Tesla seeks to delay July hearing in battle over Musk's pay package

By Jef Feeley

Lawyers for Elon Musk say a shareholder vote last week approving the Tesla Inc. co-founder’s $56 billion pay package should delay a hearing on the award of billions of dollars in fees to the lawyers who challenged it.

Attorneys for the electric carmaker said in a filing Friday that the June 13 decision by Tesla investors to re-approve Musk’s pay “impacts significantly what remains to be decided in this litigation.” The company asked for a delay of the July 8 hearing so it can lay out the shareholder vote’s implications. 

Delaware Chancery Court Judge Kathaleen St. J. McCormick, who voided Musk’s pay package in January, is set to hear arguments on whether to award billions in Tesla stock to the lawyers who brought the challenge. The shareholder vote alters “the course of this litigation” and arguments about it should be “briefed expeditiously and decided before this court rules on” legal fees to be awarded, according to the filing. 

Greg Varallo, a lawyer for the Tesla investor who knocked out Musk’s pay package, countered in his own court filing Friday that Tesla’s attempt to launch a legal redo of the process of approving the billionaire’s compensation plan had no legal basis and there was no reason to delay the July 8 hearing.

McCormick rejected Tesla’s attempts to claim it could correct flaws in the process “nearly five years ago” as part of the case,” the plaintiff’s lawyer wrote. The shareholder vote had “no legal effect after a post-trial judgment on the merits,” Varallo said. He also argued plaintiff’s lawyers deserve billions in Tesla stock for winning the case.

A delay in the hearing would further hold up the judge’s decision on how much to award in lawyer compensation, which needs to happen before she issues an order finalizing the case and opens a window for Musk to appeal the ruling. 

In January, McCormick voided the record-setting executive-compensation plan Tesla’s board and investors approved for Musk in 2018. She found members of the board had undisclosed conflicts of interest when it came to deciding Musk’s pay. 

McCormick is under no legal obligation to recognize the shareholder vote under Delaware law, but can choose to take judicial notice of the development. Once she rules on the legal fees, McCormick will issue a final judgment in the case, clearing the way for Musk to appeal to the Delaware Supreme Court. 

The decision prompted Musk to vow to pull all his companies’ legal incorporations out of Delaware and call for a new proxy vote on Tesla’s move to Texas and the revival of his pay plan. Investors voted by more than 80% to move Tesla’s corporate home to the Lone Star state.

Musk is urging other business owners to shift their incorporations out of Delaware — the corporate home to more than 70% of Fortune 500 companies. The state’s chancery court is the premier US venue for corporate litigation and its judges are recognized as business-law experts.