In trial testimony in November 2022, Musk denied that he dictated terms of the compensation package or attended any meetings at which the plan was discussed by the board, its compensation committee, or a working group that helped develop it.

McCormick determined, however, that because Musk was a controlling shareholder with a potential conflict of interest, the pay package must be subject to a more rigorous standard.

“The process leading to the approval of Musk’s compensation plan was deeply flawed,” McCormick wrote in the colorfully written 200-page decision. “Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf.”

McCormick specifically cited Musk’s long business and personal relationships with compensation committee chairman Ira Ehrenpreis and fellow committee member Antonio Gracias. She also noted that the working group working on the pay package included general counsel Todd Maron who was Musk’s former divorce attorney.

“In fact, Maron was a primary go-between Musk and the committee, and it is unclear on whose side Maron viewed himself,” the judge wrote. “Yet many of the documents cited by the defendants as proof of a fair process were drafted by Maron.”

McCormick concluded that the only suitable remedy was for Musk’s compensation package to be rescinded. “In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit,” she wrote. “The process arrived at an unfair price. And through this litigation, the plaintiff requests a recall.”

Greg Varallo, a lead attorney for the shareholder plaintiff, praised McCormick’s decision to reverse the “absurdly outsized” Musk pay package for Musk.

“The fact that they lost this in Delaware court, it’s a jaw dropper,” said Wedbush Securities analyst Dan Ives. “It’s unprecedented, a ruling like this. I think going in investors thought it was just typical legal noise and nothing was going to come out about it. The fact that they went head to head with Tesla and Musk and the board and voided this, it’s a huge legal decision.”

During his trial testimony, Musk downplayed the notion that his friendships with certain Tesla board members, including sometimes vacationing together, meant that they were likely to do his bidding.

The plan called for Musk to reap billions if Tesla hit certain market capitalization and operational milestones. For each incidence of simultaneously meeting a market cap milestone and an operational milestone, Musk, who owned about 22% of Tesla when the plan was approved, would get stock equal to 1% of outstanding shares at the time of the grant. His interest in the company would grow to about 28% if the company’s market capitalization grew by $600 billion.

Each milestone included growing Tesla’s market capitalization by $50 billion and meeting aggressive revenue and pretax profit growth targets. Musk stood to receive the full benefit of the pay plan, $55.8 billion, only by leading Tesla to a market capitalization of $650 billion and unprecedented revenues and earnings within a decade.

Tesla has achieved all twelve market capitalization milestones and eleven operational milestones, providing Musk nearly $28 billion in stock option gains, according to a January post-trial brief filed by the plaintiff’s attorneys. The stock option grants are subject to a five-year holding period, however.

Defense attorney Evan Chesler argued at trial that the compensation package was a “high-risk, high-reward” deal that benefitted not just Musk, but Tesla shareholders. After the plan was implemented, the value of the company, based in Austin, Texas, climbed from $53 billion to more than $800 billion, having briefly hit $1 trillion.

Chesler also said Tesla made sure that the $55 billion compensation figure was included in the proxy statement because the company wanted shareholders to know that “this was a heart-stopping number that Mr. Musk could earn.”