DOVER, Del. – A Delaware judge on Monday ordered lawyers representing Tesla Inc. TSLA,
directors to pass on certain messages that CEO Elon Musk may have shared with the company’s best in-house lawyers before the board approves a compensation plan in 2018 that could provide Musk with more than $ 50 billion.
Vice Chancellor Joseph Slices Jr.’s decision came in response to a forced filing request on behalf of shareholders who accused the Musk and Tesla board of directors of violating their confidential obligations to the company and its shareholders by providing unjust enrichment to Musk and losses. corporate assets.
While granting plaintiffs access to certain documents that Musk either sent or received, Slight denied access to a wider range of other documents that counsel argued were similarly protected by the privilege of a client lawyer.
Slights said documents that Musk shared with Tesla general counsel Todd Maron or deputy general counsel Jonathan Chang before the board signed the compensation plan should be provided to the plaintiff shareholders.
The plaintiffs allege that Chang and Maron, a former lawyer for Musk̵
“Using his control, close personal relationships and reputation for retribution, Musk co-opted Maron and Chang to help him structure the plan without the commission’s involvement,” the plaintiffs’ lawyers wrote, asking Sights to force the company to hand over documents.
“Musk and his agents have submitted a fully-fledged plan to the committee,” they added.
While Slights agreed that messages directly related to Musk should be disclosed, he refused to order defenders to pass other messages between board members, Chang and Maron, and an outside law firm.
The judge stated that there was no reason for him to order the production of documents that could be protected by the privilege of a client lawyer when the 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 the case.
The plaintiffs argued in their request to force Tesla to illegally defend hundreds of documents that Maron or Chang shared with the Compensation Commission and its advisers.
Lawyer Gregory Varalo told Slights on Monday that the plaintiffs in the 2018 lawsuit still have no answer to a simple question: “Whose idea was the biggest compensation plan ever created?”
“If you read the recording so far, no one seems to know,” Varalo said.
“There was a lot of sausage production before it even shone in the eyes of the compensation committee,” he added.
Vanessa Lavelli, a lawyer representing Tesla’s directors, told Slights that the board had followed a “strong process” to develop and approve the compensation plan.
“There was absolutely no stamping here and the defendants are enjoying the opportunity to present this protocol to the court,” she said.
In 2019, Slights refused to reject claims for defaults against the directors of Musk and Tesla and the request for unjust enrichment against Musk.
Under Delaware’s “business judgment” rule, courts usually pay strong homage to corporate board decisions unless there is evidence that the directors have had conflicts or acted in bad faith. If the plaintiff is able to overcome the presumption of the business judgment rule, the board’s action is then subjected to a “fairness” analysis, which shifts the burden on the corporation to show that the transaction involves both fair deals and fair value. .
Slights said that because the plaintiffs had adequately argued that Musk was a controlling shareholder and had a conflict of interest, the case had succumbed to “heightened judicial suspicion”.
According to the plan, Musk will reap billions if the manufacturer of electric cars and solar panels achieves an ambitious market capitalization and operational stages. For each of the 12 stages the company achieves, Musk, who already owned more than 20% of Tesla when the plan was approved, will receive shares equal to 1% of the outstanding shares at the time the grant was awarded.
Each stage involves increasing Tesla’s market capitalization by $ 50 billion and achieving aggressive pre-tax revenue and profit growth targets. Musk will reap the full benefits of the $ 55.8 billion paycheck only if he leads Tesla to a market capitalization of $ 650 billion and unprecedented revenue and profits within a decade.