A new legal battle is underway to determine whether Elon Musk will actually get his money after Tesla convinced shareholders to support the CEO’s $56 billion pay plan.
Tesla filed court documents last week before the same Delaware Court of Chancery judge who previously invalidated Musk’s compensation, arguing that the June 13 shareholder vote provided a “principled resolution” to end the dispute in Musk’s favor.
A shareholder lawyer who successfully sued to block the pay package argued in a separate lawsuit on Friday that the Tesla shareholder resolution should have no legal impact on the judge’s original decision, and that Tesla is not empowered to use an extrajudicial vote to overturn the Delaware court. .
That lawyer, Greg Varallo, said Tesla must appeal the judge’s decision to the Delaware Supreme Court if it wants to overturn it.
For Tesla (TSLA), a lot depends on the uncertain path the disputed pay plan must now take through the US court system.
If the courts give Tesla its way, it could keep Musk’s plan in place along with a $2.5 billion accounting charge it recovered in 2018 when shareholders first approved the performance-based deal that included all-stock options.
If not, the electric car maker may instead have to hold a third vote on Musk’s pay, in addition to withholding a fee of At least $25 billion Which may threaten future profits.
“Everything here is unprecedented,” he said. Kevin Murphyan executive compensation expert and professor of finance at the University of Southern California’s Marshall School of Business, who testified for Tesla in a trial over the plan.
The unprecedented nature of the Tesla dispute means its resolution may be just as unknown.
The new legal battle turns the spotlight back on Delaware Judge Kathleen McCormick, who ruled in January that Tesla’s board of directors did not act “in the best interests” of Tesla shareholders in approving Musk’s $56 billion pay agreement.
McCormick must now decide whether the new shareholder vote will actually restore Musk’s pay, according to Anne Lipton, a corporate law professor at Tulane Law School.
Lipton said McCormick could choose to arbitrate the dispute by considering written and oral arguments from both sides.
Alternatively, the judge can ask the parties to provide more information, as well as engage in additional discovery to highlight other facts and evidence. Lipton added that the judge may hold hearings similar to a new trial.
Tesla asked the judge to set an expedited timeline during which both parties would submit court documents containing additional justifications for their positions. Tesla said each side should be allowed to make those arguments before McCormick issues a final ruling on the matter.
On Friday, Tesla lawyers called the recent shareholder vote supporting Musk’s pay “one of the most enlightened shareholder votes in recent memory,” and noted that two of the world’s most sophisticated investors, BlackRock (BLK) and Vanguard, said yes to the shareholder resolution. an offer.
Tesla said that 72% of the votes cast by shareholders, excluding Musk and his brother Kimbal, were in favor of the compensation package.
A hearing before McCormick is scheduled for July 8, where additional unresolved matters in the case are also scheduled to be addressed.
The first is a request from shareholder lawyers for $6 billion in legal fees, which Tesla opposes.
If McCormick validates Musk’s compensation, she could consider whether the shareholder vote turns back the clock to reactivate the agreement from 2018. Tesla reported that a retroactive accounting of the compensation plan would save the company at least $25 billion.
“She could tell [to Tesla]’You did the right thing.’ “I returned it to the shareholders… I may not like it, but it’s not my role to be involved in contracting between consenting adults,” Murphy said.
“But I doubt she will do that, which means we will be subject to appeal,” Murphy added.
That judge is unlikely to have the final say, Lipton said.
“Whichever side loses, that side will appeal to the Delaware Supreme Court,” Lipton added.
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