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Tesla attorneys ask judge to vacate decision invalidating massive pay package for Elon Musk

Defense attorneys say the vote makes clear that Tesla shareholders, with full knowledge of the flaws in the 2018 process that McCormick pointed out in her January ruling, are adamant that Musk is entitled to the pay package. Photo via cdn.britannica.com

Attorneys for Elon Musk and Tesla’s corporate directors are asking a Delaware judge to vacate her ruling requiring the company to rescind a massive and unprecedented pay package for Musk.

Friday's hearing follows a January ruling in which Chancellor Kathaleen St. Jude McCormick concluded that Musk engineered the landmark 2018 pay package in sham negotiations with directors who were not independent. The compensation package initially carried a potential maximum value of about $56 billion, but that sum has fluctuated over the years based on Tesla's stock price.

Following the court ruling, Tesla shareholders met in June and ratified Musk’s 2018 pay package for a second time, again by an overwhelming margin.

Defense attorneys say the vote makes clear that Tesla shareholders, with full knowledge of the flaws in the 2018 process that McCormick pointed out in her January ruling, are adamant that Musk is entitled to the pay package.

“Honoring the shoulder vote would affirm the strength of our corporate system,” David Ross, an attorney for Musk and the other individual defendants, told McCormick. “This was stockholder democracy working.”

Ross told the judge that the defendants were not challenging the factual findings or legal conclusions in her ruling, but simply asking that she vacate her order directing Tesla to rescind the pay package.

McCormick, however, seemed skeptical of the defense arguments, peppering attorneys with questions and noting that there is no precedent in Delaware law for allowing a post-trial shareholder vote to ratify adjudicated breaches of fiduciary duty by corporate directors.

“This has never been done before,” she said.

Defense attorneys argued that, while they could find no case that is exactly comparable, Delaware law has long recognized shareholder ratification as a cure to corporate governance errors, and has long acknowledged the “sovereignty” of shareholders as the ultimate owners of a corporation.

“I candidly don’t see how Delaware law can tell the owners of the company that they’re not entitled to make the decision they made,” said Rudolf Koch, an attorney for Tesla.

Donald Verrilli, a lawyer for an induvial stockholder who owns more than 19,000 Tesla shares, suggested that it would be wrong for the lone shareholder who filed the lawsuit to thwart the will of the majority of Tesla shareholders. At the time the lawsuit was filed, the plaintiff owned just nine shares of Tesla stock.

“The voice of the majority of shareholders should matter…. This lawsuit is not representing the interest of the shareholders," Verrilli said.

Thomas Grady, an attorney for a group of Florida objectors who own or manage almost 8 million Tesla shares with some $2 billion, argued that for McCormick to rule for the plaintiff, she has to “disenfranchise” all other Tesla shareholders.

Greg Varallo, an attorney for the plaintiff, urged McCormick not to give any credence to the June shareholder vote, saying it has no legal precedent in Delaware or anywhere else. There also is no reason for the court to reopen the trial record and admit new evidence, he said.

Under Delaware law, stockholders have no authority to overrule courts by trying to use a post-trial ratification vote as a “giant eraser,” Varallo argued.

“Ratification is not magic, and it never has been,” Varallo added. “This should end here and now.”

McCormick gave no indication on when she would rule. She also has yet to rule on a huge and unprecedented fee request by plaintiff attorneys, who contend that they are entitled to legal fees in the form of Tesla stock valued at more than $7 billion.

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A View From HETI

Ten climatetech startups were named most-promising at this annual Rice Alliance Energy Tech Venture Forum. Photo courtesy Rice Alliance.

Investors at the Rice Alliance Energy Tech Venture Forum have named the 10 most-promising startups among the group of 100 clean tech companies participating in the event.

The 22nd annual event was held yesterday, Sept. 18, at Rice University’s Jones Graduate School of Business and was part of the second Houston Energy and Climate Startup Week.

The most-promising startups will receive $7,000 in in-kind legal services from Baker Botts.

The 10 most-promising companies included:

  • Houston-based Xplorobot, which has developed laser gas imaging technology for the first handheld methane detection device approved by the EPA as an alternative test method
  • Seattle-based Badwater Alchemy, a desalination company that uses nano materials to purify saline water at a fraction of the cost of traditional methods
  • San Francisco-based Ammobia, which is developing a clean ammonia production process
  • Illinois-based Celadyne Technologies, which is building hydrogen for industrial decarbonization with durable and efficient fuel cells and electrolyzers
  • Massachusetts-based MacroCycle Technologies, which converts plastic waste in the form of bottles, food trays and polyester textiles into virgin-grade mPET resin
  • Yorkshire, England-based AtoMe, a global developer of zero-carbon fertiliser products
  • Colorado-based Advanced Thermovoltaic Systems (ATS) Energy, a renewable energy semiconductor manufacturing company
  • North Carolina-based Lukera Energy, which is converting waste methane into high-value fuel
  • Midland, Texas-based AI Driller, a company that uses AI and machine learning to enable remote operations and provide historical drilling data for survey management, anti-collision monitoring and iob reporting
  • New York-based Fast Metals Inc., which has developed a chemical process to extract valuable metals from complex toxic mine tailings that is capable of producing iron, aluminum, scandium, titanium and other rare earth elements using industrial waste and waste CO2 as inputs

Arculus Solutions won the People's Choice Award. The New Jersey-based company retrofits natural gas pipelines for safe hydrogen transportation. It also won Track A: Hydrogen, Fuel Cells, Buildings, Water, & Other Energy Solutions at the Energy Venture Day and Pitch Competition during CERAWeek earlier this year.

The 100 energy technology ventures selected to participate in the forum were named earlier this year. See the full list here.

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