On December 19, 2025, the Delaware Supreme Court issued a significant decision in the long-running litigation over Tesla’s 2018 equity compensation plan for CEO Elon Musk, overturning the cancellation of his option grants.
The compensation plan, approved by Tesla’s board and a majority of disinterested stockholders, granted Musk options to purchase 1% of Tesla’s shares for each of the 12 tranches that could vest upon achievement of ambitious market capitalization and operational milestones. By early 2023, all milestones had been met and the options fully vested. A Tesla stockholder challenged the plan, alleging that Musk, as a controlling stockholder, unduly influenced the board to approve excessive compensation, and that the board failed to ensure a fair process and adequate disclosures. The Delaware Court of Chancery agreed, finding breaches of fiduciary duty, ordering rescission (cancellation) of all 12 grants and awarding substantial attorneys’ fees to the plaintiff’s counsel.
The Supreme Court noted that its justices had “varying views” on the determination below that there was a breach of fiduciary duty, but all agreed that the Court of Chancery’s decision to rescind all 12 grants was an improper remedy. Thus, the court chose the “narrower path” on appeal and reversed the rescission remedy, holding that it was neither possible nor equitable under the circumstances. The court emphasized that rescission is an “extreme remedy” that requires the parties to be restored to their original positions (“status quo ante”). Here, the court found that rescission was inappropriate because (i) it left Musk uncompensated for his time and efforts over a period of six years, (ii) Musk could not undo the efforts he put into Tesla over that time period and (iii) Tesla stockholders cannot return the benefits they received over that time period. The court also rejected the concept that Musk’s pre-existing equity stake could substitute for compensation under the rescinded equity grants because past consideration cannot form the basis for a binding contract.
Because the plaintiff did not seek or establish entitlement to any remedy besides rescission, the Supreme Court awarded only nominal damages — $1. On attorneys’ fees, the Supreme Court adopted the approach recommended by Tesla’s counsel, awarding plaintiff’s counsel a four-times multiplier on plaintiff’s total attorneys’ fees and costs.
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