On December 19, 2025, the Delaware Supreme Court issued its highly anticipated opinion in In Re Telsa Inc. Derivative Litigation, regarding Tesla CEO Elon Musk’s 2018 compensation plan.  The per curiam opinion (found here) came out in favor of Tesla’s directors: it reversed the Court of Chancery’s recission of the 2018 compensation plan (“2018 Plan”) and reinstated the plan.  But the opinion did not address a number of issues raised by the Chancery Court’s prior recission order which helped fuel the “DExit” movement.

Background

In January 2018, Tesla’s board of directors approved the 2018 Plan which provided Musk performance-based compensation worth up to $55.8 billion if approximately $600 billion of stockholder value was created. The board’s approval was conditioned on the approval by a majority vote of disinterested stockholders.  The stockholders approved the 2018 Grant at a special stockholder meeting in March 2018, with 73% of votes casts in favor of approval.

In June 2018, a stockholder brought a derivative action in Delaware Chancery Court asserting claims against the board, including breaches of fiduciary duty, unjust enrichment, and waste.  After trial, the Chancery Court ordered rescission of the 2018 Plan, finding that it was tainted by improper processes and did not satisfy the entire fairness standard.

After the recission order, a special committee of the board concluded that ratifying the 2018 Plan was in the best interests of Tesla and its stockholders, and that it should be voted for by stockholders at Tesla's 2024 annual meeting.  The stockholders then approved the ratification in June 2024.  The director defendants then filed a motion to revise the prior recission order as a result.  But the Chancery Court denied the motion, concluding the stockholder ratification defense was waived and that the proxy disclosures for the proposed ratification were materially misleading.

Delaware Supreme Court’s Opinion

In reversing the Chancery Court, the Delaware Supreme Court acknowledged that “the Justices have varying views on the liability determination” by the Chancery Court, but it did not address those issues.  Instead, it took the “narrower path to resolve this appeal” by finding that rescission “was an improper remedy.”  In that regard, the Delaware Supreme Court found that rescission was improper because the parties could not be restored to the status quo ante, and that the Chancery Court erred in placing the burden on the defendants to provide alternative remedies.

But in sticking to its remedy-based opinion, the opinion does not address several notable aspects of the Chancery Court’s prior decisions.  It did not address the Chancery Court’s prior finding that Musk was a controller with respect to the transaction (noting his “considerable power in the boardroom”), and that the onerous entire fairness standard of review applied.  Nor did the opinion address the Chancery Court’s prior findings that a majority of the board was not sufficiently independent to shift the burden of persuasive, and that the proxy disclosures for the 2018 stockholder vote omitted material information.   These were among other aspects of the Chancery Court’s prior decisions that many view as controversial and contributing to perceptions that Delaware may be too stockholder-friendly and less predictable—key drivers of the “DExit” debate.

Take Aways

The Delaware Supreme Court’s opinion is unlikely to curb discussions over DExit.  While it found for the director defendants, the Court did not to address the Chancery Court’s findings related to liability, including controversial findings which precipitated the DExit debate.  Indeed, the January 2024 recission order was followed by Tesla’s departure and reincorporation in Texas.  Other companies have also since reincorporated in states like Texas and Nevada, often citing the unpredictability in Delaware courts as a concern.  The opinion’s acknowledge of the Justices’ “varying views on the [Chancery Court’s] liability determination” could support that sentiment.  Meanwhile, the case is unable to shed light on Delaware’s recent amendments to Section 144, which provides safe harbors for certain conflicted transactions, because it was filed before the amendments were adopted.

So, when it comes to DExit, the debate continues.

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