A judge in the United States has upheld a decision to deny Tesla CEO Elon Musk a multibillion-dollar pay package despite shareholders voting to restore the compensation deal.
The decision by a Delaware judge on Monday reaffirmed an earlier ruling to void the pay deal on the basis that Tesla’s board was too close to Musk and had not sufficiently protected shareholders’ interests.
Chancellor Kathaleen St Jude McCormick of Delaware’s Court of Chancery found that there was no legal precedent to reverse her earlier ruling and that if courts condoned “the practice of allowing defeated parties to create new facts for the purpose of revising judgments, lawsuits would become interminable”.
“The large and talented group of defense firms got creative with the ratification argument, but their unprecedented theories go against multiple strains of settled law,” McCormick wrote in a 103-page opinion.
McCormick also found that Tesla had made “material misstatements” to shareholders about the effect of their vote to reinstate Musk’s pay deal.
Tesla shares dropped 1.4 percent in after-hours trading following the ruling.
McCormick also rejected a request for $5bn in fees sought by the lawyers of plaintiff Richard Tornetta, a Tesla shareholder who brought the original lawsuit accusing Tesla’s board of not acting independently of Musk, instead granting the amount of $345m.
After McCormick’s decision to block the deal earlier this year, Tesla shareholders in June overwhelmingly voted to reinstate the package.
Tesla on Monday said the court’s decision was “wrong” and that it would appeal the decision.
“This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners – the shareholders,”’ the electric car company said on X.
Musk on X said that “shareholders should control company votes, not judges,” and described McCormick as an “activist posing as a judge”.
Under the terms of his 2018 pay deal, Musk agreed to be paid in Tesla stock options each time the company reached certain goals instead of receiving a salary.
Musk hit all of the targets, which focused on metrics including market capitalisation, earnings and sales, helping make him the world’s richest man.
Musk’s compensation package was initially worth $56bn but is now valued at more than $101bn after Tesla’s stock price surged more than 40 percent following Donald Trump’s US presidential election win on November 5.
