By: Peter Ford
Articles Editor for the Delaware Journal of Corporate Law
After the Delaware Court of Chancery’s January 30, 2024, decision overturning his Tesla compensation plan, Elon Musk posted “Never incorporate your company in the state of Delaware” on X,[1] the social media platform he was previously forced to acquire through Court of Chancery litigation.[2] In the past month, Musk has increasingly voiced dissatisfaction with the Delaware legal system and has already reincorporated SpaceX in Texas.[3] This entry attempts not to add to the mountain of analysis regarding the most recent Musk case or his alternatives to Delaware corporate law, but rather provide practitioners and non-practitioners alike with an overview of Elon Musk’s legal track record in the state of Delaware thus far. Musk’s legal history is less extensive and the rationale for his recent disavowal of Delaware courts is more narrow than initial assumptions might have lead one to believe.
Considering how many news stories about Musk’s lawsuits have run over the years, a quick refresher of which Musk cases are not in Delaware is in order. In 2018, Musk’s resignation as Chairman of the Board of Directors of Tesla came through the District Court for the Southern District of New York, where Musk made a deal with the SEC regarding his social media posting after his tweet about taking Tesla private for $420 per share.[4] Tesla’s arbitration clause troubles were in California.[5] The Tesla Motors whistleblower, Lynn Thompson, filed in the Nevada District Court[6], whereas the Tesla Energy whistleblower, Stephen Henkes, filed in a California state court.[7]
Moving into Delaware, Musk saw success in his first major case in the Delaware Court of Chancery. In 2018, stockholders brought a class action suit in the Delaware Court of Chancery against Musk and the Tesla board alleging breach of fiduciary duty claims and unjust enrichment based on the acquisition of SolarCity.[8] Over the course of many years of litigation, the directors settled all claims against them for $60 million, which was funded by insurance.[9] Elon Musk did not settle and eventually prevailed on all claims set against him in April of 2022, and won the subsequent appeal to the Delaware Supreme Court in June 2023.[10]
However, Muskwas not able to celebrate victory for long, as Twitter brought suit against Musk for specific performance on a merger agreement.[11] Musk had backed out of his plan to buy Twitter in April 2022, citing concerns over the estimates of fake accounts.[12] Shortly before trial, Musk chose to settle and acquire Twitter (eventually renamed to X) for $44 billion, rather than face what legal experts predicted would be a loss based on prior evidentiary rulings or paying a $1 billion withdrawal fee.[13] The Delaware Court of Chancery subsequently dismissed the separately adjudicated shareholder suit where shareholders attempted to force the merger and raise a breach of fiduciary duty claim.[14]
The most recent decision that prompted Musk’s disavowal of Delaware courts comes from the Court of Chancery’s decision in Tornetta v. Musk.[15] Originally filed in June of 2018, the lawsuit arose from a Tesla stockholder alleging Tesla’s 2018 Performance Award compensation plan, granting Musk stock options with a value estimated at $55.8 billion, was excessive and due to breaches of fiduciary duties.[16] The Delaware Court of Chancery threw out the Plaintiff’s claim that the award was wasteful in 2019 as insufficiently pled but continued with a direct and derivative claim of breach of fiduciary duty against Musk and directors, as well as a derivative claim for unjust enrichment against Musk.[17] After trial, Chancellor McCormick ruled against Musk and Tesla, finding the negotiation between Musk and Tesla directors for the compensation plan was not as independent as Tesla informed its shareholders.[18] The Delaware Court of Chancery ordered a recission of the entire $55.8 billion deal, noting that Musk’s “preexisting equity stake provided him with tens of billions of dollars for his efforts.”[19] This $55.8 billion loss is what prompted Musk to post on X (formerly known as Twitter) to “[n]ever incorporate your company in the state of Delaware.”[20]
For the sake of completeness, Elon Musk also defended a suit in the United States District Court for the District of Delaware suit at the end of 2023, where a pro se litigant brought a FOIA action regarding his brain implant company; however, this case quickly dismissed sua sponte by the court as not applying to Musk, a private citizen.[21]
Thus, Musk’s gripes with the Delaware legal system are most likely entirely tied to the recent compensation award decision of Tornetta v. Musk, as well as the Twitter acquisition which he hedged with a settlement. The two lawsuits brought by various shareholders have both resulted in victory for Elon, even if one was tied to his settlement with Twitter. Considering the price tag of his two big losses is roughly $100 billion, Musk’s souring opinion of Delaware corporate law is no surprise. However, given Musk’s extensive history of legal troubles, it is important to clarify to the public that Musk’s opinion on Delaware courts is primarily based on these two major losses, rather than a long-running series of unfavorable rulings or some secret vendetta by the Delaware Court of Chancery. While Musk is always free to take his business elsewhere, his decision to leave arises from a shorter legal history in Delaware than those mixing up his headline court battles may initially assume.
About the Author
Peter Ford is currently a 3L at Widener Delaware Law School and is the first in his family to enter the legal field. Peter is an Articles Editor for Volume 49 of the Delaware Journal of Corporate Law. He also is an active member of the Moot Court Honor Society. Additionally, Peter has worked as the law clerk for the Freibott Law Firm, P.A., for the past two years, working part-time during the school year. After graduation, Peter has accepted a clerkship for the Honorable Mark H. Conner for the Delaware Superior Court, Sussex County.
[1] Elon Musk (@elonmusk), X (Jan. 30, 2018, 5:14 PM), https://twitter.com/elonmusk/status/1752455348106166598?lang=en;
[2] See Tornetta v. Musk, C.A. No. 2018-0408, 2024 WL 343699 (Del. Ch. Jan. 30, 2024); see generally Twitter, Inc. v. Musk, C.A. No. 2022-0613, 2024 WL 5240477 (Del. Ch. Oct. 6, 2022) (cancelling the trial for Twitter’s specific performance acquisition after Musk agreed to settle by acquiring Twitter).
[3] Lauren Steussy, SpaceX Files to Relocate to Texas after Elon Musk’s Spat with Delaware Over Pay Package, Business Insider (Feb. 14, 2024, 8:21 PM), https://www.businessinsider.com/spacex-relocate-to-texas-after-delaware-ruling-against-elon-musk-2024-2.
[4] United States Sec. & Exch. Comm’n v. Musk, No. 18-cv-8865, 2022 WL 1239252 (S.D.N.Y. April 27, 2022); see also Sec. & Exch. Comm’n v. Musk, No. 22-1291, 2023 WL 3451402 (2d Cir. May 15, 2023) (denying Musk’s attempt to modify his deal with the SEC).
[5] See generally Vaughn v. Tesla, Inc., 303 Cal. Rptr. 3d 457, 470–71 (Cal. Ct. App. 2023) (reaffirming the division of various claims based on Tesla’s arbitration provision).
[6] See Thompson v. Tesla Motors, Inc., No. 21-cv-00238, 2021 WL 5122312 (Nov. 3, 2021) (subsequently dismissed after arbitration in a court order on Feb. 8, 2024).
[7] See Henkes v. Tesla Energy, Inc., No. RG20080233, 2021 Cal. Super. LEXIS 102651 (Cal. Super. 2021).
[8] In re Tesla Motors, Inc. S’holder Litig., No. 12711, 2022 WL 1237185, at *26 (Del. Ch. April 27, 2022).
[9] See In re Tesla Motors, Inc. S’holder Litig., 298 A.3d 667, 679–80 (Del. 2023).
[10] In re Tesla Motors, Inc. S’holder Litig., 2022 WL 1237185 (Del. Ch. April 27, 2022), aff’d, 298 A.3d 667 (Del. 2023).
[11] See Twitter, Inc. v. Musk, C.A. No. 2018-0613, 2024 WL 5240477 (Del. Ch. Oct. 6, 2022).
[12] Elon Musk (@elonmusk), X (May 13, 2022, 5:44 PM), https://twitter.com/elonmusk/status/1525049369552048129; see Max Zahn, A Timeline of Elon Musk’s Tumultuous Twitter Acquisition, ABC News (Nov. 11, 2022, 2:21 PM), https://abcnews.go.com/Business/timeline-elon-musks-tumultuous-twitter-acquisition-attempt/story?id=86611191.
[13] See Twitter, 2024 WL 5240477, at *1; Elon Musk Offers to End Legal Fight, Pay $44 Billion to Buy Twitter, PBS (Oct. 4, 2022, 3:48 PM), https://www.pbs.org/newshour/economy/elon-musk-offers-to-end-legal-fight-pay-44-billion-to-buy-twitter#:~:text=Elon%20Musk%20is%20abandoning%20his,U.S.%20Securities%20and%20Exchange%20Commission.
[14] See Crispo v. Musk, 304 A.3d 567, 570–71 (Del. Ch. 2023).
[15] Tornetta v. Musk, C.A. No. 2018-0408, 2024 WL 343699 (Del. Ch. Jan. 30, 2024).
[16] Tornetta v. Musk, 250 A.3d 793, 796–97 (Del. Ch. 2019).
[17] Id. 3d at 804–05, 813–14.
[18] Tornetta v. Musk, 2024 WL 343699, at *1.
[19] Id. at *84.
[20] Elon Musk (@elonmusk), X (Jan. 30, 2018, 5:14 PM), https://twitter.com/elonmusk/status/1752455348106166598?lang=en.
[21] Newman v. Musk, No. 23-639, 2023 WL 8234501, at *1–2 (D. Del. Nov. 28 2023).