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Elon Musk won his Tesla salary battle. Now he has to win his legal war
A new legal battle is underway to determine whether Elon Musk will actually get his money after Tesla convinced shareholders to support CEO’s $56 billion pay plan.
Tesla filed court documents last week before the same Delaware Court of Chancery judge who previously voided Musk’s compensation, arguing that the June 13 shareholder vote offered a “resolution in principle” to end the dispute in favor of Musk.
An attorney for the shareholder who successfully sued to block the pay package argued in a separate filing Friday that the Tesla shareholder resolution should have no legal effect on the judge’s original ruling, and that Tesla has no power to use an extrajudicial vote to overrule the Delaware court.
This lawyer, Greg Varallo, said Tesla must appeal the judge’s ruling to the Delaware Supreme Court if he wants to reverse it.
For Tesla (TSLA), there’s a lot going on in the uncertain path that Musk’s controversial pay plan must now make through the US court system.
Tesla CEO Elon Musk waves as he leaves the Tesla Gigafactory near Berlin, Germany, on March 13. (AP Photo/Ebrahim Noroozi) (ASSOCIATED PRESS)
If the courts give Tesla what it wants, it could keep Musk’s plan in place, along with a $2.5 billion accounting expense it took on in 2018 when shareholders first agreed to the deal based on performance and with all stock options.
Otherwise, the electric vehicle maker could be forced to hold a third vote on Musk’s salary, in addition to charging a salary fee. at least US$25 billion that could threaten future profits.
“Everything here is unprecedented,” he said. Kevin Murphyexecutive compensation expert and finance professor at the University of Southern California’s Marshall School of Business, who testified on Tesla’s behalf in a trial over the plan.
The unprecedented nature of the Tesla dispute means its resolution may be equally unknown.
The new legal battle turns the spotlight on Delaware judge Kathaleen McCormick, who ruled in January that Tesla’s board did not act “in Tesla’s best interests” shareholders in approving Musk’s $56 billion payment pact.
Delaware Judge Kathaleen McCormick, right, voided Elon Musk’s pay package in January. REUTERS/Kathleen Flynn (REUTERS/Reuters)
McCormick must now decide whether the new shareholder vote actually restores Musk’s salary, according to Ann Lipton, a professor of corporate law at Tulane School of Law.
McCormick could decide to decide the dispute by considering written and oral arguments from both sides, Lipton said,
Alternatively, the judge could ask the parties to present more information, as well as carry out additional investigations to bring to light other facts and evidence. The judge could also hold hearings similar to a new trial, Lipton added.
Tesla asked the judge to set an accelerated timeline during which the parties would file court documents containing additional justifications for their positions. Tesla said each party should be allowed to present these arguments before McCormick makes a final judgment on the matter.
The story continues
On Friday, Tesla lawyers described the recent shareholder vote supporting Musk’s payout as “one of the most well-informed shareholder votes in recent memory” and noted that two of the world’s most sophisticated investors, BlackRock (BLACK) and Vanguard, said yes to the proposal.
Tesla said 72% of shareholder votes, excluding Musk and his brother Kimbal, were in favor of the remuneration package.
A hearing before McCormick is scheduled for July 8, during which she is also expected to address additional unresolved issues in the case.
One is a shareholder attorney’s request for $6 billion in legal fees, which Tesla is contesting.
And if McCormick validates Musk’s compensation, she will be able to assess whether the shareholder vote will go back in time to revive the agreement from 2018. Tesla reported that retroactively accounting for the compensation plan would save the company at least $25 billion.
“She could say [to Tesla], ‘You did the right thing. You gave back to the shareholders… I may not like it, but it’s not my place to be involved in contracting between consenting adults,’” Murphy said.
But “I doubt she will do that, which means we will appeal,” Murphy added.
Lipton said this judge is unlikely to have the final say.
“Whichever side loses will appeal to the Delaware Supreme Court,” Lipton added.
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