In re Tesla, Inc. Derivative Litig.

• Court: Supreme Court of Delaware
• Writing for the Court: PER CURIAM:
• Docket Number: 534,2024,10,2025,11,12,C. A. 2018-0408
• Decision Date: 19 December 2025
• Citation: In re Tesla, Inc. Derivative Litig., 10, 11, 12 (Del. Dec 19, 2025)
• Parties: IN RE TESLA, INC. DERIVATIVE LITIGATION

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IN RE TESLA, INC. DERIVATIVE LITIGATION

Nos. 534, 2024, 10, 2025, 11, 2025, 12, 2025

C. A. No. 2018-0408

Supreme Court of Delaware

December 19, 2025

Submitted: October 15, 2025.

Court Below: Court of Chancery of the State of Delaware.

Upon appeal from the Court of Chancery. AFFIRMED IN PART, REVERSED IN PART.

David E. Ross, Esquire, Garrett B. Moritz, Esquire, Thomas C. Mandracchia, Esquire, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; Michael A. Barlow, Esquire, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Wilmington, Delaware; Alex Spiro, Esquire, Christopher D. Kercher, Esquire, QUINN EMANUEL URQUHART & SULLIVAN, LLP, New York, New York; Christopher G. Michel, Esquire (argued), QUINN EMANUEL URQUHART & SULLIVAN, LLP, Washington, D.C.; Daniel Slifkin, Esquire, Vanessa A. Lavely, Esquire, CRAVATH, SWAINE & MOORE LLP, New York, New York for Defendants Below/Appellants Elon Musk, Robyn M. Denholm, Antonio J. Gracias, James Murdoch, Linda Johnson Rice, Brad W. Buss, and Ira Ehrenpreis.

Rudolf Koch, Esquire, John D. Hendershot, Esquire, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; William M. Lafferty, Esquire, Susan W. Waesco, Esquire, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; John L. Reed, Esquire, Ronald N. Brown, III, Esquire, DLA PIPER LLP (US), Wilmington, Delaware; Catherine A. Gaul, Esquire, ASHBY & GEDDES, P.A., Wilmington, Delaware; Jeffrey B. Wall, Esquire (argued), Morgan L. Ratner, Esquire, SULLIVAN & CROMWELL LLP, Washington, D.C.; Brian T. Frawley,

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Esquire, Matthew A. Schwartz, Esquire, SULLIVAN & CROMWELL LLP, New York, New York for Defendants Below/Appellants Tesla, Inc.

Gregory V. Varallo, Esquire (argued), BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, Wilmington, Delaware; Peter B. Andrews, Esquire, Craig J. Springer, Esquire, David M. Sborz, Esquire, Andrew J. Peach, Esquire, Jackson E. Warren, Esquire, ANDREWS & SPRINGER LLC, Wilmington, Delaware; Jeroen van Kwawegen, Esquire, Thomas G. James, Esquire, BERNSTEIN LITOWITZ BERGER & GROSSMAN LLP, New York, New York; Jeremy S. Friedman, Esquire, Spencer M. Oster, Esquire, David F.E. Tejtel, Esquire, FRIEDMAN OSTER & TEJTEL PLLC, Bedford Hills, New York for Plaintiff-Below/Appellee.

Anthony A. Rickey, Esquire, MARGRAVE LAW LLC, Wilmington, Delaware; Donald B. Verrilli, Esquire, Elaine J. Goldenberg, Esquire, MUNGER, TOLLES & OLSON LLP, Washington, D.C.; Achyut J. Phadke, Esquire, MUNGER, TOLLES & OLSON LLP, San Francisco, California; Joseph A. Grundfest, Esquire, STANFORD LAW SCHOOL, Stanford, California for Objector-Appellant Amy Steffens.

David S. Eagle, Esquire, Sally E. Veghte, Esquire, KLEHR HARRISON HARVEY BRANZBURG LLP, Wilmington, Delaware; Thomas R. Grady, Esquire, GRADYLAW, Naples, Florida for Objector-Appellants ARK Investment Management LLC, David Israel, and Kurt Panouses.

Francis G.X. Pileggi, Esquire, Scott D. Cousins, Esquire, Sean B. Brennecke, Esquire, LEWIS BRISBOIS BISGAARD & SMITH LLP, Wilmington, Delaware; Ari Holtzblatt, Esquire, Peter A. Kallis, Esquire, WILMER CUTLER PICKERING HALE AND DORR LLP, Washington, D.C.; Kyle T. Edwards, Esquire, WILMER CUTLER PICKERING HALE AND DORR LLP, San Francisco, California for Amici Curiae Tesla Retail Stockholders, in support of Appellants.

Laura H. McNally, Esquire, MORGAN, LEWIS & BOCKIUS LLP, Wilmington, Delaware for Amici Curiae Current and Retired Practitioners and Professors, in support of Appellants.

Daniel A. Griffith, Esquire, WHITEFORD TAYLOR & PRESTON LLC, Wilmington, Delaware; Steven M. Haas, Esquire, Johnathon E. Schronce, Esquire, James M. Lockerby, Esquire, HUNTON ANDREWS KURTH LLP, Richmond, Virginia for Amicus Curiae, Chamber of Commerce of the United States of America, in support of Appellants.

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Theodore A. Kittila, Esquire, HALLORAN FARKAS + KITTILA LLP, Wilmington, Delaware; Randy D. Gordon, Esquire, Lucas C. Wohlford, Esquire, DUANE MORRIS LLP, Dallas, Texas for Amicus Curiae Texas Association of Business, in support of Appellants.

Rebecca L. Butcher, Esquire, LANDIS RATH & COBB LLP, Wilmington, Delaware; Cory L. Andrews, Esquire, WASHINGTON LEGAL FOUNDATION, Washington, D.C. for Amicus Curiae Washington Legal Foundation, in support of Appellants.

Michael L. Vild, Esquire, CROSS & SIMON, LLC, Wilmington, Delaware; Stephen Blake, Esquire, SIMPSON THACHER & BARTLETT LLP, Palo Alto, California for Amicus Curiae Sequoia Capital Operations, LLC, in support of Appellants.

Ned Weinberger, Esquire, Mark D. Richardson, Esquire, LABATON KELLER SUCHAROW LLP, Wilmington, Delaware for Amici Curiae Corporate Law Academics, in support of Appellee.

Christine M. Mackintosh, Esquire, GRANT & EISENHOFER, P.A., Wilmington, Delaware; Joel Fleming, Esquire, Amanda Crawford, Esquire, EQUITY LITIGATION GROUP LLP, Boston, Massachusetts for Amicus Curiae Charles M. Elson, in support of Appellee.

Before SEITZ, Chief Justice; VALIHURA, TRAYNOR, LEGROW, and GRIFFITHS, Justices, constituting the Court en Banc.

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PER CURIAM:

I. INTRODUCTION

In 2018, the Tesla, Inc. Board of Directors and Tesla stockholders approved an equity compensation plan for Elon Musk, the company's chief executive officer. The plan included twelve tranches of stock options that vested after reaching market capitalization and operational milestones.

A Tesla stockholder filed a derivative lawsuit against Musk and the Tesla directors who approved the plan. The Plaintiff alleged that Musk, as a controlling stockholder, forced the Tesla Board to grant him excessive compensation. Following a five-day trial, the Court of Chancery agreed. Applying the most rigorous standard of review for conflicted corporate transactions, the court concluded that the Director Defendants failed to prove that the compensation plan was entirely fair to Tesla and its stockholders. The court also faulted the Board for misleading disclosures to stockholders who approved the compensation plan. It ordered rescission of the plan.

After a special committee process, the Tesla Board resubmitted the rescinded compensation plan for a second stockholder vote along with new disclosures, including a copy of the court's opinion granting rescission. A majority of disinterested shares voted for the plan. With a second stockholder approval in hand, the Director Defendants asked the Court of Chancery to undo its post-trial opinion.

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The court refused, entered judgment for the Plaintiff granting rescission of the plan, and awarded attorneys' fees to the Plaintiff's counsel.

On appeal, the Director Defendants argue that the Court of Chancery erred by finding that Musk was a controlling stockholder and therefore entire fairness review applied, holding that the award was unfair, and granting rescission. Tesla argues that the court erred by refusing to revise its post-trial opinion to give effect to the second stockholder vote and awarding the Plaintiff's counsel excessive fees.

For the reasons explained below, we reverse the remedy chosen by the Court of Chancery - rescission of the 2018 compensation plan. We reinstate the 2018 plan and award the Plaintiff nominal damages. We also award the Plaintiff's counsel fees based on quantum meruit and expenses.

II. FACTUAL AND PROCEDURAL BACKGROUND

We rely on the facts as found by the Court of Chancery after trial.^[1] Tesla is a clean-energy company that designs, develops, manufactures, sells, and leases electric vehicles and energy products. Musk invested in Tesla in 2004, served as chairman of the Board between 2004 and 2018, and became chief executive officer in 2008. Before the 2018 transaction in question, the Board awarded Musk two

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previous equity-linked compensation plans, the first in 2009 ("2009 Grant"), and another in 2012 ("2012 Grant").

A. The 2009 Grant.

The 2009 Grant, which the Tesla Board approved in December 2009, was divided into two parts, "each of which offered Musk stock options to purchase 4% of Tesla's fully diluted shares as measured at the grant date."^[2] The first part was employment-based: 1/4th vested at the grant date; and 1/48th vested each month over the next three years contingent on Musk's continued employment with Tesla.^[3]The second part was performance-based: it required Tesla to meet certain milestones (within four years) related to the Model S, culminating in "completion of the 10,000th Model S Production Vehicle."^[4] It is undisputed that Musk timely satisfied each of the 2009 Grant's performance milestones.

B. The 2012 Grant.

The 2012 Grant, which the Tesla Board approved in August 2012, was entirely performance-based, and included ten tranches, "each offering options representing 0.5% of Tesla's outstanding common stock as of August 2012."^[5] Each tranche

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required Musk to pair an "operational milestone" (or, "specified product-related goals") with a "market capitalization milestone."^[6] Notably, each market capitalization milestone required Tesla's market capitalization to increase by $4 billion - not an insignificant amount considering at the time the 2012 Grant was approved, Tesla's market capitalization was $3.2 billion.^[7] Musk had ten years to complete these milestones. It is undisputed that by March 2017, seven of the ten tranches had vested, and Tesla's market capitalization was about $53 billion.^[8]

C. The Challenged 2018 Grant.

As Musk closed in on completion of the 2012 Grant milestones, on January 21, 2018, the Board held a special meeting to approve Musk's third compensation plan (the "2018 Grant" or the "Grant").^[9] Musk and his brother, Kimbal Musk, recused themselves from the meeting. Steve Jurvetson was on leave. The rest of the Board - Ira Ehrenpreis, Robyn Denholm, Antonio Gracias, Brad Buss, James Murdoch, and Linda Johnson Rice - unanimously approved the 2018 Grant.^[10]

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The 2018 Grant has twelve vesting tranches.^[11] Each tranche vested upon meeting one market capitalization milestone and one...