Delaware Chancery courtroom decide Kathaleen McCormick has denied Tesla’s request to revise her decision to strike down CEO Elon Musk’s $56 billion pay package — despite shareholders voting on the firm’s annual assembly this yr to “re-ratify” the deal.
Her decision, specified by a 103-page opinion piece revealed on Monday, explains that the try by Tesla’s authorized crew — which Musk has known as “hardcore” — to change her thoughts contained a number of flaws, every of which had been deadly on their very own.
“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 wrote.
Tesla has been anticipated to attraction to the Delaware Supreme Court since McCormick’s preliminary opinion was issued in January. Since then, although, the corporate has reincorporated from Delaware to Texas. Musk can also be now a kind of right-hand man to President-elect Donald Trump, elevating all types of questions on his priorities because the United States heads into a brand new administration.
McCormick additionally awarded the plaintiff’s attorneys a $345 million charge — payable in money or Tesla shares — that’s eye-popping however nonetheless a fraction of the $5.6 billion these attorneys requested earlier this yr.
Tesla awarded the compensation package to Musk in 2018, at a time when the electrical automaker was in disaster. It laid out a sequence of inventory worth milestones that Tesla would have to hit to ensure that Musk to unlock the complete worth of the package — milestones the corporate simply cleared within the following years as Tesla ramped up its Model 3 and Model Y packages.
A former company protection lawyer (and thrash steel drummer) Richard Tornetta sued Tesla over the deal. His attorneys argued that shareholders had been misinformed as a result of the corporate and its board of administrators had been below such nice affect from Musk that the negotiations surrounding the package had been lopsided. There was a trial, and Judge McCormick defined in her January opinion that she discovered the core of Tornetta’s argument to be true.
Tesla put the opinion to a vote at its shareholder assembly this June, in an try to re-litigate the deal within the courtroom of public opinion.
The firm launched a complete new proxy assertion that included McCormick’s January opinion and argued that it could now totally inform the shareholders as they set out to vote a second time. They accredited the re-ratification by a margin of greater than two to one, and Tesla’s attorneys tried to use this to persuade the decide to change tack.
But McCormick wrote Monday that Tesla’s authorized crew has “no procedural ground for flipping the outcome of an adverse post trial decision based on evidence they created after trial.” That was one “fatal flaw,” she stated. The second is extra procedural: Tesla’s authorized crew thought of the vote a “common-law” ratification, which is an affirmative protection, and people can’t be raised after a post-trial opinion is launched.
Third, McCormick challenged the common-law ratification concept on its face. While Tesla’s attorneys argued that “stockholders hold the power to adopt any corporate acts they deem in their own best interests,” McCormick stated this concept is “dubious generally and unquestionably false in the context of” how Tesla’s governance was primarily captured by Musk.
Fourth, McCormick stated that “even if the Stockholder Vote could have a ratifying effect on the Grant, it could not here due to multiple, material misstatements in the Proxy Statement concerning the effect of the vote.”
