Musk's $55B pay package continues to be scrutinized in court

Lawyers say the massive pay package should be voided because Musk dictated the terms, which the CEO denied

Elon Musk's massive pay package from 2018 is still under scrutiny in a Delaware court.

Attorneys for a Tesla shareholder urged the judge on Tuesday to invalidate a 2018 compensation package awarded by the company’s board of directors that is potentially worth more than $55 billion.

The latest arguments follow a November trial at which Musk denied he dictated the terms of the package or attended any meetings at which the plan was discussed by the board, its compensation committee, or a working group that helped develop it.

The shareholder's lawyers argue that the compensation package should be voided because it was dictated by Musk and the product of sham negotiations with directors who were not independent of him. 

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Tesla CEO Elon Musk

Photo illustration of Elon Musk in front of Tesla logo (Getty Images / Getty Images)

They also say it was approved by shareholders who were given misleading and incomplete disclosures in a proxy statement.

Delaware courts often defer to the "business judgment" of corporate directors in decision-making absent a showing of wrongdoing. 

Attorney Greg Varallo argued that the Tesla defendants should be required to show that the compensation plan was "entirely fair" to stockholders because Musk was a controlling shareholder.

Varallo told Chancellor Kathaleen St. Jude McCormick that Musk should be forced to give back some, if not all, of the stock option grants he has earned.

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Tesla logos (AP Photo/David Zalubowski / AP Newsroom)

McCormick is the same judge who forced Musk to purchase Twitter for $44 billion when he tried to back out of his agreement to buy the social media platform.

Defense attorneys countered that the pay plan was fairly negotiated by a compensation committee whose members were independent, contained performance milestones that were so lofty they were ridiculed by some Wall Street investors, and blessed by a shareholder vote that was not even required under Delaware law. 

Musk, who owned about 22% of Tesla when the plan was approved, would get stock equal to 1% of outstanding shares at the time of the grant. His interest in the company would grow to about 28% if the company’s market capitalization grew by $600 billion.

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A Tesla vehicle drives past Tesla's primary vehicle factory in Fremont, California. (REUTERS / Reuters Photos)

Tesla has achieved all 12 market capitalization milestones and 11 operational milestones, providing Musk nearly $28B in stock option gains, according to a post-trial brief filed by plaintiff’s attorneys. 

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Defense attorney Evan Chesler said the compensation package was a "high-risk, high-reward" deal that benefited not just Musk, but Tesla shareholders who have seen the value of the company climb from $53 billion to more than $600 billion, having briefly hit $1 trillion last year.

The Associated Press contributed to this report.