since January, thousands of Tesla stockholders have flooded the court with letters, largely criticizing both the ruling on Musk's pay and the proposed award to the plaintiff.
Even before Friday's hearing, the case had drawn unusual scrutiny to Delaware, where the majority of Fortune 500 companies are incorporated.
"Never incorporate your company in the state of Delaware," Musk wrote in a post on the social-media site X following the court's January ruling.
Several of Musk's companies, including Tesla and SpaceX, have since moved their legal domiciles to Texas.
No comments