By Tom Hals and Jonathan Stempel
WILMINGTON, Del. (Reuters) – A Delaware judge ruled on Monday that Tesla (NASDAQ ) CEO Elon Musk is still not entitled to a $56 billion compensation package even though Tesla shareholders the electric vehicle company voted to reinstate it.
The ruling by Chancery Court Judge Kathaleen McCormick (NYSE:) follows her January decision that called the pay package excessive and rescinded it, surprising investors and creating uncertainty about Musk's future at the largest automaker. valuable in the world.
Musk did not immediately respond to an emailed request for comment.
Tesla has said in court papers that the judge should recognize a subsequent vote by its shareholders in June in favor of the pay package for Musk, the company's driving force responsible for many of its advancements, and reinstate his compensation.
McCormick said Tesla's board had no right to press “reset” to restore Musk's pay package.
“If the court tolerated the practice of allowing defeated parties to create new facts for the purpose of revising rulings, trials would become endless,” he said in his 101-page opinion.
He also said that Tesla made multiple material errors in its proxy statement regarding the vote, and could not claim that the vote was a “panacea” to justify restoring Musk's salary.
“Taken together,” the problems with Tesla's arguments “have a powerful impact,” he wrote.
Tesla shares fell 1.4% in after-hours trading following the ruling.
McCormick also ordered Tesla to pay the lawyers who brought the case $345 million, well below the $6 billion they initially requested. He said the fee could be paid in cash or Tesla stock.
“We are pleased with Chancellor McCormick's ruling, which rejected Tesla's invitation to inject continued uncertainty into the court proceedings,” said a statement from Bernstein Litowitz Berger & Grossmann, one of the plaintiff's three law firms.
The law firm also said it hoped to defend the court's opinion if Musk and Tesla appealed.
Musk and Tesla can appeal to the Delaware Supreme Court as soon as McCormick issues a final order, which could come this week. The appeal could take a year to resolve.
After the January ruling, Tesla shareholders flooded the court with thousands of letters arguing that terminating Musk's salary increased the possibility that he would leave Tesla or develop some products like artificial intelligence at companies other than Tesla.
Lawyers for shareholder Richard Tornetta, who sued in 2018 to challenge Musk's compensation package, had argued that Delaware law does not allow a company to use a ratification vote to essentially overturn a trial ruling.
McCormick found in January that Musk improperly controlled the 2018 board process for negotiating the pay package. The board had said Musk deserved the package because he met all ambitious targets for market value, revenue and profitability.
But the judge criticized Tesla's board as “beholden” to Musk, saying the compensation plan was proposed by a board whose members had conflicts of interest due to close personal and financial ties to him.
Following the January ruling, Musk criticized the judge on his social media platform
In her January ruling, the judge called the pay package “the largest compensation plan ever made — an unfathomable sum.” It was 33 times larger than the next largest executive compensation package, which was Musk's 2012 pay plan.
As of Monday, the pay package was worth $101.4 billion, according to Equilar, a compensation consulting firm.
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Musk's 2018 pay package gave him stock grants worth about 1% of Tesla's equity each time the company met one of 12 tranches of increasing operational and financial goals.
Musk did not receive any guaranteed salary. Tornetta argued that shareholders were not told how easily the goals would be achieved when they voted on the package.
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