Following Tesla’s success in persuading shareholders to approve the CEO’s $56 billion compensation plan, a new legal dispute has arisen about whether Elon Musk receives his actual compensation.
Last week, Tesla submitted court documents to the same Delaware Chancery Court judge who had earlier declared Musk’s compensation unlawful. The company argued that the shareholder vote on June 13 provided a “principled resolution” that would settle the matter in Musk’s favor.
In a separate court filing on Friday, the lawyer representing the shareholder who successfully sued to block the compensation package contended that Tesla’s shareholder resolution should not have any legal bearing on the judge’s initial ruling and that Tesla is not authorized to use an extrajudicial vote to overrule the Delaware court.
According to this lawyer, Greg Varallo, Tesla cannot overturn the judge’s ruling without first appealing it to the Delaware Supreme Court.
There is a lot riding on Tesla’s (TSLA) uncertain journey through the US judicial system regarding Musk’s contested pay plan.
If the courts grant Tesla’s request, Musk’s plan will remain in effect, and the company will be able to deduct the $2.5 billion accounting charge from its 2018 stock option transaction, which was approved by shareholders.
If not, Musk’s compensation might be subject to a third vote by the electric vehicle manufacturer, which would also have to incur a charge of at least $25 billion that might jeopardize future profits.
Kevin Murphy, an expert in executive compensation and finance professor at the Marshall School of Business at the University of Southern California, who testified on behalf of Tesla in a trial about the plan, said, “Everything here is unprecedented.”
The outcome of Tesla’s case may be equally unexplored due to its unusual nature.
Judge Kathaleen McCormick of Delaware, who declared in January that the $56 billion Musk compensation deal was not approved “in the best interests” of Tesla shareholders, is once again in the spotlight due to the current legal dispute.
According to Ann Lipton, a corporate law professor at Tulane School of Law, McCormick must now decide whether the new shareholder vote actually restores Musk’s compensation.
According to Lipton, McCormick may decide to decide the disagreement by taking into account the written and spoken arguments made by each party.
As an alternative, the court might request further information from the parties and hold further discovery to uncover more information and proof. Lipton said the judge might also conduct hearings that were similar to a fresh trial.
Tesla has requested that the judge establish a streamlined timeline for the parties to file court documents that provide further justification for their respective stances. Before McCormick renders a final decision in the case, Tesla claimed that each party should be given the opportunity to present their case.
Tesla’s attorneys on Friday referred to the recent shareholder vote supporting Musk’s compensation as “one of the most well-informed stockholder votes in recent memory” and mentioned that the proposal was approved by BlackRock (BLK) and Vanguard, two of the most astute investors in the world.
According to Tesla, the pay package received 72% of the votes given by shareholders, who did not include Musk and his brother Kimbal.
On July 8, McCormick is slated to hold a hearing where she will address any outstanding issues in the case.
One is a $6 billion demand for legal fees from the shareholders’ attorney, which Tesla rejects.
Furthermore, McCormick may have an opinion on whether the shareholder vote reverses the agreement and reactivates it as of 2018 if she approves of Musk’s pay. According to Tesla, the business would save at least $25 billion if the compensation plan were retrospectively accounted for.
“She could tell Tesla, ‘You made the right decision.'” You returned it to the stockholders.Murphy remarked, “I may not like it, but I have no business interfering with consenting people’ contracts.
However, Murphy continued, “I doubt she’ll do that, which means we’ll go through an appeal.”
This judge is unlikely to have the last say, according to Lipton.
“Whichever side loses, that side will appeal to the Delaware Supreme Court,” Lipton stated.
