My thirty years as a litigator in the San Francisco Bay Area turned me into a conservative because it exposed me to Democrat judges. Many were ideologically corrupt, shaping their ruling based on Marxist ideas about good and bad people. That’s why I wasn’t surprised when Delaware Court of Chancery Judge Kathaleen McCormick effectively stole tens of billions of dollars from Elon Musk and then transferred hundreds of millions of dollars to the plaintiffs’ attorneys. Musk may have been a good guy when his electric cars aligned with climate change madness, but now that he supports free speech, functioning borders, and Donald Trump, he must be destroyed.
Back in 2018, Musk negotiated an unusual pay package with Tesla. He agreed that he would work for the company without taking a salary. Instead, he would receive 12 tranches of stock options. However, the tranches wouldn’t vest immediately. Instead, every time the company’s market valuation increased by $50 billion, a tranche would vest.
Thus, for Musk to achieve his full compensation, the company’s value would have to increase from $50 billion in 2018 to an eventual $650 billion. Both the board and the shareholders (73% of them) overwhelmingly approved the plan because it put all the risk on Elon Musk.
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The company is currently valued at $1.13 trillion. Although Musk’s compensation was envisioned to be about $56 billion, the exploding share price means he could receive as much as $100 billion.
A group of minority shareholders challenged the compensation package. (My understanding is that the lead plaintiff held only seven shares at the time.) In January 2024, Judge McCormick invalidated the entire compensation package, not only stealing Musk’s compensation but also his ownership interest in Tesla:
Greg Varallo, a lawyer who represented Tesla shareholders, said the shares would be canceled. That would substantially reduce Mr. Musk’s wealth and his stake in Tesla, which stands at about 13 percent after he sold shares to finance his acquisition of Twitter, the company he renamed X.
(I suspect that reference to “X,” by the way, goes a long way to explaining the ruling.)
What McCormick wrote in her decision (which I haven’t read; I’ve relied on news reports) is that Musk had too many friends on the board who also became wealthy by hitching their wagons to the Tesla star. She also contended that the shareholders who supported the compensation package were too ignorant for their votes to count.
In June, to address the judge’s complaints, the board and shareholders overwhelmingly voted to reinstate the plan. (This time, 72% of shareholders approved of the compensation package.) The fact that the shareholders re-affirmed the plan should have ended that matter. Because the voting information included the judge’s entire decision, every shareholder knew or should have known the score. Claiming they were ignorant was no longer an option.
However, for a manifestly leftist judge* who obviously hates Musk, the fact that there was a fully informed, arms-length, free-market, second chance negotiation in Musk’s favor still wasn’t enough. McCormick again invalidated Musk’s compensation package.
You could practically see her little Marxist brain concluding that it was just morally wrong for someone to make that much money, never mind that his drive and creativity increased the company’s value (and the shareholder’s wealth) by 2,300%. (Feel free to correct me if I’m wrong. My math skills are shaky.) That’s why she came up with truly ludicrous justifications for her ruling. She essentially held that all settlements and contract negotiations are invalid if she (or another judge) doesn’t like the outcome.
While giving Musk just compensation for his extraordinary accomplishments was a bridge too far for the judge, giving the plaintiff’s lawyers (who are huge Democrat donors) a mind-boggling fee award—$345 million—for their work, was just fine.
The Wall Street Journal accurately sums up this terrible decision:
Judge McCormick based her ruling on a vague “fairness standard” that would effectively let one investor challenge a corporate transaction approved by a majority of shareholders on the basis that it was somehow tainted. As Tesla tweeted, “this ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners—the shareholders.”
About two-thirds of Fortune 500 companies are incorporated in Delaware owing to the state’s well-established corporate law principles, which the ruling upends. It will encourage more dubious lawsuits that enrich plaintiff attorneys, whom the judge awarded $345 million—payable in Tesla stock or cash.
But shareholders won’t benefit from Mr. Musk losing those stock options. Judging by the 1.6% decline in Tesla’s stock price after the ruling, some think Tesla could be worse off as a result.
I can’t say it better than that.
Elon Musk had better appeal this, and the Delaware appellate court had better think long and hard about the message McCormick sent to the corporations headquartered in that state.
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*McCormick has kept a low profile over the years, but she started as a Legal Aid attorney—that is, providing legal aid to people who cannot afford it. This is a good indicator that she’s a Democrat because helping the poor navigate the legal system is a virtuous act in which Democrats shine.
This article was originally published at www.americanthinker.com
