Tesla’s battle to reinstate Elon Musk’s $45bn (£35bn) pay package is far from over, according to legal experts, despite shareholders backing the chief executive’s remuneration deal.
Investors in the electric carmaker re-ratified the pay deal on Thursday after it had been struck down by a judge in the US state of Delaware. However, doubts remain over whether Musk will be able to access the share-based package.
The lawyer representing Tesla shareholder Richard Tornetta, who brought the lawsuit that led to Musk’s pay package being nullified, said in a statement on Thursday that the vote was “deeply flawed”.
“We believe that the ratification vote that Elon demanded and coerced is deeply flawed as a matter of law, legally ineffective and does not impact our case. We will respond to any arguments raised in due course,” said Greg Varallo, a partner at the law firm Bernstein, Litowitz, Berger & Grossmann
Judge Kathaleen McCormick threw out Musk’s pay package in January, ruling that the board members had been insufficiently independent from the Tesla CEO while negotiating the package.
Ann Lipton, a professor at Tulane law school, said the Tesla vote was “unprecedented” and the litigation around the deal would continue in Delaware, where Tesla was incorporated when the original pay deal was agreed in 2018.
“It’s simply not clear legally what the effect [of the vote] will be,” said Lipton. “Assuming there’s no settlement, the litigation will continue before Chancellor McCormick. Tesla will argue that the new vote cures any defects in the original award and therefore Musk’s pay is reinstated; the plaintiffs will argue it does not.”
Any decision by McCormick is likely to be appealed against by the losing side and will go to the Delaware supreme court, said Lipton. “At that point, the Delaware supreme court will have two issues before it: Was McCormick right to strike the package originally? And if so, does the new vote restore the package?”
Eric Talley, a professor at Columbia Law School, said comments by Musk in the run-up to Thursday’s vote could be viewed as coercing shareholders, pointing to Musk threatening in January to build AI and robotics products outside of the company if he did not gain enough voting control.
“To the extent Tesla is going to use this vote as a reason to reverse the chancery court’s holding, I’d expect a big argument,” said Talley. “In particular, there is a plausible argument that today’s vote was the product of coercion … and thus not valid.”
