This Week in Chancery Court: Musk and Tesla Board Pay Settlement

Elon Musk and Tesla Inc. could come face-to-face this week in the Delaware Court of Chancery with a shareholder who objects to a settlement worth up to $919 million to resolve claims brought by a Detroit pension fund alleging the electric vehicle maker’s board members overpaid themselves from 2017 to 2020.

That showdown is scheduled for Friday afternoon. The court’s calendar before then includes:

Thursday: Lincolnshire Police Pension Fund v. Taylor, Del. Ch., No. 2020-0487, hearing 10/12/23.

At issue: An investor alleges that Floor & Decor Holdings Inc.'s private equity backers at Ares Management Corp. and Freeman Spogli Management Co. used misleading sales data to pump up its stock for its 2017 initial public offering, then sold $466 million worth before it tanked. Several years later, the investor’s second amended complaint “still cannot state a viable claim,” the company said in a brief seeking to dismiss the case. The police pension fund that sued said in a reply brief that its claims of insider trading are “a straightforward case of releasing positive earnings news and increasing guidance, obtaining material information that was not public, using that information to trade stock while the price was inflated, and finally revealing the true facts and reducing guidance while watching that stock price dramatically decline by more than 20%.”

Court action: Motion to dismiss hearing in Wilmington, Del.

Floor & Decor Investor Accuses Ares Management of Insider Trades

Thursday: ViiV Healthcare Co. v. Exavir Therapeutics Inc., Del. Ch., No. 2022-0977, hearing 10/12/23.

At issue: GlaxoSmithKline PLC’s ViiV Healthcare Co. sued Exavir Therapeutics Inc. in 2022, alleging its licensing pact with the University of Nebraska on patents for compounds used in long-acting HIV therapies tortiously interferes with ViiV’s research collaboration agreement with the school and its business arm. If the university is the rightful owner of those patents, “ViiV has no claims against Exavir. And, even if ViiV is the rightful owner of those patents, ViiV must still establish that Exavir took improper action to intentionally interfere with” ViiV’s agreement with the school, according to a brief supporting Exavir’s motion to dismiss. The lawsuit should proceed “in the absence of the university,” ViiV said in an answering brief.

Court action: Motion to dismiss hearing in Wilmington, Del.

GSK’s ViiV Sues Exavir Over Licensing Pact on HIV-Drug Compounds

Friday: Police & Fire Ret. Sys. of the City of Detroit v. Musk, Del. Ch., No. 2020-0477, hearing 10/13/23.

At issue: The proposed settlement calls for Tesla directors—Oracle Corp. founder Larry Ellison; Musk’s brother, Kimbal; and James Murdoch, son of media mogul Rupert Murdoch—to return options worth up to $735 million and forgo three years of pay worth $184 million. Tesla shareholder Michael Levin, who writes “The Activist Investor” newsletter, objects to the whole deal for what he says is a lack of specificity about how much each director owes, which could leave Musk an opening to curry favor with the board by paying the whole amount. Meanwhile, Tesla opposes the proposed $230 million award for legal fees for the attorneys who negotiated the settlement, saying it’s “demonstrably unreasonable” for the lawyers to collect roughly four times what they should earn.

Noteworthy: Chancellor Kathaleen St. Jude McCormick is presiding over the case, and Musk has become something of a regular in her courtroom. She’s expected to rule soon in a separate case challenging Musk’s $55 billion pay package at Tesla, which would be the largest ever for the CEO of a publicly traded company. McCormick also oversaw the legal dispute tied to Musk’s attempt to get out of his $54.20-per-share offer to buy the social-media platform formerly known as Twitter Inc. Musk capitulated in October 2022, and the company is now known as X Corp. Earlier this month, McCormick ordered X Corp. to pay $1.1 million in legal fees racked up by ex-Twitter executives ousted after Musk took over.

Court action: Settlement hearing in Wilmington, Del.

Musk, Tesla Fire Back at $230 Million Fee Bid in Board Pay Case