Written by Tom Hulse and Jonathan Stemple
WILMINGTON, Del. (Reuters) – A Delaware judge ruled on Monday that Tesla CEO Elon Musk is still not entitled to a $56 billion compensation package despite the electric car company’s shareholders voting to reinstate it.
The ruling by the judge, Counsel Kathleen McCormick of the court, follows her decision last January that described the pay package as excessive and struck it down, surprising investors and throwing uncertainty over Musk’s future at the world’s most valuable automaker.
Musk did not immediately respond to an email request for comment.
Tesla said in court filings that a judge must recognize a subsequent vote by its shareholders in June in favor of the pay package for Musk, the company’s driving force and responsible for many of the advances, and restore his compensation.
McCormick said Tesla’s board of directors does not have the right to press “reset” to restore Musk’s pay package.
“If the Court condones the practice of allowing defeated parties to create new facts for the purpose of reviewing rulings, litigation will become interminable,” she said in her 101-page opinion.
It also said Tesla made several material errors in its proxy statement regarding the vote, and it could not claim the vote was a “blanket cure” to justify clawing back Musk’s pay.
“Taken together, the problems with Tesla’s arguments are a huge blow,” she wrote.
Tesla shares fell 1.4% in after-hours trading, following the ruling.
McCormick also ordered Tesla to pay $345 million to the lawyers who brought the case, far less than the $6 billion they initially requested. The fee can be paid in cash or through Tesla stock, she said.
“We are pleased with the ruling of Counsel McCormick, who rejected Tesla’s call to introduce continued uncertainty into the court proceedings,” said a statement from Bernstein Litowitz Berger & Grossman, one of the plaintiff’s three law firms.
The law firm also said it looks forward to defending the court’s opinion if Musk and Tesla appeal the ruling.
Musk and Tesla could appeal to the Delaware Supreme Court once McCormick issues a final order, which could come as soon as this week. The appeal may take a full year.
After the January ruling, Tesla shareholders flooded the court with thousands of letters arguing that canceling Musk’s pay made it more likely he would leave Tesla or develop some products like artificial intelligence on projects other than Tesla.
Lawyers for shareholder Richard Tornetta, who filed a lawsuit in 2018 challenging Musk’s compensation package, argued that Delaware law does not allow the company to use a certification vote to essentially vacate the ruling from trial.
McCormick found in January that Musk improperly controlled the 2018 board process for negotiating the pay package. The board said Musk deserved the package because he achieved all the ambitious goals related to market value, revenue and profitability.
But the judge criticized Tesla’s board of directors as “beholden” to Musk, saying the compensation plan was proposed by a board that had a conflict of interest among its members due to close personal and financial relationships with him.
After the January ruling, Musk criticized the judge on his social media platform
In her January ruling, the judge described the pay package as “the largest compensation plan ever – an unfathomable amount.” That was 33 times larger than the next largest executive compensation package, which was Musk’s 2012 pay plan.
As of Monday, the pay package was worth $101.4 billion, according to compensation consulting firm Equilar.
Musk’s 2018 pay package gave him stock grants worth about 1% of Tesla shares every time the company hits one of 12 tranches of escalating operational and financial goals.
Musk did not receive any guaranteed salary. Tornita argued that shareholders were not told how easy it would be to achieve the goals when they voted on the package.
(Reporting by Tom Hales in Wilmington, Delaware; Editing by Bill Berkrot)