LITIGATION TRENDS 2025 | 109 T O C E M P E S G A N T I I P C A P R O W C S P O R T C O N T A C T I N T A P P P A T C C L S E C Securities Litigation In March 2025, in response to the threat of a growing DExit movement, Delaware lawmakers enacted changes to the DGCL to provide safe harbors for conflict transactions and to limit stockholder rights to inspect corporate books and records. some placeholders, as well as certain mechanics of providing notice to stockholders in connection with a merger. The Musk Compensation Decision. In January 2024, the Court of Chancery struck down a $56 billion performancebased stock award to Elon Musk tied to the achievement of significant performance hurdles, including increasing Tesla’s market capitalization by approximately $600 billion. Tornetta v. Musk, 310 A.3d 430 (Del. Ch. 2024) (“Tesla”). The decision was controversial, as compensation decisions have long been viewed as a quintessential business judgment for directors to make. In Tesla, stockholders challenged Musk’s equity award, alleging that Musk (who owned approximately 20% of Tesla’s stock) was a controlling stockholder of Tesla, that entire fairness (Delaware’s most onerous standard of review), rather than the deferential business judgment rule applied, and that the transaction was not entirely fair to Tesla. The Court of Chancery agreed, holding that Musk was a controlling stockholder because he wielded outsized influence over Tesla as a “superstar CEO” and the equity award process in particular. The court also held that the directors who approved the compensation lacked independence from Musk (evidencing a “controlled mindset”), that Musk dominated the process leading to the compensation award, and that the stockholder vote, which also approved the compensation award, was not fully informed. As a result, the court determined that the defendants failed to prove that the compensation award to Musk was entirely fair to Tesla and its stockholders. Following the Court of Chancery’s January 2024 decision, Tesla’s board again asked stockholders to approve the compensation package, and again stockholders voted in favor. Tesla then asked the Court of Chancery to reconsider its earlier judgment. In December 2024, the Court of Chancery reaffirmed its earlier ruling striking down Musk’s pay package, despite a second stockholder vote approving the award. The court reasoned that (i) there was no valid procedure to change a post-trial decision based on later-created evidence, (ii) it was too late to consider a “ratification” defense, (iii) the proxy statement for the second vote was, again, materially misleading, and (iv) in any event, a stockholder vote in and of itself cannot ratify a conflicted controller transaction under Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”) and In re Match Group, Inc. Derivative Litigation, 315 A.3d 446 (Del. 2024) (“Match”). In its final judgment, the court awarded $345 million in legal fees (which the Defendants could elect to pay in shares or in cash), which amounted to 15% of the value of the benefit of the rescinded plan (then valued by the court at $2.3 billion). The Tripadvisor Decision. In February 2024, the Delaware Court of Chancery issued a decision in Palkon v. Maffei, 311 A.3d 255 (Del. Ch. 2024), holding that Tripadvisor’s decision to convert from a Delaware corporation to a Nevada corporation constituted a material, non-ratable benefit to Tripadvisor’s directors and controlling stockholder because it materially reduced their litigation risk, as plaintiffs had alleged that Nevada law provided greater protection for fiduciaries than Delaware law. In January 2025, the Delaware Supreme Court, following a rare interlocutory appeal, reversed the Court of Chancery, holding that “the absence of any allegations that any particular litigation claims will be impaired or that any particular transaction will be consummated post-conversion, weighs heavily against finding that the alleged reduction in liability exposure under S 108 | Weil, Gotshal & Manges LLP
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