The ruling by Vice Chancellor Joseph Slights Jr. got here in response to a movement to compel filed on behalf of shareholders who’ve accused Musk and Tesla’s board of administrators of breaching their fiduciary duties to the corporate and its stockholders, granting unjust enrichment to Musk and losing company belongings.
Whereas granting the plaintiffs entry to sure paperwork that Musk both despatched or acquired, Slights denied entry to a broader vary of different paperwork that protection attorneys have argued are equally protected by attorney-client privilege.
Slights mentioned paperwork that Musk shared with Tesla common counsel Todd Maron or deputy common counsel Jonathan Chang earlier than the board signed off on the compensation plan ought to be supplied to the shareholder plaintiffs.
The plaintiffs have argued that Chang and Maron, who was Musk’s former divorce lawyer, labored to advance Musk’s pursuits and negotiated on his behalf towards the board’s compensation committee.
“Leveraging his management, shut private relationships, and fame for retribution, Musk co-opted Maron and Chang to assist him construction the plan free from committee involvement,” plaintiffs’ attorneys wrote in asking Slights to drive the corporate to show over paperwork.
“Musk and his brokers handed the committee a fully-baked plan,” they added.
Whereas Slights agreed that communications instantly involving Musk ought to be disclosed, he refused to order protection attorneys to show over different communications amongst board members, Chang and Maron, and an outdoor legislation agency.
The decide mentioned there was no foundation for him to order the manufacturing of paperwork which may be protected by attorney-client privilege when the data is likely to be out there from different sources. He famous that Musk, Maron, Chang and compensation committee chair Ira Ehrenpreis have but to be deposed within the case.
The plaintiffs argued of their movement to compel that Tesla was improperly shielding lots of of paperwork that Maron or Chang shared with the compensation committee and its advisers.
Lawyer Gregory Varallo informed Slights on Monday that the plaintiffs within the lawsuit, which was filed in 2018, nonetheless don’t have a solution to a easy query: “Whose concept was the biggest compensation plan ever designed?”
“In case you learn the document up to now, nobody appears to know,” mentioned Varallo.
“There was numerous sausage-making going down earlier than this was even a twinkle within the eye of the compensation committee,” he added.
Vanessa Lavely, an lawyer representing the Tesla administrators, informed Slights that the board adopted “a sturdy course of” to develop and approve the compensation plan.
“There was completely no rubber-stamping right here, and the defendants sit up for the chance to current this document to the court docket,” she mentioned.
In 2019, Slights refused to dismiss the breach-of-duty claims towards Musk and Tesla administrators, and an unjust enrichment declare towards Musk.
Beneath Delaware’s “enterprise judgment” rule, courts usually give robust deference to a company board’s decision-making except there may be proof that administrators had conflicts or acted in unhealthy religion. If a plaintiff is ready to overcome the enterprise judgment rule’s presumption, the board’s motion is then topic to an “complete equity” evaluation, which shifts the burden to the company to indicate that the deal concerned each honest dealing and honest value.
Slights mentioned that as a result of the plaintiffs had adequately pleaded that Musk was a controlling shareholder and had a battle of curiosity, the case lent itself to “heightened judicial suspicion.”
Beneath the plan, Musk stands to reap billions if the electrical automotive and photo voltaic panel maker hits bold market capitalization and operational milestones. For every of 12 milestones the corporate achieves, Musk, who already owned greater than 20% of Tesla when the plan was accepted, would get inventory equal to 1% of excellent shares on the time of the grant.
Every milestone consists of rising Tesla’s market capitalization by $50 billion and assembly aggressive income and pretax revenue progress targets. Musk would obtain the complete good thing about the pay plan, $55.8 billion, provided that he leads Tesla to a market capitalization of $650 billion and unprecedented revenues and earnings inside a decade.