Tesla, opponents of Musk’s pay clash over resolving compensation lawsuit

By Tom Hals

WILMINGTON, Delaware (Reuters) -Tesla and opponents of Elon Musk’s compensation clashed on Friday over ways to resolve the legal quagmire that has engulfed the CEO’s $56 billion pay package and billions of dollars in potential legal fees generated by the case.

Tesla (NASDAQ:) said in a court filing that a Delaware judge should recognize a vote by Tesla shareholders in favor of the pay package and reverse her January ruling that voided the compensation.

In response, shareholder attorneys said the vote to ratify Musk’s pay has no legal effect and the only way for Tesla to challenge the January ruling is to appeal to the Delaware Supreme Court.

The shareholder attorneys said that before Tesla can appeal, Chancellor Kathaleen McCormick (NYSE:) has to determine the legal fee that the company should be ordered to pay them for winning the case.

They had previously asked for 29 million shares of Tesla stock, which is worth more than $5 billion. But on Friday they said Tesla could as an alternative pay at least $1.1 billion in cash, which would be justified by the court’s precedent, although they described that as “unfairly low.”

Tesla and the legal team for Richard Tornetta, the shareholder who sued over the pay package, have been wrestling over the best way to resolve the case and compensate the company’s chief executive.

Musk said earlier this year that unless he had a larger stake in Tesla he would prefer to build some products outside the company, creating uncertainty about his future while Tesla is struggling with slower sales and stiffer competition.

Tesla’s investors voted on June 13 in favor of the package of stock options. Many investors said they felt Musk should be rewarded because the value of the company increased more than 10 times after the pay package was originally agreed in 2018.     

Tesla urged the judge to put aside the fee dispute and determine the impact of the shareholder vote, which in turn could drastically reduce the legal fee.

It said that it plans to make a motion to reverse the January ruling and that it should now win the case.

The company has argued that by having the pay package reviewed by an independent board member and reapproved by shareholders it fixed McCormick’s finding that Musk dominated the pay negotiations and that shareholders lacked key information in the 2018 vote.

Tornetta’s legal team has rejected that approach. They argued the board process for proposing a ratification vote was flawed, the law was misused by Tesla and the shareholder vote was coerced by Musk’s threats to take potential products from Tesla.

The shareholder lawyers want a decision on their legal fee as the next step in the case.

When the company achieved the last milestone in the pay package, it was worth $56 billion, according to Tesla. The package is worth around $48 billion at Friday’s share price of $182.19.