Elon Musk and Tesla have encountered a setback in court as a judge has ruled against Musk receiving a substantial $56 billion pay package.
Judge Kathleen McCormick from Delaware has once again dismissed the historic compensation deal for Musk, marking the second court rejection of this payout.
The compensation package was originally agreed upon in 2018, allowing Musk to earn $56 billion from Tesla, a deal noted in court documents as the largest ever in public markets.
Tesla sought approval for the agreement through a shareholder vote and subsequently requested court validation.
Judge McCormick criticized Tesla’s legal justification as ‘fatally flawed’ and occasionally ‘indefensible’ in her 101-page opinion denying the motion.
She stated: “The large and talented group of defense firms got creative … but their unprecedented theories go against multiple strains of settled law.”
“Novelty is not necessarily damning, but defendants’ novel request flies in the face of the policy bases for all relevant rules of procedure.”
“Were the court to condone the practice of allowing defeated parties to create new facts for the purpose of revising judgments, lawsuits would become interminable.”
Following the ruling, Tesla’s stock price dropped by up to 1.4 percent in after-hours trading.
The judge also dismissed a ‘bold ask’ from the plaintiff’s lawyer who had requested to receive legal fees in the form of $5.6 billion worth of Tesla stock.
On December 2, Tesla issued a statement expressing their intent to appeal the decision to a higher court, emphasizing their intention to compensate Musk ‘what he is worth’.
The statement read: “A Delaware judge just overruled a supermajority of shareholders who own Tesla and who voted twice to pay Elon Musk what he’s worth.”
“The court’s decision is wrong, and we’re going to appeal.”
“This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners – the shareholders.”
Musk agreed and shared Tesla’s statement on Twitter.
He asserted that ‘shareholders should control company votes, not judges’ while amplifying a social media post by investor Cathie Wood, CEO of Ark Invest, who critiqued McCormick’s ruling.
In a tweet, Wood remarked: “Based on her @TSLA ruling, DE Judge McCormick is an activist judge at its worst. No judge has the right to determine CEO compensation.”
“Shareholders voted twice, overwhelmingly each time, to ratify @elonmusk’s 2018 performance-based pay package. She will lose this fight in Supreme Court. I stand by my original response supporting #Tesla and Elon.”
Musk also retweeted Wood’s post.