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The Delaware judge who denied Tesla (TSLA) CEO Elon Musk a $56 billion compensation package once did so for a second time on Monday, dealing a fresh legal defeat to the billionaire as he prepares for a major role in President-elect Donald Trump’s new administration.
The ruling all but assures another court battle over Musk’s historic pay pact that legal experts expect could go all the way to the Supreme Court. It could also raise new concerns about Musk's motivations to give as much time as he has to Tesla.
Even before the 2018 pay package was invalidated by the Delaware court, Musk's attention was divided between his ventures SpaceX, X.com (formerly Twitter), and the Boring Co., among other pursuits.
And now he is set to play a central role in Trump's new cost-cutting efforts as part of the extra-governmental "Department of Government Efficiency" (DOGE).
Chancellor Kathaleen McCormick of the Court of Chancery initially voided the pay pact in January because of what she called "extensive ties" between Musk and the people negotiating the pay package and a lack of public disclosure about Musk’s relationships with those who approved the deal.
Tesla stockholders then approved the pay package a second time in June after an aggressive public-relations campaign that featured an open letter from Tesla chair Robyn Denholm.
She told stockholders that "fairness and respect require that we honor the collective commitment we made to Elon — a commitment that was, and fundamentally still is, about retaining Elon’s attention and motivating him to focus on achieving astonishing growth for our company."
Stockholders voted overwhelmingly in favor of the pact again. "Hot damn, I love you guys," Musk told stockholders after the votes were tabulated.
Tesla argued that the additional stamp of approval should be enough for McCormick to toss out her initial decision.
McCormick disagreed with Tesla's argument, saying in her Monday opinion that Musk and members of Tesla's board made creative, yet fatally flawed, arguments in favor of a second vote curing the problems that unwound the initial vote.
McCormick said Musk and the defendants put forth the "exact same" pay plan that she found had breached the duty of loyalty that board members owe to their shareholders by law. That breach centered on Musk's conflict of interest with board members who voted for the initial shareholder vote.
"[A] stockholder vote standing alone cannot ratify a conflicted-controller transaction," McCormick said.