IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

 RICHARD J. TORNETTA, Individually and on Behalf of All Others Similarly Situated and Derivative on Behalf of  Nominal Defendant TESLA, INC., Plaintiff, v. ELON MUSK, ROBYN M. DENHOLM, ANTONIO J. GRACIAS, JAMES MURDOCH, LINDA JOHNSON RICE, BRAD W. BUSS, IRA EHRENPREIS, STEVE JURVETSON, and KIMBAL MUSK, Defendants, and TESLA, INC., a Delaware corporation,  Nominal Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

C.A. No. 2018-0408-JRS OPINION

 Date Submitted: June 10, 2019 Date Decided: September 20, 2019 Peter B. Andrews, Esquire, Craig J. Springer, Esquire and David Sborz, Esquire of Andrews & Springer LLC, Wilmington, Delaware and Jeremy S. Friedman, Esquire, Spencer Oster, Esquire and David F.E. Tejtel, Esquire of Friedman Oster & Tejtel PLLC, New York, New York, Attorneys for Plaintiff Richard J. Tornetta.

 

 

David E. Ross, Esquire, Garrett B. Moritz, Esquire and Benjamin Z. Grossberg, Esquire of Ross Aronstam & Moritz LLP, Wilmington, Delaware and William Savitt, Esquire, Anitha Reddy, Esquire and Noah B. Yavitz, Esquire of Wachtell, Lipton, Rosen & Katz, New York, New York, Attorneys for Defendants Elon Musk, Robyn M. Denholm, Antonio J. Gracias, James Murdoch, Linda Johnson Rice, Brad W. Buss, Ira Ehrenpreis, Steve Jurvetson, Kimbal Musk and Nominal Defendant Tesla, Inc.

SLIGHTS, Vice Chancellor

 

 1

In January 2018,

Tesla, Inc.’s board of directors (the “Board”) approved an

incentive-based compensation plan for its chief executive officer, Elon Musk, called the 2018 Performance Award

(the “Award”)

. The Board then submitted the Award

to Tesla’s stockholders for appro

val. The stockholders who voted at the specially called meeting overwhelmingly approved the Award and Tesla implemented it thereafter. A Tesla stockholder has brought direct and derivative claims against Musk and members of the Board alleging the Award is excessive and the product of  breaches of fiduciary duty. Defendants move to dismiss under Court of Chancery Rule 12(b)(6).

A board of directors’ decision to fix the compensation of the company’s

executive officers is about as work-a-day as board decisions get. It is a decision entitled to great judicial deference.

1

 When the board submits its decision to grant executive incentive compensation to stockholders for approval, and secures that approval, the decision typically is entitled to even greater deference.

2

 But this is not a typical case. Plaintiff has well pled that Musk, the beneficiary of the Award, is

1

 

See Brehm v. Eisner 

, 746 A.2d 244, 263 (Del. 2000) (

“[A]

 

 board’s decision on executive

compensation is entitled to great deference. It is the essence of business judgment for a  board to determine if a particular individual warrant[s] large amounts of money. . .

”

) (internal quotations omitted).

2

 

See Michelson

v.

 Duncan

, 407 A.2d 211, 214, 222 (Del. 1979) (holding that an option grant to directors or officers that has been ratified by the stockholders is subject to judicial review only if the award is wasteful);

 Lewis v. Vogelstein

, 699 A.2d 327, 336 (Del. Ch. 1997) (same).