A judge's new ruling "means that judges and plaintiffs’ lawyers run Delaware companies' instead of investors," Tesla said
Musk’s compensation was first approved by investors in 2018 before a shareholder lawsuit led to Delaware Chancery Court judge Kathleen McCormick voiding the package in January. Shareholders reapproved the package in June, which the judge at the time said “significantly impacts” her prior ruling.
But that wasn’t enough to change the case’s outcome.
“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 in her opinion delivered Monday evening.
She pointed to four fatal flaws,” including that even if a shareholder vote could grant a “ratifying effect,” it wouldn’t apply to Tesla’s case due to “multiple, material misstatements in the proxy statement.” Earlier this year, Tesla cited its approach to restoring Musk’s pay as “novel” and told shareholders it was unsure how their approval would affect Mccormick’s ruling.
Tesla, Musk, and some prominent shareholders and analysts vehemently disagree with the judge’s ruling.
“The court’s decision is wrong, and we’re going to appeal,” Tesla said in a statement Monday. “This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners – the shareholders.”
Musk wrote on his X $TWTR that “shareholders should control company votes, not judges,” slammed McCormick — who also assigned herself to oversee Twitter’s 2022 lawsuit forcing Musk to purchase the social media company for $44 billion — as an “activist posing as a judge,” and agreed with a post calling the ruling “literal corrupt bulls—t.”
Tesla lobbied hard to convince shareholders to ratify Musk’s compensation package, often pointing out that he technically hasn’t been paid since 2018 for his work as CEO.
Musk also hinted that he may leave the company without control of more shares, saying in January that he would prefer to own 25% of the stock before making Tesla a “leader” in robotics and artificial intelligence.” Since then, Tesla has unveiled a prototype robotaxi, and Musk has outlined a plan for a rideshare network.
Tesla stock is down by about 1% in pre-market trading Tuesday. The stock has climbed 42% this year, mostly thanks to a post-election surge based on Musk’s relationship with President-elect Donald Trump.
“DE Judge McCormick is an activist judge at its worst. No judge has the right to determine CEO compensation,” wrote Ark Investment Management’s Cathie Wood, a Tesla bull who has forecasted a path for Tesla to be worth as much as $3,100 per share by 2029 through autonomous vehicle technology.
A slew of major Tesla influencers and shareholders chimed in on social media to support Tesla’s decision to pursue an appeal, including Whole Mars Catalog and Sawyer Merrit. Tesla also received support from former Congressman Matt Gaetz, who Musk went to bat for amid a series of serious misconduct allegations.
McCormick on Monday also granted the attorneys of the shareholder who sued Musk $345 million in fees, well below the more than $5 billion they requested. Musk will have 30 days to file an appeal with the Delaware Supreme Court.
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