Securities Regulation Daily Wrap Up, CORPORATE GOVERNANCE—Del. Sup. Ct.: Ruling on Musk pay package overturned in significant respects, (Dec 22, 2025)

By Mark S. Nelson, J.D..

The Chancery Court had twice rejected Tesla’s arguments in favor of the company’s planned payout to Musk.

Tesla, Inc. successfully argued that the main portions of a Chancery Court opinion denying the company’s CEO, Elon Musk, a supersized pay package had exceeded the bounds of fairness under Delaware law. The upshot of the somewhat rare per curiam opinion issued by the Delaware Supreme Court was that rescission of the entire pay package was inappropriate because, for technical legal reasons, Musk could never be returned to his or the company’s status quo ante. The state supreme court also held that the plaintiff was entitled to only nominal damages and that attorney’s fees would have to be based on a combination of the principles of quantum meruit and a 4x multiplier using the lodestar method (In Re Tesla, Inc. Derivative Litigation , No. 534, 2024 (Del Sup. Ct. Dec. 19, 2025)).

The dispute arose from Tesla’s plans to pay Musk a record-setting executive compensation package in 2018. The resulting case twice produced lower court opinions striking the pay package, although the second iteration of the case involved a renewed pay package that was purportedly ratified by Tesla shareholders.

The Delaware justices opened their opinion with a summary of the several problems with the Chancery Court opinion:

“As explained below,” said the court, “we reverse because: (i) Musk could not be restored to the status quo ante after working six years to meet the 2018 Grant’s market capitalization and operational milestones; (ii) his existing equity value increase based on his 2009 and 2012 Grants did not substitute for his return to the status quo ante; and (iii) it was not the Defendants’ burden to prove that the parties could be placed in the same position before Musk’s performance.”

According to the court’s reasoning, the remedy of rescission mandates a return to a mutual status quo, which in turn meant that rescission would not apply if such return was impracticable or impossible to achieve. The state justices concluded that a return to the status quo ante was neither practical nor possible.

The justices explained that the Chancery Court erred when it found that it was possible to restore all the parties substantially to their status quo ante positions. The justices also explained that Musk’s existing equity stake could not function as a kind of substitute consideration that would restore the parties to the status quo ante.

“Rescission is inequitable here,” said the justices, “primarily because all parties must be restored to the status quo ante and total rescission leaves Musk uncompensated for his time and efforts over a period of six years.”

That left only two significant issues to be resolved—the absence of a request for an alternative remedy and damages, and then attorney’s fees and expenses. First, the court said the lower court erred in finding that Tesla never put forth an alternative remedy. The justices explained that it was the plaintiff’s, not the defendant’s, obligation to offer an alternative remedy to rescission plus an explanation of why the plaintiff was entitled to such relief.

The justices concluded that, because the plaintiff did not offer an alternative remedy, the most the plaintiff can recover is nominal damages, which the justices assessed at $1.

Moreover, with respect to attorney’s fees and expenses, the justices credited Tesla’s argument that such an award should be based on principles of quantum meruit (as much is deserved or the “reasonable value of…services”) in combination with an application of a 4x multiplier based on the lodestar method. The justices reasoned that, even though the plaintiff was unable to achieve the goal of rescission, the plaintiff nevertheless benefitted Tesla and its shareholders.

The case is No. 534, 2024.

Judge: Per curiam.

Attorneys: David E. Ross (Ross Aronstam & Moritz LLP) for Elon Musk, Robyn M. Denholm, Antonio J. Gracias, James Murdoch, Linda Johnson Rice, Brad W. Buss, and Ira Ehrenpreis. Rudolf Koch (Richards, Layton & Finger, P.A.) for Tesla, Inc. Gregory V. Varallo (Bernstein Litowitz Berger & Grossman LLP) for Richard J. Tornetta.

Companies: Tesla Inc.

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