Richard J. Tornetta v. Elon Musk

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

RICHARD J. TORNETTA, Individually )
and on Behalf of All Others Similarly )
Situated and Derivatively on Behalf of )
Nominal Defendant TESLA, INC., )
)
Plaintiff, )
)
v. ) C.A. No. 2018-0408-KSJM
)
ELON MUSK, ROBYN M. DENHOLM, )
ANTONIO J. GRACIAS, JAMES )
MURDOCH, LINDA JOHNSON RICE, )
BRAD W. BUSS, and IRA )
EHRENPREIS, )
)
Defendants, and )
)
TESLA, INC., a Delaware Corporation, )
)
Nominal Defendant. )

POST-TRIAL OPINION

Date Submitted: April 25, 2023
Date Decided: January 30, 2024

Gregory V. Varallo, Glenn R. McGillivray, BERNSTEIN LITOWITZ BERGER &
GROSSMANN LLP, Wilmington, Delaware; Jeroen van Kwawegen, Margaret
Sanborn-Lowing, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New
York, New York; Peter B. Andrews, Craig J. Springer, David M. Sborz, Andrew J.
Peach, Jackson E. Warren, ANDREWS & SPRINGER LLC, Wilmington, Delaware;
Jeremy S. Friedman, Spencer M. Oster, David F.E. Tejtel, FRIEDMAN OSTER &
TEJTEL PLLC; Bedford Hills, New York; Counsel for Plaintiff Richard J. Tornetta.

David E. Ross, Garrett B. Moritz, Thomas C. Mandracchia, ROSS ARONSTAM &
MORITZ LLP, Wilmington, Delaware; Evan R. Chesler, Daniel Slifkin, Vanessa A.
Lavely, CRAVATH, SWAINE & MOORE LLP, New York, New York; Counsel for
Defendants Elon Musk, Robyn M. Denholm, Antonio J. Gracias, James Murdoch,
Linda Johnson Rice, Brad W. Buss, and Ira Ehrenpreis.

Catherine A. Gaul, Randall J. Teti, ASHBY & GEDDES, P.A., Wilmington, Delaware;
Counsel for Nominal Defendant Tesla, Inc.

McCORMICK, C.
 Was the richest person in the world overpaid? The stockholder plaintiff in this

derivative lawsuit says so. He claims that Tesla, Inc.’s directors breached their

fiduciary duties by awarding Elon Musk a performance-based equity-compensation

plan. The plan offers Musk the opportunity to secure 12 total tranches of options,

each representing 1% of Tesla’s total outstanding shares as of January 21, 2018. For

a tranche to vest, Tesla’s market capitalization must increase by $50 billion and Tesla

must achieve either an adjusted EBITDA target or a revenue target in four

consecutive fiscal quarters. With a $55.8 billion maximum value and $2.6 billion

grant date fair value, the plan is the largest potential compensation opportunity ever

observed in public markets by multiple orders of magnitude—250 times larger than

the contemporaneous median peer compensation plan and over 33 times larger than

the plan’s closest comparison, which was Musk’s prior compensation plan. This post-

trial decision enters judgment for the plaintiff, finding that the compensation plan is

subject to review under the entire fairness standard, the defendants bore the burden

of proving that the compensation plan was fair, and they failed to meet their burden.

A board of director’s decision on how much to pay a company’s chief executive

officer is the quintessential business determination subject to great judicial

deference. But Delaware law recognizes unique risks inherent in a corporation’s

transactions with its controlling stockholder. Given those risks, under Delaware law,

the presumptive standard of review for conflicted-controller transactions is entire

fairness. To invoke the entire fairness standard, the plaintiff argues that Musk’s
compensation plan was a conflicted-controller transaction. The plaintiff thus forces

the question: Does Musk control Tesla?

Delaware courts have been presented with this question thrice before, when

more adroit judges found ways to avoid definitively resolving it. 1 This decision dares

to “boldly go where no man has gone before,” 2 or at least where no Delaware court

has tread. The collection of features characterizing Musk’s relationship with Tesla

and its directors gave him enormous influence over Tesla. In addition to his 21.9%

equity stake, Musk was the paradigmatic “Superstar CEO,” 3 who held some of the

most influential corporate positions (CEO, Chair, and founder), enjoyed thick ties

with the directors tasked with negotiating on behalf of Tesla, and dominated the

process that led to board approval of his compensation plan. At least as to this

transaction, Musk controlled Tesla.

The primary consequence of this finding is that the defendants bore the burden

of proving at trial that the compensation plan was entirely fair. Delaware law allows

defendants to shift the burden of proof under the entire fairness standard where the

transaction was approved by a fully informed vote of the majority of the minority

stockholders. And here, Tesla conditioned the compensation plan on a majority-of-

1 In re Tesla Motors, Inc. S’holder Litig., 2018 WL 1560293 (Del. Ch. Mar. 28, 2018)

[hereinafter “SolarCity I”]; In re Tesla Motors, Inc. S’holder Litig., 2022 WL 1237185
(Del. Ch. Apr. 27, 2022) [hereinafter “SolarCity II”], aff’d, 298 A.3d 667 (Del. 2023)
[hereinafter “SolarCity III”].
2 Star Trek: The Original Series (Paramount Pictures 1968).

3 Assaf Hamdani & Kobi Kastiel, Superstar CEOs and Corporate Law, 100 Wash. U.

L. Rev. 1353 (2023) [hereinafter “Superstar CEOs”].

2
the-minority vote. But the defendants were unable to prove that the stockholder vote

was fully informed because the proxy statement inaccurately described key directors

as independent and misleadingly omitted details about the process.

The defendants were thus left with the unenviable task of proving the fairness

of the largest potential compensation plan in the history of public markets. If any set

of attorneys could have achieved victory in these unlikely circumstances, it was the

talented defense attorneys here. But the task proved too tall an order.

The concept of fairness calls for a holistic analysis that takes into consideration

two basic issues: process and price. The process leading to the approval of Musk’s

compensation plan was deeply flawed. Musk had extensive ties with the persons

tasked with negotiating on Tesla’s behalf. He had a 15-year relationship with the

compensation committee chair, Ira Ehrenpreis. The other compensation committee

member placed on the working group, Antonio Gracias, had business relationships

with Musk dating back over 20 years, as well as the sort of personal relationship that

had him vacationing with Musk’s family on a regular basis. The working group

included management members who were beholden to Musk, such as General

Counsel Todd Maron who was Musk’s former divorce attorney and whose admiration

for Musk moved him to tears during his deposition. In fact, Maron was a primary go-

between Musk and the committee, and it is unclear on whose side Maron viewed

himself. Yet many of the documents cited by the defendants as proof of a fair process

were drafted by Maron.

3
 Given the collection of people tasked with negotiating on Tesla’s behalf, it is

unsurprising that there was no meaningful negotiation over any of the terms of the

plan. Ehrenpreis testified that he did not view the negotiation as an adversarial

process. He said: “We were not on different sides of things.” Maron explained that

he viewed the process as “cooperative” with Musk. Gracias admitted that there was

no “positional negotiation.” This testimony came as close to admitting a controlled

mindset as it gets. And consistent with this specific-to-Musk approach, the committee

avoided using objective benchmarking data that would have revealed the

unprecedented nature of the compensation plan.

In credit to these witnesses, their testimony was truthful. They did not take a

position “on the other side” of Musk. It was a cooperative venture. There were no

positional negotiations. Musk proposed a grant size and structure, and that proposal

supplied the terms considered by the compensation committee and the board until

Musk unilaterally lowered his ask six months later. Musk did not seem to care much

about the other details. They got ironed out.

In this litigation, the defendants touted as concessions certain features of the

compensation plan—a five-year holding period, an M&A adjustment, and a 12-

tranche structure that required Tesla to increase market capitalization by $100

billion more than Musk had initially proposed to maximize compensation under the

plan. But the holding period was adopted in part to increase the discount on the

publicly disclosed grant price, the M&A adjustment was industry standard, and the

12-tranche structure was reached in an effort to translate Musk’s fully-diluted-share

4
proposal to the board’s preferred total-outstanding-shares metric. It is not accurate

to refer to these terms as concessions.

The defendants also point to the duration of the process (nine months) and the

number of board and committee meetings (ten) as evidence that the process was

thorough and extensive. The defendants’ statistics, however, elide the lack of

substantive work. Time spent only matters when well spent. Plus, most of the work

on the compensation plan occurred during small segments of those nine months and

under significant time pressure imposed by Musk. Musk dictated the timing of the

process, making last-minute changes to the timeline or altering substantive terms

immediately prior to six out of the ten board or compensation committee meetings

during which the plan was discussed.

And that is just the process. The price was no better. In defense of the

historically unprecedented compensation plan, the defendants urged the court to

compare what Tesla “gave” against what Tesla “got.” This structure set up the

defendants’ argument that the compensation plan was “all upside” for the

stockholders. The defendants asserted that the board’s primary objective with the

compensation plan was to position Tesla to achieve transformative growth, and that

Tesla accomplished this by securing Musk’s continued leadership. The defendants

offered Musk an opportunity to increase his Tesla ownership by about 6% (from about

21.9% to at most 28.3%) if, and only if, he increased Tesla’s market capitalization

from approximately $50 billion to $650 billion, while also hitting the operational

milestones tied to Tesla’s top-line (revenue) or bottom-line (adjusted EBITDA)

5
growth. According to the defendants, the deal was “6% for $600 billion of growth in

stockholder value.”

At a high level, the “6% for $600 billion” argument has a lot of appeal. But

that appeal quickly fades when one remembers that Musk owned 21.9% of Tesla when

the board approved his compensation plan. This ownership stake gave him every

incentive to push Tesla to levels of transformative growth—Musk stood to gain over

$10 billion for every $50 billion in market capitalization increase. Musk had no

intention of leaving Tesla, and he made that clear at the outset of the process and

throughout this litigation. Moreover, the compensation plan was not conditioned on

Musk devoting any set amount of time to Tesla because the board never proposed

such a term. Swept up by the rhetoric of “all upside,” or perhaps starry eyed by

Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the

plan even necessary for Tesla to retain Musk and achieve its goals?

This question looms large in the price analysis, making each of the defendants’

efforts to prove fair price seem trivial. The defendants proved that Musk was

uniquely motivated by ambitious goals and that Tesla desperately needed Musk to

succeed in its next stage of development, but these facts do not justify the largest

compensation plan in the history of public markets. The defendants argued the

milestones that Musk had to meet to receive equity under the package were ambitious

and difficult to achieve, but they failed to prove this point. The defendants

maintained that the plan is an exceptional deal when compared to private equity

compensation plans, but they did not explain why anyone would compare a public

6
company’s compensation plan with a private-equity compensation plan. The

defendants insisted that the plan worked in that it delivered to stockholders all that

was promised, but they made no effort to prove causation. They also made no effort

to explain the rationale behind giving Musk 1% per tranche, as opposed to some lesser

portion of the increased value. None of these arguments add up to a fair price.

In the final analysis, Musk launched a self-driving process, recalibrating the

speed and direction along the way as he saw fit. The process arrived at an unfair

price. And through this litigation, the plaintiff requests a recall.

The plaintiff asks the court to rescind Musk’s compensation plan. The

plaintiff’s lead argument is that the court must rescind the compensation plan due to

disclosure deficiencies because the plan was conditioned on stockholder approval.

This argument, although elegant in its simplicity, is overly rigid and wrong. The

plaintiff offers no legal authority for why rescission must automatically follow from

an uninformed vote. Generally, a court of equity enjoys broad discretion in fashioning

remedies for fiduciary breach, and that general principle applies here.

Although rescission does not automatically result from the disclosure

deficiencies, it is nevertheless an available remedy. The Delaware Supreme Court

has referred to recission as the “preferrable” (but not the exclusive) 4 remedy for

breaches of fiduciary duty when rescission can restore the parties to the position they

4 Lynch v. Vickers Energy Corp., 429 A.2d 497, 501 (Del. 1981) (describing rescission

as the “preferrable” remedy), overruled in part by Weinberger v. UOP, Inc., 457 A.2d
701, 703–04 (Del. 1983) (“We therefore overrule [Vickers] to the extent that it
purports to limit a stockholder’s monetary relief to a specific damage formula.”).

7
occupied before the challenged transaction. Rescission can achieve that result in this

case, where no third-party interests are implicated, and the entire compensation plan

sits unexercised and undisturbed. In these circumstances, the preferred remedy is

the best one. The plaintiff is entitled to rescission.

I. FACTUAL BACKGROUND

Trial took place over five days. The record comprises 1,704 trial exhibits, live

testimony from nine fact and four expert witnesses, video testimony from three fact

witnesses, deposition testimony from 23 fact and five expert witnesses, and 255

stipulations of fact. These are the facts as the court finds them after trial. 5

A. Tesla And Its Visionary Leader

Tesla is a vertically integrated clean-energy company. 6 Tesla and its

employees “design, develop, manufacture, sell and lease high-performance fully

electric vehicles and energy generation and storage systems.” 7 As of December 31,

5 This decision cites to: C.A. No. 2018-0408-KSJM docket entries (by docket “Dkt.”

number); trial exhibits (by “JX” number); trial demonstratives (by “PDX” and “DDX”
number); the trial transcript, Dkts. 245–49 (“Trial Tr.”); and stipulated facts set forth
in the Parties’ Stipulation and Pre-Trial Order, Dkt. 243 (“PTO”). The witnesses in
order of appearance were: Ira Ehrenpreis, Todd Maron, Robyn M. Denholm
(remotely), Deepak Ahuja, Phoung Phillips (through deposition clips), Elon Musk,
Antonio J. Gracias, James Murdoch, Andrew Restaino, Brian Dunn, Jon Burg
(through deposition clips), Kimbal Musk (through deposition clips), Jonathan Chang
(through deposition clips), Paul Gompers, Kevin Murphy, Brad W. Buss, and Thomas
Brown. The transcripts of the witnesses’ respective depositions are cited using the
witnesses’ last names and “Dep. Tr.”
6 PTO ¶ 26.

7 JX-1440 at 5; PTO ¶ 29.

8
2021, Tesla and its subsidiaries had nearly 100,000 full-time employees worldwide, 8

and its market capitalization was over $1 trillion. 9

Tesla’s success came relatively recently and, by all accounts, was made possible

by Musk. In 2004, Musk led Tesla’s Series A financing round, investing $6.5

million. 10 He would invest considerably more before the company went public, take

on the role of chairman of Tesla’s Board of Directors (the “Board”) (from April 2004

to November 2018), and, ultimately, become Tesla’s CEO (since October 2008). 11

Musk possesses the ability to “dr[aw] others into his vision of the possible” and

“inspir[e] . . . his workers to achieve the improbable.” 12 And although Musk was not

at the helm of Tesla at its inception, he became the driving visionary responsible for

Tesla’s growth. He earned the title “founder.” 13

1. The Master Plan

At the time of Musk’s initial investment, Tesla was a small-scale startup

producing small quantities of a single vehicle: the Tesla “Roadster,” a high-end,

8 JX-1440 at 14.

9 JX-1510 at 5. As of the start of trial in November 2022, it was $618 billion. JX-
1510 at 1. After trial, Tesla’s market capitalization dropped to approximately $380
billion. See Dkt. 263 (“Defs.’ Post-Trial Opening Br.”) at 9–10.
10 JX-1386 (“Murphy Opening Expert Rep.”) at 11 (giving background on Tesla’s early

years).
11 Id. at 11–12; PTO ¶¶ 44–45.

12 Richard Waters, Elon Musk, billionaire tech idealist and space entrepreneur, Fin.

Times (Sept. 30, 2016), https://www.ft.com/content/8ca82034-86d0-11e6-bcfc-
debbef66f80e.
13 See, e.g., Trial Tr. at 729:19–730:3 (Gracias) (describing Musk as a “founder CEO”

and the “strategic visionary” of Tesla).

9
battery-powered sports car. 14 By 2006, however, Tesla had broadened its goals. That

year, then-chairman Musk published on Tesla’s blog “The Secret Tesla Motors Master

Plan” 15 (a.k.a., the “Master Plan”), which provided a roadmap for Tesla’s future.

Distilled, Musk’s vision was to start by building the Roadster sports car, to use “that

money to build an affordable car,” to use “that money to build an even more affordable

car,” and to “provide zero emission electric power generation options” while

accomplishing these production milestones. 16 The plan advanced what Musk

described as Tesla’s “overarching purpose”—to move toward a sustainable energy

economy, or, as he wrote at the time, to “expedite the move from a mine-and-burn

hydrocarbon economy towards a solar electric economy.” 17

The Master Plan was bold. Although it might seem difficult to believe now,

back then, the market for electric vehicles was unproven. Electric-vehicle technology

was “described as impossible.” 18 Even traditional automotive startups faced an

“incredibly challenging” environment in which many failed. 19 In fact, no new

domestic car company since Chrysler in the 1920s had achieved financial success. 20

14 Murphy Opening Expert Rep. at 11–12.

15 JX-48. Musk wrote this document. PTO ¶ 47.
16 JX-48 at 4 (emphasis omitted).

17 Id. at 1.

18 Trial Tr. at 15:21–16:18 (Ehrenpreis).

19 Id.

20 Id.

10
Given the risks, Musk himself viewed the probability of Tesla completing the Master

Plan as “extremely unlikely.” 21

To even Musk’s surprise, the Master Plan came to fruition. In abbreviated

form, the events played out like this: In 2006, Tesla announced that it would begin

to sell the Signature 100 Roadster for approximately $100,000. 22 By August 2007,

Tesla had pre-sold 570 Roadsters, 23 which became available in 2008, 24 the same year

that Musk became Tesla’s CEO. 25 Tesla went public in January 2010, raising $226.1

million. 26 In June 2012, Tesla launched the Model S, delivering 2,650 vehicles by

year’s end. 27 Model S sales increased to approximately 22,000 in 2013, 32,000 in

2014, and 50,000 in 2015. 28 Over this period, Tesla developed stationary energy

storage products for commercial and residential use, which it began selling in 2013. 29

In 2014, Tesla announced its intent to build its first battery “Gigafactory” and work

21 Id. at 567:20–23 (Musk).

22 See Murphy Opening Expert Rep. at 12 (citing Google, Paypal founders fund
battery-electric sports car, The Globe and Mail (July 21, 2006),
https://www.theglobeandmail.com/report-on-business/google-paypal-founders-fund-
battery-electric-sports-car/article18168182/).
23 Id. (citing Tesla all-electric Roadster to hit road by year end, Reuters News (August

7, 2007)).
24 PTO ¶ 31; Murphy Opening Expert Rep. at 12.

25 PTO ¶ 45.

26 Murphy Opening Expert Rep. at 13.

27 Id. at 14.

28 Id.

29 JX-178 at 8 (2/26/14 Form 10-K).

11
with suppliers to integrate battery precursor material. 30 The factory went live in

2015. 31 In September 2015, Tesla launched the Model X, a midsize SUV crossover. 32

2. The Master Plan, Part Deux

By 2016, Tesla had reached the final phase of the Master Plan, 33 and Musk

began contemplating the next chapter of Tesla’s development. In July 2016, he

published a new strategic document: “Master Plan, Part Deux” (a.k.a., “Part Deux”). 34

That year, Tesla unveiled a long-range, compact sedan called the “Model 3.” 35

Tesla projected that it would begin mass production of the Model 3 in 2017. That

endeavor proved the crucible for Tesla. As the company disclosed on March 1, 2017:

“Future business depends in large part on our ability to execute on our plans to

develop, manufacture, market and sell the Model 3 vehicle . . . .” 36 Tesla announced

another ambitious deadline, stating that its goal was “to achieve volume production

and deliveries of this vehicle in the second half of 2017.” 37

30 Id. at 13–14.

31 JX-248 at 5 (2/24/16 Form 10-K).

32 PTO ¶ 35; see also JX-248 at 4.

33 See JX-335 at 4–5 (3/1/17 Form 10-K).

34 JX-274.

35 JX-335 at 4.

36 Id. at 17.

37 Id.

12
 No one thought Tesla could mass produce the Model 3. 38 Musk stated in Part

Deux that, “[a]s of 2016, the number of American car companies that haven’t gone

bankrupt is a grand total of two: Ford and Tesla.” 39 Tesla had come close to

bankruptcy in its early years. 40 And as of March 2017, approximately 20% of Tesla’s

total outstanding shares were sold short, making it the most shorted company in U.S.

capital markets at that time. 41 Everyone was betting against Tesla and the man at

its helm.

3. Musk’s Backstory And Motivations

Musk is no stranger to a challenge, having led the life of a serial

entrepreneur. 42 He and his brother, Kimbal Musk, 43 launched Musk’s first start-up

in 1995. 44 Musk later co-founded an electronic payment system called X.com, which

would be acquired and renamed PayPal. 45 He also founded: in 2002, a rocket

development and launch company, Space Exploration Technologies Corporation

38 Trial Tr. at 450:17–21 (Ahuja); see, e.g., JX-329 at 1 (2/23/17 Morgan Stanley report

dated February 23, 2017, expecting “no more than a small/modest amount of
customer deliveries” in 2018).
39 JX-274 at 1.

40 Trial Tr. at 17:2–6 (Ehrenpreis).

41 See JX-995.

42 See Murphy Opening Expert Rep. at 10–11, 112; see also Trial Tr. at 495:23–496:11

(Ahuja) (“Elon is a unique individual who is extremely motivated by super-difficult
challenges. . . . [V]ery few people in this world can accept . . . the risk level[] that Elon
can.”).
43 This decision refers to Kimbal Musk as “Kimbal” solely to distinguish him from his

brother. No disrespect is intended.
44 PTO ¶ 49.

45 Id. ¶¶ 50–52.

13
(“SpaceX”); 46 in 2015, an artificial intelligence research organization, OpenAI Inc.; 47

in 2016, a neurotechnology company, Neuralink Corp.; 48 and, in 2017, a private

tunnel-boring company, The Boring Company. 49

In 2017 through 2018, in addition to his positions at Tesla, Musk was the CEO,

CTO, and board chairman of SpaceX and the board co-chair of OpenAI. 50 Musk

divided most of his time between SpaceX and Tesla as of June 2017, 51 but he

increased the amount of time he spent at Tesla by the end of 2017. 52

Musk is motivated by ambitious goals, the loftiest of which is to save humanity.

Musk fears that artificial intelligence could either reduce humanity to “the equivalent

of a house cat” 53 or wipe out the human race entirely. 54 Musk views space

46 Id. ¶¶ 53–55, 62.

47 Id. ¶ 61; Trial Tr. at 21:2–5 (Ehrenpreis).

48 PTO ¶ 59; JX-350; Trial Tr. at 21:6–7 (Ehrenpreis).

49 PTO ¶ 57; Trial Tr. at 21:8–10 (Ehrenpreis).

50 PTO ¶ 62.

51 Trial Tr. at 568:16–569:9, 661:7–15 (Musk); JX-408 at 13. In 2017, Musk typically
spent Monday and Thursday at SpaceX, and Tuesday, Wednesday, and Friday at
Tesla, with additional work for Tesla interspersed throughout the week. Trial Tr. at
661:7–15 (Musk); JX-1256 at 34 (“Mr. Musk estimates he split the bulk (at least 90%)
of his work hours, approximately 80 to 90 hours per week, between Tesla and SpaceX,
with an allocation of 60% to Tesla and 40% to SpaceX. He allocated his remaining
work hours (8–9 hours per week) between Neuralink, The Boring Company and Open
AI.”).
52 Trial Tr. at 569:10–18 (Musk) (testifying that “later in 2017, when things got very

difficult for Tesla, [his] time was almost 100 percent Tesla”).
53 Musk Dep. Tr. at 110:5–111:3.

54 Id. at 108:20–110:4.

14
colonization as a means to save humanity from this existential threat. 55 Musk seeks

to make life “multiplanetary” by colonizing Mars. 56 Reasonable minds can debate the

virtues and consequences of longtermist beliefs like those held by Musk, but they are

not on trial. 57 What is relevant here is that Musk genuinely holds those beliefs.

Colonizing Mars is an expensive endeavor. 58 Musk believes he has a moral

obligation to direct his wealth toward that goal, 59 and Musk views his compensation

from Tesla as a means of bankrolling that mission. 60 Musk sees working at Tesla as

55 See id. at 117:10–16 (stating the mission of SpaceX is “[t]o extend the light of

consciousness beyond Earth in a sustained, permanent manner” by “becoming
multiplanetary”); Trial Tr. at 647:10–20 (Musk) (confirming SpaceX’s mission).
56 Trial Tr. at 647:10–20 (Musk).

57 Compare William MacAskill, What We Owe The Future (2022), with The Good It

Promises, the Harm It Does: Critical Essays on Effective Altruism (Carol J. Adams,
Alice Crary, and Lori Gruen eds., 2023).
58 The court takes judicial notice of this fact.

59 Musk does not dally in the conventional amenities of ordinary billionaires.For
example, he owns only one home. Musk Dep. Tr. at 118:14–21 (“I tried to put it on
Airbnb, but they banned Airbnb in Hillsborough. They’re so uptight.”).
60 Trial Tr. at 77:9–15 (Ehrenpreis) (“Q. Fair for me to understand that your
takeaway from speaking with Mr. Musk about this compensation plan was that he
never wavered on his love for Tesla, that he was trying to determine whether he could
achieve his big aspirations to colonize Mars through Tesla; right? A. Correct.”); id.
at 367:9–18 (Denholm) (“Q. And I think you testified, and I just want to make sure
it’s clear, that one of the things that Mr. Musk told you was that he had a quest to
put a mission on Mars and where he spent his time and energy needed to help him
generate capital to fulfill that quest to put a mission on Mars; right? A. Yes. I mean,
something like that is what I said before. I was talking about -- I mentioned
interplanetary travel, but in the conversation he did mention Mars.”); id. at 420:8–12
(Maron) (affirming that “Elon wanted this new stock grant to make humans an
interplanetary species and to colonize Mars”); id. at 666:22–667:10 (Musk) (“Q. What
you did was you told Robyn and Ira that the benefit you saw in working hard at Tesla
to achieve the plan was that you would have money to go to Mars. Fair to say? A.
Well, not me. To get humanity to Mars. Q. That there would be funds available to

15
worthy of his time only if that work generates “additional economic resources . . . that

could . . . be applied to making life multi-planetary.” 61

B. Musk’s Prior Compensation Plans

Prior to the challenged transaction, Musk received two compensation plans

from Tesla—one in 2009 and one in 2012. Both were equity linked. The first included

a performance-based component. The second was entirely performance based.

1. The 2009 Grant

On December 4, 2009, the Board approved Musk’s first compensation plan (the

“2009 Grant”). 62 The 2009 Grant comprised two parts, each of which offered Musk

stock options to purchase 4% of Tesla’s fully diluted shares as measured at the grant

date. 63

The first part of the 2009 Grant vested automatically in tranches, with 1/4th

vesting immediately and 1/48th vesting each month over the following three years,

assuming that Musk continued to work at Tesla. 64

The second part of the 2009 Grant was performance based, offering Musk an

additional 4% of Tesla’s fully diluted shares prior to the grant date for achieving each

of the following: “successful completion of the Model S Engineering Prototype”;

pursue your long-term goal of making life interplanetary? A. Yes. Q. Saving the
world? A. Well, saving civili -- consciousness, yes.”).
61 Id. at 665:2–667:10 (Musk); see also Musk Dep. Tr. at 115:24–117:16, 163:14–165:5

(discussing space colonization plans and tradeoffs of spending time on Tesla).
62 JX-68 at 2–3 (1/29/10 Form S-1 (Excerpt)).

63 Id.

64 Id.(stating “1/48th of the shares [are] scheduled to vest each month over the
subsequent three years”).

16
“successful completion of the Model S Vehicle Prototype”; “completion of the first

Model S Production Vehicle”; and “completion of the 10,000th Model S Production

Vehicle.” 65 The 2009 Grant required that Musk meet these milestones within four

years; otherwise, he forfeited his right to the unvested portions. 66

Tesla began delivering its next electric car model, the Model S, in June 2012

and Musk achieved all the 2009 Grant’s performance milestones by December 31,

2013. 67

2. The 2012 Grant

Before the 2009 Grant milestones had been achieved, on August 1, 2012, the

Board approved a second compensation plan for Musk (the “2012 Grant”). 68 The 2012

Grant involved ten tranches, each offering options representing 0.5% of Tesla’s

outstanding common stock as of August 2012. 69

For a tranche to vest, Tesla would have to achieve both a market capitalization

milestone and an operational milestone. 70 Each tranche required Musk to increase

Tesla’s market capitalization by $4 billion—an increment greater than Tesla’s $3.2

billion market capitalization 18 trading days before the Board approved the 2012

Grant. 71 The operational milestones required Tesla to accomplish specified product-

65 Id. at 3.

66 Id.

67 PTO ¶¶ 32, 191; JX-178 at 114.

68 PTO ¶ 192; JX-135 at 77 (8/2/12 Form 10-Q for Q2).

69 JX-135 at 77.

70 Id.

71 Id.; JX-154 at 26 (4/17/13 Tesla Schedule 14A Proxy).

17
related goals, such as developing and launching the Model X and the Model 3, and

reaching aggregate production of 300,000 vehicles. 72 The milestones worked in

tandem. For example, one tranche would vest if Tesla achieved one of the operational

milestones and a market capitalization increase of $4 billion, while two tranches

would vest if Tesla achieved two of its operational milestones and a market

capitalization increase of $8 billion. 73 The 2012 Grant had a ten-year term. 74

By the end of 2016, Tesla had achieved seven of the market capitalization

milestones and five of the operational milestones of the 2012 Grant, with another four

operational milestones “considered probable of achievement.” 75 By March 2017,

seven of the 2012 Grant’s ten tranches had vested. 76

From the Board’s perspective, the 2012 Grant was successful. In only five

years, Tesla’s market capitalization grew by over 15x from $3.2 billion to $53 billion. 77

Tesla saw significant operational growth as well, designing and launching the Model

S, Model X, and Model 3, and increasing its total annual vehicle production from

72 JX-135 at 77; JX-154 at 26.

73 JX-135 at 77; JX-154 at 26.

74 JX-137 at 1 (stating the 2012 Grant expired on August 13, 2022); JX-68 at 3.

75 JX-335 at 45.

76 PTO ¶ 206.

77 Tesla’s market capitalization was approximately $59 billion as of the proxy
statement’s publication (February 2018) and $53 billion as of the stockholder
approval (March 2018). JX-154 at 26; JX-878 at 24 (2/8/18 Schedule 14A Proxy
Statement); JX-1510 at 26.

18
approximately 3,000 total vehicles in 2012 78 to more than 250,000 vehicles in 2017. 79

Musk worked hard toward these goals. And he was paid extremely well. In the end,

the value of Musk’s holdings increased from approximately $981 million to $13

billion, meaning that Musk ultimately received approximately 52x the 2012 Grant’s

grant date fair value. 80

C. The Compensation Process Takes Off.

In 2017, Tesla was already nearing completion of the 2012 Grant milestones,

even though the 2012 Grant had a ten-year term. This prompted a discussion that

led to the compensation plan at issue in this litigation (the “2018 Grant” or the

“Grant”). By this time, Musk had accumulated beneficial ownership of 21.9% of the

outstanding shares of Tesla common stock through his early investments and the two

prior grants. 81

78 JX-147 at 4 (3/7/13 Form 10-K).

79 JX-1105 at 45 (2/19/19 Form 10-K).

80 JX-1384 (“Dunn Opening Expert Rep.”) at 103. This is the measure of the
compensation expense for all stock-based compensation awards under the Financial
Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC)
718. Murphy Opening Expert Rep. at 94–96 “ASC 718 allows companies to use a
variety of methodologies to measure the company’s cost of granting employee stock
options, including Black-Scholes, binomial and lattice models, and Monte Carlo
simulations. . . [T]he value of options can be estimated by computing the expected
value of the option upon exercise assuming that the expected return on the stock is
equal to the risk-free rate, and then discounting the expected value to the grant using
the risk-free grant.” Id.
81 PTO ¶ 64.

19
 1. Meet The Decision Makers.

At all relevant times, Tesla had a nine-person Board comprising Musk, Kimbal,

Brad W. Buss, Robyn M. Denholm, Ira Ehrenpreis, Antonio J. Gracias, Steve

Jurvetson, James Murdoch, and Linda Johnson Rice. 82 The Board had a standing

compensation committee (the “Compensation Committee”), which was responsible for

negotiating Musk’s compensation plan. 83 Ehrenpreis, Buss, Denholm, and Gracias

served on the Compensation Committee, with Ehrenpreis as chair. 84 Musk and

Kimbal recused themselves from most of the meetings and all of the votes on the 2018

Grant, and Jurvetson had prolonged leaves of absence during the relevant period. 85

The fiduciaries responsible for Tesla in connection with the 2018 Grant, therefore,

were the Compensation Committee members plus Murdoch and Johnson Rice.

a. The Compensation Committee Members

i. Ehrenpreis

Ehrenpreis is a founder and managing partner of DBL Partners, an impact-

investing venture-capital firm that focuses on driving environmental change through

82 Id. ¶¶ 44, 73, 82, 87, 98, 122, 127, 132, 143.

83 Id. ¶¶ 155, 214, 218, 220, 222, 224, 226, 228, 229.

84 Id. ¶¶ 74, 84, 88, 106.

85 Id. ¶¶ 133, 232; JX-631 at 1; JX-791 at 1; Trial Tr. at 48:5–10 (Ehrenpreis); id. at

837:1–5 (Murdoch); id. at 1438:3–8, 1463:19–22 (Brown).

20
investments. 86 Ehrenpreis and DBL have invested tens of millions of dollars in

Musk-controlled companies. 87

Ehrenpreis had been a member of the Board since 2007 and chair of both the

Compensation Committee and the Nominating and Corporate Governance

Committee since 2009. 88 Between 2011 and 2015, Ehrenpreis was granted 865,790

Tesla options. 89 He exercised less than a quarter of those options in 2021, netting

over $200 million. 90 Being a Tesla director had “been a real benefit in fundraising”

for Ehrenpreis’s funds. 91

Ehrenpreis and the Musk brothers have known each other for over 15 years. 92

As Ehrenpreis acknowledged, his personal and professional relationship with the

Musk brothers has had a “significant influence on his professional career[.]” 93

To argue that Ehrenpreis’s relationship with Musk was weighty in other ways,

the plaintiff points to a July 2017 tweet in which Ehrenpreis professed his love for

86 PTO ¶ 91; Trial Tr. at 11:8–15 (Ehrenpreis).

87 PTO ¶¶ 92–95. These investments included roughly $40 million in SpaceX, $10
million in The Boring Company, and approximately $1 million in Neuralink. Id;
Ehrenpreis Dep. Tr. at 392:24–393:16.
88 PTO ¶¶ 87–89.

89 JX-1701 at 1; Trial Tr. at 202:23–204:1 (Ehrenpreis). He sold only enough of these
shares to cover the exercise price and taxes. Trial Tr. at 207:8–17 (Ehrenpreis).
90 JX-1701 at 1; Trial Tr. at 204:2–207:19 (Ehrenpreis).

91 Trial Tr. at 192:15–18 (Ehrenpreis).

92 Kimbal Dep. Tr. at 59:17–66:4.

93 Trial Tr. at 192:6–10 (Ehrenpreis).

21
Musk. 94 But the exchange does not reveal the deep relationship that the plaintiff

described. It was an irrelevant joke. 95

Ehrenpreis is a close friend to Kimbal. They had known each other since at

least 1999, and Ehrenpreis attended Kimbal’s wedding in Spain. 96 Ehrenpreis also

invested in Kimbal’s company, The Kitchen Group—a family of restaurants based in

Colorado and Chicago. 97

ii. Buss

Buss joined the Board and the Compensation Committee in 2009. 98 He worked

as an accountant and in the semiconductor field until his retirement in 2014, and

94 JX-518 at 1.

95 To dive into the minutia of the tweet, Ehrenpreis had the right to purchase the first

Model 3, but he gifted that right to Musk, tweeting, “[Musk] you deserve it!!! Much
love and respect for everything you do for [Tesla].” JX-518 at 1 (7/8/17 Musk tweet,
https://www.twitter.com/elonmusk/status/883848060119527424); JX-1586 at 1
(7/8/17 Ira Ehrenpreis tweet). Also in that tweet thread, Ehrenpreis jokingly
proposed a “romantic dinner” with Musk on the tenth anniversary of the start of Tesla
Roadster production. JX-967 at 1 (3/17/18 Ehrenpreis tweet). Ehrenpreis testified at
trial that he was not “being literal” and that he “did not have a romantic dinner with
[Musk] or anybody.” Trial Tr. at 199:7–13 (Ehrenpreis). He remarked that “clearly
humor doesn’t translate” and that he and Musk had a “collaborative working
relationship” instead. Id. at 66:11–17, 199:7–13 (Ehrenpreis). In the end, the tweet
was just a bad joke; it does not inform the control analysis. See generally Kimbal Dep
Tr. at 59:9–66:4; Trial Tr. at 193:19–21 (Ehrenpreis).
96 Kimbal Dep. Tr. at 59:9–10; Trial Tr. at 193:19–21 (Ehrenpreis).

97 Trial Tr. at 193:13–15 (Ehrenpreis); Kimbal Dep. Tr at 48:11–18.

98 PTO ¶¶ 73–75. Buss also served on the Nominating and Corporate Governance
Committee and the Audit Committee. Id.

22
then served as CFO of SolarCity Corp. 99 until February 2016. 100 Buss had no

personal relationship with Musk or other members of the Board and has never

invested in any of Musk’s other businesses. 101

From 2014 through 2016, Buss’s held assets valued at between $30 and $60

million, not including his Tesla and SolarCity holdings. 102 He earned about $2 million

in total compensation from his work with SolarCity. 103 Between 2011 and 2018, Buss

reported that compensation as a Tesla director was approximately $17 million. 104 He

realized about $24 million for sales of Tesla shares that he received as compensation

prior to January 21, 2018. 105

99 SolarCity is a solar technology company that Tesla acquired in November 2016.

PTO ¶ 56. Musk served as SolarCity’s board chair from July 2006 until November
2016. Id.
100 Trial Tr. at 1375:7–22, 1377:7–10, 1377:17–1378:15 (Buss); PTO ¶¶ 77–78.

101 Trial Tr. at 1381:6–17 (Buss).

102 Compare JX-1167 ¶ 26 (9/24/19 Declaration of Brad W. Buss in Connection with

the Director Defendants’ Brief in Opposition to Plaintiff’s Motion for Partial
Summary Judgment, filed in In re Tesla Motors, Inc. S’holder Litig., Consol. C.A. No.
12711-VCS) (“during 2014-2016, I had net assets, exclusive of all Tesla and SolarCity
holdings, conservatively estimated at in excess of $30 million”), with, Trial Tr. at
1426:15–1427:13 (Buss) (“my number was bigger than [$30 million]. . . . It wasn’t
double or triple that, but it was substantially higher and has done very well by
itself.”).
103 Trial Tr. at 1384:6–9 (Buss).
Buss stepped down from his committee assignments
while working for SolarCity but returned to these positions in mid-2017, in time to
participate in the development of the 2018 Grant. PTO ¶¶ 74–76; Trial Tr. at
1386:12–18 (Buss). Although the exact date on which Buss rejoined the
Compensation Committee is unclear, he attended the first meeting at which the 2018
Grant was discussed. JX-439 (6/23/17 Compensation Committee meeting minutes
listing Buss as “present”).
104 Trial Tr. at 1409:13–21 (Buss).

105 JX-1587 (Brad Buss Form 4s from June 25, 2010 to May 20, 2019); Trial Tr. at

1410:13–1411:12 (Buss). Buss left the Board in June 2019. PTO ¶ 81.

23
 Buss owed roughly 44% of his net worth to Musk entities. 106 Buss lacked any

other personal or business connections to Tesla and left the Board soon after the

Board approved the 2018 Grant. 107

iii. Denholm

Denholm joined the Board and the Compensation Committee in 2014. 108 Her

background is in accounting and telecommunications. 109 She was recruited to the

Board by Buss, who she knew professionally. 110 Musk asked Denholm to be Board

chair in 2018 following a settlement with the SEC (the “SEC Settlement”) that

required Musk to relinquish his chairmanship. 111

Denholm does not appear to have had any personal relationship with Musk

outside of her service on the Board. Denholm derived the vast majority of her wealth

from her compensation as a Tesla director. Denholm’s compensation from Tesla

between 2014 and 2017 was valued at about $17 million when it was issued, an

amount she acknowledged was material to her at the time. 112 Denholm ultimately

received $280 million through sales in 2021 and 2022 of just some of the Tesla options

106 JX-1167 ¶ 26; Trial Tr. at 1409:13–14:11:12, 1413:15–1416:8, 1426:15–1427:13

(Buss); see also SolarCity II, 2022 WL 1237185, at *4 & n.26. Buss was somewhat
evasive when estimating this number at trial, testifying that his net assets exclusive
of all Tesla and SolarCity holdings were higher than a certain amount but not “double
or triple that.” Trial Tr. at 1426:15–1427:13 (Buss).
107 PTO ¶ 81.

108 Id. ¶¶ 82, 84. She is also chair of the Audit Committee. See id. ¶ 85.
109 Trial Tr. at 313:14–314:14 (Denholm).

110 Id. at 312:3–15 (Denholm).

111 Denholm Dep. Tr. at 93:8–95:18; PTO ¶ 83.

112 Trial Tr. at 395:8–23 (Denholm).

24
she received as part of her director compensation. 113 She described this transaction

as “life-changing.” 114 Denholm testified that between 2017 and 2019, she received

approximately $3 million per year in her non-Tesla position. 115 Even assuming

Denholm valued her Tesla compensation at a fraction of its Black-Scholes value, her

Tesla compensation far exceeded the compensation she received from other sources.

iv. Gracias

Gracias joined the Board in 2007 and the Compensation Committee in 2009. 116

He founded and continues to manage Valor Equity Partners (“Valor”), a private-

equity firm with approximately $16 billion under management. 117 For years, Valor

has also been “deeply operationally engaged in” Tesla. 118 Valor actively assisted

management in trying to drive sales for and lower the cost of production of Tesla’s

Roadster model. 119

Gracias has amassed “dynastic or generational wealth” from investing in

Musk’s companies. 120 Gracias invested in PayPal in the 1990s, returning “roughly 3x

to 4x.” 121 Valor began investing in Tesla at Musk’s invitation in 2005. By 2007, Valor

113 Id. at 396:8–397:12 (Denholm).

114 Id. at 397:6–12 (Denholm).

115 Id. at 397:17–398:11 (Denholm); Denholm Dep. Tr. at 10:4–12.

116 PTO ¶¶ 98, 106. He is also on the Nominating and Governance Committee. Id. at
¶ 107.
117 Id. ¶ 100; Trial Tr. at 698:16–699:8 (Gracias).

118 Trial Tr. at 707:16–24 (Gracias).

119 Id. at 708:1–710:2 (Gracias).

120 Id. at 774:22–24 (Gracias).

121 Id. at 767:14–15 (Gracias).

25
had invested $15 million. 122 Valor ultimately distributed some of its Tesla shares to

its investors, including Gracias. 123 As of 2017, Gracias was the third-largest

individual investor in Tesla, with virtually all of his Tesla shares held in trust for his

children. 124 As of 2021, that Tesla stock was worth approximately $1 billion. 125 Valor

and Gracias have invested hundreds of millions of dollars in SpaceX, SolarCity, The

Boring Company, and Neuralink, all of which significantly increased in value. 126

All told, Gracias and his fund have netted billions of dollars by investing in

Musk’s companies, many of which were made only with Musk’s personal invitation. 127

Gracias has touted endorsements from Musk in marketing his own fund. 128

Musk and Kimbal have invested in Gracias’s ventures. At Gracias’s request,

Musk invested $2 million in Valor no later than 2003 and an additional $2 million in

122 Id. at 705:18–707:24, 767:17–768:21 (Gracias); Gracias Dep. Tr. at 38:4–14. At
one point during his trial testimony, Gracias stated that this investment was $50
million. Trial Tr. at 707:16–24 (Gracias). Given the phonological similarity between
“15” and “50” and the more detailed testimony supporting a $15 million total
investment, it is likely that Gracias’s statement that the investment was $50 million
was in error.
123 Trial Tr. at 711:17–712:9 (Gracias).

124 Id. at 712:15–713:7 (Gracias); PTO ¶ 109.

125 Trial Tr. at 769:6–9 (Gracias); PTO ¶ 110.

126 Valor invested between $400 million and $500 million in SpaceX, a stake valued

between $2 billion and $3 billion as of May 2021. Trial Tr. at 769:14–770:19, 771:20–
772:4 (Gracias); PTO ¶ 115. Valor invested approximately $24 million in SolarCity
in 2012, yielding proceeds of approximately $136 million. Trial Tr. at 772:6–11
(Gracias); PTO ¶ 111. Valor invested between approximately $15 million and $20
million in The Boring Company as of May 2021. Trial Tr. at 772:12–16 (Gracias);
PTO ¶ 119. Valor invested between approximately $15 and $20 million in Neuralink
as of May 2021. Trial Tr. at 773:22–774:7 (Gracias); PTO ¶ 118.
127 Trial Tr. at 711:17–712:9, 767:17–774:24 (Gracias).

128 JX-1472 at 2.

26
2007. 129 Musk planned to invest in another Valor fund in 2013, but he ultimately did

not because Gracias was concerned about conflicting fiduciary duties. 130 Kimbal also

invested $1 million to $2 million in Valor, and Valor invested a total of between $15

million and $20 million in two of Kimbal’s ventures. 131 Gracias personally donated

up to $500,000 to Kimbal’s charity and served on its board. 132

Gracias and Musk are “close friends.” 133 Gracias once personally loaned $1

million to Musk and could not recall if he charged Musk interest. 134 They meet

outside of work as frequently as once a month. 135 They have spent the night at each

other’s homes. 136 They have vacationed together with their respective families,

including a trip to illusionist David Copperfield’s Bahamian island, a trip to Africa,

and a ski trip. 137 They have spent Christmas together. 138 They have a long-standing

tradition of spending Presidents’ Day weekend together with their families at

Gracias’s home in Jackson Hole. 139 Gracias attended Musk’s second wedding and was

129 Trial Tr. at 713:11–24, 775:7–22 (Gracias).

130 Id. at 714:1–21 (Gracias).

131 Trial Tr. at 776:5–17 (Gracias); PTO ¶¶ 103–04, 149.

132 Trial Tr. at 776:18–777:2 (Gracias); PTO ¶¶ 101–02.

133 Trial Tr. at 715:2–6 (Gracias).

134 Id. at 755:3–756:17 (Gracias).

135 Id. at 715:16–22 (Gracias).

136 Id. at 757:14–16 (Gracias).

137 Id. at 757:20–759:1 (Gracias); id. at 1080:13–21 (Kimbal).

138 Id. at 760:17–761:3 (Gracias).

139 Id. at 759:2–17 (Gracias).

27
a groomsman at Kimbal’s wedding in 2018. 140 Gracias has attended birthday parties

for both Musk brothers and their children. 141 Gracias is friends with two of Musk’s

cousins and has taken numerous vacations with them. 142 Gracias is also friendly

with Musk’s mother and sister. 143

b. The Other Directors

i. Murdoch

Murdoch’s professional background is in media and entertainment. 144 At the

time he joined the Tesla Board, he was the CEO of 21st Century Fox. 145 Murdoch

met Musk in the late 1990s, but they lost touch until Murdoch purchased a Tesla

Roadster in 2006 or 2007. 146 The two became friends thereafter, meeting when they

happened to be in the same city. 147 Before he joined the Board, Murdoch, and Musk

took family vacations together to Israel, Mexico, and the Bahamas. 148 During one of

these trips, which Gracias and Kimbal also attended, 149 Musk asked Kimbal to help

him decide whether to add Murdoch to the Board. 150 After the trip, Gracias and Musk

140 Id. at 757:17–19, 761:10–20 (Gracias).

141 Id. at 759:18–760:10 (Gracias).

142 Id. at 760:11–16 (Gracias).

143 Id. at 762:15–17 (Gracias). Gracias left the Board in October 2021. PTO ¶ 98.
144 Trial Tr. at 815:1–24 (Murdoch).
145 Id. at 816:4–8 (Murdoch).

146 Id. at 817:21–818:19 (Murdoch).

147 Id. at 819:2–16 (Murdoch).

148 Id. at 820:20–821:2, 847:5–849:15 (Murdoch).

149 Id. at 821:3–13 (Murdoch).

150 Id. at 1080:13–21 (Kimbal).

28
invited Murdoch to join the Board, and he agreed. 151 Murdoch and Kimbal are also

friendly, and Murdoch attended Kimbal’s wedding in 2018. 152

As of December 31, 2017, Murdoch owned 10,485 Tesla shares through a family

trust. 153 He bought these shares on the market before anyone approached him to

become a director. 154 Murdoch now runs a private-investment company, which

invested approximately $50 million in SpaceX in 2019 and 2020. 155 Murdoch also

personally invested approximately $20 million in SpaceX in 2019. 156

151 Id. at 821:21–822:21 (Murdoch). There are some minor conflicting details in the
story of Murdoch’s addition to the Board. Gracias testified that he was the first to
suggest adding Murdoch to the Board during a dinner with Murdoch in New York.
Id. at 780:23–781:1 (Gracias); Gracias Dep. Tr. at 109:25–110:11. Gracias further
testified that he did not speak to Musk about Murdoch joining the Board prior to this
dinner. Gracias Dep. Tr. at 109:25–110:11. It is not clear from Gracias’s testimony
whether this dinner with Murdoch occurred before or after the Bahamas trip.
Murdoch testified that Gracias suggested him joining the Board during a lunch (not
a dinner) in New York that occurred after the Bahamas trip. Trial Tr. at 821:21–
822:17 (Murdoch). Murdoch’s lunch and Gracias’s dinner are presumably the same
event (they ate), which took place after the Bahamas trip. But Kimbal testified that
Musk asked him to help decide whether Murdoch should join the Board while they
were on the Bahamas trip, before the New York meal. Id. at 1080:13–21 (Kimbal).
This suggests two possibilities: one of these three witnesses has confused or
misunderstood a detail, or Musk and Gracias independently decided to consider
adding Murdoch as a Board member (Musk did not testify about this). In either case,
it appears more likely than not that Musk supported Murdoch being added to the
Board early in the process.
152 Id. at 850:19–24 (Murdoch).

153 PTO ¶ 123.

154 Trial Tr. at 827:12–828:17 (Murdoch).

155 PTO ¶¶ 124–25.

156 Id. ¶ 126.

29
 Murdoch received total compensation of approximately $35,000 in cash for his

service as a Tesla director in 2017 and 2018. 157

ii. Johnson Rice

Johnson Rice joined the Board on Gracias’s recommendation. 158 She and

Gracias were friends and ran in the same social circle in Chicago. 159 Johnson Rice’s

sole employer before and during her time at Tesla was a family business, Johnson

Publishing Company, which published the magazines Ebony and Jet. 160 She has also

served on a number of other boards. 161 Johnson Rice declined to stand for re-election

in 2019. 162 Although she received Tesla options as compensation for her work as a

director, they expired without being exercised. 163

2. Musk Proposes Terms Of A Compensation Plan.

The first mention in the record of what would become the 2018 Grant is a text

from Ehrenpreis to Musk sent on April 8, 2017—one day after Tesla’s Compensation

Committee certified vesting of the 2012 Grant’s sixth tranche. 164 Ehrenpreis asked

157 JX-1210 at 20 (3/2/20 James Murdoch’s Responses and Objections to Interrogatory

Nos. 2, 3, 4, 8, and 11–39 from Plaintiff’s First Set of Interrogatories).
158 Gracias Dep. Tr. at 123:24–124:3.

159 Id. at 122:23–123:21.

160 Johnson Rice Dep. Tr. at 10:11–20.

161 Id. at 12:4–18.

162 Id. at 45:1–46:5.

163 Id. at 41:14–24.

164 JX-362 at 2; Trial Tr. at 99:3–101:7 (Ehrenpreis); JX-361 at 75.

30
Musk to discuss “a few comp related issues.” 165 They spoke by phone on April 9. 166

Ehrenpreis testified that he had reached out to Musk to see if he was “ready to

recommit” 167 and “to figure out . . . was his head in a place that he wanted to recommit

over a longer duration to Tesla[?]” 168

Musk put forward terms of a new compensation plan during the April 9 call. 169

He envisioned a purely performance-based compensation plan, structured like the

2012 Grant but with more challenging market capitalization milestones 170 and

proposed 15 milestones of $50 billion in market capitalization—a total possible award

of 15% of Tesla’s outstanding shares. 171

To put Musk’s proposal in perspective, each market capitalization milestone

increase of $50 billion required Tesla to grow in size roughly equal to the market

capitalizations of each of Tesla, Ford, and GM as of early 2018. 172 So, Tesla would

165 JX-362 at 2.

166 See Trial Tr. at 98:11–105:24 (Ehrenpreis); see also JX-362 at 2 (4/8/17 text from

Ehrenpreis to Musk asking to “pls chat for a few minutes this weekend re a few comp
related issues”); JX-1598 (1/7/18 email from Maron containing draft proxy language
describing April 9, 2017 call).
167 Trial Tr. at 24:5–19 (Ehrenpreis).

168 Id.

169 See JX-1700 at 12 (1/12/18 Draft Schedule 14A Proxy).

170 Id.

171 Id.; see also Trial Tr. at 269:17–270:8 (Maron) (testifying that “at the beginning of

the process . . . the conception of the plan at a high level was to have $50 billion
market cap increments”).
172 JX-1700 at 12; JX-1510 at 27 (cumulative market capitalization of Tesla was

approximately $56 billion as of January 10, 2018); JX-757 at 2 (12/31/17 Ford Form
10-K) (aggregate market value of common stock was approximately $42.8 billion as
of December 31, 2017); JX-1104 at 1 (2/6/19 GM Form 10-K) (aggregate market value

31
have to grow an amount in market capitalization equal to that of the most significant

domestic car manufacturers for Musk to earn a single tranche of compensation. 173

Musk viewed this proposal as “really crazy.” 174

Musk’s initial proposal is reflected in a draft of the proxy statement issued in

connection with the 2018 Grant. The draft states:

On April 9, 2017, . . . Ira Ehrenpreis, the Chairman of the
Compensation Committee, and Mr. Musk discussed the
possibility of a new performance award that would have an
incentive structure similar to the 2012 Performance Award
but with even more challenging performance hurdles.

Mr. Musk expressed interest in such an arrangement and
suggested a compensation structure that would incentivize
management to grow Tesla into one of the most valuable
companies in the world.

During this meeting, Mr. Musk suggesting performance
milestones that would trigger stock option awards of 1 % of
the Company’s current total outstanding shares based on
incremental $50 billion increases in market capitalization,
such that if Tesla grew by $750 billion, a maximum

of voting stock was approximately $55.5 billion as of June 30, 2018); see Trial Tr. at
1268:2–20 (Murphy) (“You know, with the 2012 plan everybody liked basically we
started off by saying we got to double the market cap for you to get anything. Well,
now the market cap had grown to 50 billion and it was up to 59 billion by the time
they actually approved the plan. But this idea, 50 billion, that’s a nice round number.
I think at the end of 2017, Ford was worth about 49 billion. I think that GM was
worth about 58 billion. So this is: Every time we’ll get another Ford or a GM. I think
that just kind of resonated.”); Trial Tr. at 231:11–16 (Ehrenpreis) (“Q. . . . So these
options, by the way, are worth roughly the value, the market cap of Ford; right? A.
That’s true.”); id. at 1397:1–5 (Buss) (“I mean, again, those market cap goals, you
know, were totally insane. I mean, you literally had to create a Ford, GM, or FedEx
every ten months. Every ten months. And maintain it, right? So, okay, wow, that’s
pretty nuts.”).
173 JX-1700 at 12; JX-1510 at 27; JX-757 at 2; JX-1104 at 1; see Trial Tr. at 1268:2–

20 (Murphy); id. at 231:11–16 (Ehrenpreis); id. at 1397:1–5 (Buss).
174 JX-398.

32
 possible award would amount to 15% of the Company’s
current total outstanding shares.

Mr. Musk indicated that such an award structure would
align his incentives with those of stockholders and
incentivize him to continue leading the management of the
Company over the long-term.

Mr. Ehrenpreis indicated that the Compensation
Committee would consider Mr. Musk’s perspectives as part
of its analysis. 175

Language like the above appears in other drafts but not in the final proxy

statement. 176

The draft proxy statement is the most reliable (indeed, the only) evidence of

the substance of the April 9 discussion. Neither Musk nor Ehrenpreis took

contemporaneous notes or otherwise memorialized their April 9 discussion. By the

175 JX-1700 at 12.

176 See JX-1597 at 9 (1/8/17 Draft Schedule 14A Proxy); JX-1598 at 3 (1/7/18 draft

language for Schedule 14A Proxy); JX-1599 at 14 (1/10/18 Draft Schedule 14A Proxy);
see also JX-878 at 9–12 (2/8/18 Schedule 14A Proxy Statement) (background section
of the final proxy omitting any mention of the April 9 conversation). There were
minor changes in language between the proxy drafts. Compare, e.g., JX-1598 at 3
(“Mr. Musk indicated an interest in such a structure, and mentioned the possibility of
setting 15 milestones in which each would require a market capitalization increase
of $50 billion[.]” (emphasis added)), with, JX-1700 at 12 (“Mr. Musk expressed interest
in such an arrangement and suggested a compensation structure that would
incentivize management to grow Tesla into one of the most valuable companies in the
world. During this meeting, Mr. Musk suggesting [sic] performance milestones that
would trigger stock option awards of 1% of the Company’s current total outstanding
shares based on incremental $50 billion increases in market capitalization[.]”
(emphasis added)).

33
time of discovery and then trial in this action, Musk had only vague memories of the

discussion, and Ehrenpreis had no memory of it at all. 177

It is unclear who prepared the draft proxy statement, but Maron, Tesla’s

General Counsel, was responsible for it. Maron testified he spoke to Ehrenpreis

within hours of the April 9 call and reviewed the draft. 178

177 See Trial Tr. at 70:6–72:18, 79:13–20, 97:20–102:7 (Ehrenpreis); id. at 631:3–

632:6, 633:24–635:7, 694:6–695:9 (Musk). Ehrenpreis did not remember the
substance of their April 9, 2017 conversation prior to reviewing documents in
preparation for his deposition. Id. at 70:13–71:13 (Ehrenpreis). Despite his vague
recollection, Musk offered an alternative account of the April 9 discussion during his
deposition and at trial. When asked about the April 9 call, Musk testified that he
might have instead proposed a grant of “10 percent of the company, incrementally
taking into account dilution of [his] own shares.” Musk Dep. Tr. at 144:13–150:3; see
also Trial Tr. at 632:18–633:2 (Musk). Ultimately, when pressed, neither Musk nor
Ehrenpreis disputed the draft proxy statement’s account. Trial Tr. at 633:15–635:7
(Musk) (not disputing the relevant language in JX-1597); id. at 91:2–97:24
(Ehrenpreis) (not disputing “Mr. Musk asked for a 15 percent plan” based in part on
the proxy statement drafts). Musk stated in an interrogatory answer that he did not
“specifically recall the dates or substance” of any discussions of a new stock option
award before June 23, 2017. JX-1256 at 9–10 (8/3/2020 Musk’s Amended Responses
and Objections to Plaintiff’s First Set of Interrogatories Directed to All Defendants
and Nominal Defendant Tesla, Inc.). Musk reaffirmed his interrogatory answer at
trial. Trial Tr. at 631:3–632:6 (Musk). When offering his alternative account, he was
equivocal, stating that the proposal “might have happened[.]” Id. at 632:18–633:2
(Musk) (emphasis added). He also stated, “I think I proposed . . . 10 percent[.]” Musk
Dep. Tr. at 144:13–146:6 (emphasis added).
178 See Trial Tr. at 100:22–102:7 (Ehrenpreis); id. at 239:12–15 (Maron); Maron Dep.

Tr. at 127:13–128:12; JX-1700 at 2 (“Todd will review all of our comments on these
sections of the proxy and press release and give WSGR the final draft. . . . Todd/Phil[ip
Rothenberg] [w]ill work to provide an updated draft Background section”); Trial Tr.
at 239:9–15 (Maron) (stating that he heard about the possibility of a new
compensation plan for Musk from Ehrenpreis in April 2017); see also JX-369 at 2–3
(email thread between Maron and Ahuja dated April 9, 2017 discussing the new
compensation plan for Musk); Trial Tr. at 105:18–24 (Ehrenpreis) (stating that Maron
was cued into discussions of Musk’s new compensation plan on April 9 and 10).

34
 Maron was totally beholden to Musk, lending credibility to the accuracy of the

draft proxy statement. But his relationship with Musk raises concerns as to other

aspects of the process during which Maron advised the Board and Compensation

Committee. Maron joined Tesla as Deputy General Counsel in September 2013, and

was promoted to General Counsel in September 2014, reporting directly to Musk. 179

Before joining Tesla, Maron was Musk’s divorce attorney. 180 Maron neither socialized

with Musk nor considered himself a friend of Musk when he worked at Tesla, but he

owed his career to and had genuine affection for Musk. 181 Both in his deposition and

at trial, Maron held back tears when asked about his departure from Tesla in January

2019, describing it as “the most difficult decision[]” he had made to date. 182

179 PTO ¶¶170–71; Maron Dep. Tr. at 23:21–24.

180 Maron Dep. Tr. at 19:23–20:8.

181 Id. at 20:9–18 (stating that he and Musk did not socialize and that he never met

Musk’s family); id. at 199:7–200:5 (Maron) (stating that, although he and Musk were
not “friends,” he “cared about [Musk] a tremendous amount . . . [he’s] always cared
about him and wanted him to have . . . success in life. . . . [he] just want him to be
happy as you would with anyone that you care about”).
182 Id. at 74:10–17 (becoming “emotional” about the decision to leave Tesla); id. at

200:9–15 (“Unfortunately I lost my cool earlier and cried because I love the company
so much, and I loved my teammates and my colleagues and the people on the
executive team.”); Trial Tr. at 275:10–24 (Maron) (confirming he “choked up” at his
deposition about his “incredible experience[]” at Tesla and the “very emotional
decision” to leave Tesla).

35
 After speaking to Ehrenpreis on April 9, Maron enlisted other Tesla employees

to help him model Musk’s proposal. All told, 13 in-house Tesla executives worked on

the 2018 Grant. 183 The key executive in addition to Maron was Ahuja, Tesla’s CFO. 184

At the outset of his involvement, Ahuja recommended one substantive change

to the structure—pairing the market capitalization milestones with operational

milestones. 185 He recommended this change for accounting purposes. Maron relayed

the change to Ehrenpreis, who questioned whether operational milestones were

necessary. 186 Maron explained that “there’s an important account[ing] reason” for

having operational milestones. 187

183 Trial Tr. at 110:8–112:14 (Ehrenpreis).

184 Ahuja was Tesla’s CFO from August 2008 to November 2015 and from March 2017

to March 2019. PTO ¶¶ 180–81.
185 JX-369 at 3 (Ahuja explaining that “[i]f the award only has a market condition,

the SBC expense will start on the date of the grant,” but “[i]f the award has both a
market and performance condition, the expense is first recorded when probability of
achievement exceeds 70%[.]”).
186 JX-367 at 1 (Maron explaining to Ehrenpreis the need for operational milestones);

Trial Tr. at 105:5–24 (Ehrenpreis) (confirming that Maron contacted him in response
to Musk asking for market cap milestones and his request that Maron and Ahuja
address the issue); JX-418 at 2 (“[O]ne thing Ira wanted to pressure test is whether
we really do need the operational milestones[.]”).
187 JX-367 at 1. Despite this explanation, Ehrenpreis later advocated for removing
the operational milestones, directing the Tesla team to “pressure test” the feasibility
of that structure in mid-June 2017. Trial Tr. at 112:15 –113:17 (Ehrenpreis); id. at
285:18–286:20 (Maron). He was again informed that operational milestones were
necessary for accounting purposes. JX-423 at 1 (Maron emailing Ehrenpreis that he
“wanted to pressure test . . . whether we really do need operational milestones in
addition to the market cap milestones. If we could only do the latter, that’s what he
would prefer, but I remember you telling me that there were accounting reasons for
why we needed both.”).

36
 Maron’s team began analyzing Musk’s initial proposal on April 10, roping in

Tesla’s legal counsel at Wilson Sonsini Goodrich & Rosati (“Wilson Sonsini”) 188 and

lining up compensation consultants. Maron proposed retaining Compensia, Inc., a

compensation consulting firm that Tesla had engaged in connection with the 2009

and 2012 Grants, 189 but he also provided four other options for Ehrenpreis to

consider. 190

3. Musk States That He Is Committed To Tesla For Life.

Little progress was made on Musk’s new compensation plan through May

2017. During a May 3 earnings call, an analyst asked about Musk’s “view of staying

actively in place with Tesla longer into the future[.]” 191 Musk responded that he

should not be “CEO forever.” 192 He further indicated that he was going to reevaluate

his position after Tesla achieved volume production of the Model 3. 193

The plaintiff argues that Musk’s statement about not being “CEO forever” was

intended to pressure Tesla in negotiations over Musk’s compensation plan, but the

188 JX-371.

189 JX-368; PTO ¶¶ 153, 155–56.

190 JX-374 (proposing FW Cook, Pearl Meyer, Semler Brossy, and Radford as
alternative compensation consultants).
191 JX-390 at 20.

192 Id. at 20–21.

193 JX-185 at 12 (“I think I was -- yes, certainly be CEO for like, say, 4 or 5 years and

then it’s sort of TBD after that. Yes, but that’s the commitment I made to people at
Tesla and also to investors is that I’m going to make sure that we execute through
the high-volume, affordable car at a minimum and then we’ll evaluate it at that
point.”); Trial Tr. at 574:14–18 (Musk) (testifying that the “high-volume, affordable
car” Musk was referring to in JX-185 was the Model 3).

37
record does not support that conclusion. Musk clarified his statement later in the

May 3 earnings call, saying:

Well, maybe I wasn’t clear. I intend to be actively involved
with Tesla for the rest of my life. Hopefully, stopping before
I get too old—or too crazy, I don’t know. But essentially for
as long as I can positively contribute to Tesla, I intend to
be—to have a significant involvement with Tesla. 194

In other words, Musk had every intention of remaining “significant[ly]

involved” in some leadership role at Tesla, even though he did not envision himself

being “CEO forever.” Musk repeated this assertion at trial, stating unequivocally

that he would have remained at Tesla even if stockholders had rejected a new

compensation plan because he was “heavily invested in Tesla, both financially and

emotionally, and viewed Tesla as part of his family.” 195 Trial witnesses similarly

testified that they never heard Musk say he had any plans to quit Tesla. 196 And even

though Musk did not intend to stay CEO forever, he had no immediate plans to resign

194 JX-390 at 20.

195 Trial Tr. at 643:24–644:15 (Musk); see also JX-912 at 75 (2/26/18 draft CEO
performance award investor presentation) (“Elon is heavily invested in Tesla, both
financially and emotionally, and views Tesla as part of his family.”).
196 Trial Tr. at 278:3–9 (Maron) (“Q. Now, during the 2017, 2018 time frame, Elon
never really told you that he was planning to leave Tesla, right? A. He never said
that to me. Q. Never expressed to you that he was no longer interested in an
executive role at Tesla? A. No, never said that.”); id. at 526:14–19 (Ahuja) (“Q. And
thinking about Elon, during your time as CFO, Elon never told you that he was
planning to stop his involvement with Tesla? A. He did not, though I would not
expect any CEO to tell that to the CFO or the management team.”); id. at 784:16–18
(Gracias) (“Q. And you never heard Elon Musk say he was going to quit Tesla;
correct? A. I did not.”); id. at 785:8–11 (Gracias) (“Q. And Elon Musk certainly never
said he would quit Tesla if he felt he was inadequately compensated; correct? A.
Correct.”).

38
from that position. Corroborating that fact is lack of any succession plans during the

relevant period. That is, before 2021, neither Musk nor Tesla had identified a

potential successor for the role of Tesla CEO. 197

4. The First (And Forgettable) Board Discussion

By June 5, 2017, Tesla had met all ten CEO market capitalization milestones

for the 2012 Grant and had only three tranches of operational milestones left to

achieve. 198 The Board first discussed the prospect of a new compensation plan for

Musk during a June 6, 2017 Board meeting. Musk chaired the meeting. 199

The Board’s conversation during the June 6 meeting concerning Musk’s

compensation was brief and, apparently, forgettable. During that meeting,

Ehrenpreis updated the Board on the near fulfillment of the 2012 Grant milestones

and stated that “plans were underway to design the next compensation program” for

Musk. 200 The minutes of that meeting are three pages long, and the discussion of a

new compensation plan was limited to a sentence. 201 At least one director who served

on the Compensation Committee, Denholm, did not recall the June 6 Board

197 Id. at 1421:9–13 (Buss) (“Q. Shifting gears, during your board tenure, the Tesla

board had no formal documented succession plan to replace Mr. Musk; correct? A.
Formally documented, no. We had various discussions. But correct, nothing
documented.”); id. at 857:9–858:10 (Murdoch) (confirming Musk had not identified a
successor until the months after his 2021 deposition).
198 JX-404.

199 PTO ¶ 211; JX-407 at 1 (6/6/17 Board meeting minutes).

200 JX-407 at 2.

201 Id.

39
discussion at all. 202 She testified at trial that any discussion of a new compensation

plan during the June 6 Board meeting must not have been substantive. 203

5. Musk Accelerates The Process.

On June 18, 2017, Maron emailed the Compensation Committee stating: “We

would like to . . . discuss Elon’s next stock grant.” 204 This sort of outreach from Maron

was common during the process. Although he was counsel to Tesla, he would reach

out and prompt action by the Compensation Committee to benefit Musk (the “we” in

the prior quote).

A few days prior, on June 15, 2017, Maron’s team had prepared an aggressive

timeline for approving a compensation plan. The timeline scheduled the

Compensation Committee and Board to approve the plan by July 17 or by July 24 at

the latest. 205 The initial June 15 plan contemplated only two Compensation

Committee meetings prior to final approval and allotted the committee just over a

month to do its job. 206 A later June 26 version of the timeline was even more rushed,

proposing only one Compensation Committee meeting (with an additional meeting if

202 Denholm Dep. Tr. at 214:14–19 (“Q. Just so we’re clear, focus on June 18th, the
Todd Maron email, was that the first time you heard or learned about a potential new
compensation plan for Mr. Musk? A. Yes. I believe so, yes.”).
203 Trial Tr. at 357:19–359:14 (Denholm) (stating that the first substantive
discussions regarding the 2018 Plan took place on June 23, 2017).
204 JX-420 at 1.

205 JX-423 (6/19/17 email from Matt Tolland to Maron re “Re: Privileged - Comp

Comm Process”).
206 Id.

40
necessary) and giving the committee less than three weeks to complete its task. 207

That timeline envisioned that on July 7, the Compensation Committee would “[g]ain

agreement on proposed approach, award size and metrics/goals” and “[g]ain

preliminary approval of grant agreement[.]” 208

The timeline reflected a reckless approach to a fiduciary process, given that

the Compensation Committee had not yet discussed any substantive terms nor met

concerning the Grant. Despite the break-neck speed contemplated by the timeline,

Maron reported to counsel on June 18 that Ehrenpreis was “aligned on the plan and

timing.” 209

After Musk asked to discuss his compensation plan, the Maron-led team was

supercharged. They conducted initial calls with five potential compensation

consultants and selected three for Maron and Ehrenpreis to interview. 210 During the

initial calls, the consultants were informed of Musk’s initial proposal and the

207 JX-456 at 2 (6/26/17 email from Phoung Phillips to Ira Ehrenpreis and Todd Maron

re: “Tesla | Executive Compensation Timeline”).
208 Id.

209 JX-423 at 1.

210 JX-424 at 1 (6/19/17 email from Phillips to Maron stating, “[w]e are just doing prep

calls with these other folks (so they are slightly prepared when speaking to Ira). Also,
Yun and I are hoping to take 5 down to 3 teams so we don’t waste Ira’s time. Do you
want to be included in the preliminary meetings - we realized it takes about 30
minutes to explain what we want and we want to see if they even understand what
we are asking before we present them in front of you and Ira.”); see also JX-432 at 1
(noting the three calls with the compensation consultants).

41
aggressive timeline leading to a late-July approval. 211 Maron and Ehrenpreis

updated Musk about the process on June 20, 2017. 212

6. The First Compensation Committee Discussion

The Compensation Committee discussed Musk’s compensation plan for the

first time on June 23, 2017. 213 The committee formally resolved to retain Wilson

Sonsini and Compensia as legal advisor and compensation consultant,

respectively. 214 A few days later, Tesla retained Jon Burg at Aon Hewitt Radford

(“Radford”) to value the 2018 Grant in light of the market-based milestones and to

advise on the accounting treatment of the 2018 Grant in light of the performance-

based milestones. 215

During the meeting, Ehrenpreis stated that the Compensation Committee’s

aim was to create a new compensation plan similar to the 2012 Grant. The committee

211 See, e.g., JX-434 at 4 (Brown’s handwritten notes of June 19 and 20 calls stating

under the heading “Goals . . . Timing . . . 2-3 wks”); Trial Tr. at 1434:7–16 (Brown)
(noting what was to be discussed in the calls).
212 JX-428 (6/20/17 email from Maron to Ahuja stating, “I’m going to be meeting with

Elon in part to update him on this plan, and that meeting is currently scheduled for
4pm[.]”); JX-425 at 2 (6/20/17 Ehrenpreis text message asking, “[c]an we chat about
board and comp. . . . Calling in 5 to 10.”); Maron Dep. Tr. at 183:19–184:20 (confirming
he kept Musk “abreast at a high level” of the process); Ehrenpreis Dep. Tr. at 155:3–
156:18 (confirming “check-ins” with Musk).
213 The topic did not come up during their meeting held on June 5, although that was

the day before the Board was informed that “plans are underway.” JX-405 (6/5/17
Compensation Committee meeting minutes) (no mention of Musk’s package); JX-407
6/6/17 Board meeting minutes) (first mention of plans for the 2018 Grant); see also
JX-420 (6/18/17 email from Maron to Compensation Committee proposing June 23
meeting to discuss Musk compensation).
214 See JX-439 at 2; PTO ¶ 214.

215 PTO ¶151; JX-455 (6/26/17 Radford engagement authorization form).

42
then set out the goals for the compensation plan in broad strokes. The minutes of the

meeting describe that discussion as follows:

The Committee discussed how Mr. Musk had been and
would likely remain a key drive of the Company success
and its prospects for growth, and that, accordingly, it would
be in Tesla’s interest, and in the interest of its stockholders,
to structure a compensation package that would keep Mr.
Musk as the Company’s fully engaged CEO. The
Committee also discussed the fact that unlike most other
Chief Executive Officers Mr. Musk manages multiple
successful large companies. The Committee discussed the
importance of keeping Mr. Musk focused and deeply
involved in the Company’s business, and the corresponding
need to formulate a compensation package that would best
ensure that Mr. Musk focuses his innovation, strategy and
leadership on the Company and its mission. 216

The minutes do not reflect any discussion by the committee concerning the

effect of Musk’s pre-existing 21.9% equity stake on these goals.

The committee was not presented with any proposed terms for a compensation

plan, and it did not consider any. This was the case even though, behind the scenes,

Ehrenpreis and Musk had discussed Musk’s initial proposal, which Musk’s team had

already modeled. 217

216 JX-439 at 1.

217 Specifically, on June 23, Tesla’s Deputy General Counsel Phil Rothenberg sent an

Excel spreadsheet titled “Elon Grant 2017” to Kenneth Moore, another Tesla
employee. JX-445 at 3–4. The spreadsheet models a 15-tranche structure with
operational milestones. The model also includes a “Performance Milestone” column
with each row marked “tbd.” There are some quirks with the terms reflected in the
June 23 spreadsheet, which make it clear that the spreadsheet was an early model
that needed to be refined, but to mention them briefly: Each tranche triggers as
Tesla’s stock price rises from $300 to $4,800 at $300 increments per tranche over 15
tranches, each of which gives Musk the right to purchase 1.6 million shares at $300
per share. The grant value of each tranche is calculated by multiplying 1.6 million

43
 Although the committee had no idea what the terms of the plan might be, they

were told to be prepared to approve it in July. 218 Brown thought the timeline was

unwise. 219 Brown called Ehrenpreis to ask for more time to work on the matter, 220

but Ehrenpreis responded that “this is the timeline we are working with.” 221 A

member of Maron’s team would later repeat that message, telling both Brown and

Burg that “we are running up against a short deadline and we have to make sure this

keep [sic] moving.” 222 The message was clear—move at full tilt. Other than Brown,

there is no evidence that anyone questioned the timeline.

by the differential between the market price of Tesla stock and the $300 exercise
price. The result is $480 million for tranche one (at a market price of $600 per share),
$980 million for tranche two (at a market price of $900 per share), and so on. Adding
up all 15 tranches this way yields $57.6 billion. The $57.6 billion figure, however, is
not the total possible award that Musk could reach under this proposal. Triggering
all 15 tranches would result in a total grant value of $108 billion.
218 JX-1592 at 9 (6/23/17 email from Chang to Ehrenpreis) (listing approval date in

July); JX-437 at 7 (same). Trial Tr. at 130:7–13 (Ehrenpreis) (“Q. It’s also true,
though, isn’t it, that at the June 23rd compensation committee meeting, the
committee wasn’t shown any of the specific metrics that had been working -- that the
group had been working on, like 1 percent tranches or $50 billion market caps? A.
No, that was -- no.”); see also JX-439 (7/23/17 Compensation Committee meeting
minutes making no mention of these features or the discussion with Musk); Trial Tr.
at 557:9–559:13 (Phillips) (affirming that the minutes are a fair summary of the
meeting and that they do not reflect discussion of the grant features or the discussion
with Musk, but disclaiming any recollection of the substance of the meeting); Trial
Tr. at 359:15–360:19 (Denholm) (stating that she had no recollection of whether
Ehrenpreis mentioned his conversation with Musk when Ehrenpreis and Denholm
first discussed the 2018 Grant).
219 Trial Tr. at 1487:21–23, 1488:3–21 (Brown).

220 Id.

221 Id. at 1487:21–1488:17 (Brown).

222 JX-472 at 1–2 (6/30/17 email from Phillips to Burg, Brown, and Chang); see also

JX-418 at 2 (Matt Tolland, a Tesla Employee, stating in an internal email to Maron

44
 7. The First Working Group Meeting

After the June 23 Compensation Committee meeting, Ehrenpreis formed a

“Working Group.” The group consisted of Maron and at least two in-house attorneys

who reported to him (Phillip Chang and Phuong Phillips), Ahuja, Brown, Burg, and

attorneys from Wilson Sonsini. 223 Ehrenpreis and Gracias were in the Working

Group, but the Compensation Committee decided that the two members with less

extensive ties to Musk—Denholm and Buss—were “optional” attendees. 224

The Working Group first met on June 30. Phillips proposed the agenda, 225 and

Brown prepared a slide deck with a high-level overview of the suggested terms of

Musk’s new equity plan. 226 In relevant part, the presentation included: a few slides

summarizing the 2012 Grant; 227 a slide titled “Preliminary Concept,” reflecting the

15-tranche combined market and operational goals structure; 228 and three slides

titled “Key Program Terms: Alternatives and Considerations,” which identified terms

of the compensation plan under the title “Preliminary Alternatives” and

that the proposed timeline “may be a bit accelerated, and may require pushing the
Comp Consultant to keep up”).
223 JX-475 (6/30/17 email invite to Working Group members); Trial Tr. at 33:4–13

(Ehrenpreis); Burg Dep. Tr. at 141:3–142:7, 174:14–177:1, 179:17–181:7 (Burg
testifying that he attended at the Working Group meetings after he was retained).
224 JX-474 (6/30/17 email from Chang to Denholm and Buss).

225 JX-473.

226 JX-475.

227 Id. at 3, 10.

228 Id. at 4.

45
considerations relevant to each term under the title “Considerations/Decision

Points.” 229

The presentation identified the following question for discussion: “Will both

operational and company valuation goals be used?” 230 By framing the structure as a

question, the presentation suggests that it was an open issue. Brown’s notes on a

June 26 draft version of this presentation, however, reflect that the issue had in fact

been resolved. 231 He wrote that: “there will be 15 goals of each type[,]” referring to

both market capitalization and operational goals, and “the market cap goals are

increments of $50B, for a total of $750B of incremental market cap growth for all 15

tranches (yes, there [sic] numbers are what they are thinking!)[.]” 232 In part,

therefore, the presentation was a vehicle for getting the Compensation Committee

members up to speed on the work done behind the scenes prior to that time.

After the June 30 meeting, the Working Group stood poised to move forward.

Chang emailed members of the group about developing operational milestones,

including a structure in which each market capitalization milestone would also

require an increase of $15 billion in GAAP revenue. 233 Chang stated that Tesla

229 Id. at 5–7.

230 JX-464 at 7.
An earlier June 26 draft version of this presentation included a note
from Brown: “Their starting place is 15 goals of each type.” JX-1703 at 5.
231 JX-1703.

232 Id. at 6.

233 JX-480.

46
should “expect to achieve a milestone roughly once every 12 to 15 months over the

next 3 years.” 234

8. Musk Decelerates The Process.

The Working Group met again on July 6, the day before the next Compensation

Committee meeting. After this meeting, Maron informed Chang, Ahuja, and others

that “we’re now going on a slower track with the CEO grant. We’re now looking to

issue it in August or September instead of within the next couple of weeks.” 235

Maron professed ignorance as to why the timeline decelerated. 236 Chang and

Phillips too lacked any recollection. 237 Ehrenpreis testified that “it was way too

complex to do under what was originally described as a preliminary timeline” but did

not recall additional details. 238 Brown testified that he received pushback when he

asked to extend the timeline, so he was not the impetus for the delay. 239 Maron would

not have made the determination to extend the timeline to August or September

unilaterally. The reality is that Maron answered to and spoke for Musk in this

234 Id.

235 JX-503 at 1.

236 Maron Dep. Tr. at 190:4–192:22.

237 Chang Dep. Tr. at 373:23–375:13; Phillips Dep. Tr. at 237:23–239:7; see also JX-

502 at 1 (7/6/17 email from Chang to Tesla employees saying: “I haven’t gotten the
full details as to why the postponement[.]”).
238 Trial Tr. at 123:21–124:10 (Ehrenpreis).

239 Id. at 1488:3–21 (Brown).

47
context. It was Musk who either asked to slow things down or stopped pushing to get

them done so quickly. 240

Phillips circulated “the proposed new timeline for Elon’s equity grant” to the

Working Group on the evening of July 6. 241 The initial timeline contemplated

preliminary approval by the Compensation Committee on July 7 and final approval

by the committee and Board approval by July 24. The revised timeline pushed final

approval by the committee and Board out to September 8 and September 19,

respectively. 242

9. The First Compensation Committee Discussion Of The
Substantive Terms

The July 7 Compensation Committee went forward as scheduled, but the

agenda was revised given the new timeline. The revised agenda included “a short

presentation re the CEO grant” from Brown. 243 This was the first meeting where the

committee would be presented with terms of a compensation plan.

In addition to the $50 billion market capitalization milestones that Musk had

proposed, Brown’s presentation covered alternatives—a flat $25 billion increase or

graduated milestones beginning at $10 billion and increasing to $50 billion. 244 These

240 Musk denied aspects of this finding. See Musk Dep. Tr. at 172:19–174:1 (denying
that he was “pushing for” the grant to “happen quickly” in early July 2017, and
stating that he was “generally erring on the side of . . . [going] slowly[,]” and did not
“recall the exact reason” why the process slowed down in early July). But his
recollection of relevant events was generally spotty.
241 JX-495.

242 JX-423 at 2–3; JX-456 at 2; JX-495 at 6–7.

243 JX-503 at 1.

244 JX-510 at 1, 12.

48
different market capitalization approaches corresponded to different award sizes,

ranging from 7.5% of total outstanding shares to Musk’s proposed 15%. 245

Although the presentation identified alternatives to Musk’s proposal, the

presentation included a valuation only for Musk’s proposal. 246 The presentation was

therefore biased toward Musk’s proposal, although this was the first meeting at

which the committee had considered any terms.

In addition to the market capitalization and operational milestones, the

presentation identified other potential grant features, including the following:

• A “Clawback Provision.” 247 Around April 2015, the Board adopted new
Corporate Governance Guidelines (the “Guidelines”) providing that
Tesla’s “executive officers [are] subject to a clawback policy relating to
the repayment of certain incentives if there is a restatement of our
financial statements.’” 248 The presentation contained the following
question: “Is the current clawback provision sufficient protection for the
Company?” 249 There is no evidence that the committee discussed this
question or ever demanded a more protective Clawback Provision. The
final version of the Grant included a Clawback Provision based on the
Guidelines. 250

245 Id. at 13.

246 Id. at 24.

247 JX-475 at 7. The Clawback Provision was also discussed at the June 30 Working
Group meeting. JX-464 at 1, 8 (6/27/17 email from Brown to Ehrenpreis attaching
draft slides with Clawback Provision questions for Tesla Working Group meeting on
June 30, 2017).
248 PTO ¶ 252.

249 JX-464 at 8.

250 JX-878 at 64–65 (appendix to the proxy statement attaching performance stock

option agreement) (stating that the Clawback Provision was consistent with Tesla’s
internal guidelines).

49
 • An “M&A Adjustment,” which is a provision that accounts for the impact
of financing or acquisitions on the market capitalization milestones
(“M&A Adjustment”). 251 These provisions are standard. 252

• A “Hold Period,” which was a period post-exercise during which Musk
would be prohibited from selling his stock. The presentation noted that
“post-exercise hold periods decrease the grant/accounting value” of the
stock as follows: “2 year = -15%; 3 years = -18%; and 5 years = -22%.” 253

Benchmarking analyses were on the advisors’ minds. Prior to the first

Working Group meeting, Phuong suggested an agenda item addressing “[b]enchmark

companies – risks associated with such grant.” 254 And Brown’s presentation for the

July 7 Compensation Committee meeting contained an appendix listing the “Largest

CEO Pay Packages in 2016”; summaries of other executive compensation plans at

SolarCity, Nike, Avago Technologies, and Apple; Radford’s $3.1 billion valuation of a

grant featuring $50 billion market capitalization milestones and awarding 15% of

total outstanding shares; and Radford’s additional preliminary models based on

different market capitalization approaches. 255 But the appendix data does not

constitute a traditional benchmarking study, 256 and it is unclear whether the

251 JX-464 at 7 (“If market cap/enterprise value used, how to account for the impact

of financing or acquisition activities, where market cap increases may not translate
to stock price increases? Will the use of enterprise value encourage debt financings?”).
252 Trial Tr. at 1010:22–24 (Dunn) (testifying that the M&A adjustment provision was

both “smart” and “pretty standard[]” for the Board to include).
253 JX-510 at 10.

254 JX-473.

255 JX-510 at 18, 19–22, 24–29.

256 Trial Tr. at 1475:20–24 (Brown) (describing traditional benchmarking).

50
committee discussed this information or the “risks associated with such grant” in any

event.

10. Stockholder Outreach

During the July 7 meeting, the Compensation Committee tasked Ehrenpreis

and Maron with contacting Tesla’s largest institutional stockholders to discuss

Musk’s new compensation plan. 257 Maron’s team worked with outside counsel to

prepare talking points to use during the calls. 258 They ultimately spoke to 15

stockholders between July 7, 2017, and August 1, 2017. 259 Maron’s subordinates

joined these calls and took notes. 260

As scripted, Ehrenpreis was to: introduce himself and Maron and identify his

objectives as Compensation Committee chair (to “keep executives engaged and

performing their best”); sing Musk’s praises (“I think we can all agree that he’s an

extraordinary leader and continues to accomplish incredible things for Tesla and its

stockholders”); remind the stockholders of the “[i]ncredible success of the 2012

Grant”; and explain that they are considering a new compensation structure for Musk

257 Id. at 252:23–254:1 (Maron); JX-509 at 2 (7/7/17 Compensation Committee
meeting minutes) (“Ehrenpreis and Maron then reviewed upcoming plans to discuss
CEO compensation generally with the Company’s largest shareholders, and solicit
their feedback and input for any new program.”).
258 See, e.g., JX-517 (7/8/17 email with comments from outside counsel re: SH Talking

Points).
259 JX-878 at 11 (2/8/18 Schedule 14A Proxy Statement); Trial Tr. at 252:23–253:10

(Maron) (verifying accuracy of 2019 proxy).
260 See, e.g., JX-522 (7/11/17 Maron notes from call with Jennison Associates); JX-546

(7/21/17 Maron notes from call with Fidelity); JX-551 at 1(7/24/17 Maron notes from
call with Baillie Gifford).

51
and that “[o]bviously, the goals of the new program will be similar to the 2012

grant[.]” 261

In this litigation, the defendants report that the stockholders to whom

Ehrenpreis and Maron spoke “were pleased with the 2012 Plan’s results and

supported a similar approach for a new compensation plan,” 262 and that stockholders

also provided suggestions for the new compensation plan that the Board ultimately

adopted. 263 It is difficult to credit the defendants’ narrative for two reasons. First,

the script reads like a loaded questionnaire intended to solicit positive stockholder

feedback and not a method for gaining objective stockholder perspectives on a

potential new plan. There is nothing inherently wrong with the script; it simply

undermines the evidentiary weight of the resulting communications. Second, what

the stockholders said in response to these inquiries is hearsay and untested by the

adversarial process, including cross examination. 264

11. The Working Group Develops Operational Milestones.

The Working Group next met on July 17. 265 One of the objectives for the

meeting was to establish a metric for operational milestones. Brown prepared a

261 JX-517 at 5.

262 Defs.’ Post-Trial Opening Br. at 29.

263 Id. at 30.

264 See JX-522 at (notes on Jennison call); JX-546 at 1 (notes on Fidelity call); JX-551

at 1 (notes on Baillie Gifford call); JX-552 at 1 (notes on Baron call); JX-531 at 5 (slide
featuring comments from T. Rowe, PrimeCap, and Jennison); Trial Tr. at 38:9–39:10
(Ehrenpreis) (the plaintiff’s hearsay objection to JX-551 and the court’s overruling of
that objection for the limited purpose of what Ehrenpreis was told); id. at 40:3–10
(Ehrenpreis) (the defendants’ acknowledgement of same limited purpose for JX-546).
265 JX-527 at 3.

52
presentation for the meeting that listed the following potential operational metrics:

“EBITDA; operating income; free cash flow; gross margin; strategic/execution goals”

(such as introducing a new model or producing a certain number of units, as in the

2012 Grant); and “Return Metrics (ROA, ROIC, ROE),” with each option paired with

a handful of “advantages” and “disadvantages.” 266

Ahuja had developed the strategic milestones for the 2012 Grant, and he took

responsibility for developing the operational milestones for the 2018 Grant. 267 On

July 19, Burg sent Ahuja and other members of the Working Group an analysis of the

historical market capitalization-to-revenue ratio of large U.S. companies. 268 Ahuja

used this data to propose starting with a 6.5x revenue-to-market-capitalization-

milestone ratio, which could be used to determine the initial revenue milestones—

$7.5 billion additional revenue for each $50 billion in market capitalization. The

266 Id. at 6; JX-530 at 6.
Of these options, Ahuja and Maron preliminarily expressed
in advance of the meeting that they favored revenue. JX-526 at 1–3 (7/10/17 emails
between Ahuja, Maron, and Chang re: Operational Metrics). Consistent with this
preference, the presentation makes a case for revenue, describing it as “the most
objective financial metric” and noting that the only listed downsides could be
mitigated with other, already-discussed plan features. JX-530 at 5 (“Disadvantages
. . . [1.] Requires adjustments for acquisition activities (e.g., goal increases for
acquired companies)[;] [2.] Ignores profitability and may incentivize price
cutting/lower margins; however, this concern mitigated if paired with long-term
market cap goals[.]”). All of the other metrics are accompanied by multiple
downsides, and none of the downsides for the non-revenue metrics included
explanations of how those downsides could be mitigated or obviated by other plan
features. Id. at 5–6.
267 Trial Tr. at 451:3–5 (Ahuja) (“My role was to provide information to the Board and

Compensation Committee about potential operations milestones that could be
used.”); see generally JX-622 (collection of Ahuja’s emails concerning milestone
development).
268 JX-538.

53
revenue milestones then declined to 4x for the final tranches at increments of $12.5

billion for each $50 billion market capitalization increment. 269

On July 23, Ahuja suggested four EBITDA milestones in addition to the 15

revenue-based milestones: $4 billion, $8 billion, $12 billion, and $16 billion. 270 Ahuja

projected that Tesla “should be able to get to $12B EBITDA in the next 4–5 years

depending on volumes . . . and margin assumptions[.]” 271

The agenda for the July 17 Working Group Meeting included discussion of an

M&A Adjustment and a Hold Period. 272 Brown prepared a detailed slide on the M&A

Adjustment, but there are no contemporaneous communications reflecting discussion

of the adjustment beyond that slide. 273

As to the Hold Period, the presentation noted that the Guidelines required a

six-month post-vesting Hold Period. 274 The next day, Phillips emailed Burg and

Brown a question from Ehrenpreis about “creative options” they could employ to

“solve for getting a bigger discount” on the publicly reported grant date fair value,275

269 JX-622 at 3 (7/19/17 email from Ahuja to Compensia, Radford, and Tesla in-house

attorneys).
270 JX-549.

271 Id.In this litigation, Ahuja testified that by the end of 2017 it became clear that
these assumptions were no longer reasonable. Ahuja Dep. Tr. at 308:8–312:12. As
discussed infra, however, there is a lot of competing testimony on the reliability of
Tesla’s projections.
272 JX-530 at 3 (7/17/17 Working Group discussion document).

273 Id. at 10.

274 Id. at 8.

275 JX-535 at 1–2 (7/18/17 email from Phillips to Radford and Compensia asking them

to compute what the discount would be if “Elon had to hold all exercised shares for 5
years?”).

54
such as extending the Hold Period to five years (the “Five-Year Hold Period”). 276 Burg

provided holding periods ranging from one to ten years and types of options with

corresponding discounts. 277

After the July 17 meeting, the Working Group began planning for an August

1, 2017 Compensation Committee meeting. 278 The agenda for the meeting included

an update for the full Board (excluding Musk and Kimbal) on the structure under

discussion for the compensation plan and on stockholder feedback on the structure. 279

Maron sent an email to the full Board on July 27, summarizing the process to date

and asking everyone to attend upcoming Compensation Committee meetings. 280

12. Musk Hits The Brakes.

Late July 2017 proved a busy time for Tesla, which delivered the first Model 3

on July 29. This triggered the eighth milestone in Musk’s 2012 Grant. 281 It also

prompted Musk to, once again, reset the Compensation Committee’s timeline. In

Maron’s view, given the struggles with the Model 3 launch, Musk’s desired to extend

the timeline either because he was unsure whether to commit to Tesla (which Musk

denied) or simply did not want to focus on compensation during a busy time. 282

276 Id.

277 JX-544 at 1–2 (7/21/17 email from Burg to Compensia, Chang, Ahuja, and other

Tesla team members re: “Update to Slide Per Ira’s Request”).
278 JX-554 at 1.

279 Id.

280 JX-559 (7/27/17 email from Maron to Gracias, et al. re “CEO Comp planning”).

281JX-563 (7/30/17 email from Gracias to Maron re: “Tesla UWC - Milestone
Achievement”).
282 Maron Dep. Tr. at 197:1–199:6; Trial Tr. at 249:16–250:12 (Maron).

55
 Whatever the reason, Musk hit the brakes on the process. On June 30, two

days before the planned Compensation Committee meeting, Musk sent Maron a brief

email asking to put the discussion of his compensation “on hold for a few weeks[.]” 283

Maron replied that he would “rather keep cranking on it . . . because there’s a fair

amount to it that we’ve been working on with the board and there’s lead time

involved.” 284 Musk agreed to let Maron proceed, stating that he “[j]ust want[ed] to

make sure Tesla interests come first.” 285 Musk reminded Maron that “[t]he added

comp is just so that I can put as much as possible towards minimizing existential risk

by putting the money towards Mars if I am successful in leading Tesla to be one of

the world’s most valuable companies. This is kinda crazy, but it is true.” 286

D. The Process Goes Off Course.

By August 2017, Musk remained hyper-focused on Model 3 production, which

was proving slow and painful. 287 As Musk described at trial, “[t]he sheer amount of

pain required to achieve that goal, there are no words to express.” 288 This aspect of

Musk’s testimony was totally credible.

283 JX-564 (7/30/17 email from E. Musk to T. Maron re “Re: My comp stuff”).

284 Id.

285 Id.

286 Id.

287 JX-615 at 4 (9/5/17 email from Musk describing “[t]he slow progress” as “extremely

alarming,” demanding production of 1,000 Model 3 vehicles in the final week of
September, stating “[c]ome hell or high water that 1000 unit number is going to
f***ing happen if I have to help build them myself. . . . I’m going to be draconian
because I have to be[,]” and warning that “Tesla’s life is at stake” (asterisks added)).
288 Trial Tr. at 673:13–17 (Musk).

56
 Although Musk agreed to allow Maron to “keep cranking,” progress on Musk’s

compensation plan had slowed to a halt. 289 From August through September, there

was some discussion of Musk’s compensation plan but no action, and there were no

meaningful discussions of the 2018 Grant in October. 290 The highlights of this

interregnum are discussed in brief below.

The Compensation Committee held a telephonic meeting on August 1, and

Compensia made a presentation during that meeting that summarized the

committee’s progress to date. 291 The most notable aspect of this meeting concerned

the following “key question” that went undiscussed: “Is additional compensation for

the CEO required given his current ownership and its potential appreciation with

Company performance?” 292 Musk had made his initial proposal in April 2017, and

the original timeline had the process wrapping up by July 2017, but this was the first

time that this “key question” had been posed—did Musk require additional

289 See, e.g., JX-596 at 1 (8/12/17 email from Brown telling another Compensia
employee that there was “no need to spend time on [a presentation relating to the
2018 Grant] for now” and noting that “Elon and the Board are negotiating a little bit,
which may impact where they land on some of the key program points[,]” although
the record does not reflect any such negotiations at that time); JX-599 (8/17/17 email
from Phillips tacitly noting the pause by stating that “[w]e would like to proceed with
Elon’s grant. I am hoping we can get on a call tomorrow with this small group to
discuss next steps, proposed timeline and slides,” although it does not appear that
any call took place); JX-604 at 1 (8/27/17 email from Ahuja to Working Group
members stating “[i]t was decided to defer [] action by a few months”).
290 Materials for the October 5 Compensation Committee meeting, for instance, make

no mention of the 2018 Grant. See JX-650.
291 JX-566 at 10–15 (8/1/17 slide deck for Compensation Committee meeting, with a

slide titled: “For Reference: Preliminary Work to Date”).
292 Id. at 7–8.

57
compensation? The most curious thing about this question is that there is no evidence

that any director deliberated over it, and it did not appear in any other Board or

committee materials. 293

The next event of interest occurred on September 8, when Ehrenpreis and

Denholm spoke to Musk to discuss his compensation plan. 294 Once again, the most

notable aspect of this conversation concerns a question that went undiscussed. The

agenda for the September 8 call identified the following topic for discussion: “Should

some type of commitment be included as part of comp structure?” 295 Trial testimony

revealed that no one raised this issue with Musk. 296 Ehrenpreis recalled discussing

Musk’s dedication to Tesla generally. 297 And Maron’s summary of the call reflects

that the participants discussed the “opportunity costs” of Musk devoting time to

293 The presentation also: reflected Musk’s proposed 15-tranche structure;
described
the operational milestones as “TBD”; and included questions about a Clawback
Provision (“Should there be an expanded clawback provision, or is the current
provision from the Corporate Governance Guidelines adequate?”), an M&A
Adjustment (“How should corporate transactions and potential changes in control be
addressed?”), and a Hold Period (“What limitations should there be on the form of
exercise, and should extended post-exercise holding period(s) for earned shares be
established?”). Id. at 8.
294 PTO ¶ 223; JX-610. Although Maron was invited to the call, he did not attend and
did not have a substantive recollection of what was discussed. Maron Dep. Tr. 221:7–
223:18.
295 JX-612 at 2.

296 JX-617 at 2 (9/8/17 Compensation Committee meeting minutes indicating that a

call occurred but providing no substance); Trial Tr. at 140:4–141:1 (Ehrenpreis)
(testifying that he could not recall if Musk or Denholm had discussed with him
“anything about . . . Musk[] devoting his time and attention to Tesla” as opposed to
his other companies).
297 Ehrenpreis Dep Tr. at 309:11–311:6.

58
Tesla. 298 Although Musk didn’t “have a good recollection of [the September 8] call,” 299

he was confident that they did not discuss a time or attention commitment “vis-à-vis

[Musk’s] other interests.” 300 Musk said “that would be silly.” 301

The Board met on September 19, but the meeting was not terribly interesting.

Ehrenpreis reported on the committee’s progress 302 and the September 8

conversation with Musk. 303 Brown gave a presentation covering much of the same

ground as the August 1 presentation. Brown valued the 15% market capitalization

option at a $2–3 billion grant date fair value. 304 According to the meeting minutes,

“[t]he Board expressed its general support for the overall structure of” the Grant,

298 JX-629 at 2; see also Trial Tr. at 665:2–667:10 (Musk) (discussing opportunity

costs).
299 Musk Dep Tr. at 154:12–22.

300 Id. at 160:11–18.

301 Id.

302 PTO ¶ 225; JX-631 (9/19/17 special Board meeting minutes); JX-629 at 3 (9/18/17

email from Maron to the Board attaching a document stating, “[d]ecisions to be made
at this meeting: 1. With Ira’s assistance, have compensation committee determine
the following: a. Whether to maintain basic 2012 award structure (tranches tied to
paired operational and market cap goals) and determine approach to goals b.
Appropriate award size (e.g., number and size of tranches)”); JX-632 at 3 (9/19/17
email from Maron to the Board attaching a document stating, “[d]ecisions to be Made
-Whether to maintain basic 2012 award structure (tranches tied to paired operational
and market cap goals) - Appropriate award size (e.g., number and size of tranches)”).
303 JX-631 at 1 (9/19/17 special Board meeting minutes stating: “Mr. Ehrenpreis
provided an update on the activity regarding the CEO Compensation Program. Mr.
Ehrenpreis reviewed the continuing work by members of the Compensation
Committee, Company management and outside advisors, including Compensia,
Radford and Wilson Sonsini Goodrich & Rosati. The Compensation Committee had
developed key points and met with Mr. Musk to discuss various aspects of the CEO
Compensation Program. . . . Mr. Ehrenpreis and Ms. Denholm updated the Board
regarding their last meeting with Mr. Musk.”).
304 JX-632 at 7, 21.

59
meaning the 15-tranche structure. 305 The Board favored “a long-term stock option

grant . . . with performance-based vesting, primarily keyed to the market

capitalization of the Company[.]” 306 The Board noted that “Musk was driven by large

goals[,]” and “viewed the discussed targets as achievable given the potential of the

Company and believed that Mr. Musk would as well.” 307

Before this period of inactivity, the only milestones that had been discussed

were the $50 billion market capitalization milestones. Operational milestones

remained “TBD,” 308 but Ahuja gave some thought to them in August and September.

There was a Working Group meeting on August 3, 309 and after that time, discussions

focused on adjusted EBITDA. 310 It is unclear who made the decision to focus on that

metric.

On August 17, Ahuja asked one of his employees for “operational metrics [that]

will line up with 15 increments of $50B in market cap.” 311 Ahuja envisioned 15

adjusted EBITDA milestones “ranging from $2B to $25B” and requested comparisons

to historic EBITDA/market capitalization correlations for Apple, Amazon, and

305 JX-631 at 2.

306 Id.

307 Id.

308 JX-566 at 28.

309 JX-584 (8/3/17 email from Phillips to Maron with Working Group agenda).

310 JX-640 at 3–4 (8/17/17 email from Ahuja to a subordinate stating that “the
thinking now is to focus more on adjusted EBITDA . . . rather than revenue metrics”).
311 Id. at 3.

60
Google. 312 After pulling the data, members of Ahuja’s team responded that they

“didn’t see immediate parallels to where we are.” 313 Ahuja requested more

information on the data they gathered concerning “% Adjusted EBITDA/Revenue and

Market Cap to Adjusted EBITDA multiple.” 314

The day after the September 19 Board meeting, Ahuja reached out to his team

for help developing “10 Adjusted EBITDA based metrics that end at a revenue of

about $150B and market cap of about $800B using % and multiples which start high

and progressively become lower.” 315 He explained that “[t]he thinking is that we will

develop EBITDA based operational metrics rather than [r]evenue based.” 316 It is

unclear who dictated that “thinking” at the time. A Tesla employee responded to

Ahuja’s request on September 21, providing ten potential EBITDA milestones (going

from $2 billion to $20 billion in even increments of $2 billion, similar to Ahuja’s

range). 317 The data reflected adjusted EBITDA/revenue ratios of Tesla and its peers

(e.g., Apple (34%) and Google (42%)). 318 The employee found that Ahuja’s proposed

312 Id.

313 Id. at 2.

314 Id.

315 Id. at 1.

316 Id.

317 JX-641 at 1.

318 Id. at 4; JX-642; JX-643.

61
EBITDA milestones range would necessitate an EBITDA-to-market-capitalization

multiple well above that of Amazon, Apple, or Google. 319

E. The Process Restarts.

By the end of October, Tesla’s production difficulties seemed to be easing. A

“Quarterly Update Letter” signed by Musk and Ahuja for the Board’s audit committee

(the “Audit Committee”) at its October 31, 2017 meeting was generally optimistic. It

stated that the “production rate will soon enter the steep portion of the

manufacturing S-curve,” which would create “non-linear production growth” in the

following weeks. 320 With Tesla’s production stabilizing, Musk turned his attention

back to his compensation plan.

1. Musk Lowers His Ask.

In the early hours of November 9, Musk sent Maron an email stating that he

wanted to “move forward with [his compensation plan] now, but in a reduced manner

from before.” 321 Musk testified that by “reduced,” he meant something less than 15%

of total outstanding shares. 322 It is unclear why Musk decided to lower his ask. It is

possible that he was just trying to single-handedly calibrate the compensation

package to terms that were more reasonable. Later that morning, Musk told Maron

319JX-641 at 1; see also JX-642 (9/21/17 Spreadsheet of Milestones, Sheet Two,
Columns F, N).
320 JX-1540 at 84 (10/31/17 Audit Committee meeting materials).

321 JX-664.

322 Trial Tr. at 676:18–677:1 (Musk).

62
that he would “like to take board action as soon as possible if they feel comfortable

and then it would go to shareholders.” 323 Musk stated:

I think the amount should be reduced to a 10% increment
in my Tesla ownership if I can get us to a $550B valuation,
but that should be a fully diluted 10%, factoring in that it
dilutes me too. So if it hypothetical [sic] was awarded to
me now and I own (probably) ~20% fully diluted, then I
would have ~30%. Of course there will be future dilution
due to employee grants and equity raises, so probably this
is more like 25% or so in 10 years when it has some chance
of being fully awarded. 324

The implication of Musk’s proposal to use a 10% fully diluted figure at 1% per

tranche is that he now sought a ten-tranche structure.

Moments later, Musk sent Maron another email stating:

Given that this will all go to causes that at least
aspirationally maximize the probability of a good future for
humanity, plus all Tesla shareholders will be super happy,
I think this will be received well. It should come across as
an ultra bullish view of the future, given that this comp
package is worth nothing if ‘all’ I do is almost double Tesla’s
market cap. 325

Ehrenpreis relayed Musk’s revised proposal to the Board at a special meeting

on November 16, 2017. 326 In advance of that meeting, Chang sent Ehrenpreis a list

of talking points, stating the “[n]umbers we are talking about are now lower than

before . . . 10 tranches to $550 billion; 1% per tranche[.]” 327

323 JX-664.

324 Id.

325 Id.

326 JX-669 (11/16/17 special Board meeting minutes).

327 JX-670 (11/15/17 email from Chang to Ehrenpreis in advance of a Board meeting

the following day).

63
 2. Some Turbulence

Meanwhile, on November 13, Jurvetson began a leave of absence. 328 At the

time, Jurvetson had been a managing director of Draper Fisher Jurvetson (“DFJ”), a

venture capital firm with investments in Tesla and other Musk-related businesses. 329

Following a scandal, Jurvetson was removed from DFJ. This became a “PR problem”

for Tesla. 330 Jurvetson returned to the Board in April 2019 but left again in

September 2020. 331 On November 14, Musk emailed Maron again, asking to “pause

for a week or two” on his compensation plan as it would be “terrible timing.” 332 At

trial, Musk did not recall the nature of the problem. He is a smart person, though,

and it is possible that he thought it was better to avoid releasing controversial news

on the heels of controversial news. 333

328 PTO ¶ 133. Jurvetson had joined both the Tesla Board and the SpaceX board in
June 2009, and he joined the Audit Committee in January 2010. Id. ¶¶ 132, 134, 136.
329 Id. ¶¶ 130, 135 (6,546,420 shares of SpaceX collectively with affiliated funds); id.

¶¶ 138–39 (stating that DFJ was also SolarCity’s third-largest institutional
stockholder, owning 4,827,000 SolarCity shares (worth $98,229,450.00) as of its
acquisition by Tesla). Jurvetson has other personal and professional ties with Musk.
For instance, he personally beneficially owned 114,576 shares of Tesla common stock
as of December 31, 2017. Id. ¶ 135. Jurvetson is an investor in Musk’s Boring
Company and Kimbal’s The Kitchen Restaurant Group. See id. ¶¶ 140–41.
330 Gracias Dep. Tr. at 96:12–21, 98:3–16. The details of the incident do not appear
in the record.
331 PTO ¶¶ 132–33.

332 JX-668.

333Trial Tr. at 640:8–641:4 (Musk) (“I’d asked to just pause any discussions of
compensation given the crisis level at the company was too high to think about
anything else.”).

64
 3. Musk Further “Negotiates Against Himself.”

Musk’s November 9 proposal had the unintended consequence of raising

Musk’s demand. According to Chang, Musk’s demand to increase his current

percentage of fully diluted shares (approximately 18.9%) by ten percentage points (to

approximately 28.9%) would require an award of 28,959,496 shares, which equaled

approximately 17.23% of total outstanding shares as of November 2017. 334 Musk’s

November 9 request, therefore, turned out to be larger than his initial proposal,

contrary to Musk’s desire for a “reduced” amount. 335

Maron sent Chang’s calculations to Musk on November 29. 336 Maron

presented to Musk both (i) the total amount of shares Musk would receive based on

his November 9 request for an additional 10% on a fully diluted basis (28,959,456

shares); and (ii) the total amount of shares Musk would receive based on his March

2017 request for an award of 15% of total outstanding, non-diluted shares (25,217,325

shares). 337

Musk responded on December 1 telling Maron: “That is more than intended.

Let’s go with 10% of the current FDS number, so 20.915M.” 338 Musk arrived at this

number by multiplying Tesla’s FDS (fully diluted share) total as of November 2017

by 10%, or by factoring in dilution on a pre-grant basis.

334 JX-673.

335 JX-664.

336 JX-678.

337 Id. at 1.

338 JX-682 at 1.

65
 When asked about his December 1 proposal, Musk volunteered an answer that

the plaintiff’s counsel has gleefully emphasized at every opportunity. He said that

the December 1 proposal “was, I guess, me negotiating against myself.” 339

4. A Surge Of Activity

The parties crammed a lot of work into a few days in December. During a five-

day period that month, the Compensation Committee met twice (on December 8 and

10), 340 and the Board met once (December 12). 341 There was a renewed sense of

urgency after the December 8 meeting, as reflected by email chatter on December 10

and 11 among high-ranking Tesla employees enlisted to work on the Grant. 342

During the December 10 meeting, the Compensation Committee approved a

12-tranche Grant structure and a set of operational milestones. Ehrenpreis reported

that Musk “appeared prepared to accept” the structure, which the minutes described

at the “lower end of the previously contemplated range of 12% of the total outstanding

shares.” 343 The December 12 meeting minutes also identify other terms under

consideration.

339 Musk Dep Tr. at 263:2–4.

340 JX-697 (12/8/17 Compensation Committee meeting minutes); PTO ¶ 229 (noting

the Compensation Committee met on 12/10/17).
341 JX-729 (12/12/17 special Board meeting minutes).

342 JX-717 at 1 (12/10/17 email noting the “importance and the timing on getting” an

analysis of the stock-based compensation effects of the grant “out quickly” because of
a valuation deadline the next day); id. (12/11/17 email marked as “high” importance
stating, “[w]e are back on with a vengeance (apologies in advance). . . . I am just now
digesting myself”); JX-718 at 1 (12/11/17 email stating that “[o]ur CEO grant[] is back
and on a fast track now”).
343 JX-729 at 1.

66
 a. The 12%/12-Tranche Structure

All pre-November 9 discussions had assumed 15 tranches, in line with Musk’s

proposals. 344 And on November 9, Musk proposed ten tranches measured by fully

diluted shares. On December 10, however, the Compensation Committee approved a

12-tranche structure, which was presented to the Board two days later. The parties

dispute the evolution of the 12-tranche structure.

According to Ehrenpreis, the 12-tranche structure was intended to counter

Musk’s offer for a fully diluted 10% and its corollary ten-tranche structure. 345 This

may appear counterintuitive, because 12% of total outstanding shares equals

approximately 10% fully diluted—thus, making it seem like there was no real upside

to using the 12% figure. The difference, however, is that adding two more tranches

on top of Musk’s suggested ten tranches required Tesla to hit the $50 billion market

344 See JX-1598 at 3 (15 tranches, 1% of total outstanding shares each); JX-434 at 3

(15 tranches, 1% of total outstanding shares each); JX-445 (15 tranches, 1% of total
outstanding shares each); JX-464 at 5–7; (15 tranches, 1% of total outstanding shares
each); JX-486 at 1 (15 tranches, 1% of total outstanding shares each); JX-510 at 12
(15 tranches, varying total outstanding shares awards each); JX-530 at 9, 13 (15
tranches, varying total outstanding shares awards each); JX-566 at 11, 14 (15
tranches, varying total outstanding shares awards each); JX-640 at 3 (15 tranches);
JX-632 at 4 (15 tranches, varying total outstanding shares awards each). One
Compensia presentation from September 19 provides “5 to 10” tranches as a possible
range, but this is clearly an error as the rest of the presentation, including the slide
where this range appears, assumes an award with 15 tranches. See JX-628 at 6.
Ehrenpreis’s testimony that “5 to 10 . . . was the range of the number of tranches that
was being considered at that time” is not credible, and he acknowledged on redirect
that the rest of the presentation envisioned 15 tranches. Trial Tr. at 51:18–24,
214:20–215:6 (Ehrenpreis).
345 Trial Tr. at 58:15–59:11 (Ehrenpreis) (“And essentially -- and getting him to agree

to the total outstanding share framework, we added two more vesting tranches, which
would have required, for him to achieve the equivalent in number of shares, $100
billion market cap more.”).

67
capitalization target two more times to generate an additional $100 billion in market

capitalization. 346 So, the 12-tranche structure made it harder for Musk to achieve

the maximum payout of the Grant. Musk testified that the shift from fully diluted to

total outstanding shares was one of “two areas . . . where the board pushed

significantly, which I conceded[.]” 347

This testimony, however, finds no support in the contemporaneous record.

Although there are benefits of a 12-tranche structure to minority stockholders, the

move to 12% and 12 tranches was driven by the Board’s preference to base the Grant

on total outstanding shares rather than fully diluted shares.

The issue first arose during the November 16 Board meeting. There, the Board

discussed a move from Musk’s proposed fully diluted shares to the Board’s preferred

total outstanding shares. 348 The Board viewed total outstanding shares as a simpler

metric and had used it when issuing the 2012 Grant. 349

346 Where each tranche is 1%, and there is a $50 billion market capitalization target

per tranche, adding two tranches increases the total market capitalization goal by
$50 billion x 2 = $100 billion.
347 Id. at 584:9–19 (Musk). The other area was the Five-Year Hold Period, discussed
below.
348 JX-669 (noting the Board “expressed a general preference” for a non-diluted award

and a structure of “1% of current total outstanding shares as the award for each
vesting tranche” accompanied by $50 billion market capitalization increases and a
“matching operational milestone”).
349 Maron Dep. Tr. at 407:17–25 (stating that the Board used total outstanding
shares, instead of fully diluted shares, because “it was a simpler approach”); JX-135
at 77 (showing 2012 Grant using total outstanding shares as well). The 2009 Grant
used a diluted approach. JX-68 at 2–3.

68
 On December 10, the Compensation Committee held a special meeting to

discuss the Grant. 350 There are no minutes for the December 10 meeting. Chang

attended and took notes, which he circulated by email later that evening. 351 His notes

state:

Todd Introduction/led discussion re review of terms
o We seem to be at the right place as far as size: 10% of
FDS (~12% of TOS)
o #of tranches?
Simplicity of 10
10 means that the end goal is smaller
Agreed to 12 tranches of 1% each. 352

Translating the above, the Board agreed to the size demanded by Musk but preferred

to base it on total outstanding shares, consistent with their discussion during the

November 16 meeting. With his meeting notes, Chang indicated that he would “send

another email shortly with the grant size numbers.” 353 A few minutes later, he sent

an email to the same people attaching a spreadsheet and stating the following:

Contemplated size of grant is here. Details attached.

This is based on 12% of total outstanding shares (TOS as
of 11/8, should update to close to grant, but this should still
get us very close).

Grant size would be 20,173,860 shares.

350 PTO ¶ 229.

351 JX-701.

352 Id. There is some indication that the 12-tranche structure was being considered
prior to this meeting. On December 6, Ahuja circulated a spreadsheet concerning
operational milestones to Chang and Maron. That spreadsheet reflected a 12-tranche
structure, suggesting that Ahuja, Chang, and Maron had discussed this possibility
prior to that time. JX-688.
353 JX-701.

69
 • 12% of TOS

• 9.8% of FDS354

On December 11, Ahuja emailed Chang and Tesla’s corporate controller to

confirm that the 2018 Grant would award 20,173,860 shares (12% of total

outstanding or 9.8% of fully diluted) over 12 tranches. 355

On December 12, Ehrenpreis told the Board that Musk was prepared to accept

this Grant size. 356

There is no discussion in any of the minutes or notes of the November 16, or

December 8, 10, or 12 meetings indicating that the Board desired 12 tranches because

it was better for the minority stockholders. To the contrary, the only explanation in

the record for the 12-tranche structure is that the Board preferred to measure the

Grant by total outstanding shares for simplicity’s sake.

There is also no evidence that the Board pushed for the 12%/12-tranche

structure. Maron did not recall the Board pushing or Musk conceding anything. He

testified that although “the size of the overall plan” was one of the features that was

“different than I think were initially thought of by Elon . . . I don’t want to say that it

was necessarily over his objection.” 357 Reinforcing the similarity between Musk’s 10%

354 JX-702.

355 JX-715.

356 JX-729 (12/12/17 special Board meeting minutes).

357 Maron Dep Tr. at 428:20–430:3.

70
fully diluted ask and the Board’s 12% total outstanding offer, Musk confused the two

at trial, mistakenly testifying that the Grant awarded “10 percent.” 358

b. The Operational Milestones

During the November 16 Board meeting, the Board “discussed the structure of

the operational milestones,” came to a consensus to use both sales and profits metrics,

and “directed the Compensation Committee and management to develop operational

milestones” using revenue and EBITDA. 359

Ahuja and his team took up the mantle. On December 7 and 8, Ahuja

developed a number of alternatives using a comparatively low 10% EBITDA/revenue

margin. 360 By December 10, Ahuja had refined the model to three options for six,

eight, or 12 of each of revenue and adjusted EBITDA milestones, all at a 10%

EBITDA/revenue margin. 361

Recall that, in September 2017, Tesla sought to develop achievable operational

milestones and analyzed information regarding the adjusted EBITDA/revenue ratios

358 Trial Tr. at 581:13–582:6 (Musk) (“Q. You think it was half a percent for the 2018

plan as opposed to the 2012 plan? A. Sorry. 2012 -- I think -- I think it was 12 tranches
for normally 10 percent-ish, approximately.”). Musk also testified that during the
first conversation about the 2018 Grant he proposed a 10% incremental increase to
his Tesla holdings. Musk Dep Tr. at 144:13–146:6. In context, this explanation
appears implausible.
359 JX-669 at 2.

360 JX-691 (12/8/17 email from Ahuja to Maron laying out four alternatives for
revenue and EBITDA as operational milestones); JX-694 (Ahuja, Chang, and Maron
planning to discuss milestone approach on December 8); JX-698 at 1 (12/9/17 email
from Ahuja to Maron and Chang re: Revised CEO Comp alternatives, with
attachment).
361 JX-698 at 1.

71
certain peers (e.g., Amazon (8%), Apple (34%), and Google (42%)). 362 The 10%

EBITDA/revenue ratio modeled by Ahuja, therefore, was comparatively low and thus

easier to achieve. 363 Tesla ultimately based the Grant’s EBITDA milestones on an

8% EBITDA/revenue margin, 364 making them even easier to achieve. 365

Ahuja explained his methodology at trial. He “started with” the $50 billion

market capitalization milestones and backed into the revenue and EBITDA

targets. 366 Chang similarly explained that the operational and market capitalization

milestones “have to be somewhat aligned. It has to make sense to be able to be

achieved around the same time or what you think is the same time.” 367 So to establish

the operational milestones, the Working Group asked: “at this valuation what would

. . . revenue and EBITDA look like . . . ?” 368

362 JX-641 at 4; JX-643; JX-733 at 6.

363 Trial Tr. at 893:18–894:21 (Restaino).

364 JX-733 at 6.

365 Trial Tr. at 893:18–894:21 (Restaino).

366 Id. at 463:15–464:8 (Ahuja).

367 Id. at 1094:17–1095:14 (Chang); see also, e.g., id. at 1061:23–1064:21 (Burg)
(“Question: And was that work in connection with looking at revenue to market cap
ratio, was that related to some sort of correlation between market cap, on the one
hand, and revenue, on the other, and/or how an increase in one of those inputs might
impact the other one? Answer: Yes. Essentially, it was trying to get a feel for -- trying
to get a feel for market cap to revenue ratios and how those change over time as
companies grow very big.”).
368 See id. at 1093:7–12 (Chang).

72
 During the December 12 meeting, the Board also reviewed Tesla’s then-current

operating plan and projections. 369 Ahuja developed, and Musk approved, the

projections in December prior to the meeting (the “December 2017 Projections”). 370

The one-year projections underlying the operating plan forecasted $27.4B in total

revenue and $4.3B in adjusted EBITDA by late 2018, and thus predicted achievement

of three milestones in 2018 alone. 371 The three-year long-run projections (“LRP”)

underlying that plan reflected that, by 2019 and 2020, Tesla would achieve seven and

eleven operational milestones, respectively. 372 The following chart reflects the

corollaries:

Revenue Adjusted EBITDA
2017 3-Yr LRP The Grant 2017 3-Yr LRP
FY2018 $27.5B $20B $1.5B $3.8B
FY2019 $41.9B $35B $3B $8.1B
FY2020 $69.6B $55B $4.5B $14.4B
$75B $6B
$100B $8B
$125B $10B
$150B $12B
$175B $14B

369 JX-740 at 2 (email attaching 2018 operating plan 12/12/17 slide deck); Trial Tr. at

523:12–16 (Ahuja) (confirming the full Board saw the projections before approving
the Grant, including in December 2017).
370 JX-728 at 1–2; JX-372 at 6 (text messages between Maron and Ahuja); Trial Tr. at

515:18–516:7, 517:8–518:11 (Ahuja).
371 JX-749 at 20; Trial Tr. at 518:18–519:5 (Ahuja).

372 JX-529 at 2; JX-543 at 2; JX-555 at 5; JX-573 at 408; JX-582 at 4; JX-587.

73
 F. The Last Leg

The day after the December 12 Board meeting, Chang provided Burg and

Brown the “near final” term sheet (the “December 13 Term Sheet”), stating that Musk

was “well aligned” on the terms and that he expected Board approval in early January

2018. 373 The key terms concerning structure and milestones had been finalized,

which allowed Burg to complete the grant date fair value. Other terms, such as a

Leadership Requirement (defined below), the Hold Period, and the M&A Adjustment

would fall into place in the weeks ahead.

1. The Leadership Requirement

The December 13 Term Sheet reflected agreement on a “Leadership

Requirement,” conditioning vesting under the Grant on Musk being “CEO or

Executive Chairman and Chief Product Officer[.]” 374

The 2012 Grant contained a stricter Leadership Requirement, which

conditioned vesting on Musk remaining CEO. 375 The Board materials for the

September 19 meeting reflect that the Board considered a Leadership Requirement

similar to that in the 2012 Grant. 376 At some point between September 19 and

December 13, the Board relaxed its request to allow vesting if Musk was not CEO but

was Executive Chairman and Chief Product Officer. 377 There is no indication how or

373 JX-743 at 1.

374 Id. at 4–5.

375 JX-137 at 1 (2012 Grant).

376 Id.; JX-633 at 9 (“Based on the 2012 Award, should the Company continue to

require Mr. Musk to be CEO in order to continue vesting under the new award?”).
377 JX-878 at 52 (2/8/18 Schedule 14A Proxy Statement).

74
when the decision was made, whether it was raised with Musk, or when the term was

finalized, but it appears in the final Grant.

At trial, Gracias explained that the more lenient Leadership Requirement

reflected the Board’s belief that Musk’s “most valuable function[]” was as the “chief

product officer,” not as the CEO. 378 There is no evidence that the Board ever

discussed or negotiated this with Musk.

2. The M&A Adjustment

The December 13 Term Sheet reflected the Board’s intent to include an M&A

Adjustment in the Grant. 379 The 2018 Grant included an M&A Adjustment, which

had been under discussion since at least the June 23 Compensation Committee

meeting. 380 In its final form, the M&A Adjustment excluded from the market

capitalization milestone acquisitions with a purchase price over $1 billion, and the

revenue and adjusted EBITDA milestones excluded amounts attributable to

acquisitions providing more than $500 million or $100 million of each, respectively. 381

At trial, Ehrenpreis described this as a negotiated term, testifying that Musk

wanted “the M&A adjustments just to apply to a single milestone at the point of M&A,

and we ultimately got those adjustments to apply across the entire basis of the -- of

378 Trial Tr. at 726:4–15 (Gracias).

379 JX-743 at 4–5.

380 JX-475 at 6.

381 JX-878 at 19 (2/8/18 Schedule 14A Proxy Statement).

75
all the milestones.” 382 Ehrenpreis was referring to a January 16 demand from Musk

to Maron that the M&A Adjustment threshold be 5% of the then-current market

capitalization rather than a flat $5 billion. 383 Musk also told Maron that adjusting

the revenue and adjusted EBITDA milestones would be too complicated and

unnecessary. 384

Musk, however, would eventually come around to the M&A Adjustment as

proposed by the Board and even suggested stricter terms. After speaking to Ahuja,

on January 16, Maron proposed a threshold that would exclude acquisition-based

market capitalization growth amounting to the lesser of (i) 5% market capitalization

at the time of the acquisition and (ii) a flat number between $5 and $10 billion. 385

Musk countered—again, against himself—with a threshold at the lower of 2% of then-

382 Trial Tr. at 227:9–13 (Ehrenpreis); see id. at 63:5–15 (Ehrenpreis) (“We further

negotiated the idea of creating adjustments to both the revenue and EBITDA and
market cap numbers if there was M&A that caused -- if, through acquisition, either
the market cap or those financial metrics increased. And so there was a negotiation
around the idea that we didn’t want the plan to have the unintended consequence of
Elon being able to buy his way into it through M&A.”); see also JX-783 at 1–2 (1/16/18
email from Maron to Compensation Committee stating that Musk wanted that “[a]ny
M&A in which [Tesla] buy[s] a company for no more than 5% of [Tesla’s] then current
market cap will have no adjustment”).
383 JX-783 at 2.

384 See id. at 1.

385 JX-781 at 2 (1/16/18 email from Maron to Musk stating, “Deepak and I were just

talking and think we should make a slight tweak to what we discussed. Because
setting the threshold at 5% of our then current market cap could result in pretty big
numbers as we grow, and thus one deal that’s under 5% could still be a big chunk of
a $50B market cap increment, we propose setting the threshold at the *lesser* of (a)
5% of our then current market cap or (b) some number between $5B and $10B.”).

76
current market capitalization or $1 billion. 386 He told Maron and Ahuja, “I don’t

think we will be making big acquisitions[]” and “[t]here is no chance I will game the

economics here, so I’m fine with limits that prevent that.” 387 After discussing the

issue with the Compensation Committee, all agreed to the following exclusion

triggers for acquisition-based growth: the lower of 2% of then-current market

capitalization or $1 billion for market capitalization milestones; revenue exceeding

$500 million for the revenue milestones; and adjusted EBITDA exceeding $100

million for the adjusted EBITDA milestones. 388

3. The Hold Period

The December 13 Term Sheet reflected that the duration of the Hold Period

was an open issue. 389 The December 13 Term Sheet stated that the Hold Period was

“likely to be 5 years,” but it was still uncertain. 390 The 2018 Grant included the Five-

Year Hold Period.

At trial, Ehrenpreis described the Five-Year Hold Period as a negotiated

term. 391 Musk similarly testified that the Board “pushed” for this term, which was

386 JX-781 at 1.

387 Id. at 1–2.

388 JX-782 at 1.

389 JX-743 at 4–5.

390 Id. at 5 (12/13/17 term sheet); see also JX-746 at 3 (Liu 12/13/17 email stating “[i]t

seems we’ll likely have 5 years holding period after exercise”).
391 Trial Tr. at 63:20–64:1 (Ehrenpreis) (stating the Board “negotiated an agreement

that [Musk] would hold for five years after both the achievement and vesting and
exercise of the options”); id. at 210:24–211:2 (Ehrenpreis) (“It did. I mean, we didn’t
have one in the beginning, and we ultimately were able to get five years.”); see also
id. at 342:15–21 (Denholm) (“There were also some questions or some comments

77
his “biggest concern, because it would mean that either [he] would need to run the

company for another five years after the stock vested or [he] would need to find

someone who would run the company well enough to not cause the valuation to

subsequently decline significantly. . . . A lot can happen in five years.” 392

But there is nothing in the record reflecting any actual negotiation with Musk

over this term. The only explanation in the record for a five-year period came in July,

when Ehrenpreis raised the possibility as a “creative option[]” for “getting a bigger

discount[]” on the publicly disclosed value of the Grant. 393

4. The Grant Date Fair Value

On December 22, Burg provided a valuation letter based on the December 13

Term Sheet. 394 Burg used Monte Carlo simulations to estimate the probability of

hitting the market capitalization milestones, which is a “generally accepted

statistical technique” that “simulate[s] a range of possible future” outcomes over a

given timeframe using constantly repeating, random potential scenarios. 395

about the retention period after, you know, assuming that the plan was achieved over
a period of time, that he needed to hold the equity for five years. I remember that
coming up as being a virtuous feature of the actual program, because it, again, aligned
shareholder interest.”).
392 Id. at 584:12–585:2 (Musk).

393 JX-535 at 1–2 (7/18/17 email from Phillips to Radford and Compensia asking them

to compute what the discount would be if “Elon had to hold all exercised shares for 5
years?”); see also JX-792 at 7 (1/21/18 Radford report) (stating that five year hold
period would result in an “illiquidity discount”); Trial Tr. at 133:5–134:4 (Ehrenpreis)
(agreeing that imposing a five-year hold period would produce the highest discount).
394 JX-752 (12/22/17 email from Burg to Radford, other Tesla employees, and
PricewaterhouseCoopers attaching a valuation letter).
395See id. at 5, 11 (describing the Monte Carlo simulation method and showing
formula).

78
 Burg determined that the first market capitalization goal—described as $100

billion, or $50 billion of growth—would occur 45.55% of the time, after which the

likelihood of achieving subsequent milestones rapidly declined to below 10% from

milestone six onward. 396 The Monte Carlo valuation did not account for the

probability of hitting the operational milestones, nor did it incorporate Tesla’s

internal projections. 397

Based on these estimates, Burg reached an initial grant date fair value for the

2018 Grant of $2,656,430,639. He then applied a 10.52% illiquidity discount based

on the Five-Year Hold Period, arriving at a final value of $2,377,077,626. 398 Burg

and Ahuja’s team continued to refine this valuation in the following weeks by

tweaking assumptions, including the holding period and dilution rate. 399

Burg provided an updated valuation letter on January 19. 400 This letter

included a slightly higher final valuation of $2,575,342,854 (again taking into account

the holding period illiquidity discount) compared to the December 22 valuation of

$2,377,077,626. 401 Another updated letter, dated January 21, provided a still higher

final valuation of $2,615,190,052, resulting from intervening increases in the total

number of shares, a higher stock price, and slight changes to other assumptions. 402

396 Id. at 12.

397 See id. at 4–5.

398 Id. at 6–9.

399 See JX-767 at 1–4; JX-772 at 1–2.

400 JX-785 at 1–2.

401 Compare JX-785 at 10, with, JX-752 at 6–9.

402 JX-792 at 7; JX-799 at 3.

79
 G. The Board Approves The Grant.

On January 21, 2018, the Board held a special meeting to approve the 2018

Grant. 403 Musk and Kimbal recused themselves and Jurvetson was on leave. 404 The

other six directors—Ehrenpreis, Denholm, Gracias, Buss, Murdoch, and Johnson

Rice—unanimously approved the 2018 Grant. 405

In its final form, the 2018 Grant is divided into 12 vesting tranches. 406 Each

tranche vests upon satisfaction of one market capitalization milestone and

achievement of one operational milestone. 407 The 12 market capitalization

milestones increase in $50 billion increments, beginning at $100 billion and ending

at $650 billion. 408 The 2018 Grant has 16 operational milestones: eight based on

revenue and eight based on adjusted EBITDA. 409 For each tranche to vest, the

403 See PTO ¶¶ 231–33.

404 JX-791 at 1 (1/21/18 special Board meeting minutes).

405 Id. at 1–2.

406 PTO ¶ 238.

407 Id.

408 See id. ¶ 241.Market capitalization was measured by “(i) the sum of Tesla’s daily
market capitalization for each trading day during the six (6) calendar month period
immediately prior to and including the determination date, divided by the number of
trading days during such period and (ii) the sum of Tesla’s daily market capitalization
for each trading day during the thirty (30) calendar day period immediately prior to
and including the determination date, divided by the number of trading days during
such period.” Id. ¶ 242.
409 Id. ¶ 244; see also id. ¶ 245 (defining revenue as “total Tesla revenues, as reported

in Tesla’s financial statements on Forms 10-Q or 10-K filed with the SEC for the
previous four consecutive fiscal quarters”); id. ¶ 246 (defining adjusted EBITDA “as
(i) net income (loss) attributable to common stockholders before (ii) interest expense,
(iii) (benefit) provision for income taxes, (iv) depreciation and amortization, and (v)
stock-based compensation, as each such item is reported in Tesla’s financial

80
achievement of any one of the operational milestones can be paired with achievement

of any one of the market capitalization milestones. 410 The increments of the

operational milestones are shown in the table below. 411

Adjusted
Revenue-Based
EBITDA-Based
Operational
Operational
Milestones
Milestones
(in billions)
(in billions)
1 $20.0 $1.5
2 $35.0 $3.0
3 $55.0 $4.5
4 $75.0 $6.0
5 $100.0 $8.0
6 $125.0 $10.0
7 $150.0 $12.0
8 $175.0 $14.0

To complete each tranche, the Grant requires that Tesla achieve one market

capitalization milestone and one operational milestone. 412 Each completed tranche

earns Musk options to purchase 1% of Tesla’s common stock outstanding as of

January 19, 2018. Before a five-for-one stock split in 2020 and a three-for-one stock

split in 2022, this 1% was equivalent to 1,688,670 shares. 413 If fully vested, the 2018

Grant would therefore grant Musk options to purchase 20,264,042 (pre-split)

shares. 414 The strike price of these options was $350.02, the closing price of Tesla’s

statements on Forms 10-Q or 10-K filed with the SEC for the previous four
consecutive fiscal quarters”).
410 Id. ¶ 243.

411 Id. ¶ 244.

412 Id. ¶ 238.

413 Id. ¶¶ 42–43, 239.

414 Id. ¶ 236.

81
common stock on January 19, 2018. 415 Adjusting for Tesla’s two stock splits, the

strike price was $23.33. 416

The Grant also included the Clawback Provision, Leadership Requirement,

M&A Adjustment, and Five-Year Hold Period. Like the 2012 Grant, the 2018 Grant

expired after ten years. 417

H. The Stockholders Approve The Grant.

Board approval was not the finish line, because the Board conditioned the 2018

Grant on approval by a majority vote of disinterested stockholders. 418

1. The Proxy Statement

Tesla announced the 2018 Grant to the public and filed a preliminary proxy

statement on January 23, 2018. 419 Tesla filed its definitive proxy statement (the

“Proxy”) on February 8, which notified stockholders of a vote to approve the 2018

Grant on March 21, 2018. 420

The Proxy included statements at issue in this litigation. It described all

Compensation Committee members as “independent directors,” despite Gracias’s

415 Id. ¶ 237.

416 Calculated as $350.02 divided by (5 x 3).

417 JX-878 at 52 (stating that the Grant expires on January 20, 2028); JX-137 at 1.

418 PTO ¶ 233; JX-791 at 4–5.

419 PTO ¶ 234.

420 Id. ¶ 235; see also JX-878 at 29.

82
close relationship with Musk. 421 The Proxy did not disclose the financial or personal

connections between the members of the Compensation Committee and Musk.

The Proxy did not disclose the April 9 conversation between Musk and

Ehrenpreis, during which Musk established the key terms of the 2018 Grant. A

discussion of this conversation appeared in at least four earlier drafts of the Proxy. 422

In its final form, the Proxy states:

With the 2012 Performance Award nearing completion, the
Board engaged in more than six months of active and
ongoing discussions regarding a new compensation
program for Mr. Musk, ultimately concluding in its
decision to grant the CEO Performance Award. These
discussions first took place among the members of the
Compensation Committee of the Board (the ‘Compensation
Committee’), all of whom are independent directors, and
then with the Board’s other independent directors,
including its two newest independent directors, Linda
Johnson Rice and James Murdoch. 423

The Proxy stated that: “each of the requirements underlying the performance

milestones was selected to be very difficult to achieve”; 424 the Board “based this new

award on stretch goals”; 425 the Grant’s milestones were “ambitious” and

“challenging”; 426 “[l]ike the Revenue milestones described above, the Adjusted

421 JX-878 at 10. The Proxy also describes Johnson Rice and Murdoch as independent.

Id.
422 See JX-1597 at 9; JX-1598 at 3; JX-1599 at 14; JX-1700 at 12.

423 JX-878 at 10.

424 Id. at 41.

425 Id. at 4.

426 Id. at 22.

83
EBITDA milestones are designed to be challenging”; 427 and “[t]he Board considers the

Market Capitalization Milestones to be challenging hurdles.” 428

The Proxy disclosed that, when setting the milestones, “the Board carefully

considered a variety of factors, including Tesla’s growth trajectory and internal

growth plans and the historical performance of other high-growth and high-multiples

companies in the technology space that have invested in new businesses and tangible

assets.” 429 “Internal growth plans” referred to Tesla’s projections. 430

Tesla prepared three sets of projections during the process. During July 2017,

Tesla updated its internal three-year financial projections (“July 2017

Projections”). 431 The July 2017 Projections reflected that the S-curve’s exponential

growth phase was imminent. 432 Tesla shared the July 2017 Projections, which the

Audit Committee approved, 433 with S&P and Moody’s in connection with a debt

427 Id. at 18.

428 Id. at 17.

429 Id. at 18.

430 Trial Tr. at 481:14–481:24 (Ahuja).

431 JX-529 at 2.JX-529 at 2. The Model 3 was Tesla’s first mass production vehicle.
See Trial Tr. at 574:14–18 (Musk). When mass production is successful, the
production curve resembles the letter S. Id. at 1197:9–13 (Gompers); JX-1539. Musk
explained: “[T]he production starts off slowly and then you gradually eliminate the
constraints and eventually it starts taking off exponentially.” JX-390 at 9; Trial Tr.
at 667:11–16 (Musk).
432 JX-1540 at 84 (10/31/17 Audit Committee meeting materials) (“The production

rate will soon enter the steep portion of the manufacturing S-curve, which should
result in non-linear production growth in the weeks ahead.”).
433 JX-580 at 1; JX-573 at 1; Trial Tr. at 521:16–522:21 (Ahuja) (testifying that he

discussed the projections with the Audit Committee, including Denholm, Gracias, and
Buss).

84
offering. 434 The 2017 Projections showed revenue growth of $69.6B and adjusted

EBITDA growth of $14.4B in 2020. 435 Under the July 2017 Projections, Tesla would

achieve three of the revenue milestones and all of the adjusted EBITDA milestones

in 2020. The Proxy did not disclose this.

Ahuja developed and Musk approved a new operating plan and projections in

December—the December 2017 Projections. 436 As discussed above, the Board

reviewed those projections on December 12. 437 The one-year projections underlying

the operating plan forecasted $27.4B in revenue and $4.3B in EBITDA by late 2018,

and thus predicted achievement of three milestones in 2018 alone. 438 The longer

three-year projections underlying that plan reflected that by 2019 and 2020, Tesla

would achieve seven and eleven operational milestones, respectively. 439 The Proxy

did not disclose this.

After Tesla issued the Proxy, but before the stockholder vote, Ahuja presented

the Board with a three-year operating plan (the “March 2018 Projections”), which

Tesla later shared with Moody’s. 440 Musk reviewed and approved the March 2018

434 Trial Tr. at 466:14–469:24 (Ahuja).

435 JX-529 at 2.

436 JX-728 at 1–2; JX-372 at 6 (text messages between Maron and Ahuja); Trial Tr. at

515:18–516:7, 517:8–518:11 (Ahuja).
437 JX-740 at 1–2; Trial Tr. at 523:12–16 (Ahuja) (confirming the full Board saw the

projections before approving the Grant, including in December 2017).
438 JX-740 at 18; Trial Tr. at 518:18–519:5 (Ahuja).

439 JX-529 at 2; JX-543 at 2; JX-555 at 5; JX-573 at 408; JX-582 at 4; JX-587.

440 JX-948 at 2 (3/13/18 Board meeting minutes); JX-973 at 1; JX-974 (March 13

Projections).

85
Projections before they were presented to the Board. 441 The March 2018 Projections

were more pessimistic than previous projections but still predicted achievement of

one revenue and two adjusted EBITDA milestones by March 31, 2019, and further

two revenue and four adjusted EBITDA milestones by the end of 2020. 442 As

discussed below, Tesla would issue a supplemental disclosure with this information,

but not until after the stockholder vote.

2. The Public Reaction

Tesla tracked support and opposition to the 2018 Grant among stockholders

and engaged in outreach. 443 The two largest proxy advisors, ISS and Glass Lewis,

both recommended voting against the 2018 Grant. 444

Glass Lewis expressed concern with the size and potential dilutive effect of the

grant, noting that “any relative comparison of the grant’s size would be akin to

stacking nickels against dollars[]”and that “the lower tiers of the goals are relatively

much more attainable given the time periods in question, potentially allowing for

sizable payments without commensurately exceptional achievement.” 445

ISS described the grant value as “staggering” and concluded that even the

“challenging” and “far-reaching performance goals do not justify the extraordinary

441 Trial Tr. at 511:8–19 (Ahuja).

442 JX-974; JX-1023 at 6.

443 See JX-901 at 3–7.

444 JX-987 at 6 (3/21/18 ISS proxy analysis & benchmark policy voting
recommendations); JX-931 at 7 (3/6/18 Glass Lewis proxy paper on Tesla).
445 JX-931 at 5, 7.

86
grant magnitude[.]” 446 In an internal email, ISS noted that it “steered clear of getting

too deep into this[]” because “making that argument essentially puts us in the

situation of saying Tesla’s board is not strong enough to stand up to Musk[.]” 447

Also, both recommendations expressed concern with Musk’s non-Tesla

interests, although Glass Lewis stated that “Musk’s extracurricular exploits

undoubtedly contribute to his value to the Company[.]” 448

Stockholders also criticized the Grant, noting that Musk’s Tesla equity

provided sufficient motivation for Musk to perform, 449 the Grant’s size and dilutive

effects were excessive, 450 the EBITDA milestones were too low, 451 and that linear

milestones were inappropriate for an “exponential company” like Tesla. 452

Five days before the stockholder vote, on March 16, Maron informed the Board

that the outcome of the stockholder vote was “not yet clear.” 453 Maron reported that

although initial vote tallies were favorable, many big stockholders had not yet voted

and their intentions remained unclear. 454

446 JX-987 at 3, 6.
An earlier internal ISS email also described the amount as “just
absurd.” JX-841 at 1.
447 JX-940 at 1.

448 JX-931 at 7; JX-987 at 6.

449 JX-547.

450 JX-968 at 3; JX-1541 at 1.

451 JX-838 at 1–2; JX-899.

452 JX-899.

453 JX-964 at 1.

454 Id.

87
 By March 20, Maron informed Musk that the Grant would likely receive

approval, but that two large Tesla stockholders were voting against the Grant on the

grounds that its size was excessive. 455 In response, Musk asked Maron to tell one of

the large stockholders that he was “very offended by their action if they choose to vote

that way, but but [sic] by all means do so.” 456 Musk also asked Maron to set up a call

with one of the stockholders following the vote, during which Musk would “convince

them to divest from Tesla and any of [his] companies ever. They are not welcome.” 457

It appears that a non-Musk employee at Tesla called that stockholder after the

vote. 458

3. The Stockholder Vote

The stockholders approved the Grant at a special stockholder meeting on

March 21, 2018, with 73% of votes cast at the meeting (excluding Musk’s and Kimbal’s

ownership) in favor. 459

I. Subsequent Events

Events relevant to evaluating the fairness of the Grant occurred after

stockholders approved the Grant. Namely, Tesla disclosed that several Grant

milestones were greater than 70% probable of achievement, nearly all the tranches

455 JX-972 at 1–2 (stating Vanguard found the size was “simply too high[]” and Capital

most likely opposed “the size”).
456 Id. at 1.

457 Id.

458 Trial Tr. at 441:11–24 (Maron); see JX-1017 at 1 (4/11/18 email from Musk to

Maron asking about the call with Capital).
459 JX-979 at 3 (3/21/18 Form 8-K dated March 21, 2018).

88
vested, Musk got in trouble with the SEC, named himself Technoking, and acquired

Twitter, Inc.

1. Tesla Discloses That Several Of The Grant’s Milestones
Are Probable Of Achievement.

For accounting purposes, on March 27, Burg provided a final fair value letter

arriving at a grant date fair value of $2,283,988,223. 460 Ahuja and his team then had

to determine when Tesla was likely to hit the performance milestones, which Tesla

needed to disclose to stockholders in its March 31, 2018 Form 10-Q (the “March 31

10-Q”). 461 Tesla determined that three operational milestones were “considered

probable of achievement,” which meant that they were greater than 70% probable of

achievement within approximately one year of the Grant date. 462

Tesla’s methodology to determine the probability of milestone achievement

was to “us[e] the operating plan of record[.]” 463 Tesla’s operating plan was a set of

internal one-year forecasts. 464 Tesla developed and updated one-year and three-year

460 JX-997 at 7. $2,562,885,538 before applying a 10.88% illiquidity discount due to
the Five-Year Hold Period. See id. Changes from previous valuations are primarily
due to an intervening decline in the stock price. See JX-1003 at 1.
461 See JX-990 at 1; JX-1004 at 1; JX-1019 at 2; JX-1011 (3/31/18 Form 10-Q for Q1).

462 JX-1011 at 27.

463 JX-1019 at 2; Trial Tr. at 743:11–23 (Gracias) (“[T]here’s only one plan. . . . We

didn’t show anything else to the banks . . . or to The Street, literally one set of
numbers. That’s it.”); Trial Tr. at 791:13–792:2 (Gracias) (confirming Tesla had one
financial plan as of 2017 and 2018, and during that period everyone—including
Musk—relied on that plan to run Tesla, and “Musk himself was integrally involved
in creating Tesla’s operating plan”); see id. at 498:1–499:2 (Ahuja) (confirming Musk
was “extremely involved” in the three-year financial plan).
464 See JX-953 (2018 operating plan slide deck).

89
internal projections on a regular basis. 465 They were not the product of bottom-up

forecasting. They were used to drive and motivate rather than plan, and Tesla

frequently missed its projections. 466 They reflected what Tesla would need to do to

reach aggressive goals set by Musk. 467

Tesla based the March disclosures on the March 2018 Projections. Ahuja

described the March 2018 Projections as “extremely aggressive and challenging”

based on “stretch goals” and “very large . . . risks[.] 468 Yet Tesla disclosed that “the

following performance milestones were considered probable of achievement: total

revenue of $20.0 billion; adjusted EBITDA of $1.5 billion; and adjusted EBITDA of

$3.0 billion.” 469 The March 31 10-Q included the usual disclaimer, stating that “[t]he

probability of meeting an operational milestone is based on a subjective assessment

of our future financial projections.” 470 According to Ahuja, this disclosure meant that

465 Id. at 466:14–19, 467:18–468:2 (Ahuja).

466 Id. at 223:8–224:1 (Ehrenpreis) (testifying that the “projections . . . were mostly

used to drive the company . . . [so he] was absolutely not surprised at the number of
misses and the frequency of new forecasts”); see id. at 746:11–20 (Gracias) (describing
these projections as “a very aggressive stretch plan[] . . . to get people motivated and
incented[] . . . to drive the internal operations”); id. at 333:20–334:18 (Denholm)
(testifying that the projections reflected what “we’re trying to achieve” and the Board
did not view the projections “as being realistic and achievable plans”).
467 Id. at 466:23–467:7 (Ahuja) (testifying that Tesla set “really stretch goals, which

reflected Elon’s general philosophy of really pushing himself and the team to deliver
impossible things”).
468 Id. at 488:12–489:24; 504:24–505:5 (Ahuja).

469 JX-1011 at 27.

470 Id.

90
“the three operational milestones . . . are 70 percent probable of achievement in the

late 2018 and 2019 time frame.” 471

Ahuja characterized the probability assessment as an inherently “conservative

approach” from an accounting perspective. 472 Still, it is not clear how Tesla

management reconciled their views that the milestones were both “risky” and a

“stretch” yet simultaneously more than 70% likely to occur.

Regardless, management stuck to its guns. On April 3, Ahuja told his team

that “to be consistent in our methodology of using the operating plan of record, we

should assume that the second EBITDA milestone has greater than 70% chance of

vesting by 6/30/2019.” 473 And an Audit Committee presentation dated April 27, 2018

indicated that, based on the March 2018 Projections, Tesla considered the $20 billion

revenue milestone and the $1.5 billion adjusted EBITDA milestone more than 70%

likely by December 31, 2018, and the $3 billion adjusted EBITDA milestone more

than 70% likely by March 31, 2019. 474 On May 7, 2018, Tesla filed a Form 10-Q

disclosing to stockholders that, as of March 31, 2018, three operational milestones

“were considered probable of achievement[.]” 475

471 Trial Tr. at 493:21–494:5 (Ahuja); id. at 503:18–22 (Ahuja).

472 Id. at 488:1–489:24 (Ahuja).

473 JX-1019 at 2.

474 JX-1023 at 6.

475 JX-1031 at 27 (5/7/18 Form 10-Q for Q1).

91
 2. Tesla’s Performance

The Grant began vesting in 2020 as Tesla’s business took off. Although Tesla’s

business performance between 2018 and 2020 fell short of the March 2018

Projections, Tesla slightly exceeded its projected adjusted EBITDA for 2018. 476 Four

tranches vested by the end of 2020, and three more vested the following year. 477 As

of April 29, 2022, eleven of the Grant’s 12 tranches had vested. 478 As of June 30,

2022, all market capitalization milestones had been achieved, all adjusted EBITDA

milestones had been achieved, and three revenue milestones had been achieved, with

one more deemed probable of achievement. 479

3. The SEC Settlement

On September 29, 2018, the SEC announced that it had reached a settlement

with Musk over fraud charges stemming from a tweet he sent in August 2018. 480 As

part of the settlement, Musk agreed to pay a penalty of $20 million, resign as Chair

of the Tesla Board, submit communications relating to the company for pre-approval

subject to procedures implemented by Tesla, and not “make . . . any public statement

476 Trial Tr. at 479:6–21 (Ahuja).

477 PTO ¶¶ 265–71.

478 Id. ¶¶ 272–75.

479 Id. ¶ 276.

480 JX-1070 at 1 (9/29/18 SEC Press Release: Elon Musk Settles SEC Fraud Charges;

Tesla Charged With and Resolves Securities Law Charge). On August 7, 2018, Musk
tweeted: “Am considering taking Tesla private at $420. Funding Secured.” JX-1057
(Aug. 7, 2018, 12:48 p.m. Musk tweet). The SEC charged that Musk’s Tweet was
misleading because he had not “discussed specific deal terms, including price, with
any potential financing partners.” JX-1070 at 1.

92
denying, directly or indirectly, any allegation in the complaint or creating the

impression that the complaint is without factual basis[.]” 481

Tesla also agreed to add two new independent directors and create a

permanent committee of independent directors charged with overseeing

implementation of the settlement, controls regarding Tesla’s public statements, and

the “review and resolution of human resources issues or conflict of interest issues”

involving Tesla’s management. 482

On April 30, 2019, the final judgment enshrining the SEC Settlement was

amended to clarify that Musk must “obtain the pre-approval of an experienced

securities lawyer employed by the company (‘Securities Counsel’) of any written

communication that contains information regarding” a long list of topics, including

Tesla’s finances, its non-public projections, and “events regarding the Company’s

securities.” 483

As part of the settlement, Musk stepped down as Board chair. 484 Kimbal

proposed that Denholm replace him. 485 Denholm initially declined, but then Musk

481 JX-1075 ¶ 13 (10/16/18 Consent Motion for Entry of Final Judgment, United States

Sec. & Exch. Comm’n v. Musk, C.A. No. 1:18-cv-8865-AJN-GWG (S.D.N.Y.)).
482 JX-1076 at 2 (10/16/18 Form 8-K).

483 JX-1075 at 15–16.

484 Trial Tr. at 1081:23–1082:5 (Kimbal).

485 Id. at 1082:6–10 (Kimbal).

93
asked Denholm to reconsider. 486 Denholm agreed, and the Board appointed Denholm

chair on November 7, 2018. 487

To comply with the terms of the SEC Settlement, which required the Board to

establish a new independent committee, the Board created a “Disclosure

Committee.” 488 Denholm’s testimony revealed a lack of understanding concerning

how this committee worked. She testified that she did not know whether the

Disclosure Committee “received reports concerning human resource issues or

conflicts of interest involving senior management” 489 in order to fulfill its mandate.

Denholm testified that “issues of conflict are reviewed by the audit committee, which

is a group of independent board members who are also members of the disclosure

committee.” 490

Musk testified that he complies with the SEC Settlement using the following

process: He “decide[s] a tweet might be one that is required to be reviewed under the

settlement . . . submit[s] it to an in-house lawyer in advance of making it, wait[s] for

some period of time that [he] decide[s] upon, and then tweet[s] if the lawyer hasn’t

given comments[.]” 491

486 Denholm Dep. Tr. at 95:11–18.

487 JX-1083 at 4.

488 Trial Tr. at 372:6–373:22, 375:1–8 (Denholm).

489 Id. at 375:9–22 (Denholm).

490 Id. at 378:11–18 (Denholm).

491 Id. at 616:3–11 (Musk).

94
 Denholm described this process as “self-regulat[ing]” and was “aware that

[Musk] waits for some unspecified period of time and then just [tweets] if he doesn’t

hear back[.]” 492 After the SEC Settlement was amended, Musk made public

statements about Tesla’s business prospects or plans without clearing them with

anyone first. 493

At trial, Musk stated that the SEC Settlement “was made under duress”

because “lenders put a gun to [his] head.” 494 He also conceded that he had previously

given public interviews where he stated that the SEC was wrong and that he had

actually secured funding to take Tesla private. 495 He did so despite the requirement

as part of the SEC Settlement that Musk not “make . . . any public statement denying,

directly or indirectly, any allegation in the complaint or creating the impression that

the complaint is without factual basis[.]” 496 Musk has also publicly referred to the

SEC’s San Francisco office as “bastards[]” and “shameless puppets of Wall Street

short seller sharks who did nothing to protect actual shareholders[.]” 497

492 Id. at 386:8–12 (Denholm); id. at 382:5–12 (Denholm) (“A. Do you mean does he

self-regulate under the policy? Q. You bet. That’s exactly what I mean. A. So he does
self-regulate under the policy, yes.”).
493 See id. at 619:12–622:3 (Musk).

494 Id. at 624:3–625:21 (Musk).

495 Id. at 625:14–21 (Musk).

496 JX-1075 ¶ 13.

497 Trial Tr. at 623:4–22 (Musk).

95
 4. The Technoking

On March 15, 2021, Musk changed his title to “Technoking of Tesla.” 498 Musk

testified that this role was distinguishable from a traditional chief technology officer

role by the presence of “panache” and joked that a Technoking had “[g]reat dance

moves and sick beats.” 499 During his deposition, Musk testified that he did not

consult with the Board about this new title, but that it was communicated to at least

Denholm before Tesla filed the 8-K announcing the new title. 500 At trial, Musk

testified he did in fact consult with the Board before giving himself the title. 501

5. Then Came Twitter

On April 25, 2022, Twitter, Inc. and Musk announced the execution of a merger

agreement in which Musk would acquire Twitter. 502 Musk subsequently sought to

terminate the merger agreement, and Twitter sued for specific enforcement. 503

The amount of time Musk spent on the Twitter acquisition was undoubtedly a

concern at Tesla. Also, in the Twitter litigation, Musk filed a pleading affirming that

498 JX-1331 at 2 (3/15/21 Form 8-K).

499 Musk Dep Tr. at 24:11–25:9.

500 Id. at 25:13–22.

501 Trial Tr. at 599:4–10 (Musk); but see id. at 1085:1–7 (Kimbal) (“Question: Have

you heard the word ‘Technoking’ before? Answer: Yes, I have. Question: When did
you first hear that word? Answer: I heard it over Twitter, when Elon changed his
Twitter account.”); id. at 854:21– 855:3 (Murdoch) (“Q. Now, you’re aware that Elon
Musk has added Technoking to his Tesla title. Correct? A. Yes, I am aware of that. Q.
And you believe you likely first learned about that development via a tweet. Is that
correct? A. I might have. I think so. Yeah.”).
502 JX-1457 at 2 (4/25/22 Twitter, Inc. Form 8-K).

503 Twitter, Inc. v. Elon R. Musk, et al., C.A. No. 2022-0613-KSJM.

96
no one at Tesla is authorized to view his Tesla email accounts without his consent,

except to the extent legally required. 504 Musk ultimately acquired Twitter and named

himself “chief twit,” a role analogous to CEO. 505 Musk also testified that he asked

approximately 50 Tesla engineers to “volunteer” to help him evaluate Twitter’s

engineering team. 506 No one on the Board called Musk to tell him not to do this.507

In the weeks prior to trial, Musk spent the “lion’s share” of his time at Twitter. 508

J. This Litigation

Plaintiff Richard Tornetta (“Plaintiff”), a Tesla stockholder, filed his complaint

on June 5, 2018. 509 His original complaint asserted four counts: Count I for breach of

fiduciary duty against Musk in his capacity as a then-controlling stockholder;

Count II for breach of fiduciary duty against Musk, Kimbal, Gracias, Jurvetson,

Ehrenpreis, Buss, Denholm, Murdoch, and Johnson Rice as directors (together,

“Defendants”); Count III for unjust enrichment against Musk; and Count IV for

waste. 510 Counts I and II were asserted as both direct and derivative claims. Counts

III and IV were asserted as derivative claims. 511

504 Trial Tr. at 602:2–10 (Musk).

505 Id. at 614:13–23 (Musk).

506 Id. at 656:6–657:20 (Musk).

507 Id. at 657:9–658:2 (Musk).

508 Id. at 662:4–9 (Musk).

509 Dkt. 1 (“Compl.”).

510 See Compl. ¶¶ 106–23.

511 See id.

97
 Defendants moved to dismiss the complaint, and the court denied the motion

as to Counts I through III, dismissing only the waste claim. 512 For purposes of the

motion to dismiss, Defendants conceded that Musk controlled Tesla. 513 Defendants

argued that the stockholder vote approving the Grant qualified as a ratifying vote

justifying business judgment deference under Section 216 of the Delaware General

Corporation Law (“DGCL”). 514 Vice Chancellor Joseph R. Slights III rejected this

argument, concluding that a fully informed stockholder vote was insufficient to

restore business judgment deference in a conflicted-controller transaction like the

Grant. 515 The Vice Chancellor held that MFW provides the “roadmap” for a controller

seeking to avoid review under the entire fairness standard, even outside of the

squeeze-out context. 516 The Vice Chancellor also rejected Defendants’ alternative

dismissal argument—that the complaint lacked well-pled allegations that the Grant

was unfair. 517

The case proceeded to discovery. On January 25, 2021, the court entered a

stipulated order granting class certification. 518

512 See Dkt. 10.

513 See Tornetta v. Musk, 250 A.3d 793, 805 (Del. Ch. 2019) (“Defendants acknowledge

(for purposes of this motion only) that Musk is a controlling shareholder and that he
dominated the Board and the Compensation Committee during the time the Award
was negotiated and approved.”).
514 Tornetta, 250 A.3d at 806–07 (Del. Ch. 2019).

515 Id. at 807–09.

516 Id. at 810–12.

517 Id. at 812–13.

518 Dkt. 94.

98
 On September 20, 2021, the Delaware Supreme Court issued Brookfield Asset

Management, Inc. v. Rosson, which overturned Gentile v. Rossette 519 and thus

eliminated the legal basis for the dual-natured Counts I and II. 520 Brookfield

determined that fiduciary duty claims alleging overpayment or dilution of voting

power are categorically derivative, rather than dual-natured, even when asserted

against a controlling stockholder. 521 As a result of Brookfield, Plaintiff filed a motion

for leave to amend his complaint on September 30, 2021. 522 The proposed amended

complaint asserted the same claims as the original complaint, but asserted Counts I

and II as entirely derivative rather than dual-natured. 523

The next day, Plaintiff and Defendants Kimbal and Jurvetson cross-moved for

summary judgment. 524 Plaintiff argued that the 2018 Grant was invalid because it

was conditioned on stockholder approval, but that the Proxy failed to disclose

material information. For instance, Plaintiff argued that Tesla failed to disclose how

achievable Tesla management thought the milestones were, or to fully appraise

stockholders of the close professional and personal relationships Ehrenpreis and

Gracias each had with Musk. 525 Kimbal and Jurvetson moved for summary judgment

519 906 A.2d 91 (Del. 2006).

520 261 A.3d 1251.

521 Id. at 1275.

522 Dkt. 161.

523 Dkt. 161, Ex. A ¶¶ 284–93.

524 Dkts. 162, 163.

525 See Dkt. 163 at 20–26.

99
on all Counts on the grounds that they had minimal or non-existent roles in the 2018

Grant process. 526

While these motions were pending, on October 27, 2021, the parties stipulated

to decertify the class, dismiss the direct claim components of Counts I and II, and to

voluntarily dismiss all claims against Kimbal and Jurvetson with prejudice. 527 The

stipulation preserved Plaintiff’s motion for leave to file the amended complaint to

change the action from a direct to a derivative action under Court of Chancery Rule

23.1. 528 Collectively, those moves averted the Gentile issue at the heart of the original

complaint.

The court granted the stipulation on October 27, 2021. 529 The remaining

Defendants sought summary judgment on November 19, 2021, advancing a

ratification theory on the basis that Tesla stockholders received all material

information ahead of the vote. 530

The court substituted jurists on January 12, 2022, in light of Vice Chancellor

Slights’ retirement from the bench. 531 This court held a status conference on

February 7, 2022, 532 and resolved the pending motions to amend and for summary

526 See Dkt. 162 at 6–12.

527 Dkt. 173.

528 See Dkt. 173 ¶ 1; Dkt. 174.

529 Dkt. 175.

530 See Dkt. 184 at 64–65; Dkt. 188.

531 Dkt. 199.

532 Dkt. 206.

100
judgment in a letter decision dated February 24, 2022. 533 The court granted

Plaintiff’s motion for leave to amend but denied the cross-motions for summary

judgment, voicing “skeptic[ism] that this litigation can be resolved based on the

undisputed facts.” 534

Plaintiff filed his amended complaint on March 2, 2022. 535 The court entered

a revised case schedule on August 12, 2022. 536 The parties tried their case from

November 14 through 18, 2022. 537 The court heard post-trial oral argument on

February 21, 2023. 538

533 Dkt. 207.

534 See id. at 2.

535 Dkt. 209.

536 Dkt. 219. There were earlier case schedules that this one amended. But that
fuller history is irrelevant.
537 Dkt. 244.

538 Dkt. 281.See Defs.’ Post-Trial Opening Br.; Dkt. 264 (“Pl.’s Post-Trial Opening
Br.”); Dkt. 274 (“Pl.’s Post-Trial Answering Br.”); Dkt. 275 (“Defs.’ Post-Trial
Answering Br.”); Dkt. 284 (“Post-Trial Oral Arg. Tr.”).

101
 Post-trial oral argument revealed several topics that warranted further

development. The court requested supplemental briefing in a letter to counsel dated

February 22. 539 The parties completed supplemental briefing on April 11. 540

II. LEGAL ANALYSIS

Plaintiff claims that awarding the Grant constituted a breach of fiduciary

duty. 541 He argues that the entire fairness standard governs for two independent

reasons—because the Grant was a conflicted-controller transaction and, separately,

because the Grant was approved by a majority conflicted Board. He further argues

that Defendants failed to demonstrate that the Grant was fair, and that the court

should invalidate and rescind the Grant either in its entirety or in part. Defendants

539 Dkt. 280. The letter specified the following topics for supplemental briefing: (i)
whether a material omission in the Proxy invalidates the Grant; (ii) whether focusing
on the give-get exchange within an entire fairness fair price analysis is an accurate
framing of the inquiry, as Defendants asserted; (iii) whether disclosures about the
Grant development process are unlikely to be material here because the key economic
terms were fully disclosed; and (iv) any responses to the amicus brief filed by
Professor Charles M. Elson to aid the court in understanding the origin and purpose
of equity-linked compensation and how it relates to the Grant here. See Dkt. 266
(“Elson Amicus Br.”).
540 See Dkt. 285 (“Defs.’ Post-Trial Suppl. Opening Br.”); Dkt. 288 (“Pl.’s Post-Trial

Suppl. Answering Br.”); Dkt. 289 (“Defs.’ Post-Trial Suppl. Reply. Br.”).
541 Plaintiff asserts a derivative claim and, typically, litigation of a derivative claim

would begin with an assessment of whether the plaintiff met the demand
requirement. Demand futility is a gating issue that must be raised (and, in this
jurist’s view, should only be raised) at the pleading stage. See generally In re
McDonald’s Corp. S’holder Deriv. Litig., 291 A.3d 652, 699–700 (Del. Ch. 2023) (“The
defendants generally should expect one bite at the demand-futility apple.”). In this
case, however, Defendants did not argue demand futility at the pleading stage due to
this court’s decision in another action involving Tesla. See SolarCity I, 2018 WL
1560293, at *17–19 (holding that the plaintiffs had adequately alleged that demand
was excused with respect to a majority of the Tesla Board).

102
dispute that the entire fairness standard applies and argue that, if entire fairness

applies, Plaintiff bears the burden of proof because the stockholder vote was fully

informed.

This analysis proceeds in four parts. The court first addresses the gating

issue—the standard of review—and concludes that entire fairness applies because

Musk exercised control over the Grant. The court next addresses Defendants’

argument that the stockholder vote shifted the burden under the entire fairness

standard to Plaintiff, concluding that Defendants retain the burden because the

stockholder vote was not fully informed. The court then evaluates the Grant under

the entire fairness standard, concluding that Defendants failed to prove that the

Grant was entirely fair. The court last turns to the remedy, concluding that Plaintiff

is entitled to rescission of the Grant in its entirety.

A. The Entire Fairness Standard Applies Because Musk Is A
Controller.

When determining whether corporate fiduciaries have breached their duties, a

court applying Delaware law evaluates the fiduciaries’ conduct through a standard of

review. 542 Delaware law has three levels of transactional standards of review:

business judgment, enhanced scrutiny, and entire fairness. 543

542 See Chen v. Howard-Anderson, 87 A.3d 648, 666 (Del. Ch. 2014); In re Trados Inc.

S’holder Litig., 73 A.3d 17, 35–36 (Del. Ch. 2013).
543 Chen, 87 A.3d at 666 (quoting Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442,

457 (Del. Ch. 2011)).

103
 Plaintiff argues that Delaware’s most onerous standard of review, entire

fairness, applies because the Grant was a conflicted-controller transaction. 544

Alternatively, Plaintiff argues that entire fairness applies because half of the

directors who approved the Grant lacked independence from Musk. 545 Plaintiff wins

on the first argument—Musk is a controller. Because Plaintiff wins on the first

argument, the court does not address the second argument. 546

Delaware law imposes fiduciary duties on those who control a corporation. 547

Why? Because fiduciary duties exist in part to minimize agency costs caused by the

divide between economic ownership and legal control. 548 Delaware law vests control

over a corporation in a board of directors and imposes attendant fiduciary obligations

544 Pl.’s Post-Trial Opening Br. at 82.

545 Id.

546 The factual findings that render Musk a controller, however, support a finding

that the majority of the Board lacked independence.
547 Kahn v. Lynch Commc’n Sys., Inc., 638 A.2d 1110, 1113 (Del. 1994) (“This Court

has held that a shareholder owes a fiduciary duty only if it owns a majority interest
in or exercises control over the business affairs of the corporation.” (cleaned up));
Citron v. Fairchild Camera & Instrument Corp., 569 A.2d 53, 70 (Del. 1989) (holding
that a stockholder who dominates and has actual control of the corporation’s activities
has fiduciary status); Ivanhoe P’rs v. Newmont Mining Corp., 535 A.2d 1334, 1344
(Del. 1987) (“A shareholder owes a fiduciary duty . . . if it . . . exercises control over
the business affairs of the corporation.”).
548 See generally Adolf Berle & Gardiner Means, The Modern Corporation and Private

Property (2d ed. 1991).

104
on the board as a consequence. 549 When a controller displaces or neutralizes a board’s

power to direct corporate action, then the controller assumes fiduciary obligations. 550

The most straightforward way for a plaintiff to demonstrate control is to show

that a defendant holds a mathematical majority of the corporation’s voting power. 551

This is so because the DGCL requires stockholder approval of transformational

transactions. 552 The DGCL also permits stockholder action by written consent,

through which a majority stockholder can remove directors and fill vacancies. 553 “A

stockholder who owns a mathematical majority of the corporation’s voting power,”

therefore, “has the ability to exercise affirmative control” by directing the outcome of

549 8 Del. C. § 141(a).

550 See, e.g., Harris v. Carter, 582 A.2d 222, 234 (Del. Ch. 1990) (“[W]hen a shareholder

presumes to exercise control over a corporation, to direct its actions, that shareholder
assumes a fiduciary duty of the same kind as that owed by a director to the
corporation.” (citing Sterling v. Mayflower Hotel Corp., 93 A.2d 107, 109–10 (Del.
1952)).
551 Lynch, 638 A.2d at 1113 (noting that a stockholder becomes a fiduciary if he or she

“owns a majority interest in . . . the corporation” (quoting Newmont, 535 A.2d at 1344);
In re PNB Hldg. Co. S’holders Litig., 2006 WL 2403999, at *9 (Del. Ch. Aug. 18, 2006)
(“Under our law, a controlling stockholder exists when a stockholder . . . owns more
than 50% of the voting power of a corporation[.]” (citation omitted)); Williamson v.
Cox Commc’ns, Inc., 2006 WL 1586375, at *4 (Del. Ch. June 5, 2006) (“A shareholder
is a ‘controlling’ one if she owns more than 50% of the voting power in a corporation[.]”
(citation omitted))).
552 Voigt v. Metcalf, 2020 WL 614999, at *17 (Del. Ch. Feb. 10, 2020) (citing 8 Del. C.

§§ 242(b)(1), 251(c), 275(b)).
553 Id. (citing 8 Del. C. §§ 141(k), 211(b), 216(2)).

105
a stockholder vote or acting by written consent. 554 Musk controlled only 21.9% of

Tesla’s voting power, so he lacked mathematical voting control.

Mathematical voting control, however, is only one method of establishing

controller status. 555 “[C]ontrol of the ballot box is not always dispositive of the

controlling stockholder inquiry[.]” 556 A plaintiff can establish controller status by

554 Id. at *17; see also Paramount Commc’ns Inc. v. QVC Network Inc., 637 A.2d 34,

42 (Del. 1994) (“In the absence of devices protecting the minority stockholders,
stockholder votes are likely to become mere formalities where there is a majority
stockholder.”).
555 In re Crimson Exploration Inc. S’holder Litig., 2014 WL 5449419, at *10 (Del. Ch.

Oct. 24, 2014).
556 SolarCity I, 2018 WL 1560293, at *14 (citing cases); see, e.g., In re Pattern Energy

Gp. Inc. S’holders Litig., 2021 WL 1812674, at *41–46 (Del. Ch. May 6, 2021) (finding
it reasonably conceivable on a motion to dismiss that a stockholder owning “slightly
more than 10%” was a controller who had consent rights and threatened to use it in
order to control decisions); Skye Mineral Invs., LLC v. DXS Cap. (U.S.) Ltd., 2020 WL
881544, at *24–29 (Del. Ch. Feb. 24, 2020) (finding it reasonably conceivable on a
motion to dismiss that a group of investors collectively owning 28.07% of the
company’s equity was a control group because it had contractual blocking rights that
could restrict capital raises and drive the company into bankruptcy); Reith v.
Lichtenstein, 2019 WL 2714065, at *7–10 (Del. Ch. June 28, 2019) (finding it
reasonably conceivable on a motion to dismiss that a stockholder owning 35.6% of the
company’s stock was a controller where the controller’s affiliates and former
executives took on senior leadership roles, provided key investment banking services,
and significantly “influenced management”); FrontFour Cap. Gp. LLC v. Taube, 2019
WL 1313408, at *21–24 (Del. Ch. Mar. 11, 2019) (finding post-trial that stockholders
who collectively owned “less than 15%” of the company’s stock were controllers where
the stockholders were the founders and officers of the company, managed the day-to-
day operations, and had control of deal structures and information flow); SolarCity I,
2018 WL 1560293, at *19 (finding it reasonably conceivable on a motion to dismiss
that Musk, who owned 22% of company’s common stock, was a controller based on
well-pled allegations related to “Musk’s voting influence, his domination of the Board
during the process leading up to the [challenged acquisition] against the backdrop of
his extraordinary influence within the Company generally, the Board level conflicts
that diminished the Board’s resistance to Musk’s influence, and the Company’s and
Musk’s own acknowledgements of his outsized influence”); Calesa Assocs. v. Am. Cap.,
Ltd., 2016 WL 770251, at *10–12 (Del. Ch. Feb. 29, 2016) (finding it reasonably

106
demonstrating that the defendant “exercises control over the business affairs of the

corporation.” 557 For this purpose, a plaintiff need not argue that the defendant

conceivable on a motion to dismiss that a stockholder owning 26% of the company’s
stock exercised actual control where the plaintiff alleged instances of actual control
beyond the fact that the stockholder “exercised duly obtained contractual rights to its
benefit and to the detriment of the company” (emphasis in original)); In re Zhongpin
Inc. S’holders Litig., 2014 WL 6735457, at *7–8 (Del. Ch. Nov. 26, 2014) (finding it
reasonably conceivable on a motion to dismiss that a stockholder owning 17.3% of the
company’s stock was a controller because the stockholder was CEO and the company’s
10-K stated that the stockholder effectively controlled the company), rev’d on other
grounds sub nom. In re Cornerstone Therapeutics Inc. S’holder Litig., 115 A.3d 1173
(Del. 2015); In re Loral Space & Commc’ns Inc., 2008 WL 4293781, at *21–22 (Del.
Ch. Sept. 19, 2008) (finding post-trial that a stockholder owning 35.9% of the
company’s stock was a controller where the controller had rights to block important
strategic initiatives, was a significant creditor that could unilaterally force
redemption of notes, and maintained publicly that it controlled the board); Cox
Commc’ns, 2006 WL 1586375, at *4–5 (finding it reasonably conceivable on a motion
to dismiss that two stockholders, owning collectively 17.1% of the company’s stock,
jointly controlled the company based on their ability to nominate two of the five
directors, their ability to influence the flow of revenue into the corporation, and their
potential “veto” power over certain corporate decisions); In re Cysive, Inc. S’holders
Litig., 836 A.2d 531, 535, 551–52 (Del. Ch. 2003) (finding post-trial that a stockholder
owning 35% of the company’s stock controlled the company because he was a “hands-
on” “Chairman and CEO of [the company],” and because he had the ability to “elect a
new slate [of independent directors] more to his liking without having to attract
much, if any, support from public stockholders[,]” through his familial ties with the
company’s other stockholders); O’Reilly v. Transworld Healthcare, Inc., 745 A.2d 902,
912–13, 915–16 (Del. Ch. 1999) (finding it reasonably conceivable on a motion to
dismiss that a stockholder owning 49% of the company’s stock exercised actual control
where the plaintiff alleged that the stockholder forced the board to comply with its
terms on the merger through threats). See also Voigt, 2020 WL 61499 at *19 n.20
(noting “that ‘[t]his Court and others have recognized that substantial minority
interests ranging from 20% to 40% often provide the holder with working control’”
(quoting Robbins & Co. v. A.C. Israel Enters., Inc., 1985 WL 149627, at *5 (Del. Ch.
Oct. 2, 1985) (alteration in original))); 8 Del. C. § 203(c)(4) (“[a] person who is the
owner of 20% or more of the outstanding voting stock of any corporation, partnership,
unincorporated association or other entity shall be presumed to have control of such
entity, in the absence of proof by a preponderance of the evidence to the contrary”);
Rosenthal v. Burry Biscuit Corp., 60 A.2d 106, 110–11 (Del. 1948) (finding ten percent
ownership of the outstanding common stock sufficient to infer control).
557 Newmont, 535 A.2d at 1344 (citations omitted).

107
exercised general control over the business and affairs of the corporation. Although

a showing of “general control” is sufficient to establish fiduciary status, a plaintiff can

establish fiduciary status by demonstrating that the defendant controlled the

particular transaction at issue, referred to as “transaction-specific” control. 558

To establish general control, a plaintiff must show “that a defendant or group

of defendants exercised sufficient influence ‘that they, as a practical matter, are no

differently situated than if they had majority voting control.’” 559 “One means of doing

so is to show that the defendant, ‘as a practical matter, possesses a combination of

stock voting power and managerial authority that enables him to control the

corporation, if he so wishes.’” 560 The analysis of effective control looks to a

stockholders’ ability to exert influence as a stockholder, in the boardroom, and outside

of the boardroom through managerial roles. Breaking these categories down to

“indicia of effective control,” the factors include:

• “ownership of a significant equity stake (albeit less than a majority),”

• “the right to designate directors (albeit less than a majority),”

• “decisional rules in governing documents that enhance the power of a
minority stockholder or board-level position,” and

558 Voigt, 2020 WL 614999, at *11–12; Basho Techs. Holdco B, LLC v. Georgetown

Basho Invs., LLC, 2018 WL 3326693, at *25 (Del. Ch. July 6, 2018) (“The requisite
degree of control can be shown to exist generally or with regard to the particular
transaction that is being challenged.” (quoting Carsanaro v. Bloodhound Techs., Inc.,
65 A.3d 618, 659 (Del. Ch. 2013)), aff’d sub nom. Davenport v. Basho Techs. Holdco
B, LLC, 221 A.3d 100 (Del. 2019) (TABLE).
559 Basho, 2018 WL 3326693, at *25 (quoting PNB, 2006 WL 2403999, at *9).

560 Id. (quoting Cysive, 836 A.2d at 553).

108
 • “the ability to exercise outsized influence in the board room, such as
through high-status roles like CEO, Chairman, or founder.” 561

To establish transaction-specific control, a plaintiff must show that the

stockholder “exercise[d] actual control over the board of directors during the course

of a particular transaction[.]” 562 This analysis often focuses on relationships “with

key managers or advisors who play a critical role in presenting options, providing

information, and making recommendations[.]” 563 It can also address “the exercise of

contractual rights to channel the corporation into a particular outcome by blocking or

restricting other paths,” and “commercial relationships,” although those factors are

less relevant here. 564 Ultimately, “[i]t is impossible to identify or foresee all of the

possible sources of influence that could contribute to a finding of actual control over

a particular decision.” 565

Both general control and transaction-specific control call for a holistic

evaluation of sources of influence. “Rarely (if ever) will any one source of influence

or indication of control, standing alone, be sufficient to make the necessary

561 Id. at *27 (citations omitted).

562 In re W. Nat’l Corp. S’holders Litig., 2000 WL 710192, at *20 (Del. Ch. May 22,

2000) (citation omitted).
563 Basho, 2018 WL 3326693, at *26 (concluding on a motion to dismiss that the

defendant’s relationship with management, including tips received by defendant from
company’s officers that provided negotiating leverage, supported an inference of
control (citing OTK Assocs., LLC v. Friedman, 85 A.3d 696, 704, 706–07, 715, n.1 (Del.
Ch. 2014)).
564 Basho, 2018 WL 3326693, at *26 (citations omitted); see also Skye Mineral, 2020

WL 881544, at *26–27; Cox Commc’ns, 2006 WL 1586375, at *4.
565 Basho, 2018 WL 3326693, at *26.

109
showing.” 566 “Different sources of influence that would not support an inference of

control if held in isolation may, in the aggregate, support an inference of control.” 567

“Sources of influence and authority must be evaluated holistically, because they can

be additive.” 568 “Invariably, the facts and circumstances surrounding the particular

transaction will loom large.” 569

Here, Plaintiff advances theories of both general and transaction-specific

control. To streamline the sprawling set of issues presented, this analysis addresses

whether Musk held transaction-specific control with respect to the Grant. Because

“[b]roader indicia of effective control also play a role in evaluating whether a

defendant exercised actual control over a decision[,]” 570 the sources of influence

identified by Plaintiff in support of a finding of general control factor into the

transaction-specific analysis.

Plaintiff’s argument that Musk controls Tesla might conjure a sense of déjà vu.

That is because Delaware courts have confronted this precise issue before in a prior

lawsuit challenging Tesla’s 2016 acquisition of SolarCity when Musk was SolarCity’s

largest stockholder and board chair. Although the SolarCity case resulted in three

opinions, none of them included a finding concerning Musk’s status as a controller.

In the first, Vice Chancellor Slights denied the defendants’ motion to dismiss where

566 Id. at *28 (citations omitted).

567 Voigt, 2020 WL 614999, at *13.

568 Id.

569 Basho, 2018 WL 3326693, at *28.

570 Id. at *27.

110
it was reasonably conceivable that Musk controlled Tesla. 571 On a motion to dismiss,

however, a court must assume the truth of the plaintiff’s factual allegations.

Accordingly, the Vice Chancellor’s dismissal decision did not constitute a finding that

Musk was a controller. Post-trial, the Vice Chancellor held that even if Musk were a

controller so as to trigger entire fairness, the transaction was entirely fair. 572 For

this reason, it was unnecessary to make a post-trial finding on whether Musk

controlled Tesla. The Vice Chancellor’s approach dexterously relieved the Delaware

Supreme Court from the burden of resolving the issue when affirming the post-trial

decision. 573

571 SolarCity I, 2018 WL 1560293, at *13 (finding it reasonably conceivable that Musk

controlled Tesla due to allegations concerning: Musk’s ability to influence the
stockholder vote through his 21.9% ownership; Musk’s influence over the board as
Tesla’s visionary, CEO, and chairman; Musk’s strong connections with members of
the board and the fact that a majority of the board was interested in the transaction;
and Tesla’s acknowledgment of Musk’s control in public filings).
572 SolarCity II, 2022 WL 1237185, at *2. Although the Vice Chancellor found that
there were significant flaws in the process that led to the SolarCity acquisition, the
court held that “any control [Musk] may have attempted to wield in connection with
the Acquisition was effectively neutralized by a board focused on the bona fides of the
Acquisition, with an indisputably independent director leading the way.” Id. at *33
(citation omitted). In reaching this conclusion, the Vice Chancellor emphasized that
the board rebuffed multiple of Musk’s demands during the process, that Denholm
“emerged as an independent, powerful and positive force during the deal process who
doggedly viewed the Acquisition solely through the lens of Tesla and its stockholders,”
and was an “effective buffer between” Musk and the conflicted board. Id. at *37–38.
The Vice Chancellor then credited as evidence of a fair price the fully informed
stockholder vote, SolarCity’s unaffected trading price, SolarCity’s cash flows, the
financial advisor’s fairness opinion, and potential synergies.
573 SolarCity III, 298 A.3d at 699.

111
 This question of whether Musk controls Tesla has thus proven evasive. It is

as good a time as any to run it to ground. And so, “[o]nce more unto the breach, dear

friends, once more.” 574

The analysis begins by discussing Musk’s stock ownership, which is a

significant but not dispositive indicium of control. The analysis then turns to the

factors that play a bigger role in the court’s conclusion, which are Musk’s influence

over managerial decisions, decision makers, and the process. Musk wielded the

maximum influence that a manager can wield over a company. His ties to three of

the eight directors (Kimbal, Gracias, and Murdoch) rendered those directors beholden

to him; with Musk, they comprised half of the Board (given Jurvetson’s departure).

The rest of the fiduciaries acted beholden to Musk in the process leading to the Grant,

allowing Musk to dictate the timing of the process and the terms of the Grant.

Ultimately, the key witnesses said it all—they were there to cooperate with Musk,

not negotiate against him. This unique suite of allegations makes it undeniable that,

with respect to the Grant, Musk controlled Tesla.

1. Stock Ownership

“All else equal, a relatively larger block size should make an inference of actual

control more likely[]” for a few reasons discussed at length by Vice Chancellor J.

Travis Laster in Voigt. 575 This is due in part to quorum requirements and stockholder

turnout, which give a 40% block holder the same effective power in most

574 William Shakespeare, Henry V act 3 sc. 1, lns. 1–2.

575 Voigt, 2020 WL 614999, at *17–19 (emphasis omitted).

112
circumstances as the holder of a mathematical majority. 576 Meanwhile, “stockholders

who oppose the blockholder’s position can only prevail by polling votes at

supermajority rates.” 577 Relatedly, compared to a small blockholder, a large

blockholder needs the support of fewer other investors to carry a vote. 578

Musk wields significant influence over Tesla by virtue of his stock holdings.

Just prior to the Board’s approval of the Grant, Musk owned approximately 21.9% of

Tesla’s outstanding common stock. 579 Applying the assumptions used in Voigt, if the

holder of a 21.9% block favors a particular outcome, then the holder will win as long

as holders of approximately one-in-three shares vote the same way. 580 By contrast,

an opponent must garner approximately 71% of the unaffiliated shares to win.

It is thus no surprise that this court has found that holders of similar or lesser

percentages of stock are controlling stockholders. 581 It is also no surprise that under

576 Id. at *18 (“[O]nce a quorum is present, the general standard for taking action is

the affirmative vote of a majority of the shares present and entitled to vote. For the
election of directors, the general standard is a plurality of the shares present and
entitled to vote. Meetings typically attract participation from just under 80% of the
outstanding shares. At that level, the holder of a 40% block can deliver the vote
needed to prevail at a meeting.” (citations omitted)).
577 Id. at *18 (citation omitted). For example, “assuming a meeting where holders
with 80% of the voting power turn out, and the standard is a majority of the shares
present and entitled to vote . . . if the holder of a 35% block favors a particular outcome
at a meeting, then the blockholder will win as long as holders of 1-in-7 shares vote
the same way. The opponents must garner over 90% of the unaffiliated shares to
win.” Id.
578 See generally id. at *18–19 (discussing the mathematics behind this principle in

detail).
579 PTO ¶ 64.

580 Voigt, 2020 WL 614999, at *18.

581 See supra note 556.

113
Section 203 of the DGCL, “[a] person who is the owner of 20% or more of the

outstanding voting stock of any corporation . . . shall be presumed to have control of

such entity, in the absence of proof by a preponderance of the evidence to the

contrary.” 582 Nor is it any surprise that the original stockholder rights plan triggered

at 20% ownership, or that rights plans now routinely cap ownership at 15% or less,

thereby forcing a stockholder to stop short of the 20% figure. 583 At a minimum, a

21.9% holding supplies a powerful “rhetorical card[] to play in the boardroom.” 584

For Musk, his significant block operated in conjunction with a supermajority

voting requirement for any amendment to Tesla’s bylaws governing stockholder

meetings, directors, indemnification rights, and the supermajority voting

requirement itself. 585 Assuming an 80% turn-out, Musk needed the support of less

than 10% of the minority stockholders to block a bylaw amendment at a stockholder

meeting. By contrast, a proponent would have to garner over 93% of the unaffiliated

shares to win. This means that, with the support of insiders or directors, Musk can

582 8 Del. C. § 203(c)(4).

583 See Williams Cos. S’holder Litig., 2021 WL 754593, at *1 (Del. Ch. Feb. 26, 2021)

(citing Marcel Kahan & Edward Rock, Anti-Activist Poison Pills, 99 B.U. L. Rev. 915,
922 (2019)).
584 Voigt, 2020 WL 614999 at *19.

585 JX-323 at 33 (2/1/17 Form 8-K) (stating that Article X requires a supermajority of

outstanding shares vote to amend Articles II, VIII, and X, and certain provisions of
Article III).

114
easily block bylaw amendments that require a supermajority vote. Indeed, Musk has

been able to do so two separate times. 586

Musk’s 21.9% block, therefore, gives him a sizable leg-up for stockholder votes

generally and the ability to block specific categories of bylaw amendments. The block

also gives him great influence in the boardroom. This undoubtedly contributes to his

clout and sway.

If this case involved a failed bylaw amendment subject to a supermajority vote,

then Musk’s stock holdings would likely prove dispositive to the control analysis. But

that is not the situation, so Musk’s stock holdings must be considered in connection

with the other indicia of control.

2. Boardroom And Managerial Supremacy

“[T]he ability to exercise outsized influence in the board room[]”can contribute

to a finding of control. 587 Boardroom influence can come in a variety of forms. An

individual might hold “high-status roles like CEO, Chairman, or founder.” 588 Or an

586 JX-1234 at 25–26 (5/28/20 Schedule 14A) (noting Tesla’s successful opposition to

the 2014 and 2016 proposals to move to simple majority voting).
587 Basho, 2018 WL 3326693, at *27, n.322 (“[T]he explicit or implicit threat of
retaliation will carry much more weight if it comes from a . . . defendant who controls
25% of the voting power of the company, . . . and serves as Chairman of the Board
with the power to call board meetings and set the agenda.”); see also Cysive, 836 A.2d
at 551–53 (incorporating defendants’ status as CEO and chairman into the control
analysis).
588 Basho, 2018 WL 3326683, at *27 (citations omitted); SolarCity I, 2018 WL
1560293, at *13 (considering for purposes of the control analysis “Musk’s influence
over the Board as Tesla’s visionary, CEO and Chairman of the Board”); Zhongpin,
2014 WL 6735457, at *9 (denying a motion to dismiss where it was reasonably
conceivable that the defendant was a controller, in part because “[t]he Company
relied so heavily on him to manage its business and operations that his departure

115
individual might have other key executive or managerial roles. An individual can

wield influence if he can interfere with or kibosh management decisions. 589 An

individual will have substantial influence if he can replace management. 590

Musk wields considerable power in the boardroom by virtue of his high-status

roles and managerial supremacy. Indeed, describing Musk’s role at Tesla as “high-

status” 591 would be a dramatic understatement. At relevant times, Musk occupied

the most powerful trifecta of roles within a corporation—CEO, chair, and founder.

He also exercised managerial authority over all aspects of Tesla and often without

from [the Company] would have had a material adverse impact on the Company”),
rev’d on other grounds sub nom., Cornerstone, 115 A.3d 1173; Cysive, 836 A.2d at 551–
53 (finding post-trial that a minority stockholder had controller status where the
stockholder was the chairman and CEO “and a hands-on one, to boot[,]” was “by
admission, involved in all aspects of the company’s business, was the company’s
creator” and “inspirational force”). Although this court has held that high-status
roles contribute to a finding of control, this court has declined to find that a defendant
held controller status based solely on those roles. See In re GGP, Inc. S’holder Litig.,
2021 WL 2102326, at *23–24 (Del. Ch. May 25, 2021) (granting motion to dismiss
where the alleged controller was the chairman and no other factors were present),
aff’d in part, rev’d in part and remanded, 282 A.3d 37 (Del. 2022); In re Rouse Props.,
Inc., 2018 WL 1226015, at *19–20 (Del. Ch. Mar. 9, 2018) (same, where no facts of
actual control alleged); Larkin v. Shah, 2016 WL 4485447, at *13–15 (Del. Ch. Aug.
25, 2016) (same); In re Morton’s Rest. Gp., Inc. S’holders Litig., 74 A.3d 656, 664 (Del.
Ch. 2013) (same, where alleged controller previously owned the company but did not
exert actual control).
589 See,e.g., Basho, 2018 WL 3326693, at *32 (finding post-trial that a minority
stockholder had controller status, in part because the stockholder “exerted control
over management” who would “subvert . . . , threaten . . . or get rid of” any “member
of management [who] did not support” the stockholder’s interests).
590 See, e.g., Reith, 2019 WL 2714065, at *8 (denying a motion to dismiss where it was

reasonably conceivable that the defendant was a controller, in part because the
defendant had “replaced the company’s management with alleged affiliates . . . and
the Company paid an affiliated entity significant funds every month under the
Management Services Agreement”).
591 Voigt, 2020 WL 614999, at *12.

116
regard to Board authority, rendering Tesla highly dependent on him. Truly, the

avalanche of evidence on this point is so overwhelming that it is burdensome to set

out in prose, hence these blunt bullet points:

• Tesla and Musk are intertwined, almost in a Mary Shelley (“You are my
creator . . .”) sort of way. 592 As Kimbal explained, “Tesla created Elon
Musk’s persona and Elon Musk’s persona is attached to Tesla.” 593 Musk
is Tesla’s public face, and he describes Tesla as “my company.” 594

• Tesla’s entire corporate strategy is Musk’s brainchild—he conceived
both the “Master Plan” and “Master Plan, Part Deux.” 595

• Tesla is highly dependent on Musk, as it has made clear in public
disclosures. 596 Musk did not dispute this characterization or that his
departure would “likely” cause such disruptions. 597

• Musk has admitted that he has “the power to direct operational
decisions at Tesla[.]” 598

592 See generally Mary Shelley, Frankenstein; or, The Modern Prometheus
(Lackington, Hughes, Harding, Mavor & Jones, 1st ed. 1818).
593 Trial Tr. at 1085:11–24 (Kimbal); see also id. at 644:11–15 (Musk) (Musk agreeing

that, as of May 2017, he was “heavily invested in Tesla, both financially and
emotionally and . . . viewed Tesla as part of [his] family”).
594 Id. at 625:22–626:21 (Musk); see also JX-1031 at 52 (Tesla disclosing that “[w]e

are highly dependent on the services of Elon Musk, our Chief Executive Officer,
Chairman of our Board of Directors and largest stockholder.”).
595 Trial Tr. at 566:11–18, 610:24–611:2 (Musk) (Musk agreeing at trial that Part

Deux is “still guiding Tesla’s strategy”); PTO ¶¶ 47–48.
596 JX-335 at 25–26 (“The loss of the services of any of our key employees could disrupt

our operations, delay the development and introduction of our vehicles and services,
and negatively impact our business, prospects and operating results. In particular,
we are highly dependent on the services of Elon Musk, our Chief Executive Officer,
and Jeffrey B. Straubel, our Chief Technical Officer.”); JX-1031 at 52 (“We are highly
dependent on the services of Elon Musk, our Chief Executive Officer, Chairman of
our Board of Directors and largest stockholder.”).
597 Trial Tr. at 603:12–20 (Musk).

598 Id. at 601:6–10 (Musk).

117
 • Gracias testified that Musk “could have sold the entire company if he
wanted to.” 599

• Musk is extremely involved in financial planning and supplies inputs
for models and plans. 600 All financial plans must be approved by
Musk. 601

• Musk makes the hiring, compensation, and firing decisions for high-
level positions. 602 Tesla employees described Musk as having a
reputation among employees as a “tyrant” who fires people “on a
whim.” 603

• Musk operates under his own set of rules at Tesla. For example, due to
his “special position of trust” at Tesla, no one at Tesla could review his
email account without permission except when legally required. 604

• Musk has made up positions and titles for himself. In 2021, without
first consulting with the Board, 605 Musk appointed himself
“Technoking”—a position he compared to being a monarch. 606

599 Id. at 782:5–22 (Gracias).

600 Id. at 498:22–499:7 (Ahuja).

601 Id. at 511:8–19 (Ahuja).

602 Id. at 851:6–852:5 (Murdoch); id. at 612:23–613:6 (Musk).

603 JX-924 at 6 (Tesla employee survey); see also JX-857 at 1 (Tesla’s former chief

people officer, in a January 2018 email, stating: “Elon will fire me Tuesday anyway
for sending market rate compensation to him”).
604 Trial Tr. at 601:11–602:10 (Musk).

605 Id. at 1085:1–7 (Kimbal) (“Question: Have you heard the word ‘Technoking’ before?

Answer: Yes, I have. Question: When did you first hear that word? Answer: I heard
it over Twitter, when Elon changed his Twitter account.”); id. at 854:21–855:3
(Murdoch) (“Q. Now, you’re aware that Elon Musk has added Technoking to his Tesla
title. Correct? A. Yes, I am aware of that. Q. And you believe you likely first learned
about that development via a tweet. Is that correct? A. I might have. I think so.
Yeah.”); Musk Dep. Tr. at 25:13–25 (“Q . . . Did you consult with the board about the
new title before -- before filing it on 8-K? A. No, but it was communicated to the
board.”); but see Trial Tr. at 599:4–10 (Musk) (stating that he was “wrong” in his
deposition when he stated he did not consult the Board before giving himself the title
of Technoking); see also JX-1331 at 2 (3/15/21 Form 8-K announcing the name
change).
606 Musk Dep. Tr. at 22:24–23:1.

118
 Ehrenpreis described that decision as “Elon being Elon[,]” 607 which
suggests that the behavior is not unusual for Musk. Musk testified that
the title was intended as a joke, 608 but that is a problem in itself.
Organizational structures, including titles, promote accountability by
clarifying responsibilities. They are not a joke.

• Musk operates as if free of Board oversight, as shown by his treatment
of the SEC Settlement. 609 Musk’s “self-regulat[ory] 610 process for
compliance and the Board’s desultory enforcement paint a vivid picture
of their inability or unwillingness to rein in Musk. 611 Even after the
settlement, the Disclosure Committee did not review his tweets. 612 At
trial, Denholm was not sure whether the Disclosure Committee was
fulfilling its obligations under the SEC Settlement. 613

• Musk has ignored specific Board directives, such as unilaterally pausing
Tesla’s acceptance of Bitcoin after the Board approved it. 614 Other
surprise announcements include Musk discussing the idea of Tesla
repurchasing billions of dollars of stock during an earnings call and
without Board knowledge. 615

• Musk regularly uses Tesla resources to address projects at other
companies he owns. For example, after Musk acquired Twitter, he
asked approximately 50 Tesla engineers to “volunteer” to help him
evaluate Twitter’s engineering team. 616 No one on the Board challenged

607 Trial Tr. at 189:19–24 (Ehrenpreis).

608 See id. at 599:16–22 (Musk).

609 See JX-1070 at 1 (9/29/18 SEC Press Release: Elon Musk Settles SEC Fraud
Charges; Tesla Charged With and Resolves Securities Law Charge).
610 Trial Tr. at 382:5–12 (Denholm).

611 See id. at 616:3–11, 619:12–622:3 (Musk); id. at 382:5–12, 386:8–12 (Denholm).

612 Id. at 615:8–616:2 (Musk); JX-1550 at 3–4 (12/9/18 60 Minutes interview
transcript).
613 Trial Tr. at 379:7–380:7 (Denholm).

614 Id. at 613:19–614:10 (Musk).

615 Id. at 619:13–24 (Musk). Musk’s general aversion to oversight extends to the SEC.

See generally id. at 623:4–22, 624:3–625:21 (Musk); JX-1555 (7/2/20 tweet from Musk
stating: “SEC, three letter acronym, middle word is Elon’s”).
616 Trial Tr. at 656:6–657:20 (Musk).

119
 this decision. 617 Murdoch testified that this was “being monitored by
the [Audit Committee] and being paid for.” 618 But Murdoch was not able
to even “ballpark” the number of Tesla engineers involved, even though
the monitoring he described had taken place at most “a few weeks” prior
to his testimony. 619 Murdoch’s testimony also showed that any
monitoring by the Audit Committee, such as it was, took place after the
fact. 620 Similarly, in 2020, Musk directed Tesla management to send
Tesla’s “smartest micro grid designer [] with a bunch of Powerpacks to
[SpaceX][.]” 621

This evidence, though not exhaustive, demonstrates the scope of Musk’s

influence as a member of management and in the Boardroom. Based on this list

alone, it could be said that Musk wields unusually expansive managerial authority,

equaling or even exceeding the imperial CEOs of the 1960s. 622

One set of scholars have created a term for this sort of person—a “Superstar

CEO,” defined as an “individual[] who directors, investors, and markets believe make

a unique contribution to company value.” 623 As the authors explain, the reasons for

believing that a CEO is uniquely valuable to the corporation might vary, and those

617 Id. at 657:9–658:2 (Musk).

618 Id. at 870:18–871:2 (Murdoch).

619 Id. at 869:14–870:17 (Murdoch).

620 Id. at 870:18–871:2 (Murdoch).

621 JX-1195 at 1.

622 See generally Myles L. Mace, Directors: Myth and Reality 77–85 (1971).

623 Superstar CEOs at 1367.

120
beliefs could be wrongly held. 624 But the reasons and their accuracy are irrelevant. 625

“[W]hat matters is only that such a belief does exist.” 626

CEO superstardom is relevant to controller status because the belief in the

CEO’s singular importance shifts the balance of power between management, the

board, and the stockholders. When directors believe a CEO is uniquely critical to the

corporation’s mission, even independent actors are likely to be unduly deferential.

They believe that “letting the CEO go would be harmful to the company and that

alienating the CEO might have a similar effect.” 627 They “doubt their own judgment

and hesitate to question the decisions of their superstar CEO.” 628 They view CEO

self-dealing as the trade-off for the CEO’s value. 629 In essence, Superstar CEO status

624 Id. at 1367–68 (“Markets may believe, for example, that only the CEO possesses

the idiosyncratic vision that is essential to make the company outperform the
competition. Or that only she possesses exceptional skills or other rare qualities that
are crucial for implementing the company’s strategy. Another explanation is that the
CEO possesses the charisma and ability to sell their vision that is crucial for
attracting investors, employees, or other constituencies. . . . [T]hese are CEOs who
directors, investors, and markets believe have charismatic power or other
extraordinary qualities that set them apart from other ordinary CEOs . . . .” (emphasis
in original)); id. at 1368 (“Moreover, the perception that a CEO is uniquely valuable
could be wrong as a matter of principle or in the case of certain individuals.”).
625 Id.

626 Id. (emphasis omitted).

627 Id. at 1379.

628 Id.

629 See, e.g., id. at 1392 (“As long as the CEO is perceived as a star and the company

depends on her vision and leadership, investors are less likely to challenge the CEO.
Regardless of their financial savvy, investors might even approve self-dealing and
other value reducing transactions. They will not rush to discipline CEOs with star
qualities even when they engage in misconduct. They will challenge the CEO only
when they believe that [s]he has lost h[er] magic touch or that the harm from h[er]
misconduct exceeds her singular contribution to company value.”).

121
creates a “distortion field” 630 that interferes with board oversight. As discussed later

in this analysis, the distortion field can weaken mechanisms by which stockholders

hold fiduciaries accountable, a risk that becomes more severe when the Superstar

CEO owns a large block of shares. 631

Faith in a Superstar CEO changes the dynamics of corporate decision making.

That is true for all corporate decisions, but the risk becomes more acute for issues

where the Superstar CEO’s interests are directly concerned. Nowhere is that truer

than the Superstar CEO’s compensation. In the face of a Superstar CEO, it is even

more imperative than usual for a company to employ robust protections for minority

stockholders, such as staunchly independent directors. In this case, Tesla’s

fiduciaries were not staunchly independent—quite the opposite, as discussed next. 632

630 This phrase, first used to describe Steve Jobs, applies here. See Elson Amicus Br.
at 1 (citing Waters supra note 12).
631 Superstar CEOs at 1400–02.

632 To be sure, the Superstar CEO designation lacks definitional precision.It is hard
to distinguish between an executive who is valuable to a corporation and a Superstar
who is singularly or uniquely valuable to a corporation. As the scholars have
acknowledged, this definitional imprecision could lead to “vague standards” that
“create uncertainty and encourage litigation[,]” thus diminishing the utility of the
Superstar CEO label. Id. at 1400–02; see also Lawrence Hamermesh, Jack B. Jacobs,
and Leo E. Strine, Jr., Optimizing the World’s Leading Corporate Law: A Twenty-
Year Retrospective And Look Ahead, 77 Bus. Law. 321, 346 (2022) (raising concerns
with the theory, noting that a CEO’s value to a company standing alone does not
make the CEO a controlling stockholder). For that reason, the concept should not be
deployed far and wide. When deployed, doubtless there will be close cases. But not
here. Musk is a dead ringer. See generally Superstar CEOs at 1354–56 (identifying
Musk as the paradigmatic Superstar CEO). If nothing else, the Superstar CEO
concept is valuable for its descriptive power, because it explains what took place in
this case.

122
 3. Relationships With The Board

A director lacks independence if he or she is “so beholden to an interested

director that his or her discretion would be sterilized.” 633 Both past and future

rewards are relevant to this analysis. 634 The inquiry is “highly fact specific” and there

is “no magic formula to find control.” 635

Nine directors served on the Board at relevant times. Jurvetson can be

excluded given his early departure. Of the remaining eight, Musk was one and his

brother another. 636 That is one fourth of the relevant directors. The other six had

varying degrees of ties to Musk. The analysis begins with the four Compensation

Committee members (Ehrenpreis, Buss, Denholm, and Gracias) and then turns to

Murdoch and Johnson Rice.

Gracias had the most extensive business and personal dealings with Musk and

Kimbal. Prior to approving the Grant, Gracias held interests worth over $1 billion in

Musk-controlled entities, which Gracias admitted provided him “dynastic or

generational wealth.” 637 Gracias and Musk had a decades-long relationship, which

included joint family vacations and attendance at family birthday parties. Gracias

633 Highland Legacy Ltd. v. Singer, 2006 WL 741939, at *5 (Del. Ch. Mar. 17, 2006)

(citing cases).
634 See generally Da Lin, Beyond Beholden, 44 J. Corp. L. 515, 550 (2019). Prospective

rewards might be more difficult to prove than past relationships, but that does not
mean they do not exist.
635 Calesa, 2016 WL 770251, at *11 (citing Crimson, 2014 WL 5449419, at *10).

636 Defendants do not dispute this; nor could they. Kimbal is Musk’s brother and
business partner, and he recused himself from discussion of or voting on the 2018
Grant due to this conflict. PTO ¶ 232; see JX-791 at 1.
637 Trial Tr. at 774:22–24 (Gracias).

123
had a 20-year friendship with Kimbal and was an investor in Kimbal’s business

ventures. Gracias also received millions in Valor investments from Musk and

Kimbal, and was a director of SpaceX and SolarCity, the latter until its acquisition

by Tesla.

Gracias’s business ties to Musk, standing alone, support a finding that Gracias

lacked independence from Musk. 638 Similarly, Gracias’s personal relationship with

Musk, standing alone, support a finding that Gracias lacked independence from

Musk. 639 The combination of business and personal ties make it undeniable that

Gracias lacked independence from Musk.

638 See generally Sandys v. Pincus, 152 A.3d 124, 134 (Del. 2016) (finding it reasonably

conceivable on appeal from a dismissal decision that two directors were not
independent of a controller for purposes of Rule 23.1 where they had “a mutually
beneficial network of ongoing business relations” based on past investments and
service on company boards); SolarCity I, 2018 WL 1560293, at *18 (finding it
reasonably conceivable on a motion to dismiss that a director lacked independence
where the controller was a “frequent investing partner” in the director’s venture);
Cumming v. Edens, 2018 WL 992877, at *15 (Del. Ch. Feb. 20, 2018) (finding it
reasonably conceivable on a motion to dismiss that a director was not independent
for demand futility purposes because the director and the controller owned a
professional sports team together and worked together to build a new stadium);
Trados, 73 A.3d at 54–55 (finding post-trial that a director lacked independence
where, among other allegations, the director “had a long history with” the controller,
had served previously as an executive at one of the controller’s portfolio companies,
was asked “to work with [the controller] on other companies,” and invested “about
$300,000 in three [controller] funds”); In re New Valley Corp. Deriv. Litig., 2001 WL
50212, at *7 (Del. Ch. Jan. 11, 2001) (finding it reasonably conceivable on a motion to
dismiss that directors were not disinterested and independent based on intertwined,
long-standing business relationships such as being paid to be a director nominee in a
separate proxy bid); Loral, 2008 WL 5293781, at *20–22 (finding post-trial that a
director lacked independence where, among other things, the director had
successfully solicited investments from the controller’s companies).
639 See generally Marchand v. Barnhill, 212 A.3d 805, 819 (Del. 2019) (finding it

reasonably conceivable on appeal that a director’s long-standing personal ties to the

124
 Ehrenpreis also had extensive business and personal relationships with Musk.

Prior to the Grant, Ehrenpreis held interests worth at least $75 million in Musk-

controlled companies other than Tesla and had invested in Kimbal’s business

ventures. Ehrenpreis also had longstanding personal and professional relationships

with Musk and Kimbal that Ehrenpreis admitted had a “significant influence” on his

professional career. 640 Although Ehrenpreis’s relationship with Musk was not as

thick as that enjoyed by Gracias, it was weighty. Given the critical role he played as

chair of the Compensation Committee, it was too weighty. Even if one could debate

whether these ties rendered Ehrenpreis beholden to Musk in general, his actions in

connection with the Grant demonstrate that he was beholden for that purpose.

The same is true of Denholm and Buss. Their most significant, potentially

comprising factor is the compensation each received as a Tesla director. For

Denholm, it was “life-changing.” 641 For Buss, it was a large portion of his wealth. 642

Ordinary, market-rate compensation does not compromise a director’s

controller compromised independence); Del. Cty. Emps. Ret. Fund v. Sanchez, 124
A.3d 1017, 1022 (Del. 2015) (finding it reasonably conceivable on appeal from a
dismissal decision that a director lacked independence because the director had a
friendship of over 50 years with an interested party); Sandys, 152 A.3d at 130 (finding
it reasonably conceivable on appeal from a dismissal decision that co-owning a private
plane with a close friend indicates a lack of independence because it is unusual and
would require close cooperation in use and a continuing, close personal friendship);
In re BGC P’rs, Inc. Deriv. Litig., 2019 WL 4745121, at *11–12 (Del. Ch. Sept. 30,
2019) (finding it reasonably conceivable on a motion to dismiss that a director lacked
independence where the director and the controller attended exclusive events
together and had a close relationship for 20 years).
640 Trial Tr. at 192:6–10 (Ehrenpreis).

641 Id. at 397:6–12 (Denholm).

642 See supra § I.C.1.a.ii.

125
independence. 643 Outsized director compensation can. 644 But Plaintiff does not argue

that Musk established Buss and Denholm’s compensation so as to render them

beholden. 645 Instead, it is a factor that must be considered when evaluating how

Denholm and Buss acted when negotiating the Grant.

The remaining directors present clearer calls. Murdoch lacked independence

due to personal connection with Musk. He was a long-time friend of Musk before he

joined the Board and they repeatedly vacationed together with their respective

643 See generally In re Kraft Heinz Co. Deriv. Litig., 2021 WL 6012632, at *11 (Del.

Ch. Dec. 15, 2021) (finding standard director compensation “alone cannot create a
reasonable basis to doubt a director’s impartiality[]” (quoting Robotti & Co., LLC v.
Liddell, 2010 WL 157474, at *15 (Del. Ch. Jan. 14, 2010))).
644 See, e.g., Kahn v. Tremont Corp., 694 A.2d 422, 430 (Del. 1997) (finding that a

director was beholden to majority stockholder where, three years previously, the
company had retained his consulting services for $10,000 per month and awarded
more than $325,000 in bonuses); Kahn v. Portnoy, 2008 WL 5197164, at *8–9 (Del.
Ch. Dec. 11, 2008) (finding it reasonably conceivable that directors’ fees derived from
controller’s companies, which exceeded compensation from other employment,
rendered the director beholden to the controller); see also Cumming, 2018 WL 992877,
at *17 (finding it reasonably conceivable on a motion to dismiss that a director lacked
independence from a controller where the director was alleged to have derived 60%
of his publicly reported income from service on a board to which the controller
appointed him).
645 As to Denholm, this court previously held that Denholm was “an independent,

powerful and positive force during the deal process” that led to the SolarCity
acquisition. SolarCity II, 2022 WL 1237185, at *37–38. And that was surely true at
the time. But it was not a factual finding that carries forward for all time. Moreover,
Denholm’s approach to enforcement of the SEC Settlement, including unawareness
of one of its key requirements, suggests a new lackadaisical approach to her oversight
obligations. See supra § I.I.3.

126
families. 646 It was during one such trip that Musk, Kimbal, and Gracias recruited

Murdoch to the Board. 647

Johnson Rice, by contrast, had no compromising personal or business ties to

Musk. Plaintiff concedes as much.

Summing it up, it is easy to conclude based on the nature of their relationships

with Musk that Kimbal, Gracias, and Murdoch lacked independence from Musk.

After Jurvetson’s departure, and along with Musk, that was half the Board. The rest

of the Director Defendants fall along a spectrum ranging from Ehrenpreis’s extensive

relationships with Musk to Johnson Rice’s lack thereof.

4. The Process

When assessing independence, Delaware courts consider not only the directors’

relationships with the party to whom they are allegedly beholden, but also how they

acted with respect to that party. 648 Directors with strong ties to a controller may

demonstrate their independence. 649 And directors without strong individual ties to a

646 Trial Tr. at 819:2–16, 820:20–821:2, 847:5–849:15 (Murdoch).

647 Id. at 780:23–781:2 (Gracias); id. at 821:3–822:21 (Murdoch); id. at 1080:13–21

(Kimbal).
648 In re Viacom Inc. S’holders Litig., 2020 WL 7711128, at *24 (noting that analysis

of controller’s influence on special committee focuses on how the committee actually
negotiated the deal rather than just how the committee was set up); In re S. Peru
Copper Corp. S’holder Deriv. Litig., 52 A.3d 761, 789 (Del. Ch. 2011) (same) (citations
omitted), aff’d sub nom., Ams. Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012).
649 See In re Dole Food Co., Inc., S’holder Litig., 2015 WL 5052214, at *16 (Del. Ch.

Aug. 27, 2015) (“Before trial, Conrad’s role as Chair was not a reassuring fact. It was
reasonable to infer from Conrad’s ties to Murdock, the events surrounding Weinberg’s
resignation, and the insiders’ desire to have Conrad as Chair that Conrad would be
cooperative, if not malleable, when facing Murdock. But after hearing Conrad testify

127
controller may fall victim to a “controlled mindset.” 650 A controlled mindset can be

evidenced by the directors approaching negotiations seeming “less intent on

negotiating with [the controller] and more interested in achieving the result that [the

controller] wanted[.]” 651

When evaluating control allegations in the context of a challenge to a merger,

Chief Justice (then-Vice Chancellor) Strine once observed:

[T]he question of whether the large block holder has
“control” may be relevant, and intertwined with, the
question of whether the merger was approved by
uncoerced, independent directors seeking solely to advance
the interests of the corporation and its disinterested
stockholders rather than by supine servants of an
overweening master. 652

The references to “supine servants” and “an overweening master” is hyperbolic, and

no doubt deliberately so to give emphasis to the difficulty of the standard. But it hits

home here. There is no greater evidence of Musk’s status as a transaction-specific

controller than the Board’s posture toward Musk during the process that led to the

Grant. Put simply, neither the Compensation Committee nor the Board acted in the

best interests of the Company when negotiating Musk’s compensation plan. In fact,

there is barely any evidence of negotiations at all. Rather than negotiate against

and interacting with him in person at trial, I am convinced that he was independent
in fact.”).
650 S. Peru, 52 A.3d at 798 (finding that, “from inception, the Special Committee fell

victim to a controlled mindset and allowed [the controlling stockholder] to dictate the
terms and structure of the Merger”).
651 Frederick Hsu Living Tr. v. Oak Hill Cap. P’rs III, L.P., 2020 WL 2111476, at *35

(Del. Ch. May 4, 2020).
652 Cysive, 836 A.2d at 550–51.

128
Musk with the mindset of a third party, the Compensation Committee worked

alongside him, almost as an advisory body.

Multiple aspects of the process reveal Musk’s control over it, including the

timeline, the absence of negotiations over the magnitude of the Grant or its other

terms, and the committee’s failure to conduct a benchmarking analysis. In the end,

the key witnesses said it all by effectively admitting that they did not view the process

as an arm’s length negotiation.

a. Musk Controlled The Timing.

Defendants emphasize that nine months passed after the initial April 9 call

between Musk and Ehrenpreis until the Board approved the Grant. In reality,

however, most of the work on the Grant occurred during small segments of that nine-

month timeline and under significant time pressure imposed by Musk.

Before the Board or Compensation Committee had any substantive discussion

concerning the Grant, Musk’s team proposed a highly accelerated schedule that

contemplated approval of the Grant within less than two months. 653 A later version

of the timeline was even more rushed, proposing only one Compensation Committee

meeting (with an additional meeting if necessary) and giving the committee less than

three weeks to complete its task. 654 This was a recklessly fast approach, yet

653 JX-423 at 2–3 (6/19/17 email from Matt Tolland to Maron re “Re: Privileged - Comp

Comm Process”).
654 JX-456 at 2 (6/26/17 email from Phillips to Ehrenpreis and Maron re: “Tesla |

Executive Compensation Timeline”). This timeline envisioned that on July 7, the
Compensation Committee would “[g]ain agreement on proposed approach, award size
and metrics/goals” and “[g]ain preliminary approval of grant agreement.” JX-456
at 2.

129
Ehrenpreis did not question it. 655 In fact, not one but Brown questioned it. And

Brown’s concerns were ignored.

The process decelerated to a reasonable pace only because Musk made it so.

On July 6, a day before the first Compensation Committee meeting, Maron

announced that the new goal was to issue a grant in August or September. 656 On

July 30, a day before another Compensation Committee meeting, Musk emailed

Maron to put the process on hold. 657 Although Musk agreed by email to let Maron

“keep cranking[,]” 658 the wheels ground to a halt for several months. By August 12,

Brown was telling his team there was “no need to spend any time” on a presentation

relating to the 2018 Grant due to negotiations between Musk and the Board. 659

Similarly, on August 27, Ahuja told members of his team “[i]t was decided to defer

this action by a few months.” 660 And Ahuja’s statement on September 17 that “[w]e

are back on track to finalize a CEO comp package[]” turned out to be a false start. 661

There was no meaningful activity through the end of October.

655 Trial Tr. at 124:11–125:11 (Ehrenpreis).

656 JX-503 at 1.

657 JX-564 at 1.

658 Id. at 1.

659 JX-596 at 1.

660 JX-604 at 1.

661 JX-640 at 3; id. at 1 (Ahuja stating on September 20 that “the priority on this effort

has again been lowered[,] [s]o not critical at this point”).

130
 Defendants exaggerate how much work occurred in August and September. 662

Although the Compensation Committee did meet on August 14, there is no indication

that this meeting involved a substantive discussion of the Grant. 663 The committee

also met on September 8, but the minutes of that meeting describe the discussion of

the Grant as featuring only a “brief update” and an agreement to “provide additional

details to the broader Board group at the next Committee meeting.” 664

Musk restarted discussions on the Grant on the morning of November 9, just

before a scheduled Compensation Committee meeting, telling Maron that he would

“like to take board action as soon as possible if they feel comfortable and then it would

go to shareholders.” 665 This message was not relayed during the November 9

meeting. 666 But Maron conveyed the urgency three days later, emailing the full

Board and members of the Working Group with a request for “another meeting on

the issue of CEO compensation at everyone’s first available opportunity.” 667

662 See Defs.’ Post-Trial Answering Br. at 17 (“[I]n August and September 2017, there

were three Compensation Committee meetings, a Working Group call, and a Board
meeting discussing the Plan.” (citing DDX-1 at 2)).
663 JX-597 at 2 (“Mr. Ehrenpreis updated the Committee regarding the continuing

efforts to develop Elon Musk’s next compensation package. Questions were asked and
discussion ensued.”).
664 JX-617 at 2.

665 JX-664 at 1.

666 See JX-663 at 3 (“Ehrenpreis provided an update regarding continued development

of Elon Musk’s next compensation package. Questions were asked and discussion
ensued.”).
667 JX-667 at 1.

131
 Musk tried to pause the process again on November 14 with another email to

Maron, stating: “Given recent developments, let’s pause for a week or two. This would

be terrible timing[.]” 668 The Board held a special meeting to discuss the Grant on

November 16, during which Ehrenpreis and Maron proposed approving the plan in

December 2017 and seeking stockholder approval in early 2018. 669 The final timeline,

however, included the delay Musk requested and extended into January 2018.

Although Musk’s November 14 attempt to pause work on the 2018 Grant did not stop

a Board meeting in the following days, it had enough of an effect that those working

on the Grant did not consider the process “back on” until well until December, which

is when another period of urgency commenced. 670

To sum it up, Musk unilaterally set the timeline or made last-minute proposals

to the Board prior to six out of the ten Board or Compensation Committee meetings

during which the Grant was discussed. 671 Musk dictated when the game clock started

668 JX-668 at 1.

669 JX-669 at 2.

670 JX-717 at 1 (12/10/17 email noting the “importance and the timing on getting” an

analysis of the stock-based compensation effects of the Grant “out quickly” because of
a valuation deadline the next day); JX-717 at 1 (12/11/17 email marked as “high”
importance stating, “[w]e are back on with a vengeance (apologies in advance). . . . I
am just now digesting myself”); JX-718 at 1 (12/11/17 email stating that “[o]ur CEO
grant[] is back and on a fast track now”).
671 JX-423 (6/19/17 email circulating, four days before the first Compensation
Committee meeting, an accelerated timeline); JX-503 at 1 (7/6/17 email from Maron
stating, a day before the Compensation Committee was supposed to give preliminary
approval to the Grant, that “we’re now going on a slower track with the CEO grant”);
JX-564 at 1 (7/30/17 email from Musk stating, a day before the first Compensation
Committee meeting, to “put [it] on hold for a few weeks”); JX-596 at 1 (8/12/17 email
from Brown stating, two days before a Compensation Committee meeting, “no need

132
and stopped, thereby artificially compressing the work into short bursts that took

place when he wished to move forward. Musk’s habit of shaking things up just before

meetings also made it tough for the committee and its advisors to be prepared.

Musk’s persistent pattern cannot be chalked up to coincidence. Musk controlled the

timing.

b. There Was No Negotiation Over The Size Of The
Grant.

The most striking omission from the process is the absence of any evidence of

adversarial negotiations between the Board and Musk concerning the size of the

Grant. Musk made an initial proposal, and that proposal was the only one seriously

considered until Musk unilaterally changed it six months later.

Defendants did their best to paint a different picture, but the contemporaneous

evidence betrayed them. They cannot meaningfully deny that Musk made the initial

to spend any time on this for now. Sounds like Elon and the Board are negotiating a
little bit, which may impact where they land on some of the key program points”); JX-
640 at 3 (9/17/17 email from Ahuja stating, two days before the Board meeting, that
“[w]e are back on track to finalize a CEO comp package”); id. at 1 (9/20/17 email from
Ahuja stating, the day after the Board meeting, that “the priority on [the CEO grant]
has again been lowered”); JX-664 at 1 (11/9/17 email from Musk proposing a “reduced”
award only hours before a Compensation Committee meeting); JX-668 (11/14/17
email from Musk stating, two days before another Board meeting at which the Grant
was to be discussed, “let’s pause for a week or two”); JX-717 at 1 (12/11/17 email from
Tesla employee stating, a day before the December 12 special meeting of the Board
to discuss the 2018 Grant, that “[w]e are back on with a vengeance”); JX-718 (12/11/17
email stating that “[o]ur CEO grant[] is back and on a fast track now”). The substance
of the Compensation Committee’s September 8 and December 8 meetings seemed to
escape Musk’s meddling, but neither were particularly substantial. See JX-697 at 3.
The other untouched meetings were the very first meeting on June 6 (where the
Board’s discussion was forgettable) and the last on January 21 where the Board
approve the 2018 Grant. See JX-407; JX-743 at 1; JX-773 at 4.

133
proposal. Although Ehrenpreis initiated the April 9 discussion, 672 Musk proposed the

terms during that call. 673 Musk told Ehrenpreis that he wanted a grant with 15

tranches awarding 1% of Tesla’s total outstanding shares for each market

capitalization increase of $50 billion. 674 This proposal set the size and structure for

the Grant until November 9. 675

Defendants cannot deny that, on November 9, Musk unilaterally lowered his

ask. He proposed what he believed was a “reduced” compensation plan, which would

award him a fully diluted 10% increment in his Tesla ownership if he reached a $550

billion market capitalization. 676 After Musk learned that this proposal would result

in greater compensation than his initial proposal, he changed it again. On December

1, he stated: “That is more than intended. Let’s go with 10% of the current [fully

diluted share] number[.]” 677 Defendants tout the reduced proposal of December 1 as

a “negotiated price,” 678 but Musk was more honest. Unprompted, he described his

“proposal on December 1” as “me negotiating against myself.” 679

672 JX-362 at 2.

673 See JX-1700 at 12 (1/12/18 Draft Schedule 14A Proxy).

674 See id.; see also Trial Tr. at 269:17–270:8 (Maron) (testifying that “at the beginning

of the process . . . the conception of the plan at a high level was to have $50 billion
market cap increments”).
675 See JX-445 at 3–4; JX-464 at 5–7; JX-490 at 5–7; JX-640 at 3.

676 JX-664 at 1.

677 JX-682 at 1.

678 Defs.’ Post-Trial Opening Br. at 64–65; see also Trial Tr. at 584:9–19 (Musk).

679 Trial Tr. at 696:7–697:7 (Musk).

134
 To blunt the blow of Musk’s candor, Defendants vigorously argue secondary

points. For example, they contend that the Compensation Committee considered a

variety of award sizes prior to Musk’s new proposal on November 9. 680 They cite to

the August 1 Compensia presentation, which identifies alternative market

capitalization increments and corresponding award sizes of 7.5% and 10%. 681 But the

presentation valued the 15% award only, and there is no record of any actual

discussions concerning the alternative award sizes. 682 The minutes for the November

16, 2017 Board meeting suggest that there was no actual discussion concerning

alternatives. 683 And when Maron received Musk’s new offer, he compared it to

Musk’s original proposal and not any alternatives. 684 By July 2017, Musk’s 15-

tranche was locked-in as the operating assumption. The Compensation Committee

did not consider alternatives.

680 Defs.’ Post-Trial Opening Br. at 60–61 (citing JX-566 at 14–16); id. at 33 (citing

JX-566 at 14–16); Trial Tr. at 213:14–23 (Ehrenpreis).
681 Defs.’ Post-Trial Opening Br. at 60–61 (citing JX-566 at 14–16); id. at 33 (citing

JX-566 at 14–16).
682 JX-566 at 13–16, 23–24; see JX-633 at 17–21 (9/19/17 slide deck assuming 15% of

total outstanding shares and providing 7.5% and 10% chart for comparison). The
August 1 presentation included other possibilities and key questions that were never
discussed. See JX-566 at 8 (8/1/17 slide deck) (asking “Should a new award be stock
option-based? Should it be multi-year and highly performance-based or structured
as a more traditional annual award?”).
683 JX-669 at 2 (“As discussed in previous meetings and again at this meeting, the

Board continued to consider 1% of current total outstanding shares as the award for
each vesting tranche, achievement of which required both an increase of $50 billion
in the Company’s market capitalization and a matching operational milestone.”).
684 JX-678 at 1.

135
 As another example, Defendants emphasize that the Grant ultimately

included 12 tranches, each awarding 1% of total outstanding shares and requiring

$50 billion in market capitalization growth. 685 According to Defendants, this

represented “an appreciation in market capitalization that was $100 billion more

than what Musk had proposed in exchange for the same percentage of options.” 686

Although Defendants are correct that, all else equal, requiring more market

capitalization growth for the same number of shares means a better deal for

stockholders, there is simply no credible evidence that the shift from ten tranches to

12 was the result of any actual negotiation with Musk. To the contrary, the record

reflects that the Board preferred the simplicity of total outstanding shares. 687

Toward this end, they backed into 12 tranches when translating Musk’s demand of

10% of fully diluted shares into a round percentage of total outstanding shares while

maintaining the $50 billion/1% per tranche approach that Musk proposed in April. 688

685 Defs.’ Post-Trial Opening Br. at 64–65.

686 Id. at 65 (citing Trial Tr. at 225:21–227:18 (Ehrenpreis)).

687 See JX-669 at 2 (11/16/17 Board meeting minutes) (“the directors expressed a

general preference to measure the size of the grant as a percentage of total
outstanding shares, and not allow for known dilution protection for Mr. Musk”);
Maron Dep. Tr. at 407:17–25 (stating he believed the Board used TOS, instead of
FDS, because “it was a simpler approach”).
688 JX-743 at 4–5; see JX-701 at 1 (12/10/17 email from Chang providing
contemporaneous notes of the 12/10/17 special Compensation Committee meeting)
(“We seem to be at the right place as far as size: 10% of FDS (~12% of TOS)”).

136
 The testimony from Ehrenpreis that Defendants cite does not support a finding

that negotiations over the 12%/12-tranches occurred. 689 Ehrenpreis simply confirmed

that he generally recalled “negotiations in the late part of 2017 about the terms of

the” Grant. 690 When asked “[w]hat, if anything happened to the total amount of

market capitalization that would accrue to the shareholders if Mr. Musk hit all of the

targets in the plan as between the time of the negotiation and then the final plan,”

Ehrenpreis responded “[d]uring that period of time, the market cap milestones

increased by $100 billion.” 691 Although this describes what happened, it does not

establish the existence of a negotiation. In a follow-up question, Ehrenpreis avoided

saying that he or anyone else negotiated with Musk about the market capitalization

increase, again merely describing the changes that took place. 692

Maron also stopped short of describing this aspect of the process as a

negotiation. He testified that although the final terms included the “size of the

overall plan . . . were all different than I think were initially thought of by Elon. . . .

I don’t want to say that it was necessarily over his objection. They weren’t things he

thought of. They were things that the Board thought of and that he ultimately agreed

689See Defs.’ Post-Trial Opening Br. at 65 (citing Trial Tr. at 225:21–227:18
(Ehrenpreis)).
690 Trial Tr. at 225:21–24 (Ehrenpreis).

691 Id. at 225:21–226:7 (Ehrenpreis).

692 See id. at 226:17–227:18 (Ehrenpreis).

137
to.” 693 Aspects of this testimony ring true—Musk’s various proposals lacked the

detail necessary to implement them.

In short, the Compensation Committee and the Board failed to negotiate the

overall size or difficulty of the Grant with Musk.

c. There Was No Meaningful Negotiation Over The
Other Terms Of The Grant.

The other key terms of the Grant were: the Clawback Provision, the

Leadership Requirement, the Five-Year Hold Period, and the M&A Adjustment. As

to these terms, the only back-and-forth in the record concerned the M&A Adjustment,

but Musk himself conceded that this was at most a minor feature of his compensation

plan that he did not care about. He stated, at the end of negotiations on this point,

“I don’t think we will be making big acquisitions[]” and “[t]here is no chance I will

game the economics here, so I’m fine with limits that prevent that.” 694 He then

proceeded to propose a stricter M&A Adjustment than was on the table. 695

Defendants argue that the Five-Year Hold Period was a negotiated point and

a major concession. 696 But neither the documentary record nor the witness testimony

corroborates Musk’s recollection of vigorous negotiation. The closest testimony on

point is to the contrary, where Maron stated “[w]hen you talk about holding periods

and the M&A adjustments and the size of the overall plan, these were all different

693 Maron Dep. Tr. at 428:20–430:3.

694 JX-781 at 1–2.

695 JX-874 at 2.

696 Trial Tr. at 584:9–585:2 (Musk) (testifying that the Board “pushed significantly”

on this point).

138
than I think were initially thought of by Elon. But I don’t want to say that it was

necessarily over his objection. They weren’t things that he thought of.” 697

Meanwhile, one of the biggest purported concerns expressed by the Board was

their desire to keep Musk engaged in Tesla despite his significant time commitments

at his other companies, which included SpaceX, The Boring Company, Neuralink, and

later, Twitter. 698 The Grant could have addressed this issue. The most obvious way

would have been a requirement that Musk devote substantially all of his professional

time and attention to Tesla-related matters. Another option could have been a

restriction on the amount of time and attention he could devote to companies other

than Tesla. 699 Still other possibilities might include a forfeiture or clawback provision

if Musk failed to provide the requisite level of time and attention. 700 Yet no one

proposed anything like that to Musk.

697 Maron Dep. Tr. at 429:7–13; see also id. 428:20–430:3.

698 Trial Tr. at 328:9–24 (Denholm) (“Elon had other business interests that competed

for his time.”); JX-612 at 2 (“How can the comp comm/board/shareholders be assured
that [Musk] will devote adequate time to Tesla given his other
commitments/businesses/. Should some type of commitment be included as part of
comp structure?”); Murdoch Dep. Tr. at 292:1–293:20 (“But obviously as [SpaceX]
grew and depending on … where Elon thinks his time is going to be most useful in
terms of both … his own incentives as an executive, apropos of this plan, and also …
where he can make the biggest impact, … we wanted to make sure that … Tesla was
top of mind.”); Ehrenpreis Dep. Tr. at 51:6–13 (“And so my thinking and the goal was
how do we find a way to make sure that Elon still stays in this seat, number one.”).
699 See Dunn Opening Expert Rep. at 14–15.

700 See, e.g., id.

139
 Delaware law recognizes that “asking the controlling stockholder to consider

alternative options can change the negotiating dynamic.” 701 Whether Musk should

commit a level of time to Tesla was a planned topic of discussion for a September 8

call with Denholm, Ehrenpreis, and Musk. 702 During the September 8 call, however,

none of the participants raised the issue. 703 According to Musk, the issue “was not

raised in this compensation structure” because the idea was “silly.” 704 Maron testified

that the Board did not ask for such a requirement because “[t]hat would have been

like saying goodbye to Elon[.]” 705 Defendants claim Musk would have rejected such

restrictions, but the court will “never know because the . . . Committee and its

advisors never had the gumption to give it even the weakest of tries.” 706

d. There Was No Benchmarking Analysis.

The Grant process lacked a traditional benchmarking analysis, which

compares a proposed compensation plan to plans at comparable firms. 707

701 S. Peru, 52 A.3d at 800 (“[A]sking the controlling stockholder to consider
alternative options can change the negotiating dynamic . . . . [T]he Special Committee
might discover certain weaknesses of the controlling stockholder, thus creating an
opportunity for the committee to use this new-found negotiating leverage to extract
benefits for the minority.”).
702 JX-612 at 1–2.

703 See JX-629 at 2–3 (summary of call omitting the issue); Trial Tr. at 139:17–141:1

(Ehrenpreis); Denholm Dep. Tr. at 389:15–390:20 (“I don’t recall the specifics of that
other than in general terms we talked mainly about energy, focus, and commitment
as opposed to time.”); Musk Dep. Tr. at 154:12–21, 160:11–161:4.
704 Musk Dep. Tr. at 160:11–161:4.

705 Trial Tr. at 263:11–264:1 (Maron).

706 Loral, 2008 WL 4293781, at *25.

707 Trial Tr. at 1461:10–1462:6 (Brown) (“Q. So did Compensia’s work on the 2018

plan include such traditional benchmarking? A. It did not for a few reasons.”).

140
Benchmarking “provides the compensation committee with a frame of reference with

respect to what other companies are doing with respect to compensation[.]” 708

Benchmarking is the foundation of a compensation advisor’s analysis. 709

The witnesses agreed that benchmarking is typical and critical. Defendants’

expert, Professor Kevin Murphy, previously opined that “the market for similarly

situated executives provides a critical benchmark” the “board must consider in

deciding whether to pursue” an executive and “how much to offer.” 710 Plaintiff’s

expert, Professor Brian D. Dunn, opined that benchmarking is a “critical aspect and

requirement of an effective compensation plan process.” 711 Brown confirmed that

Compensia typically provides benchmarking consisting of an identified peer group

708 Id. at 1475:20–24 (Brown).

709 Id. at 1058:7–1059:18 (Burg) (testifying that compensation advisors provide
benchmarking data to “fulfill their responsibilities”); id. at 1312:8–12 (Murphy)
(agreeing that benchmarking studies are “customary” when setting CEO
compensation), 1313:10–13 (confirming that competitive pay analysis is “industry
standard” in advising clients on executive compensation), 1315:2–16 (prior testimony
stating benchmarking is “absolutely routine” and “what every compensation
consultant will do”), 1317:10–1319:3 (prior testimony that “the market for similarly
situated executives provides a critical benchmark that [the] board must consider in
deciding whether to pursue [the CEO candidate] and in deciding how much to offer”
(emphasis added)); id. at 786:12–21 (Gracias) (confirming it is “wise” for the
Compensation Committee to have benchmarking information); id. at 347:3–10,
350:7–11, 351:2–7 (Denholm) (acknowledging prior use of benchmarking data for
other executives).
710 Trial Tr. at 1317:10–1319:3 (Murphy); see, e.g., id. at 1312:8–12 (Murphy)
(agreeing that benchmarking studies are “customary”), 1313:10–13 (confirming that
competitive pay analysis is “industry standard”), 1315:2–16 (prior testimony stating
benchmarking is “what every compensation consultant will do”).
711 Dunn Opening Expert Rep. at 83; see also Trial Tr. at 983:3–22 (Dunn).

141
and comparable positions at peer companies. 712 Burg too recognized that providing

such information is necessary for the Compensation Committee’s advisors to “fulfill

their responsibilities.” 713 Nevertheless, no traditional benchmarking study was

conducted in connection with the Grant. 714

Defendants proffered reasons for not performing a traditional benchmarking

study, but each rang hollow. For starters, Defendants argued that the Board

considered “a lot of data that all fit within the overall bucket of benchmarking”

throughout the process. 715 The primary evidence is the Compensia presentation from

the July 7, 2017 meeting, which included information about other CEOs. 716 For

example, one of the slides lists the largest CEO pay packages in 2016. But no one

contends that this market data constituted a benchmarking analysis. And none of

the slides involved direct comparisons to the Grant. 717

Brown also testified that it would have been difficult to find comparable

companies for a benchmarking study. 718 At trial, Brown conceded that he could have

developed a peer group after using “some judgment” in a timeframe “similar to

712 Trial Tr. at 1461:10–1462:4 (Brown); id. at 1475:16–1476:24 (Brown).

713 Id. at 1058:7–1059:18 (Burg).

714 Id. at 1477:1–5 (Brown) (affirming that Compensia did not conduct a
benchmarking study for the Grant); id. at 786:12–21, 787:5–10 (Gracias) (same); id.
at 1059:19–1060:5 (Burg) (stating that he had no memory of benchmarks being
presented in connection with the 2018 Grant).
715 Id. at 1293:10–1294:9 (Murphy).

716 JX-512 at 16–20.

717 Id.

718 Trial Tr. at 1462:5–1463:7 (Brown).

142
[developing] any peer group.” 719 Dunn created a benchmarking analysis,

demonstrating it was possible. 720

More telling, Brown took the position that benchmarking was unnecessary

because the award would be too large for useful comparison. Brown testified that he

had a “really good idea” of what would happen if Compensia performed a traditional

benchmarking study, and that “it wasn’t going to be useful information for the

committee” because the Grant was so divorced from the market for comparable

executives. 721 In a similar vein, Defendants argue that benchmarking was not needed

because the 2018 Plan was “unprecedented” in that “no other CEO had been willing

to condition his compensation on such audacious milestones,” especially at a time

when a company was struggling. 722 They contend: “Traditional benchmarking is

inapt if the companies, executives, and plans are not comparable.” 723

That is a hard sell. As CEO, Musk’s job was the same as every other public

company CEO: improve earnings and create value. A benchmarking study would

have shown the committee what other companies paid for executives to perform that

same task. Moreover, the extraordinary nature of the Grant should have made

719 Id. at 1477:19–1478:6 (Brown).

720 Id. at 983:3–985:1, 990:3–992:7 (Dunn); id. at 1477:14–1478:12 (Brown)
(confirming Compensia could have—but did not—benchmark); PDX-2 at 5–6.
721 Trial Tr. at 1462:5–1463:1 (Brown); see also id. at 786:12–21, 787:5–10 (Gracias);

id. at 347:3–10, 350:7–11, 351:2–7, 362:10–13 (Denholm); Denholm Dep. Tr. at
287:12–21 (“[I]t was very difficult to find comparables in terms of the ambitious
nature of this plan.”).
722 Defs.’ Post-Trial Suppl. Reply Br. at 10–11.

723 Id. at 10 n.44.

143
benchmarking more critical, not less. Benchmarking would have informed the

decision makers of the magnitude of difference between the Grant and market

comparables. 724

e. The Key Negotiators Said It All.

In the end, the defense witnesses said it all. Ehrenpreis and Gracias took the

lead on the Grant for the Compensation Committee (recall that attendance at

Working Group meetings was “optional” for Denholm and Buss). 725 Maron was one

of the primary go-betweens. 726 When asked to describe the process, none viewed the

process as an arm’s length negotiation. Each viewed it is as a form of collaboration

with Musk.

724 See Julian v. E. States Const. Serv., Inc., 2008 WL 2673300, at *19 (Del. Ch. July

8, 2008) (holding that the lack of historical precedent does not mean the size of the
compensation plan can just be plucked out of thin air); Trial Tr. 1320:18–1321:16
(Murphy) (confirming that in a prior trial he testified that there should have been
benchmarking for an executive if even he was the only person in the United States
who was believed to be qualified and available to take that position).
725 JX-474 (6/30/17 email from Chang to Denholm and Buss).

726 See, e.g., JX-783 at 1–2 (1/16/18 email from Maron to the Compensation
Committee) (stating Musk wanted that “[a]ny M&A in which [Tesla] buy[s] a
company for no more than 5% of [Tesla’s] current market cap will have no
adjustment”); see JX-664 at 1 (11/9/17 email from Musk to Maron stating Musk would
“like to take board action as soon as possible” on his compensation plan); JX-667 at 1
(11/12/17 email from Maron to Board stating: “We’d like to have another meeting on
the issue of CEO compensation[.]”); JX-668 (11/14/17 email from Musk telling Maron
to “pause for a week or two[,]” his compensation plan discussions); JX-718 (12/11/17
email stating the CEO compensation plan discussions are “back and on a fast track
now”).

144
 Ehrenpreis testified that “during the entire process, there were check-ins with

Elon. We were not on different sides of things. We were trying to make sure if we

were going to go through this exercise that he was on board.” 727

Gracias explained his understanding of “fairness” in this context and his

approach to the process as follows:

[W]hat is important is that [CEOs] feel like they’re treated
fairly. These plans are about incenting behavior. Behavior
is a feeling. It comes from inside the mind. And so we focus
on what’s fair and what feels fair to people and what’s fair
to the shareholders, what’s fair to us as investors, what’s
fair to the executives. That’s how we think about it. We
never engage in these positional negotiations, I want 10, you
want 3, let’s yell about it. That’s not how we do things, not
how anyone does things. 728

That is, in lieu of objective market data and arm’s length negotiation, the

Compensation Committee opted for subjective feelings—“what feels fair.” The

committee did not take “positional negotiations” against Musk. 729

727 Ehrenpreis Dep. Tr. at 139:18–140:3 (emphasis added).

728 Trial Tr. at 808:16–809:14 (Gracias) (emphasis added).

729 Id.; see also Gracias Dep Tr. at 244:25–245:20 (“I did not have a positional
negotiation with [Musk] about, hey, we want to give you one [tranche], and you want
two and let’s go negotiate back and forth. . . . I did not have a negotiation starting
lower and going higher with him about the tranches or the size of the award.”); id. at
255:22–256:9 (“Q. Okay. As a Tesla director and compensation committee member,
do you think you have a duty to the company and the stockholders to try to negotiate
for the smallest compensation package for Mr. Musk that would adequately
incentivize him? A. That is not how I think about it, no. Q. Can you explain to me
how you think about it? A. I think about compensation packages generally as what
is fair to the executive and what is fair to the company. I don’t think about it as
trying to get the very smallest thing possible ever. That’s just not my modus operandi
with any company I deal with. I think about fairness.”).

145
 Maron described the process similarly: “It was a cooperative, collaborative

process. It wasn’t acrimonious. So when I say there wasn’t a conflict of interest, I

think I’m thinking in my own mind was there an actual active conflict between the

two parties; and I don’t think that there was. I think it was a cooperative

collaborative process.” 730 To deal with a conflict, one must first recognize a conflict.

“Conflict blindness and its lesser cousin, conflict denial, have long afflicted the

financially sophisticated.” 731 Maron could not perceive the conflict, much less help

deal with it.

The testimony from the key witnesses is perhaps as close to an admission of a

controlled mindset as a stockholder-plaintiff will ever get. 732 The Compensation

Committee and Musk were not on different sides. They did not acknowledge the

existence of a conflict. It was a cooperative and collaborative process. 733

730 Maron Dep. Tr. at 100:2–102:11.

731 Trados, 73 A.3d at 64.

732 See S. Peru, 52 A.3d at 798 (“[F]rom inception, the Special Committee fell victim

to a controlled mindset and allowed [the controller] to dictate the terms and structure
of the [transaction].”).
733 Defendants concede that “[t]he Directors worked with Musk ‘in a collaborative,

cooperative way to get to the end point.’” Defs.’ Post-Trial Opening Br. at 66 (quoting
Trial Tr. at 243:15–244:3 (Maron)). They justify that soft approach by reasoning that
“the board has to have an ongoing relationship with the CEO,” and “it would be
atypical for compensation negotiations between a board and a CEO to be adversarial.”
Id. In essence, they argue that, because the Grant was for a sitting CEO, the Board
was justified in conducting a process short of “an effective proxy for arms-length
bargaining, such that a fair outcome equivalent to a market-tested deal resulted.”
Loral, 2008 WL 4293781, at *22 (citations omitted). The court recognizes that
negotiations over CEO compensation give rise to strange dynamics because the
parties need to work collaboratively after the negotiations have ceased, but that is
true in many negotiations and in virtually every salary negotiation. There is a huge

146
 B. Defendants Bore The Burden Of Proving That The Grant Was
Entirely Fair.

Because Musk exercised transaction-specific control over the Grant, entire

fairness is the standard of review, and Defendants presumptively bear the burden of

proof. 734 In Kahn v. Lynch Communication Systems, Inc., 735 the Delaware Supreme

Court “held that when the entire fairness standard applies, the defendants may shift

the burden of persuasion by one of two means: first, they may show that the

transaction was approved by a well-functioning committee of independent directors;

or second, they may show that the transaction was approved by an informed vote of

a majority of the minority shareholders.” 736 There was no well-functioning committee

of independent directors here for the reasons discussed above. Thus, Defendants’

only hope for burden shifting is to show that the stockholder vote was fully informed.

For this purpose, Defendants bear the burden of proving that the vote was fully

informed. 737

gap between being respectful and civil versus cooperating with the CEO to give him
exactly what he wants. Even assuming that some level of cooperation and
collaboration is called for, what took place here went beyond it. And this was also not
the place for it. When considering the largest compensation plan in the history of the
public markets, the directors needed to do more than accommodate the CEO.
734 Ams. Mining Corp., 51 A.3d at 1239 (“When a transaction involving self-dealing

by a controlling shareholder is challenged, the applicable standard of judicial review
is entire fairness, with the defendants having the burden of persuasion.”).
735 638 A.2d 1110 (Del. 1994).
736 Ams. Mining, 51 A.3d at 1240 (citing Lynch, 638 A.2d at 1117).

737 Solomon v. Armstrong, 747 A.2d 1098, 1128 (Del. Ch. Mar. 25, 1999) (“[W]hen it

comes to claiming the sufficiency of disclosure and the concomitant legal effect of
shareholder ratification after full disclosure (e.g., . . . shift of the burden of proof of
entire fairness from the defendant to the plaintiff) it is the defendant who bears the
burden.”), aff’d, 746 A.2d 277 (Del. 2000) (TABLE).

147
 To show that the stockholder vote was fully informed, Defendants must

establish that “stockholders were apprised of ‘all material information’ related to that

transaction.” 738 An omitted fact is material only where “there is a substantial

likelihood that a reasonable shareholder would consider it important in deciding how

to vote.” 739 In other words, to be material, an omitted fact must have “significantly

altered the ‘total mix’ of information made available.” 740 Further, “once defendants

travel[] down the road of partial disclosure of the history leading up to the

[transaction] and use[d] the vague language described, they ha[ve] an obligation to

provide the stockholders with an accurate, full, and fair characterization of those

historic events.” 741 In assessing materiality, courts must balance “the benefits of

additional disclosures against the risk that insignificant information may dilute

potentially valuable information.” 742

Plaintiff advanced many arguments for why the stockholder vote was not fully

informed. 743 Two are clear winners. The record establishes that the Proxy failed to

738 In re Volcano Corp. S’holder Litig., 143 A.3d 727, 748 (Del. Ch. June 30, 2016)

(quoting Solomon, 747 A.2d at 1127–28).
739 Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus.,

Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).
740 Arnold v. Soc’y for Sav. Bancorp, Inc., 650 A.2d 1270, 1277 (Del. 1994) (quoting

TSC Indus., Inc., 426 U.S. at 449).
741 Id. at 1280 (citations omitted).

742 Volcano, 143 A.3d at 749 (citations omitted); see also Solomon, 747 A.2d at 1128

(“The theory goes that there is a risk of information overload such that shareholders’
interests are best served by an economy of words rather than an overflow of adjectives
and adverbs in solicitation statements.”).
743 See Pl.’s Post-Trial Opening Br. at 68–81.

148
disclose the Compensation Committee members’ potential conflicts and omitted

material information concerning the process. Defendants sought to prove otherwise,

and they generally contend that the stockholder vote was fully informed because the

most important facts about the Grant—the economic terms—were disclosed. 744 But

Defendants failed to carry their burden.

1. The Conflict Disclosures

A director’s conflict with a transactional counterparty is material information

that should be disclosed. 745 In fact, a director’s potential conflict with a transactional

counterparty is material information that should be disclosed. 746

744 Defs.’ Post-Trial Opening Br. at 95–105.

745 See, e.g., In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 22 (Del. Ch. 2014)

(“This court has held that special committee members’ ‘prior . . . relationships’ with a
controller ‘should have been disclosed’ because of the committee’s ‘role as negotiators
on behalf of the minority stockholders.’” (quoting cases)); In re Emerging Commc’ns,
Inc. S’holders Litig., 2004 WL 1305745, at *37 (Del. Ch. May 3, 2004) (“[T]he
disclosure documents misled minority stockholders . . . [because] there was no
disclosure of [two committee members’] long-standing financial relationships with
[the transaction counterparty] . . . . The disclosure documents misleadingly
suggested that the Special Committee, and perhaps a majority of the entire board,
were independent.”); Millenco L.P. v. meVC Draper Fisher Jurvetson Fund I, Inc., 824
A.2d 11, 15–19 (Del. Ch. 2002) (finding the disclosures misleading when they failed
to disclose supposedly independent directors’ relationships with the CEO).
746 Millenco, 824 A.2d at 15 (“[W]here, as here, the omitted information goes to the

independence or disinterest of directors who are identified as the company’s
‘independent’ or ‘not interested’ directors, the ‘relevant inquiry is not whether an
actual conflict of interest exists, but rather whether full disclosure of potential
conflicts of interest has been made’” (quoting Wilson v. Great Am. Indus., Inc., 855
F.2d 987, 994 (2d Cir. 1988))); see also Eisenberg v. Chi. Milwaukee Corp., 537 A.2d
1051, 1061 (Del. Ch. 1987) (“The only point made here is that . . . the potential conflict
of half of [the company’s] Board of Directors was a fact that should have been
disclosed. . . . [S]hareholders were entitled to know that certain of their fiduciaries
had a self-interest that was arguably in conflict with their own, and the omission of
the fact was material.” (citation omitted)).

149
 The Proxy failed to disclose any of the Compensation Committee members’

actual or potential conflicts with respect to Musk. 747 In fact, the Proxy repeatedly

described the members of the Compensation Committee as independent, stating:

“The[] [Grant] discussions first took place among the members of the Compensation

Committee . . . all of whom are independent directors;” 748 and “[t]he independent

members of the Board, led by the members of the Compensation Committee, spent

more than six months designing [the Grant].” 749 The Proxy’s introductory letter is

“[f]rom the Independent Members of Tesla’s Board of Directors,” and the first four

signatories are Compensation Committee members Gracias, Ehrenpreis, Denholm,

and Buss. 750 Notably, Gracias signed as “Lead Independent Director.” 751

The description of the Compensation Committee members as “independent”

was decidedly untrue as to Gracias and proved untrue as to the remaining committee

members. At a minimum, Musk’s relationships with Ehrenpreis and Gracias gave

rise to potential conflicts that should have been disclosed. 752 Ultimately, all of the

directors acted under a controlled mindset, calling into question the disclosure as to

each of them.

747 See Pl.’s Post-Trial Opening Br. at 69–73.

748 JX-878 at 10 (emphasis added) (2/8/18 Schedule 14A Proxy Statement).

749 Id. at 21 (emphasis added).

750 Id. at 3–4 (emphasis added).

751 Id. at 4.

752 See supra §§ I.C.1.a.i, iv.

150
 Defendants sought to prove that they disclosed the information at issue, both

in the Proxy and elsewhere. 753 The Proxy disclosed the Tesla director compensation

policy, which is one potential source of conflict. 754 Defendants also showed that they

disclosed some potential sources of conflict in other public filings, such as Buss’s

tenure at SolarCity and Ehrenpreis’s and Gracias’s investments in SpaceX. 755 But

those disclosures make no mention of important factors affecting independence,

including Gracias’s and Ehrenpreis’s personal and other business relationships with

Musk. 756 And even assuming such disclosures were comprehensive, “our law does not

impose a duty on stockholders to rummage through a company’s prior public filings

to obtain information that might be material to a request for stockholder action.” 757

Defendants also sought to prove that disclosure of the potential conflicts was

unnecessary because it would wrongly “oblige them to characterize their conduct in

such a way as to admit wrongdoing.” 758 That argument is strongest on the controlled-

mindset point. But the Proxy could have discussed the relevant relationships while

stating that the Board did not view them as serious impediments to independence,

thereby allowing stockholders to make their own assessment. This is precisely what

753 Defs.’ Post-Trial Opening Br. at 100–01; Defs.’ Post-Trial Answering Br. at 70–72.

754 JX-878 at 46–47.

755 JX-379 at 24–26.

756 See JX-878 (2/8/18 Schedule 14A Proxy Statement); JX-379.

757 Zalmanoff v. Hardy, 2018 WL 5994762, at *5 (Del. Ch. Nov. 13, 2018) (citation

omitted), aff’d, 211 A.3d 137 (Del. 2019) (TABLE).
758 Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 143 (Del. 1997); Defs.’ Post-

Trial Answering Br. at 71.

151
Tesla did in the other disclosure document that Defendants pointed to when seeking

to prove that the total mix of information included information about Musk’s financial

connections with Gracias and Ehrenpreis. 759 “What defendants were not free to do

was to take the position that the stockholders had no right to know this information

because they, the defendants, had determined it was not important.” 760

Overall, Defendants failed to prove that the information about conflicts was

adequately disclosed. The Proxy was materially deficient on this point.

2. The Process Disclosures

When asked to approve a transaction, stockholders are entitled to a full and

accurate description of the material steps in the board or committee process that

resulted in the transaction. 761 The components and effectiveness of a board or

committee’s process, including the parties’ bargaining positions, are of “obvious

importance” to stockholders. 762

759 See JX-379 at 24–26.

760 Millenco, 824 A.2d at 18–19.

761 Bancorp, 650 A.2d at 1280 (“[O]nce defendants traveled down the road of partial

disclosure of the history leading up to the [transaction] and used the vague language
described, they had an obligation to provide the stockholders with an accurate, full,
and fair characterization of those historic events.” (citations omitted)).
762 Clements v. Rogers, 790 A.2d 1222, 1242 (Del. Ch. 2001); accord Morrison v. Berry,

191 A.3d 268, 283–84 (Del. 2018) (holding that information on process is material if
it helps a reasonable stockholder reach a “more accurate assessment of the probative
value of the [transaction’s] process”); In re Trans World Airlines, Inc. S’holders Litig.,
1988 WL 111271, at *12 (Del. Ch. Oct. 21, 1988) (“No disclosure in a case such as this
is presumably of greater importance to a shareholder than a disclosure that
independent directors have actively negotiated on his behalf and have concluded, as
here, that acceptance of the proposal is in his best interests.”), abrogated on other
grounds by Lynch, 638 A.2d 1110; Weinberger, 457 A.2d at 703 (“Material

152
 Consequently, “a fiduciary’s duty is best discharged through a broad rather

than a restrictive approach to disclosure.” 763 A board or committee may not create a

false narrative as to the process for how a transaction was completed; partial

disclosures that sterilize the actual events are insufficient. 764 Although a disclosure

document need not give a “play-by-play[,]” 765 “when fiduciaries choose to provide the

history of a transaction, they have an obligation to provide shareholders with ‘an

accurate, full, and fair characterization of those historic events.’” 766 “Even if []

additional information independently would fall short of the traditional materiality

standard, it must be disclosed if necessary to prevent other disclosed information

information, necessary to acquaint those shareholders with the bargaining positions
of [the parties], was withheld under circumstances amounting to a breach of fiduciary
duty.”); see, e.g., McMullin v. Beran, 765 A.2d 910, 925–26 (Del. 2000) (reversing
dismissal where the defendants failed to disclose information regarding the handling
of potential offers).
763 Zirn v. VLI Corp., 621 A.2d 773, 779–80 (Del. 1993).

764 In re Mindbody, Inc. S’holder Litig., 2023 WL 2518149, at *41 (Del. Ch. Mar. 15,

2023); see also FrontFour, 2019 WL 1313408, at *29 (holding that the proxy
statement’s failure to disclose that the special committee did not learn of “enormous
pressure” facing controllers until after the merger agreement was executed was
material).
765 David P. Simonetti Rollover IRA v. Margolis, 2008 WL 5048692, at *12 (Del. Ch.

June 27, 2008) (internal quotation marks and citation omitted).
766 Id. (quoting Globis P’rs, L.P. v. Plumtree Software, Inc., 2007 WL 4292024, at *14

(Del. Ch. Nov. 30, 2007)); In re Tele-Commc’ns, Inc. S’holders Litig., 2005 WL
3642727, at *5–6 (Del. Ch. Dec. 21, 2005) (holding that language in proxy that the
board gave “careful consideration” to premium to be paid to shareholders would be
material if false); Clements, 790 A.2d at 1242–43 (“When a Proxy Statement details
the functioning of [the committee’s] process, it must do so in a fair and balanced
manner that does not create a materially misleading impression of how the
Committee actually operated in fact.” (citation omitted)).

153
from being misleading.” 767 Even an assertion that a committee “carefully considered”

a transaction, when inaccurate, could be falsely “reassuring” to stockholders and

constitute a disclosure violation. 768

Generally, when a plaintiff proves process defects as significant as those in this

case, the defendants will find it difficult to prove that the stockholder vote was fully

informed. 769 That is true here. The Proxy does not disclose the level of control that

Musk exercised over the process—e.g., his control over the timing, the fact that he

made the initial offer, the fact that his initial offer set the terms until he changed

them six months later, the lack of negotiations, and the failure to benchmark, among

other things.

The parties focus on one specific omission. The Proxy does not disclose the

April 9 conversation between Musk and Ehrenpreis during which Musk established

the key terms of the 2018 Grant. A discussion of this conversation appeared in at

least four earlier drafts of the Proxy. 770 The final Proxy instead opens its discussion

of the development of the 2018 Grant with the following passage:

With the 2012 Performance Award nearing completion, the
Board engaged in more than six months of active and
ongoing discussions regarding a new compensation
program for Mr. Musk, ultimately concluding in its
decision to grant the CEO Performance Award. These

767 Chen, 87 A.3d at 689 (citing Johnson v. Shapiro, 2002 WL 31438477, at *4 (Del.

Ch. Oct. 18, 2002)).
768 Gantler v. Stephens, 965 A.2d 695, 711 (Del. 2009) (internal quotation marks
omitted).
769 Cf. In re Mindbody, Inc. S’holder Litig., 2020 WL 5870084, at *27 (Del. Ch. Oct. 2,

2020) (making a similar point as to a well-pled Revlon claim).
770 See JX-1597 at 9; JX-1598 at 3; JX-1599 at 14; JX-1700 at 12.

154
 discussions first took place among the members of the
Compensation Committee of the Board (the “Compensation
Committee”), all of whom are independent directors, and
then with the Board’s other independent directors,
including its two newest independent directors, Linda
Johnson Rice and James Murdoch. 771

Plaintiff contends that, in addition to describing the Compensation Committee

members and Murdoch as “independent,” the statement is inaccurate because the

“discussion[] first took place” between Ehrenpreis and Musk, not among the members

of the Compensation Committee. 772 Defendants claim that Plaintiff is misreading

the sentence, which they say means only that discussions among the Compensation

Committee were “first” as compared to subsequent discussions with the full Board,

not the “first” discussions in the process as a whole. 773

Even accepting Defendants’ borderline reading, the April 9 conversation

between Ehrenpreis and Musk was material and should have been disclosed. 774

Musk’s April 9 proposal to Ehrenpreis set the terms of discussion for the first six or

771 JX-878 at 10 (2/8/18 Schedule 14A Proxy Statement).

772 Pl.’s Post-Trial Opening Br. at 73, 78–79 (quoting JX-878 at 10).

773 Defs.’ Post-Trial Opening Br. at 102–03 (quoting JX-878 at 10).

774 Weinberger, 457 A.2d at 703 (“Material information, necessary to acquaint those

shareholders with the bargaining positions of [the parties], was withheld under
circumstances amounting to a breach of fiduciary duty.”); see Plumtree, 2007 WL
4292024, at *14) (“Once defendants travel down the road of partial disclosure of the
history leading up to a merger, they have an obligation to provide the stockholders
with an accurate, full, and fair characterization of those historic events.” (citing
Bancorp, 650 A.2d at 1280)).

155
so months of the Grant’s development, and many of its features persisted in the final

structure. 775 The Proxy was materially deficient on this point.

3. The Key-Terms Argument

During post-trial argument, Defendants argued that the stockholder vote was

fully informed because the most important details of the Grant—the economic

terms—were disclosed. Implicitly, Defendants argue that stockholders only need to

know the economics of a transaction to cast an informed vote.

Defendants’ position finds no support in Delaware law. No case has held that

a corporation needs to disclose only the economic terms of a transaction when

securing a stockholder vote. In fact, then-Vice Chancellor Strine rejected as

“frivolous” the argument that “the only material facts necessary to be disclosed”

regarding a stock incentive plan are the “exact” economic terms of the plan. 776 This

775 See JX-445 at 3–4; JX-464 at 5–7; JX-479; JX-490 at 5–7; JX-640 at 3; JX-631 at

2; see also JX-664 (Musk asking to “move forward” with the 2018 Grant “in a reduced
manner from before”); Trial Tr. at 676:18–677:1 (Musk) (“Q. And the only number
we’ve seen from you so far is 15 percent of total outstanding shares, so I assume that
means something less than 15 percent of total outstanding shares. Right? A. Yes.”);
JX-678 at 1–2 (email from Maron comparing Musk’s “reduced” request with the
original request). Defendants do not appear to deny the materiality of this
information. Instead, they take the factually inaccurate contention that “Ehrenpreis
originated the initial proposal for the 2018 Plan.” Defs.’ Post-Trial Opening Br. at
102 (citation omitted). Plaintiff argues that the Proxy also suffered from disclosure
issues relating to the ability to meet the milestones and Musk’s commitments outside
Tesla. Although likely material, the court defers making a factual finding on this
purported disclosure violation having found Plaintiff already proved the transaction
was not entirely fair.
776 Sample v. Morgan, 914 A.2d 647, 652, 663–67 (Del. Ch. Jan. 23, 2007) (rejecting

the “frivolous” argument because stockholders would also want to know where the
plan originated, the self-interested purpose of the plan by those who conjured it up,
and information regarding the comparative size of the plan to other corporate equity
plans).

156
holding recognizes that materiality extends beyond economics to information

regarding process, conflicts, incentives, and more. 777 Defendants’ authorities do not

support the new rule that they advance. 778

Moreover, “once defendants travel[] down the road of partial disclosure of the

history leading up to the [transaction] . . . , they ha[ve] an obligation to provide the

stockholders with an accurate, full, and fair characterization of those historic

events.” 779 Here, Defendants chose to disclose aspects of the process. Having done

777 See, e.g., Mindbody, 2023 WL 2518149, at *43–44 (finding a disclosure violation

where a party was tipped off as to the timing of a sales process); Atheros Commc’ns,
Inc., 2011 WL 864928, at *11 (Del. Ch. Mar. 4, 2011) (holding that the terms of the
incoming CEO’s employment after a merger were material where the proxy did not
fully describe the negotiating process); van der Fluit v. Yates, 2017 WL 5953514, at
*8–13 (Del. Ch. Nov. 30, 2017) (stating that “vague language regarding the identities
of the negotiators” who received post-transaction employment constituted a material
disclosure that prevented dismissal under Corwin); Lear Corp. S’holder Litig., 926
A.2d 94, 114 (Del. Ch. 2007) (“[A] reasonable stockholder would want to know an
important economic motivation of the negotiator singularly employed by the board to
obtain the best price for the stockholders, when that motivation could rationally lead
that negotiator to favor a deal at a less than optimal price[.]”); see also Maric Cap.
Master Fund, Ltd. v. Plato Learning, Inc., 11 A.3d 1175, 1179 (Del. Ch. 2010)
(imposing an injunction because the proxy failed to disclose a future CEO’s stock
options and future management makeup and other accompanying incentives).
778 Defendants cite to Cambridge Retirement System v. Bosnjak, where the court held

that the “absence of benchmarking information” was not a material omission
“because the proxy statements disclosed all material terms of the precise equity
awards that the stockholders were being asked to approve.” 2014 WL 2930869, at *9
(Del. Ch. June 26, 2014). But no one claims here that the absence of disclosed
benchmarking information rendered the stockholder vote uninformed. Defendants
further cite In re 3COM Corp. for the proposition that Delaware courts do not require
the disclosure of a projected options’ value, and thus Tesla went above and beyond by
disclosing the approximately $55.8 billion maximum theoretical value of the Grant.
1999 WL 1009210, at *6–8 (Del. Ch. Oct. 25, 1999); JX-878 at 24–25 (2/8/18 Schedule
14A Proxy Statement). But the fact that Tesla disclosed some information does not
excuse the Company’s other disclosure deficiencies.
779 Bancorp, 650 A.2d at 1280 (citations omitted).

157
so, they had an obligation to provide accurate, full, and fair information about that

process, which they failed to do. At a minimum, a corporation cannot disclose false

information, such as describing key negotiators as independent. That is what

happened here.

C. Defendants Failed To Prove That The Grant Was Entirely Fair.

Because Defendants failed to show that the stockholder vote was fully

informed, they bore the burden of proving entire fairness. “The requirement of

fairness is unflinching in its demand that where one stands on both sides of a

transaction, he has the burden of establishing its entire fairness, sufficient to pass

the test of careful scrutiny by the courts.” 780

The Delaware Supreme Court provided guidance on the entire fairness review

in SolarCity III. 781 Quoting Weinberger v. UOP, Inc., the high court described the

entire fairness review as follows:

The concept of fairness has two basic aspects: fair dealing
and fair price. The former embraces questions of when the
transaction was timed, how it was initiated, structured,
negotiated, disclosed to the directors, and how the
approvals of the directors and the stockholders were
obtained. The latter aspect of fairness relates to the
economic and financial considerations of the proposed
merger, including all relevant factors: assets, market
value, earnings, future prospects, and any other elements
that affect the intrinsic or inherent value of a company’s
stock. However, the test for fairness is not a bifurcated one
as between fair dealing and price. All aspects of the issue

780 SolarCity III, 298 A.3d at 700 (emphasis omitted) (quoting Weinberger, 457 A.2d

at 710).
781 Id. at 698–734.

158
 must be examined as a whole since the question is one of
entire fairness. 782

Entire fairness review calls upon the court to “carefully analyze the factual

circumstances, apply a disciplined balancing test to its findings, and articulate the

bases upon which it decides the ultimate question of entire fairness.” 783 “Given the

unitary nature of the test, findings in one area may seep into the findings of the other.

As a result, ‘a fair process usually results in a fair price.’ The opposite is also true:

‘an unfair process can infect the price.’” 784

Here, Defendants failed to prove that the Grant was the product of fair dealing

or at a fair price.

a. Fair Dealing

“The element of ‘fair dealing’ focuses upon the conduct of the corporate

fiduciaries in effectuating the transaction.” 785 When discussing fair process in

SolarCity III, the Delaware Supreme Court encouraged this court to focus on what it

refers to as the “Weinberger factors.” 786 Those factors are “how the deal was initiated

782 Id. at 700 (quoting Weinberger, 457 A.2d at 711).

783 Id. (quoting Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1179 (Del. 1995)

[hereinafter “Cinerama II”]).
784 Id. at 702 (first quoting Ams. Mining, 51 A.3d at 1244, then quoting Trados, 73

A.3d at 78).
785 Id. at 701 (quoting Tremont, 694 A.2d at 430).

786 Id. at 702.

159
and timed, how it was structured and negotiated, and how it was approved[.]” 787

Those factors “form the core of a court’s fair dealing analysis.” 788

This decision already addressed most of the facts pertinent to the fair dealing

inquiry when discussing how Musk controlled the process and the disclosure

deficiencies. This section largely restates those findings while mapping them onto

the Weinberger factors. They fare no better in their repackaged form. Defendants

have failed to demonstrate that the process leading to the Grant was fair.

i. Initiation And Timing

The first Weinberger factor “examines how the decision under challenge was

initiated.” 789 “The scope of this factor is not limited to the controller’s formal act of

making the proposal; it encompasses actions taken by the controller in the period

leading up to the formal proposal.” 790 The goal of the analysis is to determine whether

the controller timed the proposal opportunistically to take advantage of the minority

stockholders. 791 In SolarCity II, for example, the court asked whether Musk timed

the transaction to “exploit any inherent coercion[.]” 792

787 Id. (citing Weinberger, 457 A.2d at 711).

788 Id.

789 Frederick Hsu, 2020 WL 2111476, at *36.

790 Dole, 2015 WL 5052214, at *26.

791 In re BGC P’rs, Inc. Deriv. Litig., 2022 WL 3581641, at *18 (Del. Ch. Aug. 19, 2022)

(“The . . . initiation of a transaction can evidence a lack of fair dealing where it favors
the controller to the minority’s detriment.”), aff’d, 303 A.3d 337 (Del. 2023) (TABLE).
792 SolarCity III, 298 A.3d at 703–04; see also Dole, 2015 WL 5052214, at *27–28

(finding unfair dealing where the controller planned on taking target private for
eighteen months prior to the formal process, during which time the controller
engaged in a calculated effort to depress the market price of the target’s stock); Sealy

160
 As to this factor, Defendants have a handful of facts in their favor. The timing

of the first discussion was dictated by Ehrenpreis, not Musk. Ehrenpreis credibly

testified that he initiated this discussion because Tesla had reached nearly all of the

milestones of Musk’s prior compensation plan. There is no evidence that Musk was

secretly behind the start of negotiations, or that a starting negotiation in April 2017

gave Musk any significant advantage at the expense of the minority stockholders.

Nor is there any evidence that Musk set the table for the negotiations by acting

in a manipulative or duplicitous manner. To show manipulative conduct, Plaintiff

points to Musk’s May 2018 public statement that he would not remain CEO forever.

Plaintiff argues that this statement was intended to pressure the Board. That is not

a far-fetched theory, but it is not supported by the record. The more likely

explanation is that Musk was considering stepping down from CEO to become Chief

Products Officer. Another likely explanation is that Musk lacks a filter, so his public

statement easily could have been a momentary thought that immediately found

expression. In all events, he clarified his intentions at the time and at trial: Musk is

committed, Tesla forever.

Mattress Co. of New Jersey, Inc. v. Sealy, Inc., 532 A.2d 1324, 1336 (Del. Ch. 1987)
(finding unfair dealing in light of “a calculated effort to depress the [market] price” of
a stock “until the minority stockholders [are] eliminated by merger or some other
form of acquisition”); Jedwab v. MGM Grand Hotels, Inc., 509 A.2d 584, 599 (Del. Ch.
1986) (observing that “[t]he prototyp[ical] instance in which the timing of a merger
would itself likely constitute a breach of a controlling shareholder’s duty is when it
could be shown both (1) that the minority was financially injured by the timing (i.e.,
from their point of view it was an especially poor time to be required to liquidate their
investment) and (2) that the controlling shareholder gained from the timing of the
transaction what the minority lost”); Weinberger, 457 A.2d at 711 (citing the “serious
time constraints” as a negative factor in the discussion of process).

161
 Although Musk did not manipulate the initial timing of the process, he

repeatedly and unilaterally manipulated the timeline of the process. To summarize

the facts discussed above, before the Board or Compensation Committee had a

substantive discussion concerning the Grant, Musk’s team proposed a highly

accelerated schedule that contemplated approval of the Grant within less than two

months. The committee’s independent advisors asked for more time and were told

no. It was Musk who unilaterally extended the July deadline to August or September.

Musk then unilaterally put the process on hold again at the end of July, causing work

to slow and then stop entirely. Musk restarted discussions on the morning of

November 9. Musk asked to pause the process again on November 14 and was

ultimately successful in delaying work until December. Musk instigated another

period of urgency on December 11, placing the Grant “on a fast track,” 793 and

resetting the target date for Board approval to January. The Board eventually

approved the 2018 Grant on January 21.

As Weinberger teaches, time constraints standing alone are “not necessarily

indicative of any lack of fairness by a majority shareholder. It [is] what occurred, or

more properly did not occur,” that matters. 794 Put differently, one must look to how

the time constraints affected the process.

Here, Musk’s “red light, green light” approach negatively affected the process

in two ways. First, although the process spanned nine months, most of the work

793 JX-718.

794 457 A.2d at 711.

162
occurred during small bursts and under Musk-imposed time pressure. Second, Musk

made determinations at the last minute, compressing the timeline, adjusting the

timeline, or proposing new terms prior to six out of the ten Board or Compensation

Committee meetings during which the Grant was discussed. Musk’s habit of shaking

up the timeline or changing his proposal just before a meeting made it tough for the

directors and their advisors to meaningfully evaluate the Grant and respond. The

time constraints and last-minute adjustments impaired the process.

ii. Negotiations

The next Weinberger factor examines how the transaction was negotiated and

structured. This factor proves pivotal, because arm’s-length negotiations can make

163
up for other flaws. 795 But the opposite is also true. The lack of arm’s-length

negotiations can overshadow positive aspects of a process. 796

Perhaps for this reason, Defendants rely heavily on the negotiations to

demonstrate fair process. They emphasize the number of Board, Compensation

Committee, and Working Group meetings. They tally months spent (both the total

795 See, e.g., SolarCity III, 298 A.3d at 710 (agreeing with the trial court that although

the process had flaws, the process included several “redeeming features that
emulated arms-length bargaining” (citing SolarCity II, 2022 WL 1237185, at *36));
BGC P’rs, 2022 WL 3581641, at *42 (finding that although “[t]here were certainly
flaws,” “[t]he record demonstrates that the Special Committee undertook good faith,
arm’s length negotiations . . . that resulted in a deal with a favorable structure and a
fair price”); S. Muoio & Co. LLC v. Hallmark Ent. Invs. Co., 2011 WL 863007, at *9–
10 & n.73 (Del. Ch. Mar. 9, 2011) (finding process was entirely fair where, among
other things, “the Special Committee was independent, fully informed, and . . .
negotiated . . . at arm’s length”), aff’d, 35 A.3d 419 (Del. 2011) (TABLE); Cinerama II,
663 A.2d at 1144 (concluding that despite the process being “flawed,” the transaction
was fair where “the board was insufficiently informed to make a judgment worthy of
presumptive deference, nevertheless considering the whole course of events,
including the process that was followed, the price that was achieved, and the honest
motivation of the board to achieve the most financially beneficial transaction
available[]”), aff’d, 663 A.2d 1156 (Del. 1995); Van de Walle v. Unimation, Inc., 1991
WL 29303, at *17 (Del. Ch. Mar. 6, 1991) (“The most persuasive evidence of the
fairness of the $21 per share merger price is that it was the result of arm’s-length
negotiations between two independent parties, where the seller . . . was motivated to
seek the highest available price, and a diligent and extensive canvass of the market
had confirmed that no better price was available.”); Rosenblatt, 493 A.2d at 937–38
(observing that controller established separate negotiating terms to recreate arm’s
length bargaining, that negotiations were adversarial, and that the result was “more
than the theoretical concept of what an independent board might do under the
circumstances[]” and “[i]nstead . . . it [was] clear that these contending parties to the
merger in fact exerted their bargaining power against one another at arm’s length”
(citations omitted)).
796 See, e.g., FrontFour, 2019 WL 1313408, at *26 (finding that because the special

committee “was not truly independent and did not negotiate at arm’s length[]” that
the defendants did not prove the proposed transactions were the product of fair
dealing).

164
and those involving “active deliberation”) and even estimate total hours worked. 797

Defendants also tout their advisors’ qualifications and integrity. 798

Although Defendants cast the negotiations as the strongest aspect of the

process, they are actually the most dramatic failure. Defendants elevate form over

substance, proffering what Plaintiff’s counsel aptly described as “a false equivalency

between length of the process and fairness.” 799 Defendants’ tallies of time spent are

merely “superficial indicia”—total hours spent is meaningless if the time was not

used to benefit stockholders. 800

One important dimension of arm’s-length bargaining is the existence of an

independent bargaining agent. As this decision has found, the Compensation

Committee was compromised by conflicts. They could not negotiate at arm’s length

against Musk.

Not surprisingly, there is no evidence of any adversarial negotiation with Musk

concerning the size of the Grant. Rather, Musk made an initial proposal, and that

proposal was the only one seriously considered until Musk unilaterally changed it six

months later. Defendants are correct that, in the final stretch of the process, the

Grant went from a 10%/10-tranche FDS structure to a 12%/12-tranche TOS structure.

797 Defs.’ Post-Trial Opening Br. at 58–59.

798 Id.

799 Pl.’s Post-Trial Answering Br. at 39.

800 Valeant Pharms. Int’l v. Jerney, 921 A.2d 732, 746 (Del. Ch. 2007); see also
Loral, 2008 WL 4293781, at *23 (finding “troubling” that advisors “seemed intent on
making the [transaction] appear more fair rather than providing an objective opinion
to the Special Committee and helping the Special Committee use any leverage it had
to strike a better deal”).

165
Defendants are correct that, all else equal, requiring more growth in market

capitalization for the same number of shares means a better deal for stockholders.

But there is no credible evidence that the shift from ten tranches to 12 and the

associated increase in the difficulty of the market capitalization targets resulted from

any actual negotiation with Musk. To the contrary, as discussed above, the Board

backed into 12 tranches when translating Musk’s demand of 10% of fully diluted

shares into a round percentage of total outstanding shares while maintaining the $50

billion/1% per tranche approach that Musk proposed back in April.

As to the other terms, the purported concessions secured by the Compensation

Committee did not result from negotiations either. The Clawback Provision was the

bare minimum necessary to comport with existing Tesla policy and did not address

other key Board goals, such as the Board’s desire to retain Musk. The Leadership

Requirement was less restrictive than in the prior Grant and not tailored to fit the

retention goal either. The Five-Year Hold Period resulted from Ehrenpreis’s directive

to find “creative options” for reducing the grant date fair value. It does not protect

stockholders because Musk is not restricted from selling or pledging his nearly 21.9%

stake. 801 The industry-standard M&A Adjustment—which merely prohibited Musk

from gaming the Grant’s milestones through inorganic growth—were a non-issue for

801 JX-530 at 8.

166
Musk. 802 And his acknowledgement that Tesla would not “be making any big

acquisitions” rendered that provision functionally irrelevant. 803

The Compensation Committee’s independent advisors cannot help the analysis

because they played no role in any negotiations and were not tasked with challenging

the committee’s thinking or presenting alternatives to the Grant. 804 Defendants

agree that benchmarking is standard and essential. They knew benchmarking would

expose the Grant as many multiples larger than any conceivable comparison. But

the Compensation Committee did not ask its advisors to provide a benchmarking

analysis, which would have given them some perspective on how (in Musk’s words)

“really crazy” the Grant was. 805

The Compensation Committee relied more on conflicted management members

than on its outside advisors. Illustrating this point, many of the documents

Defendants cited as proof of a fair process were drafted, pushed out, or endorsed by

802 Trial Tr. at 255:6–13 (Maron).

803 JX-781 at 1–2 (Musk emailing Maron concerning the M&A provision that “I don’t

think we will be making big acquisitions” and “[o]ur only acquisitions have been
relatively small automation companies”).
804 See Trial Tr. at 1481:8–14, 1466:21–1469:4 (Brown) (testifying that “[Compensia

consultants] weren’t retained necessarily to challenge what they were doing,” but
instead “to help them think really carefully about how to do it”).
805 JX-398.

167
Musk’s divorce-attorney-turned-general-counsel Maron, 806 whose admiration for

Musk moved Maron to tears during his deposition. 807

Suffice it to say, the Compensation Committee operated under a “controlled

mindset.” 808 Rather than negotiating against Musk, the committee engaged in a

“cooperative [and] collaborative” process 809 antithetical to arm’s-length bargaining. 810

Worse, the committee seemed to actively advance Musk’s interests—doing “what feels

fair” for Musk 811—including by devising ways to understate the Grant’s value on the

806 See Defs.’ Post-Trial Opening Br. at 58–68 (citing JX-878 (Proxy prepared by

Maron); JX-1592 (6/23/17 Compensation Committee Presentation prepared by Maron
and his team); JX-628 (9/18/17 Presentation for CEO compensation discussion sent
out by Maron); JX-566 (7/31/17 Slide Decks for Special Compensation Committee
meeting circulated by Maron); JX-699 (11/16/17 Board minutes drafted by Maron
(secretary)); JX-729 (12/12/17 special Board meeting minutes drafted by Maron
(secretary)); JX-783 (1/17/18 emails from Maron to team); JX-784 (1/17/18 email from
Maron to Musk); JX-678 (11/29/17 email from Maron to Musk on the steps for his
proposal); JX-509 (7/7/17 Compensation Committee meeting minutes drafted by
Maron (secretary)).
807 Maron Dep. Tr. at 74:10–17 (becoming “emotional” about the decision to leave

Tesla); id. at 200:9–15 (“Unfortunately I lost my cool earlier and cried because I love
the company so much, and I loved my teammates and my colleagues and the people
on the executive team.”); Trial Tr. at 275:10–24 (Maron) (confirming he “choked up”
at his deposition about his “incredible experience[]” at Tesla and the “very emotional
decision” to leave).
808 See S. Peru, 52 A.3d at 798 (“[F]rom inception, the Special Committee fell victim

to a controlled mindset and allowed [the controller] to dictate the terms and structure
of the [transaction].”).
809 Trial Tr. at 243:7–244:13 (Maron).

810 See S. Peru, 52 A.3d at 798 (finding the special committee “accepted that only one

type of transaction was on the table . . . [that] took off the table other options that
would have generated a real market check and also deprived the Special Committee
of negotiating leverage to extract better terms”).
811 See Trial Tr. at 809:8–14 (Maron); see also Gracias Dep Tr. at 244:25–245:20 (“I

did not have a positional negotiation with [Musk] about, hey, we want to give you one

168
grant date and make the milestones easier to achieve. Those were “exercise[s] in

rationalization.” 812 In the end, Musk dictated the Grant’s terms, and the committee

effected those wishes. 813

iii. Structure And Approval

The last Weinberger factor examines how the transaction was structured and

approved. “Whether a transaction was structured to include procedural protections—

such as requiring the approval of an independent board negotiating committee or a

majority of the minority vote—is another important indicium of fairness.” 814 The

[tranche], and you want two and let’s go negotiate back and forth . . . . I did not have
a negotiation starting lower and going higher with him about the tranches or the size
of the award.”); id. at 255:22–256:9 (“Q. Okay. As a Tesla director and compensation
committee member, do you think you have a duty to the company and the
stockholders to try to negotiate for the smallest compensation package for Mr. Musk
that would adequately incentivize him? A. That is not how I think about it, no. Q.
Can you explain to me how you think about it? A. I think about compensation
packages generally as what is fair to the executive and what is fair to the company.
I don’t think about it as trying to get the very smallest thing possible ever. That’s
just not my modus operandi with any company I deal with. I think about fairness.”).
812 See S. Peru, 52 A.3d at 801; see also id. (“Throughout the negotiation process, the

Special Committee’s and Goldman’s focus was on finding a way to get the [controller’s
proposed] terms to make sense[.]”); Valeant, 921 A.2d at 746 (“[The process was], from
the outset, undertaken to justify a bonus on the order of $30 million to Panic, rather
than determine if bonuses—and in what amounts—might be appropriate.”).
813 See Loral, 2008 WL 4293781, at *26 (“Loral’s CEO, Targoff, was a more aggressive

negotiator than the Special Committee itself or the Committee’s financial advisor,
North Point. By that stage, Harkey, Simon, and North Point seemed willing to sign
off on terms that were more advantageous to MHR than Targoff himself wanted to
accept.”).
814 BGC P’rs, 2022 WL 3581641, at *19 (citing Gesoff v. IIC Indus., Inc., 902 A.2d

1130, 1145 (Del. Ch. 2006) (“The Supreme Court observed as early as Weinberger that
the establishment of an independent special committee can serve as powerful
evidence of fair dealing.”)); Jedwab, 509 A.2d at 599 (“As to the fact that the
transaction was not structured to accord minority shareholders a veto, nor was an

169
Board approved the Grant. Musk and Kimbal recused themselves. Five of the six

directors who voted on the Grant were beholden to Musk or had compromising

conflicts. 815 Tesla voluntarily subjected the Grant to a majority of the minority vote,

but the Board secured stockholder approval through the materially deficient Proxy. 816

independent board committee established to negotiate the apportionment of merger
consideration on behalf of the minority, these are pertinent factors in assessing
whether fairness was accorded to the minority.”); Sealy, 532 A.2d at 1336 (“A second
indicium of fair dealing, or its absence, is whether the process by which the merger
terms were arrived at involved procedural protections that would have tended to
assure a fair result.”)).
815 Gesoff, 902 A.2d at 1150–51 (finding in a post-trial opinion, that the investment

bank’s relationship with the buy-side controlling stockholder “robs [its] fairness
opinion of its value as an indicator of fairness, and is itself an indicator that the
parties did not structure the process in a way that was entirely fair”); see also In re
El Paso Corp. S’holder Litig., 41 A.3d 432, 444 (Del. Ch. 2012) (noting that the
conflicted negotiator has a duty “to squeeze the last drop of the lemon out for . . .
stockholders,” but that the conflict gave the negotiator “a motive to keep juice in the
lemon that he could use to make a financial [deal] for himself”).
816 Accord Weinberger, 457 A.2d at 703 (“Material information . . . was withheld under

circumstances amounting to a breach of fiduciary duty. We therefore conclude that
this merger does not meet the test of fairness . . . .”); Orchard, 88 A.3d at 29
(concluding that a “disclosure issue on which the plaintiffs received summary
judgment provide[d] some evidence of unfairness”); see also Delman v.
GigAcquisitions3, LLC, 288 A.3d 692, 723 (Del. Ch. 2023) (finding entire fairness
standard applied where defendants failed “to disclose the cash per share that Gig3
would invest in the combined company[]” and “the value that Gig3 and its non-
redeeming stockholders could expect to receive in exchange[]” because “[b]oth pieces
of information would be essential to a stockholder deciding whether it was preferable
to redeem her funds from the trust or to invest them in New Lightning”); In re
MultiPlan Corp. S’holders Litig., 268 A.3d 784, 816 (Del. 2022) (stating plaintiff
stated viable claim under the entire fairness standard where the defendants failed to
disclose information necessary for the plaintiff to “knowledgeably exercise their
redemption rights”); Voigt, 2020 WL 614999, at *24 (finding entire fairness standard
applied where the proxy statement failed to disclose the equity of a purchased asset
“because it directly addressed the fairness of the [c]hallenged [t]ransaction[]” (citation
omitted)).

170
Neither Board approval nor stockholder approval is a positive factor here for the fair

dealing analysis.

b. Fair Price

“In the fair price analysis, the court looks at the economic and financial

considerations of the transaction to determine if it was substantively fair.” 817 “Fair

price and fair value standards call for equivalent economic inquiries.” 818 “The fair

price aspect of the entire fairness test,” however, “is not in itself a remedial

calculation.” 819 “Instead of picking a single number, the court’s task is ‘to determine

whether the transaction price falls within a range of fairness.’” 820 The fair price

aspect of the entire fairness standard involves consideration of “all relevant factors”

and may encompass “proof of value by any techniques or methods which are generally

considered acceptable in the financial community[.]” 821

There is no absolute limit on the magnitude of a compensation grant that could

be considered fair. 822 But “[p]rocess can infect price.” 823 And “where the pricing terms

of a transaction that is the product of an unfair process cannot be justified by

817 Ravenswood Inv. Co., L.P. v. Est. of Winmill, 2018 WL 1410860, at *13 (Del. Ch.

Mar. 21, 2018) (citation omitted).
818 Id. (cleaned up).

819 Id. (cleaned up).

820 SolarCity II, 2022 WL 1237185, at *39 (quoting Dole, 2015 WL 5052214, at *33).

821 Weinberger, 457 A.2d at 713; SolarCity II, 2022 WL 1237185, at *32.

822 See Brehm v. Eisner, 746 A.2d 244, 263 (Del. 2000) (“the size and structure of

executive compensation are inherently matters of judgment” (citation omitted)).
823 Reis, 28 A.3d at 467 (citations omitted); Bomarko, Inc. v. Int’l Telecharge Inc., 794

A.2d 1161, 1183 (Del. Ch. 1999) (“[T]he unfairness of the process also infects the
fairness of the price.”), aff’d, 766 A.2d 437 (Del. 2000).

171
reference to reliable markets or by comparison to substantial and dependable

precedent transactions, the burden of persuading the court of the fairness of the

terms will be exceptionally difficult.” 824

Defendants’ primarily urge the court to evaluate price by comparing the terms

of the exchange—what Tesla “gave” against what Tesla “got.” 825 This allows

Defendants to argue that the Grant was “all upside” for the Tesla stockholders, who

they say risked nothing and gave “6% for $600 billion[.]” 826 There are many

alternative ways to analyze price fairness. 827 And there are good reasons to reject

the give/get model where no market-based evidence supports the price. 828 But

because Defendants bear the burden of proving fair price, the court starts with their

give/get argument.

Defendants’ other affirmative arguments go as follows. They argue that a

unique set of circumstances warranted an unprecedented Grant, which was

824 Valeant, 921 A.2d at 748–49; see also Loral, 2008 WL 4293781, at *22 (“When the

process used involves no market check and the resulting transaction is a highly
unusual one impossible to compare with confidence to other arms-length
transactions, the court is left with no reasoned basis to conclude that the outcome
was fair.”).
825Defs.’ Post-Trial Opening Br. at 69–70 (citing S. Peru, 52 A.3d at 801–02;
Dieckman v. Regency GP LP, 2021 WL 537325, at *34–35 (Del. Ch. Feb. 15, 2021)).
826 Id. at 70, 74.

827 See, e.g., SolarCity II, 2022 WL 1237185, at *39–48 (structuring the price analysis

to follow the parties’ competing price arguments).
828 Valeant, 921 A.2d at 750 (observing that the price terms could not be “justified by

reference to any reliable market[]” and that there was no “proof in the record of
substantial comparable transactions to which the court might look to find support for
the payment of bonuses”).

172
“necessary . . . at this time, for this CEO, and in this form.” 829 They contend that the

Grant was “only upside” for the additional reason that the Grant’s structure aligned

Musk’s interests with the stockholders. They assert that the Grant’s milestones were

ambitious and difficult to achieve. They maintain that the Grant is an exceptional

deal when compared to private equity compensation plans. They say that the

stockholder vote was an indicator of fair price. And they insist that the Grant worked

by delivering to stockholders all that was promised.

Each of Defendants’ fair price arguments fail. Defendants did not prove that

the Grant falls within a range of fairness.

i. The Give/Get

A “get” in this context asks what terms advance a company’s goals. A “give” is

only reasonable if it is calibrated to further those goals. To contextualize the “give”

and the “get” discussion, therefore, the court must first ask: What did Tesla want?

As set out in the June 16 Compensation Committee meeting minutes, the goals

in structuring Musk’s compensation plan were to “retain[]” Musk, “properly

incentiviz[e]” Musk, and “[k]eep . . . Musk as the Company’s fully-engaged CEO”

given the “multiple other successful large companies” he manages. 830 The lawyer-

curated record of the relevant Board and Compensation Committee meetings

identifies these goals, in general terms, as well as the directors’ desires to align

829 Defs.’ Post-Trial Opening Br. at 78.

830 JX-439.

173
Musk’s interests with stockholder value. 831 These are all versions of commonly cited

and accepted goals of equity-based compensation plans. Here, however, the words

831 JX-407 (6/6/17 Board meeting minutes) (“Mr. Ehrenpreis then updated the Board

on the status and near fulfillment of all performance milestones related to Mr. E.
Musk’s current compensation plan, and that plans were underway to design the next
compensation program for Mr. E. Musk. The Board acknowledged Mr. E. Musk’s
extraordinary achievement of the stretch milestones it had set for him and for having
increased the market capitalization of the Company by more than 10x over the last
five years.”); JX-439 (6/23/17 Compensation Committee meeting minutes) (“Mr.
Ehrenpreis then led a Committee discussion evaluating the importance of retaining
and properly incentivizing Mr. Musk. The Committee discussed how Mr. Musk had
been and would likely remain a key driver of the Company’s success and its prospects
for growth, and that, accordingly, it would be in Tesla’s interest, and in the interest
of its stockholders, to structure a compensation package that would keep Mr. Musk
as the Company’s fully-engaged CEO. The Committee also discussed the fact that
unlike most other Chief Executive Officers, Mr. Musk manages multiple successful
large companies. The Committee discussed the importance of keeping Mr. Musk
focused and deeply involved in the Company’s business, and the corresponding need
to formulate a compensation package that would best ensure that Mr. Musk focuses
his innovation, strategy and leadership on the Company and its mission.”); JX-509
(7/7/17 Compensation Committee meeting minutes) (“The Committee determined
that one important theme for any compensation plan was to ensure that it created
adequate structural incentives to focus on the long term growth and success of the
Company and the creation of shareholder value as opposed to simply short-term
increases in stock price, while at the same time properly balancing risks and rewards
for the Company, its shareholders and Mr. Musk. With these principles in view, the
Committee again deliberated the pros and cons of various structures, and various
Committee members continued to express their views that the 2012 Compensation
Plan had worked extremely well for the Company, its stockholders and in
incentivizing Mr. Musk to spend the bulk of his time on the Company and create
enormous value for the Company. In light of these factors, Committee members
expressed their views that there could be significant benefits from creating a
similarly structured program for Mr. Musk’s next compensation plan, including
providing strong shareholder alignment, while also recognizing the changed nature
and size of the Company since the 2012 Plan was implemented. The Committee
further recognized Mr. Musk’s unique drive for major accomplishments and the
desire and need to motivate him with significant goals and milestones. The
Committee recognized and expressed its desire to properly balance the motivation of
stretch goals for Mr. Musk against any de-motivating factors created by seemingly
impractical, unrealistic or unachievable goals. The Committee then discussed with
Compensia and Radford the valuation and accounting considerations for a potential

174
equity grant. Questions were asked and full discussion ensued.”); JX-571 (8/1/17
Compensation Committee meeting minutes) (“The Committee discussed the overall
size of the new program and how it should reflect Mr. Musk’s qualities and
motivations. They also discussed the need for stretch goals and a long term outlook
heavily focused on the creation of significant shareholder value. The Committee
discussed an overall framework of a plan that could last 10-15 years, while also noting
the pace at which Mr. Musk achieved the ambitious goals set forth in the 2012
Compensation Program (including leading the Company during a period in which the
market cap of the company grew over 10x in five years). As part of this discussion,
the Committee considered whether it was appropriate to consider new and/or
alternative metrics for milestones in light of the Company’s increased size and focus,
or whether the ultimate focus should be on the growth of the Company and the
creation of significant shareholder value. The Committee further discussed the
setting of major milestones and the importance of balancing the creation .of
aggressive incentives for Mr. Musk while not disincentivizing him with seemingly
impracticable or achievable goals. The Committee also discussed the appropriateness
of large stretch goals and a structure in which Mr. Musk would receive zero
compensation unless he achieved an incredibly significant milestone and created
significant shareholder value, and how this type of structure had served shareholders
and the Company so effectively in the 2012 Compensation Program. The Committee
acknowledged that if Mr. Musk agreed to accept the significant risk in such a
structure, the reward would have to be likewise significant, but yet fair to the
Company and optimal for the shareholders given the milestones that would be
achieved and the value created. The Committee discussed the milestones and various
metrics that could be used to measure performance. The members of the Committee
expressed a preference for simplicity and their desire to fully align the performance
metrics to, ultimately, the creation of shareholder value.”); JX-631 (9/19/17 Board
meeting minutes) (“Various topics were discussed, including the success of the
previous 2012 CEO Compensation Program and how motivating it as for Mr. Musk;
Mr. Musk’s ambitions for the Company and its potential to be one of the most valuable
companies in the world; Mr. Musk’s passion and dedication to the Company and its
mission; the directors’ views of Mr. Musk’s incentives; and Mr. Musk’s other
commitments and potential competing interests. The directors expressed their desire
to significantly align Mr. Musk’s compensation with shareholder interests; to focus
on long term creation of value; and to balance risk and reward for all stakeholders. A
full discussion ensued. During this discussion, the Board recognized, among other
things, the challenges of the CEO role and Mr. Musk’s value to the Company, its
products and businesses, and its culture of innovation. In particular, the Board
recognized Mr. Musk’s ability to execute in the face of significant challenges. The
Board further discussed Mr. Musk’s motivations and how the CEO Compensation
Program might best serve the Company and its shareholders, while properly
incentivizing Mr. Musk’s ambitions for the Company.”); JX-729 (12/12/17 special
Board meeting minutes) (stating that the “program was characterized by the . . . full

175
seem like empty phrases. One obvious reason to question these statements is that

the Board said that it wished to retain Musk as the “fully engaged CEO,” yet the

Leadership Requirement allowed Musk to step down to the role of “Chief Product

Officer.”

There is a more fundamental issue. Professor Charles Elson submitted an

amicus brief in this action persuasively arguing that “[e]quity compensation for

corporate executives was designed to solve a specific problem at a specific time in

American corporate history.” 832 To summarize that lesson in broad strokes, the first

half of the 1900s witnessed a transition from “era of the ‘robber barons’” to the era of

the Berle-Means corporation, where corporations were run by “professional managers

with little skin in the game.” 833 The theory behind equity-linked compensation plans

was that “[b]road-based equity ownership throughout the organization by

management, directors, and employees” is “the most effective motivation for

continuous vigilance throughout the organization.” 834 For that reason and due to

alignment of CEO gains with the creation of shareholder value” and that “[t]he Board
acknowledged this alignment as one of their primary focuses and discussed their
understanding that this full shareholder alignment was Mr. Musk’s desire as well”);
JX-791 (1/21/18 Board meeting minutes) (stating that “the Board concluded that the
proposed CEO Performance Award created very close alignment with shareholder
interests that had the potential to powerfully incentivize Mr. Musk, and created the
greatest likelihood to propel the Company through its next stages of growth”).
832 Elson Amicus Br. at 4.

833 Id. at 4 (citing Amy Deen Westbrook & David A. Westbrook, Unicorns, Guardians,

and the Concentration of the U.S. Equity Markets, 96 Neb. L. Rev. 688, 693–94
(2018)).
834 Id. at 7 (quoting Report Of The NACD Best Practices Council: Coping With Fraud

And Other Illegal Activity 16 (1998)).

176
changes in federal tax law, by the 1980s, “pressure built on companies to . . .

strengthen the link between pay and performance.” 835 Corporations began “using

much more equity-based compensation.” 836

Equity-based compensation continues to be a powerful way to reduce agency

costs and align the interests of management with those of the stockholders, 837 as

Delaware law recognizes. 838 But where an executive has a sizeable pre-existing

equity stake, there is a good argument that the executive’s interests are already

aligned with those of the stockholders. There are many examples of visionaries with

large pre-existing equity holdings foregoing compensation entirely: Zuckerberg,

835 Id. at 6 (quoting Brian R. Cheffins, Delaware and the Transformation of Corporate

Governance, 40 Del. J. Corp. L. 1, 14 (2015)); see also John C. Coffee, Jr., What Caused
Enron? A Capsule Social and Economic History of the 1990s, 89 Cornell L. Rev. 269,
273–75 (2004) (discussing the trend toward equity-based compensation).
836 Elson Amicus Br. at 6 (quoting Cheffins, Delaware and the Transformation of

Corporate Governance, 40 Del. J. Corp. L. at 14).
837 See generally id. at 7–8; but see Coffee, What Caused Enron? A Capsule Social and

Economic History of the 1990s, 89 Cornell L. Rev. at 278–79 (cautioning that equity-
based compensation can create perverse incentives when deployed without
restrictions such as hold periods).
838 See, e.g., Chen, 87 A.3d at 670–71 (observing that owning material amounts of

stock “aligns [fiduciaries’] interests with other stockholders by giving them a
‘motivation to seek the highest price’ and the ‘personal incentive as stockholders to
think about the trade off between selling now and the risks of not doing so’” (quoting
In re Dollar Thrifty S’holder Litig., 14 A.3d 573, 600 (Del. Ch. 2010))); Orman v.
Cullman, 794 A.2d 5, 27 n.56 (Del. Ch. 2002) (“A director who is also a shareholder of
his corporation is more likely to have interests that are aligned with the other
shareholders of that corporation as it is in his best interest, as a shareholder, to
negotiate a transaction that will result in the largest return for all shareholders.”);
In re Mobile Commc’ns Corp. of Am., Inc. Consol. Litig., 1991 WL 1392, at *9 (Del.
Ch. Jan. 7, 1991) (observing that directors’ equity ownership created “powerful
economic (and psychological) incentives to get the best available deal”), aff’d, 608 A.2d
729 (Del. 1992) (TABLE).

177
Bezos, Gates, and others so familiar to the world that no first names are required. 839

In each instance, the CEO’s board recognized that the executive’s preexisting

ownership stake provided sufficient incentive to grow the companies that they had

built. 840

So why not here? Why did Tesla have to “give” anything in these

circumstances? Musk owned 21.9% of Tesla at the time of the Grant. 841 If the goals

were retention, engagement, and alignment, then Musk’s pre-existing equity stake

839 Elson Amicus Br. at 1–4; see also Dunn Dep. Tr at 138:17–139:10 (“There are

people, you know, like Jeff Bezos, for example, who doesn’t take any compensation
including no equity compensation. The only thing that shows up in his proxy is like
his security expense. . . . Warren Buffett, I think his salary is $100,000. That what
he takes in compensation, because he owns such a significant portion of the shares.”);
Dunn Opening Expert Report at 114–15 (showing how much more Musk’s
compensation for 2018 would be compared to similar high-profile executives for 2018
(Bezos, $1.6 million) (Pessina (Walgreens) $12.7 million) (Buffett, $390 thousand)
(Zuckerberg, $22 million) (Musk, $2.3 billion) (numbers are approximate)). The three-
year average compensation (from 2016–2018) paid to Musk (assuming the much
lower $2.3 billion valuation of the 2018 Grant) is “over 110x what was paid to the
median of the group” Dunn analyzed (approximately $6.8 million (others) to $761.4
million (Musk)). Id.
840 See generally Elson Amicus Br. at 3 (citing 10/4/06 Microsoft Schedule 14A Proxy

at 14 (“Messrs. Gates and Ballmer do not receive equity-based pay from the Company
because they already own a significant amount of Company stock.”); 4/29/16 Alphabet
Schedule 14A Proxy at 30 (“Larry and Sergey have voluntarily elected to only receive
nominal cash compensation. As significant stockholders, a large portion of their
personal wealth is tied directly to Alphabet’s stock price performance, which provides
direct alignment with stockholder interests.”); 4/14/22 Amazon Schedule 14A Proxy
at 92 (“Due to Mr. Bezos’s substantial stock ownership, he believes he is appropriately
incentivized and his interests are appropriately aligned with shareholders’ interests.
Accordingly, Mr. Bezos has never received any stock-based compensation from
Amazon.”); 4/12/19 Facebook Schedule 14A Proxy at 28 (“Mr. Zuckerberg did not
receive any additional equity awards . . . because our compensation & governance
committee believed that his existing equity ownership position sufficiently aligns his
interests with those of our stockholders.”)).
841 PTO ¶ 64.

178
provided a powerful incentive for Musk to stay and grow Tesla’s market

capitalization. After all, he stood to benefit by over $10 billion for every $50 billion

increase. His equity stake was also a powerful incentive to avoid allowing Tesla to

fall in what Musk might consider to be incapable hands. 842 Moreover, Musk was not

going anywhere. He stated publicly at the outset of the process and repeated

throughout this litigation that he was a lifer who intended to stay at Tesla for the

remainder of his days (or until he becomes “too crazy”), with or without the Grant. 843

The principal defect with Defendants’ give/get argument (indeed, their fair

price argument as a whole) is that it does not address the $55.8 billion question:

Given Musk’s pre-existing equity stake, was the Grant within the range of reasonable

approaches to achieve the Board’s purported goals? Or, at a minimum, could the

Board have accomplished its goals with less, and would Musk have taken it?

Defendants’ primary response is to reduce the issue to a straw man, stating

that “Plaintiff’s allegations boil down to the position that Musk should be happy to

work for free.” 844 They make a similar point elsewhere, stating that if Musk “fell

short of achieving some or all of the [Grant’s] milestones, the stockholders retained

the benefit of any increase in Tesla’s stock price, while Musk risked receiving

842 Trial Tr. at 1421:9–13 (Buss) (“Q. Shifting gears, during your board tenure, the

Tesla board had no formal documented succession plan to replace Mr. Musk; correct?
A. Formally documented, no. We had various discussions. But correct, nothing
documented.”); id. at 857:9–858:10 (Murdoch) (confirming Musk had not identified a
successor until the months after his 2021 deposition).
843 See e.g., JX-390 at 20–21.

844 Dkt. 227 (“Defs.’ Pre-Trial Br.”) at 43 (emphasis added).

179
nothing.” 845 For free? Receive nothing? Defendants’ arguments ignore the obvious:

Musk stood to gain considerably from achieving the Grant’s market capitalization

milestones (over $10 billion for each $50 billion increase in market capitalization).

Defendants also neglect the magnitude of the give in their give/get argument.

The Grant was, by Compensia’s reckoning, the “larg[est] compensation opportunity

to [a] CEO that [they] have seen.” 846 Even other “highly leveraged plan designs with

very aggressive performance requirements” did not compare to the Grant. 847 The

Grant was more than 30x greater than its nearest comparable plan, and that was

Musk’s 2012 Grant. 848 ISS noted that the Grant was 250x greater than the median

peer 2017 CEO compensation. 849 The incredible size of the biggest compensation plan

ever—an unfathomable sum—seems to have been calibrated to help Musk achieve

what he believed would make “a good future for humanity.” 850

A good future for humanity is a really good thing. Some might question

whether colonizing Mars is the logical next step. But, in all events, that “get” had no

relation to Tesla’s goals with the compensation plan. Considering this glaring defect

in Defendants’ give/get argument, it does not support a finding of fair price.

845 Defs.’ Post-Trial Opening Br. at 70 (emphasis added).

846 JX-440 at 106.

847 Id. at 14.

848 PDX-2 at 5.

849 JX-916.

850 JX-664 at 1. It is questionable as to whether the Grant would even make a dent
in that goal, given that Musk testified that his space odyssey would cost trillions.
Musk Dep. Tr. at 115:24–117 (Musk discussing his goals and stating that SpaceX’s
goals would require the help of “other companies and governments”).

180
 ii. The Unique Circumstances And CEO

Defendants next argue that the Grant was suited for “this time” and “this

CEO.” 851 To support that argument, they advance the following factual narrative.

Tesla was setting an ambitious course—to become “one of the most valuable

companies in the world” 852 and “accomplish[] Tesla’s mission of accelerating the

world’s transition to sustainable energy.” 853 Tesla’s ambitious goals forced it to the

point of an existential crisis in 2017, and Musk was critical to Tesla’s future. 854 Musk

was on the verge of walking away and was distracted by his other ventures. Musk

required an “added incentive” to stay “at the helm,” and he is uniquely motivated by

highly ambitious goals. 855 As Gracias explained, the Board looked to fashion

milestones that would give Musk the “dopamine hits” he needed. 856

There is no doubt that “this time” was precarious at Tesla, that the Board

viewed “this CEO” as critical to Tesla’s success, that Musk is a unique person who

has been singularly instrumental to Tesla, and that Musk is genuinely motivated by

highly ambitious goals. But there are reasons to question other aspects of

Defendants’ factual narrative. For example, if transformative growth is the goal,

then why set milestones at the time of the Grant that were 70% likely to be achieved?

851 Defs.’ Post-Trial Opening Br. at 78.

852 JX-878 at 3 (2/8/18 Schedule 14A Proxy Statement).

853 Id.

854 Trial Tr. at 1251:4–23 (Murphy).

855 Id. at 1251:17–22 (Murphy); id. at 730:21–731:7 (Gracias).

856 Id. at 728:23–729:13 (Gracias).

181
Even assuming that the 70% figure was a conservative accounting metric, it casts

some doubt on the “stretch” nature of the early milestones. Further, how can one

conclude that Musk was on the verge of walking away from a leadership role at Tesla

when Musk made it clear that he “would not quit Tesla,” is “heavily invested in Tesla,

both financially and emotionally, and views Tesla as part of his family[?]” 857

Defendants also argue that Musk needed additional incentives to stay on at

Tesla or he would spend more time at SpaceX, where he could fulfill his galactic

ambitions to establish interplanetary travel, colonize Mars, and potentially earn

more money in the meantime. 858 That argument begs another question: if

encouraging Musk to prioritize Tesla over his other ventures was so important, why

not place guardrails on how much time or energy Musk had to put into Tesla?

Even assuming the truth of all of Defendants’ points, they do not add up. There

is simply no evidence that the “added incentive” provided by a Grant of this

magnitude was necessary, much less fair. This unique circumstance and this unique

CEO do not support a finding of fair price.

857 JX-831 at 13–14; see also Trial Tr. at 644:11–15 (Musk) (affirming that as of early

2018, he was heavily invested in Tesla both financially and emotionally and viewed
Tesla as part of his family); id. at 76:7–15 (Ehrenpreis) (confirming Musk affirmed
his love for Tesla during the first discussion regarding a new grant); id. at 785:1–7
(Gracias) (testifying that Musk views Tesla as one of the most important things in
his life).
858 Defs.’ Post-Trial Opening Br. at 15–16; Murphy Opening Rep., at 50–51; Defs.’

Post-Trial Opening Suppl. Br. at 23 (suggesting that Musk, without the Grant, could
work at SpaceX and keep his Tesla shares as a “passive investment”).

182
 iii. The “Only Upside” Argument

Defendants “only upside” argument relies on the Grant’s structure, which they

say ensured that Musk drove meaningful and sustained growth in four ways.

First, Defendants argue that pairing market capitalization milestones with

operational milestones provided “safety in the structure.” 859

The market capitalization milestones operated as the “primary goals,” while the

operational goals functioned as “support for those [market capitalization] goals.” 860

Brown testified: “There’s a high level of performance required to earn one of these.

So then, if it was possible to drive that kind of growth on a solid operational basis and

earn more than one of them in a year, that seemed like a win for . . . shareholders.” 861

But of the two operational metrics, the revenue milestones were not dependent on

profitability. As Compensia acknowledged, this aspect of the Grant “ignores

profitability.” 862 ISS noted that “up to eight tranches (three-quarters of the award,

or nearly $2 billion in value) may vest based on market capitalization and revenue

goals, even if earnings do not clear the EBITDA performance hurdles.” 863 Thus,

Musk could still receive billions under the Grant without Tesla experiencing the

fundamental growth that the Grant was intended to incentivize. 864

859 Defs.’ Post-Trial Opening Br. at 75.

860 Trial Tr. at 1439:7–18 (Brown).

861 Id.

862 JX-530 at 5 (7/17/17 Working Group discussion document).

863 JX-987 at 6 (3/21/18 ISS proxy analysis & benchmark policy voting
recommendations).
864 Dunn Opening Expert Rep. at 56.

183
 Second, Defendants argue the Grant’s trailing average requirements for the

market capitalization milestones—and the four-consecutive-quarter requirement for

the operational milestones—are stockholder-friendly. 865 The Board apparently “put

in both the six-month trailing average and the 30-day trailing average to ensure that

when the market capitalization would potentially increase to one of these milestones,

it would stay there for a requisite period of time that it actually seemed fair to award

the milestone to Elon.” 866 Similarly, the operational milestones required sustained

performance for four consecutive quarters. 867 Although those timing requirements

do provide stockholders with protection, that protection is limited, because the Grant

lacks any protection for lost value when the Company’s performance falls below

previously met thresholds.

Third, Defendants argue that the M&A Adjustment—which applied to both

the market capitalization and operational milestones—prevented Musk from

“gam[ing]” any of the milestones. 868 Maron explained that the adjustments “ensure

that if Elon was going to benefit from this plan, that it was because he had led the

Company to organic value creation, not just buying another big company and having

that add significantly to the market capitalization of Tesla.” 869 The adjustments

would be triggered not only by stock deals, but also by cash deals, a term that

865 Defs.’ Post-Trial Opening Br. at 75 (citing Trial Tr. at 1274:23–1276:9 (Murphy)).

866 Trial Tr. at 264:16–21 (Maron).

867 JX-878 at 15 (2/8/18 Schedule 14A Proxy Statement).

868 JX-784 at 1–2 (1/17/18 emails between Maron and Musk).

869 Trial Tr. at 265:8–13 (Maron).

184
Compensia “hadn’t put in . . . other plans before.” 870 But an M&A adjustment is

standard in executive compensation, 871 and Musk acknowledged that Tesla would not

“be making any big acquisitions,” limiting the utility of this provision. 872

Fourth, Defendants argue that the Five-Year Hold Period served stockholder

interests. 873 Defendants state that “[w]hile every other stockholder could have

cashed in during the nearly 400 trading days that Tesla’s market capitalization was

over $650 billion, 874 Musk was unable to sell a single share of the compensation he

earned under the 2018 [Grant].” 875 This is true. 876 But it ignores that there was no

limit to Musk’s ability to sell any of the millions of Tesla shares he already owned.

Certainly, the structural provisions on which Defendants rely have value. But

that value is limited as to each provision. Given the other defects in the Grant, these

provisions do not individually or in the aggregate lead to a finding of fair price.

iv. The Ambitious Milestones

Defendants argue that the Grant price was fair because its milestones were

ambitious and difficult to achieve. The defense witnesses all testified in harmony

870 Id. at 1465:11–19 (Brown).

871 Id. at 1010:20–24 (Dunn).

872 JX-784 at 2.

873 Defs.’ Post-Trial Opening Br. at 76–77.

874 Id. at 77 (citing JX-1510 at 1).

875 Id.

876 Trial Tr. at 255:6–13 (Maron) (discussing holding periods and the “lock” on Musk);

id. at 63:20–64:1 (Ehrenpreis) (stating the Board “negotiated an agreement that
[Musk] would hold for five years after both the achievement and vesting and exercise
of the options”).

185
that the milestones were “audacious” and “extraordinarily ambitious.” 877 Defendants

concede that three operational milestones aligned with internal projections but note

that the Company routinely missed projections. 878

It is hard to square Defendants’ coordinated trial testimony concerning Tesla’s

internal projections with the contemporaneous evidence. 879 The Board deemed some

of the milestones 70% likely to be achieved soon after the Grant was approved. 880

This assessment was made under a conservative accounting metric, but there are

other indications that Tesla viewed its projections as reliable. They were developed

in the ordinary course, approved by Musk and the Board, regularly updated, shared

with investment banks and ratings agencies, and used by the Board to run Tesla. 881

Several Tesla executives affirmed their quality, accuracy, and reliability. 882 Plus,

Tesla hit the first three milestones, consistent with its projections, by September 30,

2020. 883

877 Defs.’ Post-Trial Opening Br. at 85.

878 Defs.’ Post-Trial Answering Br. at 67–68.

879 See, e.g., BCIM Strategic Value Master Fund, LP v. HFF Inc., 2022 WL 304840, at

*2 (Del. Ch. Feb. 2, 2022) (“The witness testimony often conflicted with the
contemporaneous record. In resolving factual disputes, this decision generally has
given greater weight to the contemporaneous documents.”).
880 JX-1028 at 15 (4/27/18 Audit Committee Agenda); JX-1023 at 6 (4/27/18
Significant Accounting Matters for 2018 Q1 Audit Committee).
881 See e.g., id. at 353:6–355:15 (Ahuja) (projections were “accurate and truthful”); id.

at 466:14–469:24 (Ahuja) (noting the projections were shared with outside rating
agencies).
882 See e.g., id. at 391:16–23 (Maron) (“Tesla would do its . . . earnest best to . . . provide

quality information” to the rating agencies).
883 PTO ¶¶ 265–71.

186
 Defendants bore the burden of proving fair price. Given the conflicting

testimony concerning the projections, Defendants failed to prove the factual predicate

for their argument that all the milestones were “ambitious” and difficult to achieve.

This argument does not support a finding of fair price.

v. The Private-Equity Analogy

Defendants argue that the Grant price is fair by comparing the Grant to

compensation structures common in the portfolio companies backed by venture

capital and private equity funds, where CEOs often receive a percentage of the equity.

That argument has one obvious problem: Tesla is not a privately held portfolio

company.

Defendants offer no theoretical justification for comparing the Grant to

venture capital or private equity compensation structures when Tesla is not a venture

capital or private equity backed entity. This was something Defendants came up with

for trial. During the negotiations, neither Defendants nor their experts benchmarked

the Grant to venture capital compensation. They never considered an analogy to a

venture capital or private equity investment. That is because Tesla was a publicly

traded corporation with a market capitalization of $53 billion, tens of thousands of

stockholders, and a CEO who already owned 21.9% of Tesla’s equity.

Examined on its own terms, Defendants’ private-equity analogy relies on

valuing the Grant as a percentage of Tesla’s fully diluted shares. Defendants peg

that percentage at 6.4%, but there is no evidence that Musk, the Board, the

Compensation Committee, or its advisors ever considered this figure during the

187
process. Defendants take the 6.4% figure from the Proxy, which based the figure on

“illustrat[ive]” dilution assumptions. 884

Focusing on the 6.4% figure alone, Defendants’ financial expert testified that

“something like 6 to 10 percent [equity] for a new CEO would be totally normal” in

VC- and private-equity-backed companies. 885 Gracias testified that an equity stake

of around 6% for a CEO would be considered “on the low end.” 886 Defendants describe

the Grant as riskier than VC compensation, because it was “100 percent risk-free” for

Tesla and its stockholders, 887 but Musk would get “nothing if we hadn’t doubled the

market cap.” 888 Referring to his portfolio companies, Gracias put it bluntly: “I don’t

have a CEO who would sign up for that.” 889 Gracias’s testimony, however, was simply

not credible. Based on Tesla’s April 25, 2022 market capitalization of just over $900

billion, 890 6% of Tesla would be worth $54 billion, just under the maximum value

884 JX-878 at 24 (2/8/18 Schedule 14A Proxy Statement). It represents one of many
possible scenarios for what Musk could receive on a fully diluted basis if the Grant
fully vests and all five of the assumptions listed in the Proxy hold. For example, for
Musk to achieve a mere 6% under the Grant, “the 527,491 shares of common stock
subject to the tenth and final tranche of the 2012 [Grant]” would need to “become
fully vested, outstanding and held by Musk.” Id. But the tenth tranche of the 2012
Grant never vested. PTO ¶¶ 209–10.
885 Trial Tr. at 1112:2–24 (Gompers).

886 Id. at 735:11–736:2 (Gracias).

887 Id. at 1395:19–1398:3 (Buss).

888 Id. at 736:24–737:11 (Gracias).

889 Id. at 736:24–737:4 (Gracias).

890 PTO ¶ 71.

188
disclosed in the Proxy. 891 Any number of CEOs would sign up for that. And many VC

startups offer CEOs the prospect of great riches or nothing at all.

Even if the comparison holds, Musk already is earning more than the 20% a

hedge fund would earn as a typical carried interest. So, while Musk is not receiving

a base salary, he is already receiving more (incentive-wise) than a fund who would

manage Tesla’s assets. And given that Musk does not need a base salary to keep his

pretend hedge fund afloat, it would not be necessary.

Regardless, there are other ways to value the Grant, such as its maximum

value and its grant date fair value. The Board and stockholders were told that, if

Musk achieved all 12 tranches of the Grant, he would receive a maximum value of

$55.8 billion. 892 As disclosed to the Board and stockholders, the grant date fair value

was $2,615,190,052. 893 By this measure, it was a massive award—an internal ISS

email described it as “about 250 times the peer median.” 894 Brown, Ehrenpreis, and

Denholm all acknowledged that the award was exceptionally large, with Ehrenpreis

agreeing it was “entirely without precedent.” 895 Plaintiff’s expert noted that the

Grant was 33x larger than Musk’s 2012 Grant’s $78M grant date fair value. 896 By

891 JX-878 at 18 (2/8/18 Schedule 14A Proxy Statement).

892 Id. at 24.

893 JX-792 at 7; JX-878 at 34.

894 JX-916.

895 Trial Tr. at 130:22–131:7 (Ehrenpreis); id. at 360:20–361:12 (Denholm); id. at

1480:9–14 (Brown).
896 Dunn Opening Expert Rep. at 103; Dkt. 291 (“Pl.’s Demonstrative 2”), at 9
(showing the magnitude of the comparison); Trial Tr. 994:7–13 (noting the
comparison between the two grants).

189
the most conservative comparison that Plaintiff’s expert could conceivably devise, the

Grant’s grant date fair value was 11.7x larger than the median peer group. 897 Indeed,

the Grant entitled Musk to billions even if Tesla significantly underperformed its

historical results. 898 Just as they did during the negotiation process, Defendants

ignored these figures.

Defendants’ portfolio-company analogy misses the mark in multiple ways. It

does not support a finding of fair price.

vi. The Stockholder Vote

Defendants argue that disinterested stockholder approval is “compelling

evidence” that the price was fair. 899 The stockholder vote is one component of the fair

price analysis, but whether the vote represents a form of market evidence that can

support a certain price depends on the sufficiency of the disclosure. Generally, a

stockholder vote is only “compelling evidence” of fairness absent a disclosure

violation. 900 The Delaware Supreme Court in Weinberger held that an uninformed

897 Trial Tr. at 992:2–7 (Dunn); Pl.’s Demonstrative 2 at 6, 7.
Dunn’s most aggressive
estimation reflected that the Grant was 544.8x greater than the median peer group.
Pl.’s Demonstrative 2 at 6, 8.
898 Gompers Dep. Tr. at 302:10–303:19.

899 Defs.’ Post-Trial Opening Suppl. Br. at 21 (citing ACP Master, Ltd. v. Sprint Corp.,

2017 WL 3421142, at *29 (Del. Ch. Aug. 8, 2017)).
900 ACP, 2017 WL 3421142, at *29; cf. Kahn v. Lynch Commc’ns Sys., Inc., 669 A.2d

79, 89 (Del. 1995) (holding that a finding of adequate disclosure in a parent-subsidiary
merger was persuasive evidence of entire fairness, because “although the merger was
not conditioned on a majority of the minority vote . . . more than 94 percent of the
shares were tendered in response to [the] offer”); Cinerama II, 663 A.2d at 1176
(considering the stockholder vote as persuasive evidence of fair price where “the
directors had complied with the disclosure duty”).

190
stockholder vote is totally “meaningless.” 901 Under Weinberger, therefore, the

stockholder vote is a meaningless indicator as to fair price. In SolarCity III, the high

court took a more nuanced approach, affording a stockholder vote some weight

despite a deficient proxy statement where the key issue was SolarCity’s value. The

high court noted that there was significant public information available concerning

that issue, “SolarCity traded in an efficient market,” and a strong independent

fiduciary positively affected the process. 902 Defendants did not establish those facts

here. 903

Because the stockholder vote was not fully informed, it does not support a

finding of fair price.

vii. The Hindsight Defense

Defendants finally argue from hindsight. They claim the Grant was fair

because it worked: “Tesla thrived because of the 2018 Plan.” 904 With this argument,

Defendants ask the court to infer a direct causal relationship between the Grant and

Tesla’s subsequent performance. But Defendants failed to prove that Musk’s less-

than-full time efforts for Tesla were solely or directly responsible for Tesla’s recent

901 Weinberger, 457 A.2d at 712.

902 SolarCity III, 298 A.3d at 728–29.

903 See also ACP, 2017 WL 3421142, at *23 (holding that, where information was not

expected nor asked for by a committee, that information was not required to be
disclosed because there was not an unfair disparity between the market and the
decision-makers).
904 Defs.’ Post-Trial Opening Br. at 52 (emphasis added).

191
growth, or that the Grant was solely or directly responsible for Musk’s efforts. This

last argument is empty rhetoric, not evidence of fair price.

D. Rescission Is A Reasonable And Appropriate Remedy.

As a remedy, Plaintiff only seeks recission. 905 Plaintiff’s lead argument is that

the court must rescind the Grant due to the disclosure defects because the Board

conditioned the Grant on stockholder approval. 906 Plaintiff also argues that the court

has discretion to order rescission as a remedy for fiduciary breaches. 907 Plaintiff

further argues that, “at minimum,” the court should rescind the options for the first

three tranches given lack of disclosure regarding the probability of achievement. 908

Plaintiff’s first argument does not work. It would create an overly rigid rule

that runs contrary to the Delaware Supreme Court’s holding in Weinberger. But

Plaintiff’s second argument prevails, so the court need not reach Plaintiff’s third

argument. The court orders rescission of the Grant as a remedy for Defendants’

fiduciary breaches.

905 Plaintiff sought alternative remedies but has abandoned those requests. Pl.’s
Post-Trial Opening Br. at 104–06.
906 The court referred to this as Plaintiff’s “kill shot” theory, which was a reference to

the racquet term meaning an unreturnable volley that ends a match, not the Eminem
song.
907 Pl.’s Post-Trial Opening Br. at 105.

908 Id. at 105–06.

192
 1. The Automatic-Invalidation Argument Fails.

In their lead argument, Plaintiff argues that because Tesla conditioned the

Grant on stockholder approval, 909 “a single material disclosure failure invalidates”

the Grant. 910 Plaintiff says that because stockholder approval was secured by a

materially misleading Proxy, the Grant is void, and rescission must follow

automatically.

There is appeal in the simplicity of Plaintiff’s approach, but it is not quite right.

The consequence of an uninformed stockholder vote depends in part on whether that

vote was required or voluntary. 911 The DGCL requires stockholder approval of

certain transactions—a merger, sale of assets, or charter amendment, for example. 912

For transactions that require stockholder approval, there are strong arguments that

a material disclosure deficiency “warrant[s] an injunction against, or rescission of,

the transaction.” 913

But even when a Delaware statute requires a vote, this court does not

necessarily void the transaction when that vote was uninformed. 914 In Weinberger,

909
JX-791 at 4 (Board resolution approving the Grant) (stating that the Grant was
effective “subject to the Requisite Stockholder Approval” and that if the Grant
“fail[ed] to receive the affirmative vote” of a majority of non-Musk shares, it would be
“forfeited and cancelled”).
910 Pl.’s Post-Trial Opening Br. at 1–11.

911 See generally In re Wayport, Inc. Litig., 76 A.3d 296, 314 (Del. Ch. 2013).

912 8 Del. C. §§ 241, 242, 271, 251(c).

913 Wayport, 76 A.3d at 314–15; Gantler, 965 A.2d at 713.

914 See SolarCity III, 298 A.3d at 729; Arnold v. Soc’y for Sav. Bancorp, Inc., 678 A.2d

533, 537 (Del. 1996) (holding that “the argument that the disclosure violation renders

193
the Delaware Supreme Court made that plain by correcting a misunderstanding that

it believed had arisen regarding the importance of its ruling in Vickers. That earlier

decision held that rescission was the preferred remedy for a transaction tainted by

disclosure violations and that rescissory damages—the monetary equivalent of

rescission—could substitute where rescission was not feasible. 915 The Weinberger

decision stressed that rescissory damages were not the exclusive remedy for a

disclosure violation. 916 By the same logic, rescission need not follow automatically

either.

That is especially true for transactions where the DGCL does not require a

stockholder vote. A corporation may seek stockholder approval for those

transactions, and the vote is “voluntary” in this sense. 917 When voluntarily seeking

stockholder approval, the failure to disclose material information “will eliminate any

effect that a favorable stockholder vote otherwise might have for the validity of the

transaction or for the applicable standard of review.” 918 For example, the failure to

disclose material information will render Corwin cleansing and burden shifting

the statutory merger void must fail”); see also 13 Am. Jur. 2d Cancellation of
Instruments § 4 (“Cancellation or rescission as an equitable remedy is not available
as a matter of right. Rather, relief by way of cancellation is a matter within the court’s
discretion and is granted or withheld according to what is reasonable and proper
under the circumstances of each case.”).
915 See Vickers, 429 A.2d at 501.

916 Weinberger, 457 A.2d at 704 (overruling Vickers “to the extent that it purports to

limit a stockholder’s monetary relief to a specific damage formula”).
917 Wayport, 76 A.3d at 314 (citing Gantler, 965 A.2d at 713).

918 Id.

194
unavailable. 919 The failure to disclose material information might also support an

independent claim and remedies for breach of the duty of disclosure, 920 but the court

has discretion when fashioning a remedy in that context as well. The failure to

disclose material information for voluntary stockholder votes, however, does not

automatically invalidate the transaction.

The stockholder vote on the Grant was not required by the DGCL. 921 The

Proxy deficiencies defeated Defendants’ effort to shift the burden under the entire

919 See, e.g., van der Fluit, 2017 WL 5953514, at *8 n.115 (“[O]ne violation is sufficient

to prevent application of Corwin.”).
920 See, e.g., Weinberger, 457 A.2d at 703; In re Mindbody, Inc., S’holder Litig., 2023

WL 7704774, at *10–11 (Del. Ch. Nov. 15, 2023) (awarding Weinberger damages); In
re Columbia Pipeline Gp., Merger Litig., 299 A.3d 393, 494–500 (Del. Ch. 2023)
(same).
921 In this case, the stockholder vote was required by NASDAQ Rules. NASDAQ R.

5635(c) (“Shareholder approval is required prior to the issuance of securities when a
stock option or purchase plan is to be established or materially amended or other
equity compensation arrangement made or materially amended”). Plaintiff argues
that the NASDAQ requirement renders the vote “legally required” and thus
mandates recission for transactions approved by a materially deficient vote. Pl.’s
Post-Trial Suppl. Answering Br. at 8. Effectively, Plaintiff urges this court to serve
as NASDAQ enforcement agent, which would run contrary to multiple strains of
Delaware law. See Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d
44, 70 (Del. Ch. 2015) (holding that stockholder plaintiff had no standing to prosecute
a violation of the NYSE Rules); In re Aquila Inc. S’holders Litig. 805 A.2d 184, 192
n.11 (Del. Ch. 2002) (noting that plaintiffs conceded they had “no standing directly to
bring an action to enforce the NYSE rules or to seek sanctions for any alleged
violation thereof”); see also Mill Bridge V, Inc. v. Benton, 2009 WL 4639641, *12 (E.D.
Pa. Dec. 3, 2009) (“courts in [the Third Circuit] have ‘unanimously refused to
recognize any private right of action for violation of a stock exchange rule” (quoting
In re Farmers Gp. Stock Options Litig., 1989 WL 73245, at *3 (E.D. Pa. July 5, 1989))).
Given the complexities of this issue in an otherwise complex case, the court does not
reach it. And the court need not do so because, ultimately, Plaintiff is getting what
he asks for—recission.

195
fairness standard to Plaintiff, but the uninformed vote does not automatically

invalidate the Grant.

Plaintiff responds that although a stockholder vote was not required by the

DGCL, the Board elevated the vote to a requirement by conditioning the Grant on a

favorable vote. That does not change the outcome, because the court has the

discretion to determine a remedy for corporate transactions where a vote is required.

The same is true for a transaction that is conditioned on a vote.

2. Rescission Is Warranted.

Although rescission does not automatically flow from the disclosure

deficiencies, it is nevertheless an available and appropriate remedy.

The remedy of rescission “restore[s] the parties substantially to the position

which they occupied before making the contract.” 922 “Rescission ‘is not given for every

serious mistake and it is neither given nor withheld automatically, but is awarded as

a matter of judgment.’” 923 The court has broad discretion to award recission where

the facts and circumstances warrant. 924 This court has awarded rescission as a

922 Craft v. Bariglio, 1984 WL 8207, at *12 (Del. Ch. Mar. 1, 1984) (citing Henry

Campbell Black, On Rescission and Cancellation § 616 (2nd ed.)); accord Geronta
Funding v. Brighthouse Life Ins. Co., 284 A.3d 47, 61 (Del. 2022) (“rescission results
in abrogation or unmaking of an agreement, and attempts to return the parties to the
status quo” (quoting Norton v. Poplos, 443 A.2d 1, 4 (Del. 1982)); id. at 61
(“‘[E]quitable rescission offers a platform to provide additional equitable relief, such
as cancellation of a valid instrument—the formal annulment or setting aside of an
instrument or obligation.’” (quoting Ravenswood, 2018 WL 1410860, at *21)).
923 Gotham P’rs, L.P. v. Hallwood Realty P’rs, L.P., 817 A.2d 160, 174 (Del. 2002)

(quoting Gaffin v. Teledyne, Inc., 1990 WL 195914, at *16 (Del. Ch. Dec. 4, 1990)).
924 Id. at 164 (stating that whether to order rescission is within the discretion of the

Court of Chancery); 13 Am. Jur. 2d Cancellation of Instruments § 4 (“Cancellation or

196
remedy for breach of fiduciary duty, 925 particularly in the context of self-dealing

transactions. 926 Indeed, as discussed above, the Delaware Supreme Court referred to

recission as “the preferrable remedy” in Vickers for breach of fiduciary duty where

one party has misled another. 927

rescission as an equitable remedy is not available as a matter of right. Rather, relief
by way of cancellation is a matter within the court’s discretion and is granted or
withheld according to what is reasonable and proper under the circumstances of each
case. A court may shape the rescission of contract remedy in order to serve substantial
justice.”); see also Weinberger, 457 A.2d at 714 (“[T]he Chancellor’s powers are
complete to fashion any form of equitable and monetary relief as may be
appropriate.”); Int’l Telecharge, Inc. v. Bomarko, Inc., 766 A.2d 437, 440 (Del. 2000)
(“In determining damages, the powers of the Court of Chancery are very broad in
fashioning equitable and monetary relief under the entire fairness standard as may
be appropriate, including rescissory damages” (internal citations omitted)).
925 See, e.g., eBay Domestic Hldgs., Inc. v. Newmark, 16 A.3d 1, 46 (Del. Ch. 2010)

(ordering rescission of a rights plan as a remedy for breach of fiduciary duty);
Coleman v. Newborn, 948 A.2d 422, 433 (Del. Ch. 2007) (ordering rescission of a deed
as remedy for breach of fiduciary duty); Valeant, 921 A.2d at 752 (ordering rescission
of a compensation plan where the defendants “failed to show that the transaction was
entirely fair” and it was “clear that he has no right to retain any of the $3 million
bonus he received”); see also Zutrau v. Jansing, 2014 WL 3772859, at *26 (Del. Ch.
July 31, 2014) (ordering partial rescission); Loral, 2008 WL 4293781, at *32 (same).
926 Zutrau, 2014 WL 3772859, at *26 (stating “recission frequently is granted where

self-dealing transactions are found not to be entirely fair”); see also Oberly v. Kirby,
592 A.2d 445, 466 (Del. 1991) (“An interested transaction is not void but is voidable,
and a court will uphold such a transaction against a beneficiary challenge only if the
trustee can show that the transaction was fair and that the beneficiaries consented
to the transaction after receiving full disclosure of its terms.”); Firefighters’ Pension
Sys. of Kans. City, Mo. Tr. v. Presidio, Inc., 251 A.3d 212, 251 (Del. Ch. 2021) (“A
finding that a transaction is not entirely fair thus could lead to transaction-based
relief, such as an injunction, rescission, or an equitable modification of the
transaction’s terms.”).
927 Vickers, 429 A.2d at 501; but see ENI Hldgs., LLC v. KBR Gp. Hldgs., LLC, 2013

WL 6186326, at *24 (Del. Ch. Nov. 27, 2013) (denying on a motion to dismiss a request
for rescission, but noting that “[r]escission is . . . a remedy available only where facts
indicate equity so requires,” and that the plaintiff’s “burden to establish an
entitlement to rescission, in light of the likely change in circumstances due to the
passage of time, is heavy”).

197
 To be entitled to equitable rescission, a plaintiff must demonstrate that

rescission is both “reasonable and appropriate” under the circumstances. 928 This

includes showing that it is possible for “all parties to the transaction [to] be restored

to the status quo ante, i.e., to the position they occupied before the challenged

transaction.” 929

Plaintiff has demonstrated that rescission is reasonable, appropriate, and

practicable. This Grant is not “too complex to unscramble[.]” 930 Rescission is

uniquely available: no third-party interests are implicated, the entire Grant sits

unexercised and undisturbed, and exercised shares would be subject to the Five-Year

Hold Period. 931

Defendants argue that rescission is a harsh consequence that would leave

Musk uncompensated. But Musk’s preexisting equity stake provided him tens of

billions of dollars for his efforts. And Defendants have not offered a viable alternative

short of leaving the Grant intact.

On this point, Valeant is instructive. 932 There, the plaintiff claimed that the

directors of Valeant Pharmaceuticals International breached their fiduciary duties

by awarding themselves and other executives and employees large cash bonuses in

928 Lenois v. Lawal, 2017 WL 5289611, at *20 (Del. Ch. Nov. 7, 2017).

929 Strassburger v. Earley, 752 A.2d 557, 578 (Del. Ch. 2000) (emphasis in original).

930 In re Sunbelt Beverage Corp. S’holder Litig., 2010 WL 26539, at *14 (Del. Ch. Jan.

5, 2010); see, e.g., Weinberger, 457 A.3d at 714 (finding transaction “too involved to
undo[]”).
931
JX-878 at 56 (2/8/18 Schedule 14A Proxy Statement).
932 Valeant, 921 A.2d 732.

198
connection with a “later-aborted corporate restructuring.” 933 All but one defendant

settled before trial, and the court found that the remaining defendant failed to prove

that the transaction was fair. 934 Although that defendant went all-in on the defense

that the entirety of his bonus was fair and presented no evidence for why a portion of

the bonus was more defensible than the remaining amount, 935 he asked that the court

limit disgorgement “to the extent that the bonus was unfair.” 936 The court rejected

that argument given the defendant’s failure of proof and ordered disgorgement of the

entire amount. 937

As in Valeant, Defendants heralded the Grant as fair but failed to meet their

burden. They also failed to identify any logically defensible delta between the unfair

Grant and a fair one. As a result, there is nothing in the record to allow the court to

fashion a remedy that would order recission only to the extent the Grant was unfair.

“Once a breach of duty is established, uncertainties in awarding damages are

generally resolved against the wrongdoer.” 938 Here, the wrongdoers are Defendants,

and so the court resolves uncertainty against them.

933 921 A.2d at 735.

934 See id. at 736.

935 Id. at 744 (noting that the defendant “embrace[d]” the burden).

936 Id. at 752.

937 Id. at 752–53.

938Dole, 2015 WL 5052214, at *44 (quoting Thorpe v. CERBCO, Inc., 1993 WL
443406, at *12 (Del. Ch. Oct. 29, 1993)).

199
III. CONCLUSION

For the foregoing reasons, judgment is entered in Plaintiff’s favor. The parties

are to confer on a form of final order implementing this decision and submit a joint

letter identifying all issues, including fees, 939 that need to be addressed to bring this

matter to a conclusion at the trial level.

939 See Pope Invs. LLC v. Marilyn Abrams Living Tr., 166 A.3d 912, 2017 WL 2774361,

at *1 (Del. June 26, 2017) (TABLE) (holding that “a judgment on the merits is not
final until an outstanding related application for an award of attorneys fees has been
decided” (citing Lipson v. Lipson, 799 A.2d 345, 348 (Del. 2001))).

200