A Delaware judge has upheld her decision requiring Tesla to revoke a multibillion-dollar compensation package granted to CEO Elon Musk in 2018, rejecting arguments from defense attorneys to overturn the ruling.

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On Monday, Chancellor Kathaleen St. Jude McCormick denied a motion from Musk’s legal team to vacate her earlier order.

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The ruling stemmed from a lawsuit filed by a Tesla shareholder challenging Musk’s historic pay package, which originally had a potential maximum value of $56 billion, dependent on Tesla’s stock performance.

The court found that Musk had orchestrated the deal in what McCormick described as “sham negotiations” with a board of directors that lacked independence.

Following McCormick’s original January ruling, Tesla shareholders overwhelmingly ratified Musk’s 2018 compensation package in a second vote during a June meeting.

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Defense attorneys argued that this shareholder endorsement, conducted with full knowledge of the judge’s findings, should negate her decision.

McCormick rejected this argument in her 103-page opinion, noting that legal precedents do not support such a claim.

“The large and talented group of defense firms got creative with the ratification argument, but their unprecedented theories go against multiple strains of settled law,” McCormick wrote.

She further noted that the shareholder vote alone could not ratify a conflicted-controller transaction, especially given what she described as “multiple, material misstatements” in Tesla’s proxy statement.

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Musk, who owns the social media platform X, expressed his frustration with the decision in a post: “Shareholders should control company votes, not judges.”

The case also addressed a separate issue regarding the legal fees requested by the shareholder’s attorneys.

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The legal team initially sought fees valued at more than $5 billion, arguing that their efforts prevented Tesla shares from being issued to Musk and thus safeguarded the interests of other investors.

McCormick sharply reduced the fee award to $345 million, calling the original request “a bold ask” in a case centered on excessive compensation.

“The fee award here must yield… because $5.6 billion is a windfall no matter the methodology used to justify it,” McCormick wrote. She added that $345 million was “an appropriate sum to reward a total victory.”

The revised fee still ranks among the largest awards in legal history, though it falls short of the $688 million awarded in 2008 in litigation related to the collapse of Enron.

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This case has drawn widespread attention for its implications regarding corporate governance and CEO compensation.

Tesla’s defense team argued that the compensation package reflected the overwhelming support of shareholders, while critics contended that it represented a failure of board oversight.

McCormick’s ruling is expected to have a significant impact on similar corporate governance cases in the future.

The rejection of the second shareholder vote as a ratifying mechanism sends a clear message about the limits of shareholder influence when conflicts of interest are at play.

The outcome also highlights the role of Delaware’s Chancery Court in shaping corporate law, particularly when it comes to addressing potential abuses by company executives and board members.

For Musk, who has been a polarizing figure in the business world, this ruling marks another legal challenge as he continues to lead Tesla and other ventures.

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