By Tom Hals
Wilmington, Delaware (Reuters) – Elon Musk initiated his appeal in an attempt to restore his $56 billion payday from Tesla on Tuesday, claiming a lower-level judge made multiple legal mistakes in revoking record compensation.
Musk believes the compensation package in 2018 has brought amazing growth for electric vehicle manufacturers, but it was decided by the lower court that was unfair to shareholders, who voted twice to approve the plan.
“The counterintuitive outcome violates Delaware law, reasonable corporate governance and common sense resolution principles,” Musk's opening appeal summary and the current and former Tesla director of the defendant in the case said.
In January 2024, Prime Minister Kathaleen McCormick revoked the payment package for stock options, calling it “incredible.” She said this was unfair to Tesla's shareholders, as the directors who approved its directors rejected key information from Musk and Tesla before investors voted to approve it.
Tesla received shareholder approval for the second time in June, but the judge rejected the share because it was a reason to reverse the ruling.
If the company meets performance and valuation targets, the payment package has been granted the Musk option, with approximately $23 per share purchasing about 303 million Tesla shares. Tesla shares closed at $230.58 on Tuesday.
Tesla has said that creating a new salary package with similar value could result in $25 billion in fees, making appeals an important way to restore Musk's compensation and focus on Tesla.
Musk said he wanted a bigger stake in Tesla or he might develop products outside the company. The appeal was because he devoted time to President Donald Trump's administration efficiency efforts (Doge), which sparked demonstrations outside Tesla dealerships. The stock has dropped sharply in recent weeks.
In the appeal summary, Musk and other defendants said McCormick mistakenly applied a very difficult legal standard, called the entire fairness to evaluate compensation packages.
She reached that standard by searching for Musk, who owned 21.9% of the shares when the board approved the salary package, controlled compensation negotiations, according to the briefing. Additionally, she mistakenly determined that the ordinary business relationship between directors caused them to clash, and she mistakenly opposed Tesla's disclosure before the shareholder vote in 2018.
The summary says that applying the entire fairness standard is equivalent to granting a “license of prosecution” to Tesla shareholders. The lawsuit was filed by Tesla investor Richard Tornetta, who owned nine shares when the case was filed in 2018. The lawsuit benefits Tesla, not the tornado, from derivative litigation.
