On December 19, 2025, the Delaware Supreme Court issued its highly-anticipated opinion in In re Tesla, Inc. Derivative Litigation, a closely watched appeal of the Court of Chancery’s post-trial decision to rescind Tesla CEO Elon Musk’s 2018 compensation plan.[1] 

In an unsigned per curiam opinion, the Supreme Court determined that equitable rescission of the 2018 compensation plan—the sole remedy that the plaintiff sought––was improper.  Instead, the Supreme Court awarded $1 in nominal damages.  The decision shows the high standard for equitable rescission: plaintiff must demonstrate that all parties can be restored to the status quo ante.  In so ruling, the Court did not address other key issues, including the Court of Chancery’s rulings that Musk exercised situational control over Tesla and that Tesla stockholders’ post-trial vote in favor of the plan was insufficient to ratify it.  The Supreme Court also rejected the trial court’s $345 million fee award to plaintiff’s counsel, instead awarding approximately $54 million in fees.

Background

In 2018, Tesla’s Board of Directors approved a compensation plan for Tesla’s CEO, Elon Musk.  The plan granted Musk 12 tranches of stock options, which vested upon achieving certain milestones.  A majority of disinterested stockholders voted to approve the plan.  By the time of trial, all the requisite milestones had been achieved.

Shortly after the plan’s approval, a single stockholder holding nine shares of Tesla stock sued in the Court of Chancery.  Following a five-day trial, the Court issued a decision in favor of the plaintiff.  The Court determined that Musk—despite holding 21.9% of Tesla stock—exercised situational control over the negotiation of the plan and thus applied the entire fairness standard of review.  The Court concluded that the plan was not entirely fair to Tesla and that Tesla’s board failed to disclose material information about the plan.  The Court of Chancery ordered the rescission of the entire 2018 compensation plan, which was the sole remedy the plaintiff sought after trial.  According to the trial court, all parties would be restored to the status quo ante, and Musk would not be left uncompensated because his preexisting equity stake benefited from his efforts.

After the Court of Chancery’s post-trial decision, Tesla solicited and obtained stockholder approval to reincorporate Tesla in Texas.  At the same time, a majority of disinterested Tesla stockholders also voted in favor of Tesla’s proposal to ratify the 2018 compensation plan despite the Court of Chancery’s ruling.  Invoking the ratification vote, Tesla sought to revise the Court of Chancery’s judgment, which the Court denied.  The Court then awarded plaintiff’s counsel $345 million in attorneys’ fees—a record award, but far less than the nearly $6 billion award that had been sought.

The Supreme Court’s Opinion

The Delaware Supreme Court resolved the appeal by focusing on the narrow issue of whether rescission was an appropriate remedy.  Describing rescission as an “extreme” remedy, the Supreme Court held that a plaintiff bears the burden to establish that (1) equitable rescission is a viable remedy and (2) the court can restore all of the transaction’s parties to the status quo ante.  Conversely, a defendant can defeat a claim for equitable rescission by demonstrating the impracticability or impossibility of returning to the status quo ante. 

In this case, the Supreme Court concluded that a return to the status quo ante was neither possible nor equitable because Musk exerted time and effort to meet the plan’s milestones, but rescission left him uncompensated for these efforts.  Although Musk’s pre-existing equity provided a powerful incentive to improve the company, it was not legal consideration for his many years of labor following the 2018 option grant.  In addition, the Supreme Court explained that it was impossible to restore the parties to their original negotiating positions because of the massive increase in Tesla’s market value since 2018.  The Court also ruled that the plaintiff has the burden of establishing entitlement to rescission.  Because plaintiff did not seek another form of relief after trial, the Supreme Court awarded nominal damages of $1. 

The Court also modified the $345 million fee award to plaintiff’s counsel.  Applying a quantum meruit approach, the Supreme Court awarded plaintiff’s counsel four times the value of their services, or approximately $54 million.

Takeaways

Plaintiffs face a high bar for securing equitable rescission.  Plaintiffs carry the burden of showing that a court can restore all parties to the status quo ante.  If a party performs in light of consideration, rescinding that consideration will likely leave the party uncompensated.  And past consideration will not substitute for the rescinded consideration. 

The Delaware Supreme Court avoided several high-profile issues.  By limiting its ruling to the propriety of rescission, the Supreme Court avoided addressing numerous other issues raised in the appeal, including Musk’s status as a controlling stockholder with respect to the plan and the effect of the post-trial stockholder vote to ratify the plan following the trial court’s ruling.  The Supreme Court also avoided commenting on the trial court’s findings relating to the directors’ independence, the negotiations over the equity plan, and Tesla’s disclosures to stockholders, although the opinion noted that “the Justices have varying views on the liability determination.”    

The Court reduced the fee award.  In light of its reversal on rescission and award of $1 in nominal damages, the Supreme Court dramatically reduced the plaintiff’s fee award.  Rather than calculate an award based on the benefit conferred, the Court applied the traditional lodestar approach, calculating the award as a multiple (4x) of the value of the attorneys’ services.  By comparison, the initial nearly $6 billion fee request before the Court of Chancery equated to a multiplier of 413x.  The Supreme Court declined, however, to reduce the fee to zero, concluding that “Tesla and its stockholders had benefited from counsel’s efforts.”

[1] Hunton Andrews Kurth LLP represented the U.S. Chamber of Commerce as amicus curiae before the Delaware Court of Chancery and the Delaware Supreme Court.