Judge again cans Musk's record-setting $56B Tesla package

Elon Musk's controversial $56 billion Tesla compensation package, voided by a Delaware court in January and reinstated by shareholder vote in June, has failed to move Judge Kathaleen McCormick to reverse her original decision, rendering Musk's pay package void yet again. 

McCormick, Chancellor of Delaware's Court of Chancery, didn't mince words in her latest ruling [PDF], describing Tesla's request to overturn her earlier decision as fatally flawed, relying on misrepresentations made to shareholders. 

"A stockholder vote standing alone cannot ratify a conflicted-controller transaction," McCormick explained, referring to her decision in January that reasoned Musk's pay package was invalid because he had too much control over Tesla and influence over the board for it to make a decision devoid of his influence. 

"Even if a stockholder vote could have a ratifying effect, it could not do so here due to multiple, material misstatements in the proxy statement," McCormick added. She explained in the decision that the proxy statement issued ahead of the shareholder vote to reinstate Musk's pay package contained multiple "materially false or misleading" claims, including that it could "extinguish claims for breach of fiduciary duty" against board members.

"The Proxy Statement's multiple, material misstatements concerning the effect of the Stockholder Vote, ironically, independently bar that vote from having any ratifying effect," McCormick explained.

Additionally, McCormick ruled that Tesla's attempt to overturn the January decision had no procedural ground to stand on, given it relied on "flipping the outcome of an adverse post-trial decision based on evidence … created after the trial," and that the argument wasn't timely, given it was "raised for the first time after the post-trial opinion." 

All that, in short, means Musk still isn't getting that massive stock option pay package based on Tesla's performance. Had Tesla's board issued accurate disclosures and adhered to proper procedural standards, the court may have considered the matter differently.

Originally estimated at $56 billion, the value of Musk's invalidated pay package isn't static; as of the June shareholder vote, the package was worth just $48 billion. Tesla shares have rebounded since, meaning it's worth somewhere more than it was in June - not that it matters since McCormick isn't giving it the okay.

"The court's decision is wrong, and we're going to appeal," Tesla said in a post to Twitter following the decision. "This ruling, if not overturned, means that judges and plaintiffs' lawyers run Delaware companies rather than their rightful owners – the shareholders," the EV maker added, ignoring McCormick's logic spelled out in her 103-page decision. 

Musk similarly took to his personal social media platform to call the decision "lawfare" and asserted that "shareholders should control company votes, not judges," again ignoring McCormick's reasoning that the vote was invalid.

"Contrary to how some have read the Post-Trial Opinion, the court did not find that the Board should have paid Musk nothing," McCormick explained in yesterday's decision. "There were undoubtedly a range of healthy amounts that the Board could have decided to pay Musk. Instead, the Board capitulated to Musk's terms and then failed to prove that those terms were entirely fair."

Neither Tesla nor Musk responded to questions for this story. 

Plaintiff lawyers get tutting, too

"We are pleased with Chancellor McCormick's ruling, which declined Tesla's invitation to inject continued uncertainty into Court proceedings and thank the Chancellor and her staff for their extraordinary hard work in overseeing this complex case," lawyers for plaintiff Richard Tornetta, a Tesla shareholder who brought the original claim, said in a statement shared with The Register.

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"We hope that the Chancellor's well-reasoned decision will end this matter for the shareholders of Tesla," the Bernstein Litowitz Berger & Grossmann law firm added. "However, if defendants choose to further delay implementation of this judgment by appealing it, we look forward to the privilege of defending the Court's thoughtful and well-grounded opinions on appeal to the Delaware Supreme Court."

Tornetta's lawyers didn't get off entirely without rebuke from McCormick, though. 

For those that don't recall, Tornetta's lawyers asked for about $5.6 billion in Tesla stock as compensation for their victory. McCormick wasn't pleased. 

"In a case about excessive compensation, that was a bold ask," the judge said. McCormick explained that, while their reasoning for calculating the figure was sound, it runs afoul of windfall rules that render the justification irrelevant given how excessive their payout would be. 

"$5.6 billion is a windfall no matter the methodology used to justify it," McCormick added. 

The lawyers are still getting their due, and it's still sizable: McCormick ordered Tesla to pay Tornetta's lawyers $345 million, either in cash or freely tradeable shares of Tesla, as "an appropriate sum to reward a total victory."

"We … appreciate the Court's resolution of counsels' application for attorneys' fees," the Bernstein Litowitz Berger & Grossmann spokesperson added. ®