Tesla urges plaintiff in Elon Musk salary dispute to accept ‘sobering reality’

Tesla urges plaintiff in Elon Musk salary dispute to accept ‘sobering reality’

As the next major legal showdown between Tesla and one of its disgruntled shareholder on the issue of Elon Musk’s compensation package continues to draw closer to its inevitable climax in the Delaware Court of Chancery, tempers on both sides of the proverbial aisle appear frayed, replete with acrimonious recriminations and counter allegations.

For the benefit of those who might not be aware, Tesla shareholders recently re-ratified Elon Musk’s desired $48 billion compensation scheme with a convincing majority. Tesla intends to use this vote, which is quite symbolic in nature, to try to convince the Delaware Court of Chancery to withdraw its punitive injunction against Musk’s pay package.

Bear in mind that Tesla underwent a trial in the Delaware Court of Chancery in 2022, where one of its shareholders, Richard Tornetta, asserted that Elon Musk’s 2018 compensation plan should be voided by the court as it was a result of sham negotiations between a beholden board and an increasingly assertive CEO. At the conclusion of that trial in early 2024, the Delaware Chancery Court Chief Judge, Kathaleen St. J. McCormick, voided Elon Musk’s compensation plan, prompting Elon Musk to declare that Tesla would abandon Delaware and reincorporate in Texas.

This brings us to the crux of the matter. In a new filing with the Delaware Court ahead of the 08th of July hearing on a $6 billion claim filed by Tornetta’s lawyers as remuneration for their services, Tesla appears to be going for a no-holds-barred approach against the opposing party by urging it to accept the “sobering reality” that Elon Musk’s pay package was recently re-ratified by “72% of disinterested voting shares.”

As the proverbial cherry on top, Tesla has accused the plaintiff of distorting reality:

“Plaintiff’s opposition to the Scheduling Motion offers only hyperbole, rhetoric, and distortion. It is unfortunate that Plaintiff felt compelled to misrepresent Defendants’ positions and the record to this Court.”

Of course, as we recently noted in a dedicated post, Tesla and Elon Musk opted for a re-ratification under the section 204 of the Delaware General Corporation Law, which provides for rectifying corporate acts that are defective due to a “failure of authorization.” Critically, the code does not provide for curing breaches of fiduciary duty, which was the entire raison d’être cited by the court for nullifying Musk’s 2018 pay package.

Given the legal ambiguity that still prevails, it is hardly surprising that feelings on both sides of the aisle are running high at the moment, with the two parties engaging in a complicated game of one-upmanship to try to force the other to back down.

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