DOVER, Delaware – On Monday, a Delaware state judge ordered attorneys representing Tesla Inc. TSLA,
of directors to convey certain messages that CEO Elon Musk may have shared with the company’s top in-house lawyers before the board of directors approved a compensation plan in 2018 that could net Musk more than $ 50 billion.
The ruling by Vice Chancellor Joseph Slites Jr. was issued in response to a coercion petition filed on behalf of shareholders who accused Musk and Tesla’s board of directors of violating their fiduciary duties towards the company and its shareholders, leaving Musk to unjust enrichment and wasting him. … corporate assets.
By giving plaintiffs access to certain documents that Musk either sent or received, Slights denied access to a wider range of other documents that lawyers claim are protected by attorney secrecy.
Slights said the documents Musk shared with Tesla General Counsel Todd Maron or Deputy General Counsel Jonathan Chang before the board approved the compensation plan should be made available to the plaintiff shareholders.
Plaintiffs argued that Chang and Maron, Musk’s former divorce lawyer, worked on behalf of Musk and negotiated on his behalf against the board’s compensation committee.
“Using his control, close personal relationships, and reputation for retaliation, Musk co-opted Maron and Chang to help him structure the plan without involving a committee,” plaintiffs’ lawyers wrote, asking Slights to force the company to hand over the documents.
“Musk and his agents gave the committee a fully prepared plan,” they added.
Although Slites agreed that messages directly related to Musk should be disclosed, he refused to order lawyers to pass other messages between board members, Chang and Maron, and a third-party law firm.
The judge said that he had no reason to order the provision of documents that could be protected by attorney-client privileges when information could be accessed from other sources. He noted that Musk, Maron, Chang and the chairman of the compensation committee Ira Ehrenpreis have not yet been removed from office.
The plaintiffs argued in their petition that Tesla had improperly concealed hundreds of documents that Maron or Chang shared with the compensation committee and its advisers.
Lawyer Gregory Varallo told Slights on Monday that the plaintiffs in the 2018 lawsuit still have no answer to the simple question: “Whose idea was the largest compensation plan ever devised?”
“If you read the report to date, nobody seems to know,” Varallo said.
“There was quite a lot of sausage production before it even became a glitter in the eyes of the compensation committee,” he added.
Vanessa Lavelly, an attorney representing Tesla’s directors, told Slights that the board had developed and approved a compensation plan for the “rigorous process.”
“There was absolutely no stamp here, and the defendants are eagerly awaiting the opportunity to present this protocol to the court,” she said.
In 2019, Slights refused to dismiss the misconduct lawsuits against Musk and the Tesla directors, as well as the unfair enrichment lawsuit against Musk.
Under Delaware’s “business decision” rule, courts generally place a high priority on the corporate board’s decision-making process unless there is evidence that the directors have had conflicts or acted in bad faith. If the plaintiff can rebut the presumption of the rule of business judgment, the board’s action is subject to a “fairness” analysis that places the burden on the corporation to show that the transaction involved both a fair deal and a fair price.
Slites said that since the plaintiffs reasonably stated that Musk is a controlling shareholder and has a conflict of interest, the case lends itself to “increasing judicial suspicion.”
According to the plan, Musk could make billions if the electric vehicle and solar panel maker achieves ambitious market capitalization and production targets. In each of the 12 milestones the company has achieved, Musk, who already owned more than 20% of Tesla at the time the plan was approved, will receive shares equal to 1% of the outstanding shares at the time of the grant.
Each milestone includes Tesla’s $ 50 billion growth in market capitalization and aggressive plans for revenue and pre-tax profit growth. Musk will only fully benefit from the $ 55.8 billion payroll plan if it drives Tesla to a $ 650 billion market capitalization and unprecedented revenues and profits over a decade.