The Delaware Supreme Court has overturned a lower court's order to rescind Elon Musk's 2018 executive compensation package at Tesla. The ruling, issued on December 19, 2025, focuses narrowly on the remedy, reinstating the package while awarding nominal damages to the plaintiff. This decision highlights the challenges of applying equitable rescission in cases involving significant past performance.
On December 19, 2025, the Delaware Supreme Court issued a per curiam opinion in In re Tesla, Inc. Derivative Litigation, addressing a challenge to Tesla's 2018 CEO performance award to Elon Musk, known as the 2018 Grant. The court affirmed parts of the lower court's decision but reversed the equitable rescission of the grant, reinstating it in full. It awarded the plaintiff nominal damages of $1 and directed that plaintiff's counsel receive fees on a quantum meruit basis with a four times lodestar multiplier.
The 2018 Grant was a 12-tranche performance-based option award approved by Tesla's board in January 2018. It required approval by a majority of disinterested shares, which occurred on March 21, 2018, with 73% of votes in favor, excluding holdings of Musk and his brother Kimbal Musk. The package tied market capitalization milestones from $100 billion to $650 billion with operational targets for revenue and adjusted EBITDA. By early 2023, all options had vested and were in-the-money.
A stockholder lawsuit filed in June 2018 in the Delaware Court of Chancery alleged that Musk, as a controlling shareholder, breached fiduciary duties by influencing the board to approve the grant. After a five-day bench trial, the Chancery Court applied the entire fairness standard, found the award not entirely fair due to disclosure issues in the proxy statement, and ordered full rescission. It also awarded $345 million in attorneys' fees to the plaintiffs. A motion to revise the decision, citing a second stockholder ratification vote in June 2024, was denied.
The Supreme Court ruled that rescission was improper because the parties could not be restored to their pre-transaction positions after six years of effort and milestone achievements. The court emphasized that equitable rescission requires mutual restoration to the status quo ante, which was not feasible here, as Musk had performed services under the grant without compensation if rescinded. Preexisting equity could not substitute for this performance.
The decision clarified that plaintiffs bear the burden of establishing entitlement to remedies like rescission and must provide evidence for tailored relief, such as partial rescission or rescissory damages. Defendants need not propose alternatives. The court avoided broader issues, including liability under entire fairness, stockholder control standards, or the effect of the 2024 ratification vote.
This ruling limits the use of rescission in Delaware corporate litigation, particularly when substantial performance has occurred, and underscores the need for plaintiffs to build a strong evidentiary record for equitable remedies. It concludes a high-profile case that fueled discussions on Delaware's corporate governance landscape.
