Delaware Supreme Court Reinstates Tesla’s 2018 CEO Award & Rejects Rescission -- Leaves Entire Fairness Ruling in Place, Without Providing its Own Analysis
On Friday December 19, 2025, the Delaware Supreme Court (the “Court”) reversed the Court of Chancery’s rescission of Elon Musk’s $55.8 billion performance-based equity award and reinstated the 2018 Award. Instead of rescinding the Award, the Court left the lower Court’s finding of breaches of fiduciary duties in place, and awarded the plaintiff nominal damages of $1, because the plaintiff had failed to prove damages from the Award. As a result the Court dramatically reduced the $345M attorney fee award by 84% to $54.5M. The Delaware Supreme Court’s ruling on this narrow remedial ground is a major victory for Elon Musk – by restoring his Award of tens of billions of dollars But the ruling omits the Court’s specific views of the Chancery Court’s analysis of Mr. Musk’s control over Tesla, interference in the compensation decision, and the lack of fairness of the transaction. The Court also declined to address the extent to which a stockholder vote could cleanse a previous breach of fiduciary duty, leaving Delaware Boards with no specific guidance on that important issue, beyond the plain language of the new safe harbor in 8 Del. C. § 144.
The Decision
The Court reversed the Chancery Court’s equitable rescission of Mr. Musk’s $55 billion Award for two reasons: (1) equitable rescission was not a viable remedy, because the Court could not restore the parties to the status quo when the Award was granted in 2018; and (2) the Chancery Court improperly put the burden on Defendants to prove an alternative to rescission, when the burden of proving a remedy falls on the Plaintiff. First, the Court held that equitable rescission was an improper remedy because the parties could not be substantially restored to the status quo ante after six years of Musk’s performance and Tesla’s achievement of all market-capitalization and operational milestones. Mr. Musk had worked and achieved all of the milestones required to be paid his Award over several years. Having achieved those goals, Mr. Musk would not be restored to the status quo if his compensation was rescinded entirety.
The Court also rejected the Plaintiff’s argument that Musk’s preexisting equity ownership in Tesla could substitute as consideration for services performed under the 2018 award. Mr. Musk owned that equity free and clear of the services he needed to perform to achieve compensation under the 2018 award. The Court emphasized that returning “all parties” to the status quo ante is a prerequisite to rescission, and that elapsed time and completed performance can render rescission inequitable even where transaction mechanics could be unwound as a matter of form.
Second, the Court held that the trial court erred by assigning to defendants the burden to propose a viable alternative to total rescission; the burden to establish entitlement to rescission (and any alternative equitable relief) rests with the plaintiff. Because the plaintiff sought only equitable rescission and did not develop an evidentiary basis for rescissory or other damages, the Court awarded nominal damages of $1 and held that attorney fees should have been awarded on a quantum meruit basis at 4x the lodestar, recognizing some benefit but not a quantifiable one for purposes of a percentage-of-benefit fee award.
The Court’s ruling highlighted a key defect in the Plaintiff’s case: The Plaintiff abandoned its argument that Tesla shareholders should be paid rescissory damages, in the form of the difference between the value of Mr. Musk’s largest-ever award (~$55 billion) and what a reasonable award should have been in an arm’s length transaction that replicated a third-party negotiation without the controlling stockholder involved.
Notably, while the defendants offered multiple routes to reversal—including overturning the entire fairness determination, rejecting rescission, or validating the second stockholder vote—the Court selected the “narrower path” of remedy alone.
What the Court Did Not Reverse or Otherwise Address
The Court expressly declined to provide its own analysis of the Chancery Court’s prior rulings that Musk was a controlling stockholder exercising transaction-specific control over the award, that the entire fairness standard of review applied, and that the defendants could only have obtained shifting of the burden of proving entire fairness had they properly obtained shareholder ratification of Mr. Musk’s 2018 Award. The Chancery Court previously held that Musk acted as a controlling stockholder, that Musk coercively interfered with the adoption of the Award, and that the transaction was not entirely fair. The Chancery Court also held that Tesla did not properly seek shareholder ratification, because it sought shareholder approval in a proxy statement that contained several misstatements. Technically speaking, the Supreme Court left in place each of the Chancery Court rulings in the paragraph above (i.e., it only reversed the rescission ruling and modified the award of attorneys’ fees). But the Court’s opinion states that “the Justices have varying views on the liability determination.” (Slip Op. at 27.) Further, Delaware passed a new law on March 25, 2025, S.B. 21, which has made it harder to strike down controlling stockholder transactions like these in the future. So it is likely that the Delaware Supreme Court will clarify at a later date how to resolve liability for future controlling stockholder transactions like Mr. Musk’s 2018 Award.
Specifically, the Delaware Supreme Court declined to provide guidance or analysis indicating the precise line at which a controlling stockholder’s involvement in the ratification of a conflicted transaction by a Special Committee or stockholders would defeat such ratification. In response to the Chancery Court’s ruling, Delaware’s legislature amended 8 Del. C. § 144 both to provide a safe harbor for certain controlling stockholder transaction and to provide procedures to ratify prior controlling stockholder transactions. Although that amendment does not apply retroactively to this case, the Delaware Supreme Court could have chosen to give future guidance about what conduct could cause this new Safe Harbor protection to be lost. It did not do so.
Key Takeaways
The Delaware Supreme Court’s final ruling highlights several important issues for boards, compensation committees, executives, and stockholder litigants in future cases.
First, the decision will make it harder for stockholders to obtain rescission of compensation awards to Company executives. The ruling reaffirms that equitable rescission is an “extreme” remedy requiring substantial restoration of the status quo for all parties; where a time-limited, performance-based plan has been fully performed and value has accrued to stockholders, rescission will likely be unavailable, pointing courts either to nominal damages or to damages theories that plaintiffs must properly plead and prove. Plaintiffs should expect a rigorous burden if they seek rescission.
Second, the Delaware Supreme Court declined to explain the boundaries of transaction-specific control in transactions – specifically comparing before and after the new Delaware legislation on control adopted in March 25, 2025. Under the new legislation, control is based on majority control of stock or voting, or functional control through one-third of stock plus the ability to exercise managerial authority over the Company. 8 Del. C. § 144. But the Supreme Court declined to elaborate on the meaning of such functional control (even though the new statute does not apply to this case). Therefore, Boards, committees, and stockholders need to be aware of when a transaction is likely to trigger a higher standard of review for (i) a controlling stockholder being involved, or (ii) a director or officer having an interest in a transaction. Board and committees should continue to build robust records of genuine adversarial negotiation, rigorous external benchmarking, full conflict disclosure, and independent special committee empowerment from the outset.
Third, the efficacy of “fiduciary ratification” of a transaction after the fact, and the timing of raising ratification as an affirmative defense in ongoing litigation, will likely be further litigated. Although the Delaware Supreme Court left in place the Court of Chancery’s refusal to credit a post-trial vote (and its finding of materially misleading disclosures in the second proxy), it is unclear how the ruling may play out in the next case.
Finally, fee awards will not automatically default to the stage of the case/percentage fee model. Where plaintiffs achieve limited or unquantifiable relief, Delaware courts may pivot to quantum meruit with multipliers rather than percentage-of-benefit metrics, especially when rescission or rescissory damages are off the table.
