US Judge Who Rejected Elon Musk's Tesla Payday Faces Backlash

The social media blowback for Delaware Judge Kathaleen St. J. McCormick came fast and furious after she blocked Elon Musk's multibillion-dollar Tesla Inc. payday for a second time, spotlighting the pressure that comes with ruling against the world's richest person.

Musk posted "absolute corruption" on X shortly after the ruling late Monday and Tesla bull Cathie Wood railed against an "activist judge at its worst" who she accused of undermining the rights of shareholders. Other backers of the billionaire dubbed McCormick's decision "insane."

McCormick, the Delaware Chancery Court's chief judge, is an old hand at dealing with Musk-related backlash. In January she got an earful from critics, both in online posts and letters to her chambers, when she first voided Musk's pay package on the grounds that Tesla's board was too beholden to him. Likewise back in 2022 when McCormick refused to let Musk back out of a $44 billion deal to buy X's predecessor, Twitter. 

'Amped Up'

While judges routinely decide thorny legal issues, those determinations get more complicated when they involve the richest and most powerful personalities in the corporate world, said Eric Talley, a Columbia University law professor who focuses on corporate litigation. "Those kinds of cases are particularly amped-up," he said. 

McCormick and Musk didn't respond Tuesday to requests for comment.

Musk's influence has reached new heights and his net worth has soared since the US presidential election because he's considered a close confidant of Donald Trump.

The stock options package was initially worth $2.6 billion and spiked to $56 billion by the time the judge canceled it in January. The package was worth $101.5 billion at Monday's closing price. Tesla shares fell 1.6% on Tuesday.

With 206 million followers on X, Musk regularly relies on his internet megaphone to whip up his fans, including legions of Tesla retail investors, into a frenzy. Scores of X users, including many who use anonymous handles, aimed their anger at McCormick for denying Musk the largest-ever pay package awarded to a corporate executive. 

'In Jail'

"She needs to be in jail," one user named Not Jerome Powell wrote in a post, referring to the judge.

Musk has warned that McCormick's ruling will prompt a business exodus from Delaware, the corporate home to about two-thirds of Fortune 500 companies. 

The serial entrepreneur has moved to incorporate Tesla, his rocket company SpaceX and other businesses in Texas, where he hopes to take advantage of more lax regulations and a new business-court system. 

While McCormick is taking heat for her ruling, she's also reaping praise from some legal commentators for not bowing in the face of pressure over her conclusion that Tesla's board was too rife with conflicts of interest to properly decide Musk's pay.

Courage, Integrity

In her rulings concerning Musk, she has "shown a great deal of courage and the integrity not to back down," said Jill Fisch, a University of Pennsylvania law school professor.

Ann Lipton, a corporate law professor at Tulane University, said that McCormick's ruling was in line with Delaware law and reinforced the idea that Musk must be treated just like other corporate bosses.

"Many of Musk's supporters and admirers believe corporate managers like him shouldn't be restrained," Lipton said. Being the first woman chief judge in Chancery also makes McCormick a high-profile target, she added. 

Wedbush analyst Daniel Ives said in a note to investors that McCormick's ruling wasn't a surprise and may not be the final word on Musk's pay. Tesla has already said it plans to appeal.

"This continues to be a soap opera playing out in Delaware."

The case is Tornetta v. Musk, 2018-0408, Delaware Chancery Court (Wilmington). 

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