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The legal war over Tesla’s board compensation has intensified, with the electric vehicle giant and a shareholder objector filing an appeal against a Delaware Court of Chancery ruling that mandated the return of more than $730 million in stock and options to the company.

The challenge, submitted to the Delaware Supreme Court on Thursday, raises the stakes in a dispute that has already rocked the corporate governance landscape.

A Fight Over “Outrageous” Pay Packages

The lawsuit, originally filed in 2020, accused Tesla’s board of awarding itself staggering compensation packages, including an average of $8.7 million per director in 2018 alone—a sum more than 29 times the average for S&P 500 boards.

To settle the case, Tesla’s board agreed in July 2023 to return more than $730 million in stock, options, and cash, while also forgoing executive pay from 2021 to 2023. The total impact of the deal was estimated at $919 million when governance reforms were factored in.

Despite this resolution, Tesla and shareholder Michael Levin of Illinois have now formally opposed the agreement. Their notices of appeal, filed Thursday, did not include specific legal arguments, but Levin previously criticized the deal, citing a lack of transparency regarding how much each director would be required to return.

A Court Battle with High Stakes

Last month, Chancellor Kathaleen St. J. McCormick not only approved the settlement but also granted a $176.16 million legal fee award to three firms that led the lawsuit:

• McCarter & English LLP
• Fields Kupka & Shukurov LLP
• Bleichmar Fonti & Auld LLP

In addition, the lead plaintiff—a public pension fund in Detroit—received a $50,000 incentive award.

The settlement applied to both current and former board members, including:

• Kimbal Musk (Elon Musk’s brother)
• James Murdoch (media mogul)
• Robyn Denholm (Tesla board chair)
• Larry Ellison (Oracle co-founder)

Tesla’s latest appeal means the battle is far from over.

Tesla’s Legal Woes Extend Beyond the Boardroom

This case is just one of Tesla’s many high-stakes legal disputes. The company is also fighting a separate lawsuit over Elon Musk’s $56 billion, 10-year pay package, which was struck down by Chancellor McCormick in January 2024.

McCormick’s ruling, issued after a weeklong trial in November 2022, called Musk’s compensation plan “the largest in public market history” and pointed to conflicted board members and inadequate disclosures as reasons to void the package.

Musk, furious with the decision, immediately took to X (formerly Twitter) to declare:
“Never incorporate your company in the state of Delaware.”

Tesla soon after relocated its corporate headquarters to Texas and put a new pay package for Musk to a shareholder vote, which most investors approved.

What’s Next?

With appeals now pending in both the board pay and Musk compensation cases, Tesla’s future governance structure remains in flux.

Attorneys representing the various parties include:

• For the investors: Andrew S. Dupre (Akerman LLP), Derrick B. Farrell & Robert B. Lackey (Bleichmar Fonti & Auld LLP)
• For Tesla’s board members: Bayard PA, Richards Layton & Finger PA, Abrams & Bayliss LLP
• For Tesla Inc.: DLA Piper, Sullivan & Cromwell LLP
• For Michael Levin: Representing himself (pro se)

As the Delaware Supreme Court prepares to hear arguments, one thing is clear—Tesla’s boardroom battles are far from over.