This post provides the text of the post-trial opinion regarding the case between Richard J. Tornetta on behalf of Tesla, Inc. against Elon Musk, decided by the Delaware Court of Chancery on January 30, 2024. This post is part of the Delaware law series; links to other posts in the series are available here.
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
RICHARD J. TORNETTA, Individually
and on Behalf of All Others Similarly
Situated and Derivatively on Behalf of
Nominal Defendant TESLA, INC.,
Plaintiff,
v.
ELON MUSK, ROBYN M. DENHOLM,
ANTONIO J. GRACIAS, JAMES
MURDOCH, LINDA JOHNSON RICE,
BRAD W. BUSS, and IRA
EHRENPREIS,
Defendants, and
TESLA, INC., a Delaware Corporation,
Nominal Defendant.
POST-TRIAL OPINION
Date Submitted: April 25, 2023
Date Decided: January 30, 2024
Gregory V. Varallo, Glenn R. McGillivray, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, Wilmington, Delaware; Jeroen van Kwawegen, Margaret Sanborn-Lowing, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New York; Peter B. Andrews, Craig J. Springer, David M. Sborz, Andrew J. Peach, Jackson E. Warren, ANDREWS & SPRINGER LLC, Wilmington, Delaware; Jeremy S. Friedman, Spencer M. Oster, David F.E. Tejtel, FRIEDMAN OSTER & TEJTEL PLLC; Bedford Hills, New York; Counsel for Plaintiff Richard J. Tornetta.
David E. Ross, Garrett B. Moritz, Thomas C. Mandracchia, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; Evan R. Chesler, Daniel Slifkin, Vanessa A. Lavely, CRAVATH, SWAINE & MOORE LLP, New York, New York; Counsel for Defendants Elon Musk, Robyn M. Denholm, Antonio J. Gracias, James Murdoch, Linda Johnson Rice, Brad W. Buss, and Ira Ehrenpreis.
Catherine A. Gaul, Randall J. Teti, ASHBY & GEDDES, P.A., Wilmington, Delaware; Counsel for Nominal Defendant Tesla, Inc.
McCORMICK, C.
Was the richest person in the world overpaid? The stockholder plaintiff in this derivative lawsuit says so. He claims that Tesla, Inc.’s directors breached their fiduciary duties by awarding Elon Musk a performance-based equity-compensation plan. The plan offers Musk the opportunity to secure 12 total tranches of options, each representing 1% of Tesla’s total outstanding shares as of January 21, 2018. For a tranche to vest, Tesla’s market capitalization must increase by $50 billion and Tesla must achieve either an adjusted EBITDA target or a revenue target in four consecutive fiscal quarters. With a $55.8 billion maximum value and $2.6 billion grant date fair value, the plan is the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude—250 times larger than the contemporaneous median peer compensation plan and over 33 times larger than the plan’s closest comparison, which was Musk’s prior compensation plan. This post-trial decision enters judgment for the plaintiff, finding that the compensation plan is subject to review under the entire fairness standard, the defendants bore the burden of proving that the compensation plan was fair, and they failed to meet their burden.
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