Tesla’s fight to restore Elon Musk’s $45 billion pay package is far from over, according to legal experts, despite shareholders backing the CEO’s pay deal.
Investors in the electric car manufacturer reaffirmed the wage agreement on Thursday after it was rejected by a judge in the US state of Delaware. The company’s chairman, Robin Deynholm, has already promised to “take it back to court.”
However, doubts remain over whether Musk will be able to gain access to the stock-based package.
The attorney representing Tesla shareholder Richard Tornetta, who filed the lawsuit that led to Musk’s pay package being nullified, said in a statement Thursday that the vote was “deeply flawed.”
“We believe that the ratification vote that Elon demanded and enforced is legally deeply flawed, legally ineffective, and has no bearing on our case. We will respond to any arguments in due course,” said Greg Varallo, partner at law firm Bernstein, Litowitz, Berger & Grossmann.
Judge Kathaleen McCormick threw out Musk’s pay package in January, ruling that board members had not been sufficiently independent of Tesla’s CEO during negotiations over the package.
Ann Lipton, a professor at Tulane Law School, said the vote against Tesla was “unprecedented” and that litigation over the deal would continue in Delaware, where Tesla was incorporated when the original wage deal was agreed in 2018.
“It is simply not legally clear what the effect is [of the vote] That will be the case,” Lipton said. “Assuming no settlement is reached, the lawsuit will continue before Chancellor McCormick. Tesla will argue that the new vote fixes any flaws in the original award and therefore Musk’s pay will be reinstated; the plaintiffs will argue that this is not the case.”
Any decision by McCormick will likely be appealed by the losing party and sent to the Delaware Supreme Court, Lipton said. “At that point, the Delaware Supreme Court will have two issues before it: Was McCormick right to strike down the package originally? And if so, does the new vote restore the package?”
Eric Talley, a professor at Columbia Law School, said comments from Musk ahead of Thursday’s vote could be seen as coercing shareholders, pointing to Musk threatening in January to build AI and robotics products outside the company if he didn’t earn enough. voice control.
“To the extent that Tesla is going to use this vote as a reason to overturn the chancery court ruling, I expect a big argument,” Talley said. “Specifically, there is a plausible argument that today’s vote was the product of coercion … and is therefore not valid.”
A Delaware court will likely require Tesla to prove that the latest process was conducted independently of Musk and that the vote was “procedurally fair,” said Brian Quinn, a professor at Boston College Law School.
“This is an unprecedented situation, so it’s important to keep in mind that the pleas are all against the board… this hasn’t happened yet,” he said.
Appearing before shareholders after winning the vote, Musk said: “I want to start by saying, damn, I love you guys!”
Tesla’s shareholder meeting also voted Thursday in favor of moving Tesla’s incorporation from Delaware to Texas, where the company is headquartered. However, the lawsuits related to the pay package will continue to take place in Delaware, according to McCormick, who wrote last month that she did not expect Tesla “to litigate a case related to this action anywhere other than Delaware.”
New pay packages for Musk, however, will be governed by the law of the company’s new home, Talley said. “As Tesla re-establishes itself in Texas, future decisions would be subject to Texas law,” he said.