Delaware Supreme Court Restricts Musk’s Compensation Remedy

A Hunton legal update explains the Delaware Supreme Court reversal of the Court of Chancery’s post-trial order rescinding Elon Musk’s 2018 Tesla compensation plan. The December 2025 case is In re Tesla, Inc. Derivative Litigation.

The Supreme Court replaced the rescission with an award of $1 in nominal damages. It concluded that equitable rescission was unavailable because the plaintiff failed to show that the parties could be restored to the status quo ante. The Court also vacated the trial court’s $345 million attorneys’ fee award and substituted a substantially lower amount.

The challenged compensation plan, approved in 2018, granted Musk twelve tranches of stock options that vested upon achievement of specified operational and market-cap milestones. A majority of disinterested stockholders approved the plan, and all milestones were ultimately satisfied.

A stockholder owning nine shares later brought a derivative action in the Court of Chancery. After the trial, the court applied an entire fairness review, found disclosure deficiencies, and ordered rescission of the plan, concluding Musk exercised situational control over the negotiations.

Following that ruling, Tesla obtained stockholder approval to ratify the plan and to reincorporate in Texas, but the Court of Chancery declined to modify its judgment.

On appeal, the Supreme Court confined its analysis to the propriety of rescission as a remedy. It characterized rescission as an extreme form of equitable relief and placed the burden on the plaintiff to prove its feasibility. The Court determined rescission would leave Musk uncompensated for years of labor undertaken to satisfy the plan’s conditions, and that preexisting equity ownership did not constitute legal consideration for that work.

It further found restoration of the parties’ original positions impracticable given Tesla’s dramatic increase in value. Because no alternative relief was pursued, the Court awarded nominal damages.

For practitioners, the decision clarifies the demanding evidentiary burden associated with equitable rescission and the necessity of pleading and preserving alternative remedies. It also signals careful scrutiny of fee awards where the ultimate relief is limited, applying a lodestar-based quantum merit approach rather than a benefit-conferred analysis.