Musk, Moelis Appeals Loom Over Delaware Chancery Caseload (2)

The feud between the world’s richest man and an overworked court in one of the country’s smallest states can only intensify in 2025.

That’s Elon Musk’s choice. He lost big—twice—in the Delaware Chancery Court last year over his record-breaking CEO pay package at Tesla Inc. Instead of having Tesla start over on a deal in the electric vehicle maker’s new home state of Texas, he’ll appeal the decisions voiding his $56 billion compensation pact in Delaware.

At the same time, he’ll have Delaware in his sights as he takes on the role of government efficiency czar for President-elect Donald Trump. He’s already floated the idea of federalizing corporate law in thinly veiled threats of “corrective action” against “egregiously wrong legal judgments in a single state.”

The appeal may ponder novel legal quandaries such as the extent to which Musk’s “superstar CEO” status effectively made him Tesla’s controlling stockholder; the adequacy of public disclosures about a process he famously described as “negotiating against myself"; and the unprecedented effort to override a landmark court decision with a shareholder vote. Three Florida shareholders filed a notice of appeal to the Delaware Supreme Court on Dec. 31.

Then there’s the matter of pay packages for Tesla board directors. In a separate case, Tesla awaits approval of a settlement that would see Musk and other directors return stock options worth up to $735 million and forgo three years of pay. Tesla also would have to change the way board-level compensation issues get reviewed.

Several other high-profile rulings are expected in Delaware as the new year begins.

New Year, Same Fears

Attorneys and law professors debated extensively in 2024 whether Delaware’s robust body of legal precedent and roster of specialist judges offer a measurable premium to shareholders. The Delaware Supreme Court may stick a price tag on incorporation in the state in an upcoming ruling on TripAdvisor Inc.'s relocation to Nevada.

The travel company appealed a Chancery Court opinion finding that its controlling stockholder, Greg Maffei, would be liable if the move reduced corporate value. A ruling could smooth the way for corporate bigwigs drawn to Nevada’s “no liability” reputation—or create roadblocks for corporate leaders thinking about following Musk’s companies out of state.

No answer from the high court is needed anymore, the two shareholders challenging TripAdvisor’s Nevada move said in a motion Friday. The whole matter became moot when TripAdvisor announced a restructuring on Dec. 19, the shareholders said, adding that they also plan to drop their case in Chancery Court. “Because TripAdvisor is acquiring Liberty TripAdvisor and will no longer be a controlled corporation, the benefit to Maffei of being able to extract greater private benefits of control after redomestication—and the concomitant harm to minority stockholders—no longer exists,” they said.

Separately, ahead of a trial scheduled in April, two former Facebook directors face sanctions over the deletion of personal emails about the Cambridge Analytica scandal and the $5 billion federal fine the platform paid to resolve a privacy probe.

Fox Corp. senior leaders heard just before New Year’s that they must face claims that they’re to blame for the expensive fallout of false conspiracy theories broadcast about the 2020 presidential election. They could seek a mid-case appeal from the Delaware Supreme Court, as TripAdvisor did, or proceed with discovery in preparation for a trial that’s yet to be scheduled. Smartmatic Corp. will seek $2.7 billion in damages from Fox at trial in New York this year, following Dominion Voting Systems Inc.’s $788 million settlement with the Murdoch-family led media empire in 2023.

Legislative and Courtroom Changes

Another big name in Chancery Court last year was Moelis, after the court struck down most of a stockholder agreement between investment bank Moelis & Co. and its billionaire founder. Uproar over that decision, viewed as proof that Delaware is increasingly hostile to the flexible arrangements that attract superstar founders and venture-backed startups, culminated in swift statutory changes allowing companies to adopt any form of governance by stockholder pact that’s permitted in their charters.

Arguments haven’t yet been scheduled in the Moelis appeal, but competing camps are already debating in amicus briefs. One side says it’s “a case that should not have been decided,” while the other warns against creating “a back door to enact a sweeping transformation of the way that Delaware’s corporate law gets made.”

More proposed corporate law amendments appear less contentious. These aim to override a federal appeals court decision in a case involving Gap Inc. that allowed companies to adopt bylaws pushing federal securities claims into Chancery Court—which lacks jurisdiction to hear them.

Negative headlines concerned lawmakers in a Dec. 16 hearing to confirm the nomination for the court’s next vice chancellor. “Consistency is key,” Delaware Sen. Brian Pettyjohn (R) said to Bonnie W. David. Knowing that she agreed would “help cement our position despite some of the flak that might be coming from one side or the other,” he said.

David said headline-making lawsuits won’t sway her judgment. “Our job is to decide as few issues as possible, as narrowly as possible, so that the common law develops slowly, consistently, and predictably,” she said.

She had been serving as a Magistrate in Chancery, a position created to alleviate the court’s ever-growing caseload of corporate disputes, along-with traditional equity cases such as guardianships and wills. The docket’s so packed that corporate lawyers arguing before the judges based in Wilmington, Del., may find themselves in unfamiliar courtrooms re-purposed from other judicial departments to keep the Chancery Court schedule on track. Another new magistrate will replace David, and court officials plan to request funding for two more.