Tesla asks parties in Musk compensation case to interpret shareholders’ ratification

Tesla is asking the parties involved in Elon Musk’s CEO compensation case to interpret shareholders’ ratification last week.

Following Tesla shareholders voting again for Musk’s 2018 CEO compensation plan last week, the automaker’s lawyers now have to explain to the Delaware judge how this impacts the case that rescinded the compensation.

Tesla admitted that its use of ratification was novel in this case, but it does claim that it “significantly impacts” the case in a new letter to Judge McCormick:

“The approval of ratification by Tesla’s stockholders significantly impacts the claims and issues in this action, including the court’s final judgment.”

The automaker is asking all parties involved to explain their interpretation of the impact of shareholders’ ratification.

Tesla’s own argument is that including the judge’s decision in its proxy statement informs shareholders of all the governance problems highlighted by the judge, and if they decide to move forward with the compensation regardless, which they did, the judge should approve.

A lawyer representing the shareholder in the case told Reuters that they will argue the ratification has “no legal effect”:

Greg Varallo, a shareholder attorney in the case against the pay package, said the ratification had “no legal effect” on the case and that he would explain his argument in a brief due Friday.

Legal scholars familiar with Delaware business law have all agreed that this would be a brand new use of the ratification clause, but it’s not impossible that Judge McCormick would accept Tesla’s interpretation.

The full arguments from each side should be in front of the judge by Friday.

The next hearing for the case is set for July 8, when the judge should decide on the shareholder’s attorneys. The shareholders are asking for around $5 billion in Tesla stocks, while the automaker is countering at $13.8 million.

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