Federal Judges Deal Elon Musk Two Legal Setbacks in a Single Day

Two separate federal court rulings have struck legal and financial blows against Elon Musk and his business interests, raising questions about whether the world’s richest man is losing leverage in the court system he’s long relied on to defend his corporate strategies.

On Monday, a judge in Delaware formally invalidated Musk’s $56 billion Tesla compensation package, denying the company’s request to move its incorporation to Texas. That same day, a federal judge in California ruled against Musk’s attempt to dismiss a lawsuit accusing him of illegally firing employees at SpaceX who had circulated an internal letter criticizing his behavior.

The Delaware decision directly affects the most valuable CEO pay package ever created. Judge Kathaleen McCormick denied Tesla's motion to transfer its incorporation from Delaware to Texas, which the company had hoped would retroactively affirm shareholder approval of Musk’s compensation. She ruled that the original shareholder vote on Musk's 2018 pay package had not been fully informed due to undisclosed conflicts of interest among Tesla’s board members.

Tesla attempted to shift its corporate charter after McCormick voided the pay package in January, stating that Musk had undue influence over the supposedly independent directors who approved it. Monday’s ruling now cements her earlier opinion, keeping Tesla under Delaware jurisdiction and invalidating the proposed Texas move.

Tesla claimed that 77% of shareholders voted in favor of reincorporation to Texas. McCormick concluded that such votes did not repair the flawed process used to approve Musk’s compensation. She emphasized that the Texas vote did not constitute a ratification of the original pay package because shareholders still lacked full information at the time.

In California, Judge Maggie B. Corley rejected Musk’s request to throw out a wrongful termination lawsuit filed by eight former SpaceX employees. These workers claim they were fired after distributing a letter calling Musk’s online behavior damaging to the company’s culture. Musk’s lawyers argued that the letter itself disrupted SpaceX’s mission and violated internal policies.

Corley dismissed those arguments. She stated that the terminated employees had exercised protected rights under the National Labor Relations Act. She ruled that Musk’s defense failed to show that the firings were lawful or that the internal letter disrupted business operations to a degree that would justify dismissal.

The California ruling moves the case toward trial. It also affirms the position of the National Labor Relations Board, which has supported the fired workers’ claims since 2022. If SpaceX loses at trial, the company could face orders to reinstate the employees or pay damages.

The dual rulings came just hours apart. Neither involved criminal charges, but both potentially carry long-term consequences. Musk could lose tens of billions in stock options if the Tesla compensation package remains void. He also risks reputational harm and further scrutiny into labor practices at his companies.

The Delaware ruling may increase shareholder pressure on Tesla’s board to renegotiate Musk’s compensation. Several investors have raised concerns about the pay package's scale and the influence Musk holds over board members. The board has not signaled plans for a revised compensation deal.

The California decision draws attention to Musk’s management style and public conduct, which critics say can alienate workers and investors. The internal letter cited examples of Musk's tweets and online behavior as distractions that conflicted with SpaceX's workplace values.

Musk’s legal team has not yet announced plans to appeal either ruling. Tesla has not released a statement following the Delaware court’s decision, and SpaceX has declined to comment on the wrongful termination case.

Episode Transcript

(00:01):
Hey everybody, welcome back to the Elon Musk Podcast.
This is a show where we discuss the critical crossroads that
shape SpaceX, Tesla X, The Boring Company, and Neurolink.
I'm your host Will Walden. 2 separate federal court rulings
have struck legal and financial blows against Elon Musk and his

(00:24):
businesses. This raises questions about
whether the world's richest man is losing leverage in the court
system he's long relied on to defend his corporate strategies.
On Monday, a judge in Delaware formally invalidated Musk $56
billion Tesla compensation package, denying the company's
request to move its incorporation to Texas.

(00:45):
That same day, a federal judge in California ruled against
Musk's attempt to dismiss a lawsuit accusing him of
illegally firing employees at SpaceX who had circulated an
internal letter criticizing his behavior.
The Delaware decision directly affects the most valuable CEOP
package ever created. The judge denied Tesla's motion

(01:07):
to transfer its incorporation from Delaware to Texas, which
the company had hoped would retroactively affirm shareholder
approval of Musk's compensation.She ruled that the original
shareholder vote on Musk's 2018 pay package had not been fully
informed due to undisclosed conflicts of interest among
Tesla's board members. Now, Tesla attempted to shift

(01:28):
its corporate charter after McCormick voided the pay package
in January, stating that Musk had undue influence over the
supposedly independent directorswho approved it.
Monday's ruling now cements her earlier opinion keeping Tesla
under Delaware jurisdiction in invalidating the proposed Texas
move. Tesla claimed that 77% of

(01:50):
shareholders voted in favor of reincorporating to Texas, and
McCormick concluded that such votes did not repair the flawed
process used to approve Musk's compensation.
She said that the Texas vote didnot constitute a ratification of
the original pay package becauseshareholders still lacked full
information at that time. But in California, Judge Maggie

(02:11):
B Corley rejected Musk's requestto throw out a wrongful
termination lawsuit filed by eight former SpaceX employees.
These workers claimed they were fired after distributing a
letter calling Musk's online behavior damaging to the
company's culture. Musk's lawyer argued that the
letter itself disrupted Spacex'smission and violated internal

(02:35):
policies. Corley dismissed those
arguments, though she stated that the terminated employees
had exercised protected rights under the National Labor
Relations Act. She ruled that Musk's defense
failed to show that the firings were lawful or that the internal
letter disrupted business operations to a degree that
would justify dismissal. California ruling moves the case

(02:56):
towards trial and also affirms the position of the National
Labor Relations Board, which hadsupported the fired workers
claims since 2022. Now if SpaceX loses at trial,
the company could face orders toreinstate the employees or pay
multiple hundreds of $1,000,000 in damages.
Now the dual ruling came just hours apart though neither

(03:19):
involved criminal charges, but both potentially carry long term
consequences. Musk could lose 10s of billion
dollars in stock options if the test the compensation packets
remains void. He also risks reputational harm
and scrutiny to labor practices and all of his companies, not
just SpaceX, because the way that he and SpaceX treated those

(03:42):
employees. Now, the Delaware ruling may
increase shareholder pressure onTesla's board to renegotiate
Musk's compensation money. Several investors have raised
concerns about the pay packages scale, the biggest of all time,
and the influence that Musk holds over all the board
members. You know.
The board has not signaled plansfor a revised compensation deal.

(04:04):
The California decision draws attention to Musk's management
style and public conduct, which critics say can alienate workers
and investors. The internal letter cited
examples of Musk's tweets and online behavior as distractions
that conflicted with Spacex's workplace values.
Musk's legal team has not yet announced plans to appeal to
either ruling. But I'm sure they will.

(04:26):
Tesla has not released a statement following the Delaware
court's decision, and SpaceX declined US for a comment on the
wrongful termination case. Now, these rulings arrive during
a period when Musk is attemptingto balance leadership roles
across multiple companies. He is the CEO of Tesla and
SpaceX, Leeds, XAI, and also X, amongst other things.

(04:51):
So he has a lot on his plate, and the outcome of both of these
legal cases will shape how Musk negotiates power within his
company and manages his shareholders and his employees
going forward. Now that he is put on a blast
and people know that the court system is after him, he will of

(05:14):
course deny any charges and so will Tesla and SpaceX.
And the court decisions restricthis ability to use corporate
governance maneuvers or at will employment defenses without
deeper oversight. So going forward, Musk and his
companies will have to abide by those rules.
So Musk's public responses to lawsuits often include dismissal

(05:40):
of the judiciary or personal attacks on the plaintiffs.
He's a very spiteful person. And I'm just saying this as
somebody who does a podcast about Elon Musk.
He is very ruthless and he doesn't put up with anything,
thinks he's right most of the time in these, you know, in

(06:00):
these sort of situations. So we're going to see where this
goes. But so far he has made no
remarks regarding either ruling because I'm sure if he did, he
would they'd rule against him because, you know, he kind of
has a loud mouth. As we all know.
He's kind of a kind of those people that just talks and then
doesn't regret it later because he has all the money in the
world to protect himself. Let's be honest here.

(06:24):
Where is the lie? It's the truth and I'm a big
proponent of Elon and his companies.
So I'm just telling you how I feel about this.
You know, he's got some moves coming up he might fight or
SpaceX and Tesla could settle. I don't think they're going to

(06:44):
settle though, because if they settle, they're going to show
that they were wrong. And going forward, there will be
a multiple lawsuits because people know that they can win a
bunch of money. So if you're a just think about
it like this, you're a low levelor even mid level Tesla
employee, you're making about $120,000 a year, which is pretty

(07:06):
good money. And you know that, you know, if
you act up a little bit, you send a note around saying that
Elon is harming the, you know, harming Tesla by the things he
does online and then you get fired instead of your $120,000 a
year paycheck, which is great money.

(07:29):
It's good money. What if you're getting a couple
million just for doing that? Just the chance that you could
win $5,000,000 and then it wouldbe life changing money for you.
So if they settle, there could be more lawsuits like this.
Tesla and SpaceX both have to protect themselves in this, so

(07:53):
we're going to see what happens.I'll keep you abreast of all the
latest changes in these and see what the outcomes are.
But for now, nothing from Tesla,nothing from SpaceX, nothing
from Elon. We've asked them all.
No one's responded. Of course it's a legal matter.
They're not going to, you know, the, the people that were saying

(08:18):
that Elon fired them without cause.
They can get a bunch of money. So they might become rich really
quick. Hey, thank you so much for
listening today. I really do appreciate your
support. If you could take a second and
hit the subscribe or the follow button on whatever podcast
platform that you're listening on right now, I greatly

(08:40):
appreciate it. It helps out the show
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