A second shareholder vote could not undo a fiduciary breach

The record

On January 30, 2024, Delaware's Court of Chancery issued a post-trial opinion in Tornetta v. Musk rescinding the 2018 CEO Performance Award that Tesla's board had granted Elon Musk. The award, disclosed in Tesla's own February 2018 proxy statement at a $55.8 billion maximum value and $2.6 billion grant-date fair value, let Musk earn twelve tranches of options, each worth roughly 1 percent of Tesla's outstanding shares, tied to market-capitalization and operating milestones. Chancellor Kathaleen St. Jude McCormick found the award subject to Delaware's entire fairness standard because Musk controlled Tesla when it was approved, that Tesla's directors bore the burden of proving the award was fair, and that they failed to meet it. Tesla then put the same, already-rescinded grant to a fresh stockholder vote, and on December 2, 2024 the court issued a second opinion denying Tesla's motion to revise the January ruling on that basis and awarding the plaintiff's counsel a $345 million fee.

What the documents establish

The January opinion ties its entire-fairness finding to Musk's control over Tesla — his 21.9 percent ownership plus his influence over the directors who negotiated the award — and to the board's failure to prove the process or price was fair, including that it never tested whether the package was necessary to retain him. The December opinion records that Tesla's board conditioned a new 2024 vote on “ratifying” the same rescinded plan and then asked the court to reverse its own prior judgment on that basis; the court held that a stockholder vote taken after an adverse post-trial ruling cannot retroactively cure an adjudicated breach of the duty of loyalty, among other defects with the argument. Read together, the two opinions establish a sequence — rescission, then a rejected attempt to undo the rescission by vote — rather than one closed transaction.

The operating read

Editorially, the case is a reminder that a stockholder vote on a related-party transaction only shifts the standard of review, or ratifies it, if the vote happens before litigation produces an adverse judgment on the merits; a vote engineered afterward, aimed at the same transaction a court has already found unfair, is not the same act. It also shows that “the board approved it” and “a majority of stockholders later voted for it” are not interchangeable facts once a controller's influence over the board itself is in question.

What to check before you decide

Before relying on a stockholder vote to protect a related-party compensation decision, check the following against your own facts and counsel's advice:

• Did the vote occur before any litigation reached a judgment on the underlying transaction's fairness?
• Was the individual receiving the award a controlling stockholder, and if so, were the safeguards a controller transaction requires actually followed from the outset?
• Does the proxy disclosure supporting the vote address, rather than omit, the process failures a court might later scrutinize?

This describes what the two Chancery opinions state on their face; whether either decision has since been affected by further appellate proceedings should be checked against the current case docket.