Musk’s Tesla Move Sparks Delaware Debate on Lawsuit Jurisdiction

Claims of corporate wrongdoing by Elon Musk as Tesla Inc.‘s CEO should’ve followed the electric car-maker to Texas, where the billionaire moved the company after the same Delaware court twice rejected his pay package, their attorneys said Wednesday.

The Delaware Chancery Court could set precedent with a decision as to whether the e-vehicle maker’s by-laws, which require the application of Texas law to shareholder derivative suits filed after its Lone Star state reincorporation, should also apply to litigation pending when that move occurred, Tesla lawyer Brian Frawley told the court.

“Tesla shareholders approved that by-law,” the Sullivan & Cromwell LLP partner said. “The stockholders of Tesla have said, ‘We want any litigation involving the company to proceed in Texas.’”

The date the Delaware claims were filed matters more than the by-laws adopted when Tesla shareholders approved a reincorporation on June 13, 2024, said Lee Squitieri of Squitieri & Fearon LLP, representing Michael Perry, an investor who claims Musk engaged in insider trading in the sales of over $7 billion of Tesla shares.

“The line is the date of the shareholder vote and the redomestication vote, and we were before that line,” he said. “Perry exercised all the rights he had as a shareholder of a Delaware corporation.”

Chancellor Kathaleen St. Jude McCormick presided over the hearing in Wilmington, Del., a week after the state’s highest court took up the appeal of her rulings that rejected Musk’s CEO pay and a subsequent shareholder vote approving it despite her finding it was tainted by conflicts of interest.

In January, she combined multiple lawsuits over the billionaire’s alleged insider trading, his Twitter Inc. acquisition, and his focus on artificial intelligence. She neither ruled Wednesday on the motions to dismiss nor posed any questions to the parties’ attorneys.

‘Ample Harm’

Tesla has said Perry’s claims belong in Texas, not Delaware. Musk and other board members also have said the consolidated claims just “nitpick” his personal behavior when investors should be grateful for their soaring Tesla returns.

John Nicolaou of Lieff Cabraser Heimann & Bernstein LLP, representing investors leading the consolidated claims, disputed Tesla’s and Musk’s arguments that the car-maker was beating expectations and rewarding shareholders amid the alleged misconduct.

Tesla lost significant amount of Musk’s time to his social media platform, X, and his artificial intelligence startup xAI—"time that’s worth billions and billions and billions of dollars,” he said.

Meanwhile, Tesla’s business reputation and vehicle sales suffered because of Musk’s management of the platform formerly known as Twitter. “This is ample harm,” he said.

Future Impact

If McCormick allows the claims related to Musk’s projects beyond Tesla to advance, she risks allowing the court to become “a corporate nanny” expected to oversee every business decision brought under corporate oversight claims, said Boris Feldman of Freshfields US LLP, representing Tesla’s directors, except for Musk.

“Tesla’s gone. The issue is how would the decision here impact the business of this court for other companies,” he said.

Tesla is also represented by DLA Piper LLP (US) and Richards, Layton & Finger PA. Musk is represented by Quinn Emanuel Urquhart & Sullivan LLP. The other Tesla directors are also represented by Ross Aronstam & Moritz LLP.

The lead plaintiffs in the consolidated litigation, the Employees’ Retirement System of Rhode Island and the Cleveland Bakers and Teamsters Pension Fund, are also represented by Prickett, Jones & Elliott PA, Saxena White PA, Grant & Eisenhofer PA, and The Schall Law Firm. Perry is also represented by deLeeuw Law LLC and Moore Law PLLC.

The cases are In re Tesla, Inc. Derivative Litig., Del. Ch., No. 2024-0631, hearing 10/22/25 and Perry v. Musk, Del. Ch., Del. Ch., No. 2024-0560, hearing 10/22/25.