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Delaware Supreme Court: Reverses Rescission of Elon Musk’s 2018 Compensation Grant

In December, the Delaware Supreme Court reversed the Court of Chancery decision that rescinded Tesla CEO Elon Musk’s $100 billion+ 2018 equity compensation package, ending a years-long, closely watched shareholder litigation. In re Tesla, Inc. Der. Litig., No. 534, 2024, 2025 Del. LEXIS 492 (Del. Dec. 19, 2025).[1] The Court held that the Court of Chancery erred in finding that a remedy of rescission was “reasonable and appropriate” because: (i) Musk could not be restored to the status quo ante after working for six years to meet the compensation package’s market capitalization and operational milestones; (ii) Musk’s existing equity stake could not serve as substitute consideration for the work he performed on behalf of the company over a six-year period in accordance with his plan; and (iii) the result was not equitable. The Court’s per curiam decision did not address the Court of Chancery’s findings about liability, noting that the Justices had “varying views” on liability, and instead ruled on a “narrower path” in a relatively compact decision. The Delaware Supreme Court awarded plaintiff nominal damages of $1 and, rather than remanding the issue of fees, awarded plaintiff’s counsel attorneys’ fees based on quantum meruit. This resulted in a cash payment to be paid by Tesla of approximately $54 million (reflecting counsels’ lodestar and a four times multiplier), as compared to the $345 million awarded by the Court of Chancery and the $5.6 billion in freely tradeable Tesla shares plaintiff’s counsel sought.

The litigation arose when a Tesla stockholder filed a derivative lawsuit against Musk and the Tesla directors who approved the 2018 equity compensation plan for Musk (the “Grant”), alleging that Musk, as a controlling stockholder, had forced the board to grant him excessive compensation. Following a five-day trial in 2022, the Court of Chancery found that Musk, as a “Superstar CEO” was a controlling stockholder of Tesla despite controlling only 21.9% of Tesla’s voting power and ordered rescission of the Grant. The Court of Chancery concluded that the directors failed to prove that the Grant was entirely fair to Tesla and its stockholders and faulted the board for making misleading disclosures. The Tesla board later resubmitted the rescinded Grant for a second stockholder vote with new disclosures that included a copy of the Chancery Court’s opinion and a majority of disinterested shares voted for the plan. Following this, the defendant directors asked the Chancery Court to undo its post-trial opinion but the court declined, instead entering judgment for plaintiff, ordering rescission of the Grant, and awarding $345 million in attorneys’ fees to plaintiff’s counsel.

Without deciding any of the liability issues raised by the appeal, the Court disposed of the case by focusing solely on whether rescission was the appropriate remedy. The Court concluded that rescission is inequitable primarily because all parties must be restored to the status quo ante and total rescission would leave Musk uncompensated for his time and efforts over a period of six years, noting that it is undisputed that Musk fully performed under the Grant, and that Tesla and its stockholders were rewarded for his work. The Court explained that Musk’s preexisting equity stake could not restore him to the status quo ante because the stake was not consideration for the services and labor he provided under the Grant. Quoting Williston on Contracts, the Court stated that “something that has been given before the promise was made . . . cannot, properly speaking, be sufficient, valid, legal consideration.”[2] The Court, therefore, concluded that “Musk’s prior compensation arrangements cannot solve the problem of awarding a remedy which deprives him of all compensation that he earned for six years under a new contract.”

Delaware Supreme Court: Reverses Unprecedented Aiding and Abetting Decision Against Third-Party Acquiror

On June 17, 2025, the Delaware Supreme Court reversed the Court of Chancery’s post-trial judgment in In re Columbia Pipeline Group., Inc. Merger Litigation, 299 A.3d 393 (Del. Ch. 2023), which had held TransCanada, acquiror of Columbia Pipeline Group, Inc., liable for aiding and abetting breaches of fiduciary duty by Columbia’s officers and board during the deal process and awarding the plaintiff Columbia stockholders approximately $200 million in “nominal damages.” In re Columbia Pipeline Grp., Inc. Merger Litig., 342 A.3d 324 (Del. June 17, 2025). Citing its recent decision in In re Mindbody, Inc., Stockholder Litigation, 332 A.3d 349 (Del. 2024), the Supreme Court reemphasized the challenge of finding an arm’s-length buyer to be an aider and abetter, and reiterated the need to prove both actual knowledge of the target fiduciary’s breach of duty and the wrongfulness of its own conduct.

In 2015, Columbia’s CEO/Board Chair, Robert Skaggs Jr., and Columbia’s CFO, Stephen Smith, led the negotiations with TransCanada. After they recommended that the Columbia board renew exclusivity with TransCanada, TransCanada’s representative reneged on a $26 per share agreement, lowered TransCanada's bid to $25.50 per share, demanded an answer within three days, and threatened to publicly announce that the negotiations were dead unless Columbia accepted the reduced offer. Skaggs and Smith recommended that the board take the reduced deal and the deal closed.[3] Columbia stockholders subsequently sued alleging Skaggs and Smith breached their fiduciary duties (specifically their duty of loyalty by initiating and timing the merger to favor their own self-interest and their duty of disclosure because the proxy statement was false and misleading as to the negotiations). Plaintiffs also claimed that the Columbia board breached its duty of care by failing to provide sufficient oversight of the sale process. Plaintiffs further claimed that TransCanada aided and abetted the fiduciary breaches during the sale process and aided and abetted breaches of the duty of disclosure. During discovery, Skaggs and Smith settled leaving TransCanada as the sole defendant.

After a five-day trial, the Court of Chancery determined that plaintiffs proved the underlying breaches of fiduciary duty; that TransCanada constructively knew of, and culpably participated in, Skaggs’s and Smith’s breaches; and–notably–that TransCanada was liable for aiding and abetting the breaches of the duty of disclosure. As TransCanada had a right under the merger agreement to review the proxy and an obligation to inform Columbia of any material omissions but remained silent when the draft proxy failed to disclose all of Skaggs’s and Smith’s interactions with TransCanada, the Chancery Court concluded that TransCanada had “knowingly permitted” Columbia to issue a misleading proxy statement, which amounted to knowing participation in the issuance of the proxy statement. As to damages for the disclosure claim, the court awarded plaintiffs nominal damages of $0.50 per share or approximately $200 million. On appeal, TransCanada argued that it was error to find that it had aided and abetted any sale-process breach by the officers or the board, or aided and abetted any disclosure breach, and that it was error to award nearly $200 million in nominal damages.[4]

Justice Traynor, writing for the Court, rejected the Chancery Court’s determination of liability based on constructive knowledge and stated that Mindbody requires “actual knowledge.” As to whether TransCanada had actual knowledge that Skaggs and Smith were breaching their fiduciary duties, the Court pointed out that even though the two were eager to strike a deal and wanted to retire with their change-in-control benefits that they also had incentives to pursue the best deal possible and rejected several TransCanada proposals. As to whether TransCanada had actual knowledge that the Columbia board was breaching its duty of care by providing insufficient oversight of Skaggs and Smith, the Court concluded that this breach would have been even less clear to TransCanada because it did not have direct interaction with the board members and was not present for any board meetings. As to whether TransCanada culpably participated in the breaches, the Court stated that it “emphasized in Mindbody that whether a defendant’s participation in another’s breach of duty is culpable hinges in large part on whether the defendant substantially assisted in the commission of the breach.” The Court stated that “a bidder’s aggressive bargaining tactics, however disquieting, do not constitute aiding and abetting unless the bidder has substantially assisted, that is, ‘knowingly participated’ in the breach.” Reviewing the facts, the Court concluded that for TransCanada’s deal team lead to take advantage of a personal relationship with Smith and to use his superior negotiating skills and experience to secure the best reasonably available price could not expose a party to aiding-and-abetting liability. As to TransCanada’s aiding and abetting liability for the breaches of the duty of disclosure, the Court concluded that TransCanada did not culpably participate in the disclosure breaches because while TransCanada offered comments on the proxy it did not propose any of the statements found to be misleading or suggest any omissions.

California Supreme Court: Forum Selection Clauses Designating Courts That Conduct Bench Trials Are Not Per Se Unenforceable

On July 21, 2025, the California Supreme Court issued a significant decision reversing and remanding a Court of Appeal decision that had held that a trial court had properly declined to enforce forum selection clauses in a company’s certificate of incorporation and bylaws designating the Delaware Court of Chancery because they constituted an implied predispute jury trial waiver, in violation of the right to trial by jury under the California Constitution. EpicentRx, Inc. v. Superior Court, 18 Cal. 5th 58 (Cal. July 21, 2025). The California Supreme Court held that a “forum selection clause is not unenforceable simply because it requires the parties to litigate in a jurisdiction that does not afford civil litigants the same right to trial by jury as litigants in California courts enjoy.” The Supreme Court explained that the extent of a civil jury trial right in the selected forum may be relevant to the enforceability of a forum selection clause but that “the impact on a party’s jury trial right does not, itself, provide grounds to decline to enforce a forum selection clause.”

This litigation arose when a minority shareholder of Delaware biotechnology company EpicentRx, Inc., filed a complaint in California Superior Court asserting claims for breach of contract, fraudulent concealment, promissory fraud, breach of fiduciary duty, and unfair business practices against EpicentRx, its controlling stockholder, and certain individuals. Defendants moved to dismiss on the ground of forum non conveniens, based on forum selection clauses in the company’s certificate of incorporation and bylaws, which identified the Delaware Court of Chancery as the sole and exclusive forum for most stockholder lawsuits.[5] The trial court denied defendants’ motion to dismiss and the Court of Appeal denied a petition for writ of mandate challenging the trial court’s order. Both lower courts held that the forum selection clauses were unenforceable, noting that if plaintiff’s claims were litigated in California, plaintiff would have a right to a jury trial, while the Delaware Court of Chancery does not conduct jury trials. Several defendants petitioned the California Supreme Court for review.

The California Supreme Court stated that forum selection clauses typically will be enforced, absent a showing that enforcement of the forum selection clause would be unfair or unreasonable. The Court noted that one exception to this general rule of enforceability is that California courts will refuse to enforce a forum selection clause if to do so would bring about a result contrary to state public policy. The Supreme Court cautioned that “[t]his exception, however, does not give courts unbounded discretion to decline to enforce otherwise valid forum selection clauses” emphasizing that the power to declare a contract void for being in contravention of sound public policy “is a very delicate and undefined power, and . . . should be exercised only in cases free from doubt.” On this point, the Court stated that before a court determines that a transaction is void, “it should be satisfied that the advantage to accrue to the public for so holding is certain and substantial, not theoretical or problematical.” The Court further stated that the “burden is on the opposing party to show that its enforcement would be in violation of the settled public policy of this state[.]” The Court cautioned that California’s strong public policy in favor of the jury trial right “does not speak to the availability of the jury trial right in other forums.” The Court stated that sophisticated parties engaging in arms-length commercial transactions may depend on the selection of a forum for dispute resolution, such as the courts of a foreign country, which do not offer a jury trial right.

[1] Simpson Thacher filed an amici curiae brief on behalf of Sequoia Capital Operations, LLC in support of appellants.

[2] Williston on Contracts, § 8:13 (4th ed.)

[3] Simpson Thacher represented Lazard as financial advisor to Columbia in its definitive agreement to be acquired by TransCanada and also represented Lazard in its capacity as a witness at the trial concerning the acquisition.

[4] TransCanada did not challenge the Court of Chancery’s finding that Skaggs and Smith breached their duty of loyalty as corporate officers by favoring their self-interest, or the finding that the Columbia board breached its duty of care by failing to provide sufficient oversight of the sale process.

[5] Specifically, the four types of claims required to be brought in Delaware Court of Chancery were: (i) derivative claims; (ii) breach of fiduciary duty claims; (iii) claims under the Delaware General Corporation Law or EpicentRx’s corporate documents; and (iv) claims governed by the internal affairs doctrine.