A Delaware Court Chancellor has shut down a push to grant Tesla CEO Elon Musk a pay package now valued at $100 billion, dismissing the arguments as “creative” but missing the mark. In a 101-page opinion, Chancellor Kathaleen McCormick declined to reverse a previous decision to scrap Musk’s pay and instead found four fatal flaws in Tesla’s ratification argument.
The first flaw was that Tesla did not have sufficient grounds to flip the court’s decision, which was made after the trial took place. The company had requested “judgment entered for defendants on all counts,” essentially overturning the court’s finding in Tesla’s favor.
The second flaw was timing – common-law ratification can’t be raised after an opinion post-trial, which Tesla did despite being six years late with its argument. McCormick wrote that no court has ever allowed stockholder ratification at this stage.
The third and most significant flaw was Tesla’s approach to the established legal framework for conflicted-controller transactions. The company failed to adhere to the required standards, including an independent special committee review and informed shareholder vote.
Finally, McCormick found multiple material misstatements in Tesla’s April proxy statement that asked shareholders to ratify Musk’s pay after the court rescinded it. The judge noted that much of what Tesla told its stockholders was either inaccurate or misleading.
Tesla has announced plans to appeal the decision, with CEO Musk stating that the ruling means judges and plaintiffs’ lawyers “run Delaware companies rather than their rightful owners – the shareholders.”
Source: https://fortune.com/2024/12/03/the-4-fatal-flaws-in-tesla-bid-to-pay-elon-musk