Tesla’s battle to restore Elon Musk’s $45 billion pay package is far from over, according to legal experts, even though shareholders back the CEO’s pay deal.
Investors in the electric car maker on Thursday ratified the pay deal after it was overturned by a judge in the US state of Delaware. The company’s president, Robin Deynholm, has already committed to “bringing the case back to court.”
However, doubts remain over whether Musk will be able to access the stock-based package.
The lawyer representing Tesla shareholder Richard Tornetta, who filed the lawsuit that led to the overturning of Musk’s pay package, said in a statement Thursday that the vote was “deeply flawed.”
“We believe that the ratification vote that Elon demanded and forced is deeply flawed as a matter of law, legally ineffective and does not affect our case. We will respond to any arguments raised 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 the board members had been insufficiently independent of the Tesla CEO while negotiating the package.
Ann Lipton, a professor at Tulane Law School, said Tesla’s vote was unprecedented and that litigation over the deal would continue in Delaware, where Tesla was incorporated when the original wage deal was agreed to in 2018.
“It’s just not legally clear what the effect (of the vote) will be,” Lipton said. “Assuming no agreement is reached, litigation will continue before Chancellor McCormick. Tesla will argue that the new vote cures any defects in the original award and therefore restores Musk’s salary; the plaintiffs will argue that this is not the case.”
Any decision by McCormick will likely be appealed by the losing party and reach the Delaware Supreme Court, Lipton said. “At that point, the Delaware Supreme Court will have two questions 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 Musk’s comments in the run-up to Thursday’s vote could be seen as coercion of shareholders, noting that Musk threatened in January to build artificial intelligence and robotics products. out of the company if he didn’t earn enough. voting control.
“To the extent that Tesla is going to use this vote as a reason to reverse the chancery court’s decision, I would expect a strong argument,” Talley said. “In particular, there is a plausible argument that today’s vote was a product of coercion… and is therefore invalid.”
A Delaware court will likely require Tesla to prove that the latest process was carried out 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 is important to note that all burdens of the petition fall against the board…this has not been done yet,” he said.
Appearing in front of shareholders after winning the vote, Musk said: “I just want to start by saying, damn, I love you!”
Tesla’s shareholder meeting on Thursday also voted to move Tesla’s incorporation from Delaware to Texas, where the company is headquartered. However, litigation related to the salary package will remain in Delaware, according to McCormick, who wrote last month that he did not expect Tesla to “litigate any matter related to this action anywhere other than Delaware.”
However, Musk’s new pay packages will be governed by the law of the company’s new home, Talley said. “Now that Tesla is rejoining Texas, future decisions would be governed by Texas law,” he said.