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Tesla has officially started trying to convince the Delaware courts to recognize last week’s shareholder vote approving of CEO Elon Musk’s $56 billion compensation package.
In a filing with the Delaware Chancery Court on Friday, Tesla told Chancellor Kathaleen McCormick that the renewed shareholder approval “significantly impacts” her January ruling, which voided his pay package. Tesla and shareholder Richard J. Tornetta, who sued to block Musk’s compensation, should explain their legal interpretations of the vote, the company added, according to Reuters.
Greg Varallo, one of several lawyers working on behalf of Tornetta, told Reuters that the ratification will have “no legal effect” on the case. A brief laying out his argument will be filed Friday.
The legal guidelines around Tesla’s approach to restore Musk’s pay package is unclear. Tesla is using a relatively obscure section of Delaware corporate law that allows companies to fix procedural defects and is usually applied to minor boardroom decisions. The company itself has called the approach “novel” and said it was unsure how shareholder approval would affect the McCormick’s ruling.
In January, McCormick struck down the deal, citing a “deeply flawed” approval process and Musk’s “extensive ties” to members of the board, such as his brother Kimbal. She also wrote that shareholders weren’t properly informed and that Tesla had “misleadingly omitted key details” about the approval process.
The Austin, Texas-based company sought to remedy those issues in its reapproval process, providing hundreds of pages to shareholders — including McCormick’s 200-page opinion — and having a special committee consisting of board member Kathleen Wilson-Thompson review the pay package.
There’s also the issue of deciding legal fees. Tornetta’s lawyers have requested more than $5 billion as payment in the form of Tesla stock — that’s more than 17 times as large as the biggest fee in Delaware’s history. Musk has called their request “criminal” and Tesla’s lawyers have objected to that payment.
McCormick will hear arguments on July 8. Once she decides on the legal fees, the judge will deliver a final ruling in the case. From there, assuming that she reinforces her earlier decision, Musk will have 30 days to appeal to the Delaware Supreme Court.