“Courts are not in the business of business. Informed shareholders—not trial judges and plaintiffs’ lawyers—should have the final say on what is in the best interests of Delaware corporations.”
—Cory Andrews, WLF General Counsel & Vice President of Litigation

Click here for WLF’s brief.

WASHINGTON, DC—Yesterday, Washington Legal Foundation (WLF) filed an amicus brief with the Delaware Supreme Court, urging it to reverse a Chancery Court decision cancelling Elon Musk’s compensation package for Tesla—even after 72% of Tesla’s shareholders ratified that compensation package.

The appeal arises from a derivative suit by a lone shareholder suit alleging that Tesla’s directors failed to properly negotiate Musk’s 2018 compensation package. The Chancery Court ultimately agreed, invalidating Musk’s compensation package. But months later and with perfect hindsight, Tesla’s stockholders voted on whether to ratify or reject the terms of the 2018 agreement. In the end, 72% of Tesla’s disinterested stockholders ratified Musk’s 2018 compensation package as best for them and the company. Even so, the Chancery Court insisted that Tesla’s disinterested stockholders have no recourse once a court finds a transaction unfair.

In its amicus brief urging reversal, WLF argues that affirming the lower court’s cramped view of shareholder ratification would curtail shareholder democracy, invite wasteful litigation, dampen innovation, and harm Delaware’s business climate. Above all, affirming the decision below would jeopardize Delaware’s prominence as the nation’s premier corporate hub—home to over two-thirds of S&P 500 companies—by signaling that even well-informed stockholder votes are vulnerable to being nullified by the courts.

WLF’s brief also explores the shortcomings of judicial second-guessing of business judgments. While Delaware courts have traditionally put up only the most necessary guardrails against abuse in process, moving beyond those basic guardrails here into policy substance is primarily reserved for the General Assembly. WLF’s brief was filed with pro bono assistance from Rebecca Butcher of Landis Rath & Cobb LLP in Wilmington, Delaware.