An American judge has reaffirmed her ruling that Tesla must revoke a multibillion-dollar pay package for Elon Musk

Chancellor Kathaleen St Jude McCormick denied a request by lawyers for Musk and Tesla’s corporate directors to vacate her ruling earlier in 2024 requiring the company to rescind the unprecedented pay package.

McCormick also rejected an equally unprecedented and massive fee request by plaintiff lawyers, who argued that they were entitled to legal fees in the form of Tesla stock valued at more than $US5 billion ($A7.8 billion).

The judge said on Monday (local time) the lawyers were entitled to a fee award of $US345 million ($A535 million).

The rulings came in a lawsuit filed by a Tesla stockholder who challenged Musk’s 2018 compensation package.

Shareholders should control company votes, not judges https://t.co/zRsWGjC2hG

— Elon Musk (@elonmusk) December 3, 2024

In January, McCormick found that Musk engineered the landmark pay package in sham negotiations with directors who were not independent. The compensation package initially carried a potential maximum value of about $US56 billion ($A87 billion), but that sum has fluctuated based on Tesla’s stock price.

Following the original court ruling, Tesla shareholders met in June and ratified Musk’s 2018 pay package for a second time, again by an overwhelming margin.

Defence Lawyers then argued the second vote made it clear that Tesla shareholders, with full knowledge of the flaws in the 2018 process that McCormick pointed out, were adamant that Musk was entitled to the pay package. They asked the judge to vacate her order directing Tesla to rescind the pay package.

McCormick, who seemed sceptical of the defence arguments during an August hearing, said in Monday’s ruling those arguments were fatally flawed.

“The large and talented group of defence firms got creative with the ratification argument, but their unprecedented theories go against multiple strains of settled law,” she wrote in a 103-page opinion.

McCormick noted, among other things, that a stockholder vote standing alone could not ratify a conflicted-controller transaction.

“Even if a stockholder vote could have a ratifying effect, it could not do so here due to multiple, material misstatements in the proxy statement,” she said.

Musk expressed his disagreement with the ruling in a post on X, the social media platform he owns.

“Shareholders should control company votes, not judges,” he wrote.

Meanwhile, McCormick found that the $US5.6 billion ($A8.7 billion) fee request by the shareholder’s lawyers, which at one time approached $US7 billion ($A11 billion) based on Tesla’s trading price, went too far.

“In a case about excessive compensation, that was a bold ask,” McCormick wrote.

Lawyers for the Tesla shareholder argue that their work resulted in the “massive” benefit of returning shares to Tesla that otherwise would have gone to Musk and diluted the stock held by other Tesla investors.

They value that benefit at $US51.4 billion ($A79.7 billion), using the difference between the stock price at the time of McCormick’s January ruling and the strike price of some 304 million stock options granted to Musk.

-AAP