Elon Musk launched his lawsuit Tuesday to try to recover a $56 billion payday from Tesla, claiming that a lower court judge made multiple legal errors in revoking record-breaking compensation.
The 2018 pay package brought about epic growth for the electric car maker, but Musk argued that the lower court was still found unfair to shareholders who voted twice to approve the plan.
“That counterintuitive outcome violates Delaware's law, sound corporate governance and resolved principles of common sense,” said Musk and the opening appeal brief by current and former Tesla director, the defendant in the case.
In January 2024, Prime Minister Kathaleen McCormick called the stock options pay package “immeasurable.” She said it was unfair to Tesla shareholders as the directors who approved it withheld key information before Musk and Tesla voted to approve from investors.
In June, Tesla received shareholder approval for her second pay package, but the judge rejected it as a basis to overturn her sentence.
The Pay Package was awarding a Musk option to buy approximately 303 million shares for about $23 each if the company achieved its performance and valuation goals. Tesla shares closed at $230.58 on Tuesday.
Tesla said creating a new pay package of similar value could lead to a $25 billion claim, making the appeal a key tool to restore mask compensation and bringing attention to Tesla.
Mask said he wanted it Bigger bets Tesla or he may develop a product outside of the company. The appeal arises as he devotes his time to President Trump's government's efficiency efforts known as Doge, which sparked demonstrations other than Tesla dealerships. Stocks have fallen sharply in recent weeks.
In the appeal brief, Musk and other defendants said McCormick misapplied the extremely difficult legal standard known as fairness overall to assess the pay package.
She found Musk, who owned 21.9% of the shares at the time the board approved the pay package, arrived at that standard and managed wage negotiations. Additionally, she misdetermined that the usual business relationships between the directors had conflicted and that they were mistakenly negligent in Tesla's disclosure prior to the 2018 shareholder vote.
Applying the entire fairness standard took the effort of granting Tesla shareholders a “sue license,” the brief said. The lawsuit comes from Richard Tornetta, a Tesla investor who owned nine shares when he filed the lawsuit in 2018. The lawsuit, known as the derivative suit, benefited Tesla rather than Tornetta.
Musk has denounced pay decisions and encouraged other companies to track Tesla and SpaceX and reincorporate them from Delaware. A handful have left the state or say they might do that, including Metaplatforms, TripAdvisor and Trump media companies.
Fearing that corporate trickle would turn into a stampede known as “Dexit,” the state legislature urged them to consider amending the corporate law to control shareholders from lawsuits.
