Musk Faces Return to Twitter Judge for Trial Over His Tesla Pay

After spending months entangled in a brutal legal fight over his recent $44 billion acquisition of Twitter Inc., Elon Musk still has outstanding matters in Delaware courts.

The 51-year old billionaire, who completed the Twitter buyout this week, is scheduled to return before the same judge in Delaware Chancery Court in November for a separate trial over his compensation at Tesla Inc., which could top $50 billion.

Tesla investor Richard Tornetta claims Musk, the world’s richest person, got an excessive payout from the company, where he is the chief executive officer and the largest shareholder. Tesla board members were beholden to Musk, allowed him to craft his own compensation and hid key information about the process from investors, according to the complaint.

“This has the potential to be a very important case from an executive compensation standpoint,” said Jill Fisch, a University of Pennsylvania professor who teaches corporate-law classes. “It won’t get the attention the Musk-Twitter case got from the general public, but it’s still important.”

The case is being heard in Delaware because Tesla, like Twitter, is incorporated in the state, the corporate home to more than half of US public companies and more than 60% of Fortune 500 firms. Its Chancery Court judges are business law experts who hear cases without a jury, often on a fast-track basis.

The Twitter dispute lasted for months as Musk sought to get out of the deal, but he changed his mind right before the case was set for trial. On Friday, he made himself CEO and began reshaping the social media company, according to people familiar with the matter.

Delaware Chancery Court Judge Kathaleen St. J. McCormick -- who was overseeing Musk’s Twitter litigation -- will review testimony about his Tesla pay package and decide whether it amounted to a waste of corporate assets.

Who Had Control?

McCormick must decide whether Musk was acting like a controlling shareholder, even though his 17% holding of Tesla stock is below the 50.1% threshold, according to Fisch. That determination plays a role in how his compensation package is viewed under Delaware law.

Evan Chesler, a New York-based lawyer representing Musk in the Tesla compensation case, didn’t immediately return a call for comment.

In a pre-trial filing, Chesler and other attorneys representing Musk denied Tornetta’s claims that the compensation package was excessive by noting the entrepreneur was unique and deserved a bespoke pay plan based on Tesla’s astronomical rise in value over the last decade.

“The plan designed and approved by the board was not a typical pay package intended to compensate the ordinary executive for overseeing the day-to-day operations of a mature company,” his attorneys said. “That is because Musk is not the typical CEO.”

100 Million Options

The package includes more than 100 million Tesla stock options to be doled out over 12 periods, but only if the car company hit certain performance goals, according to court filings. The company far surpassed those metrics, and Tesla’s market capitalization jumped from $53 billion to more than $690 billion over four years, the filings show.

Musk and his brother, Kimball, were on the board but were recused from discussions about their pay, the company said.

Musk is slated to testify along with current Tesla directors James Murdoch and Robyn Denholm, and ex-board member Antonio Gracias.

Tornetta filed his derivative suit against Musk and other Tesla directors on behalf of the company. That means any money recovered will go back to the electric carmaker and not to Tornetta. In many cases, insurance covering a company’s board members pays any award.

The case Tornetta v. Musk, 2018-0408, Delaware Chancery Court (Wilmington).

To contact the reporter on this story:
Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net

To contact the editors responsible for this story:
Katia Porzecanski at kporzecansk1@bloomberg.net

Steve Stroth

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