Musk’s Twitter, Tesla Fights Ramp Up in Delaware: Explained

Elon Musk‘s leadership at Twitter Inc. and Tesla Inc. is the subject of three major face-offs coming up in the Delaware Court of Chancery.

It has been a year since Musk, after months of courtroom and social media drama, purchased Twitter Inc.—now known as X—for $44 billion. While that deal let him dodge one trial in the country’s premier venue for corporate litigation, October will be a busy month for Musk in Delaware Chancery, where he faces suits from a former thrash metal drummer and pension funds questioning the Tesla CEO’s lavish pay and further legal fallout from his Twitter buy.

1. How much does Tesla want to pay Musk?

The court’s chief judge, Chancellor Kathaleen St. Jude McCormick, is expected to rule soon in a lawsuit brought by a Tesla shareholder challenging a $55 billion pay package—which would be the largest in US corporate history—the electric-car company’s board approved for Musk, the world’s richest person.

Tesla shareholder Richard Tornetta, the ex-drummer who held nine Tesla shares when he sued in 2018, alleges Tesla’s board failed to exercise independence from Musk as it drew up the package for someone who’s essentially a part-time leader with various other companies to run. Musk testified during a November 2022 trial that he played no role in the board’s decision, while Tornetta’s attorneys have argued Tesla’s directors filled proxy disclosures with “half-truths” about the package. McCormick noted during closing arguments in February that Tornetta’s lawyers were arguing that finding a single flaw in the proxy disclosures “would be the kill shot” allowing her to invalidate Musk’s compensation plan. The board’s lawyer argued that Delaware law doesn’t require perfection from a board deciding executive compensation.

2. What’s the legal fallout from Musk buying Twitter?

Twitter Inc. “no longer exists” after being merged with X Corp., a Nevada entity. Regardless, unresolved issues arising from Musk’s reluctant purchase of the company linger in Delaware and elsewhere. Numerous lawsuits allege that under Musk’s leadership, the company once known as Twitter now owes millions to former employees, vendors, and landlords. Musk, meanwhile, is suing the law firm that led the Chancery Court fight to force him to complete his purchase of Twitter .

McCormick could decide in an Oct. 3 hearing whether more than $1.6 million in legal fees are owed to Twitter’s ex-CEO Parag Agrawal and other former top executives of the company, all ousted when Musk took over. They sued in Chancery Court, claiming the social media platform should cover their legal fees from shareholder lawsuits and investigations by the US Department of Justice and the US Securities and Exchange Commission during their tenures. The executives and X Corp. want the matter settled without a trial.

A former Twitter investor’s pre-sale lawsuit against Musk seemed over once Musk paid up, but Luigi Crispo now says he’s owed $3 million in legal fees because the litigation helped close the Twitter deal. That fee application “defies common sense,” Musk and X Corp. said in a brief.

In federal court, Musk and Twitter have asked a District of Delaware judge to dismiss at least three separate lawsuits filed by former Twitter employees alleging they were misled about severance pay for laid-off workers who had stayed through the turbulent acquisition.

The legacy of Twitter v. Musk sometimes bleeds into other Chancery Court business. Vice Chancellor J. Travis Laster cited Musk’s insistence that his post-sale job title was “Chief Twit” in a January opinion finding that a person acting as a CEO or other officer of a company can be served a lawsuit under Delaware corporate law even if they don’t formally hold that position.

3. What else is going on with Tesla?

One lawsuit brought by a pension fund over executive compensation packages at Tesla appears to be at the finish line, with McCormick scheduled to consider finalizing a proposed $919 million settlement in an Oct. 13 hearing.

Musk and Tesla directors—including Musk’s brother Kimbal, Oracle Corp. co-founder Larry Ellison, and James Murdoch, son of media mogul Rupert Murdoch—will return stock options worth $735 million and forgo three years of pay worth $184 million under the deal, and they’ll make corporate governance changes to the way board-level compensation issues are reviewed. But one investor objects to the deal, saying it doesn’t specify how much each individual director will pay. That, says investor Michael Levin, creates a situation where Musk could pay the full amount himself, which could “eliminate any independence from company management that stockholders seek in Tesla directors.”

Attorneys for the pension fund could be looking at a massive payday themselves. Under the settlement, attorneys from four law firms representing the fund seek about $230 million in fees—that adds up to over $10,000 per hour for the work they put in against Tesla’s directors. By comparison, in the largest stockholder settlement in the Chancery Court’s history—a $1 billion agreement involving Dell Technologies Inc.—the lead shareholder attorneys took home a landmark $267 million in legal fees, according to court documents.

Read More:

• Tesla $919 Million Board Pay Pact Draws Shareholder Objections
• Ex-Twitter Executives Say Musk Still Owes Them for Legal Bills
• Twitter Ex-Holder Who Sued Elon Musk Seeks $3 Million Legal Fee
• Tesla Board Misrepresented Musk’s $55 Billion Payday, Judge Told