Tesla's Law Firm Involved in Drafting Delaware Law Change That Could Restore Musk's $55 Billion Pay Package

New legislation may redefine shareholder control, influencing Musk's compensation case

A law firm representing Elon Musk and Tesla has played a key role in drafting proposed changes to Delaware's corporate laws, which some experts suggest could ultimately reinstate Musk's $55.8 billion compensation package. This development comes as Musk's legal team continues to appeal a court ruling that voided the record-breaking pay deal.

The proposed amendments to the Delaware General Corporation Law aim to redefine the criteria for classifying a shareholder as a "controller." Under current law, a shareholder who owns less than one-third of a company's stock can still be deemed a controller if they exercise significant influence over corporate decisions. This designation was a pivotal factor in the Delaware Chancery Court's decision to invalidate Musk's substantial compensation package. The new legislation seeks to tighten the definition, requiring a shareholder to hold at least one-third of the company's shares to be classified as a controller.

Legal analysts are divided on whether this legal revision, if passed, could retroactively affect Musk's ongoing legal battle. While the bill does not explicitly state whether it applies to pending cases, some experts believe it could provide the Delaware Supreme Court with a pathway to reverse the lower court's ruling and reinstate Musk's pay package.

Richards, Layton & Finger, the law firm representing Musk and Tesla, confirmed its involvement in the legislative process. The firm, known for its longstanding influence on Delaware corporate statutes, asserted that the proposed changes are not intended to be retroactive and would not directly impact Musk's case. "Our participation in drafting the legislation was as part of a broader collaboration with legal scholars and industry experts, not on behalf of any specific client," said Lisa Schmidt, president of Richards, Layton & Finger. She emphasized that the firm's role aligns with its tradition of contributing to Delaware's corporate legal framework.

Delaware Democratic state Senator Bryan Townsend, who is sponsoring the bill, echoed these sentiments. He insisted that the legislation is not retroactive and will not influence Musk's ongoing appeal. Townsend also explained that attorneys from Richards, Layton & Finger were consulted due to their expertise and membership in the Delaware State Bar Association's Corporation Law Council. Despite these assertions, legal experts point out that the bill's lack of clear language regarding retroactivity leaves room for interpretation by the courts.

Corporate law scholars have highlighted the unusual nature of the legislative process in this instance. According to Sarath Sanga, a corporate law professor at Yale University, the proposed amendment bypassed the traditional review process conducted by the Delaware Bar Association's Corporate Law Council. "This departure from established procedures raises questions about the motivations behind the bill," Sanga noted. He further observed that the absence of explicit language preventing retroactive application creates an opening for the courts to revisit their earlier decision.

Tulane University law professor Ann Lipton suggested that the legislation sends a strong message to the Delaware Supreme Court. "While the bill doesn't directly mandate a reversal, it signals a preference for a legal interpretation that could restore Musk's compensation," Lipton said. Similarly, Boston College law professor Brian Quinn emphasized the ambiguity surrounding the bill's potential retroactive impact, noting that the Supreme Court could overturn the previous ruling on other legal grounds, effectively restoring Musk's pay package.

The Delaware Chancery Court's initial ruling against Musk centered on concerns about corporate governance. Chancellor Kathaleen McCormick, who presided over the case, found that the negotiations for Musk's 2018 compensation package lacked independence due to Musk's considerable influence over Tesla's board members. This perceived conflict of interest was a crucial factor in the court's decision to invalidate the pay plan.

If enacted, the proposed amendments could reduce the level of scrutiny applied to shareholders like Musk, potentially weakening the argument that he exercised undue control over Tesla. This change could bolster Musk's case on appeal and provide a legal basis for reinstating his record-breaking pay package.

The outcome of this legislative effort remains uncertain, but it has already sparked significant debate within legal and corporate governance circles. The case holds broader implications beyond Musk and Tesla, as it may redefine how corporate control is assessed and interpreted in the nation's most influential corporate jurisdiction.