I mentioned a few times to my UWLA Business Assns students last semester that there was a pending derivative lawsuit by some Tesla shareholders against Elon Musk that went to trial in Oct 2022 but no decision to date. Well the decision came down yesterday and it was against Elon Musk.
I really expected it to go the other way. The 201 page decision is here. As we learned, it is a duty of loyalty and care issue as to Musk since something is going from the corp into his pocket (a lot of stock), and a duty of care issue as to the rest of the board. As to loyalty, the transfer to him is presumed to be unfair to the corp unless he did not participate in making the decision. He argued that he did not and further, the bonus program was approved in advance by disinterested directors as well as disinterested shareholders. Based on that, he argued that it was the unhappy shareholders’ burden to establish that the transaction was not fair to Tesla.
The court, after taking testimony for five days, and considering 1700 exhibits, (and reading a few Musk biographies I think) found that the directors were not disinterested, and the shareholders were misled, at least enough to diminish the consequences of the vote, and therefore it was Musk’s burden to establish fairness which he did not do.
I’ve just started working my way through the decision. I’m going to prepare a case summary which I will upload which it is complete.