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Delaware Supreme Court Reverses Rescission Of CEO Compensation Package Where Status Quo Ante Cannot Be Restored
12/23/2025On December 19, 2025, the Delaware Supreme Court issued a unanimous per curiam opinion that affirmed in part and reversed in part the Court of Chancery’s post-trial decision rescinding Tesla’s CEO’s $55.8 billion compensation package. In re Tesla, Inc. Deriv. Litig. No. 534, 2024 (Del. Dec. 19, 2025). The Supreme Court reinstated the CEO’s 2018 compensation package, holding that rescission was an improper remedy because the parties could not be restored to the status quo ante and the Court of Chancery improperly placed on defendants the burden to establish a viable alternative to total rescission. The Court awarded the plaintiff $1 in nominal damages and awarded plaintiff counsel fees on a quantum meruit basis with a four-times lodestar multiplier (approximately $54.5 million), a significant reduction from the $345 million awarded by the Court of Chancery.
As discussed in our prior post, Chancellor Kathaleen St. J. McCormick of the Court of Chancery held that the process and price of the 2018 compensation package were not entirely fair and the 2018 stockholder vote was uninformed. As a remedy, she ordered rescission, finding that the grant option could be unwound, that the CEO had been properly compensated for his work based on the profits earned from his existing stock holdings, and that defendants failed to propose a viable alternative remedy. After the grant was rescinded, a special committee of the Company’s board ratified the CEO’s 2018 compensation package, which included vested stock rights because the CEO had achieved all the milestones on which the compensation package was conditioned. This ratified package was approved by a majority of company stockholders in a June 2024 vote. The Director Defendants filed a motion to revise the post-trial opinion, arguing that the compensation package had been effectively ratified. In December 2024, the Court of Chancery denied that motion and awarded $345 million in attorney’s fees to the plaintiff’s counsel. Defendants appealed.
On appeal, the Director Defendants contended the Court of Chancery erred in granting rescission for two reasons: first, rescission could not restore the parties to the status quo ante because the CEO had performed based on the agreed-upon compensation package; and second, the court improperly shifted the burden to the defendants to identify a viable alternative to complete rescission of the award. The plaintiff responded that defendants failed to timely object to rescission as an impermissible remedy and did not carry their burden of identifying an alternative remedy.
The Delaware Supreme Court held that, although the defendants raised their rescission arguments only in a post-trial supplemental brief, those arguments were not waived because the Court of Chancery addressed them in the decision under review. Having established that, the Supreme Court concluded that rescission was not appropriate. While the Company could be restored to the status quo, the Court found that the CEO, who had met all the performance requirements of his 2018 compensation grant, could not. The Court found that rescission would render him uncompensated for six years’ worth of work, rejecting findings by the Court of Chancery that his existing equity and compensation grants awarded for a prior period were sufficient compensation. The Court noted that the plaintiff did not explain how the CEO was fairly compensated in light of the significant differences between the milestones and compensation promises in the 2012 and 2018 grants.
The Court additionally held that the defendants’ failure to propose an alternative to the rescission of the entire 2018 grant did not prevent the Court of Chancery from fashioning a different remedy or a narrower form of rescission. Instead, the Court noted that it was the plaintiff’s burden to establish an entitlement to rescission or any alternative remedy. The Court noted that Valeant Pharmaceuticals v. Jerney, 921 A.2d 732 (Del. 2007) (“Valeant”)—on which the Court of Chancery relied to place a burden on defendants to offer an alternative to total rescission—concerned the distinct remedy of disgorgement and was therefore inapplicable. Valeant was also inapposite because the disgorged bonuses were paid to parent company managers who would not be involved in the spun-off company’s operations, making the bonuses difficult to justify. The Court contrasted that with the present case, where the CEO’s entire compensation package was rescinded despite the CEO having achieved all required milestones.
The Delaware Supreme Court’s narrow, remedy-focused ruling concludes years of closely watched litigation regarding the compensation package without addressing the Court of Chancery’s findings that the package was not entirely fair to Tesla’s stockholders and that the subsequent affirmative vote of Tesla’s disinterested stockholders could not retroactively ratify the rescinded package.
