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In a 2024 post-trial decision, the Delaware Court of Chancery held that Elon Musk was Tesla’s controlling stockholder, and that he failed to carry his burden to demonstrate that his 2018 CEO compensation package, initially valued at around $56 billion, was entirely fair to Tesla. As a remedy, the Court of Chancery ordered rescission of the award. See Tornetta v. Musk, 310 A.3d 430 (Del. Ch. 2024).
In this recent decision addressing Musk’s appeal, the Delaware Supreme Court, sitting en banc, reversed the Court of Chancery’s holding that rescission was an appropriate remedy. See In re Tesla, Inc. Deriv. Litig., ___ A.3d __, 2025 WL 3689114 (Del. Dec. 19, 2025). In a per curiam opinion, the Supreme Court wrote, “Although the Justices have varying views on the liability determination, we agree that rescission was an improper remedy and therefore choose that narrower path to resolve this appeal.”
The Supreme Court explained that ultimately the sole remedy the plaintiff sought was “equitable rescission”—a remedy that may be used to address breaches of fiduciary duty, and which involves setting aside an instrument or obligation. The Supreme Court reasoned that a plaintiff seeking equitable rescission must show it is viable to “restore all of the challenged transaction’s parties to the status quo ante (i.e., the position they occupied before the transaction).” Thus, a party seeking rescission “cannot be permitted to derive all possible benefits from the transaction, and then, when he is called upon to comply with its terms, claim to be relieved of his obligation . . . .” The Supreme Court further reasoned that while rescissory damages may be available when a true return to the status quo ante is not possible, the plaintiff here did not seek rescissory damages.
The Supreme Court ruled that rescission was not appropriate here because “total rescission leaves Musk uncompensated for his time and efforts [as CEO] over a period of six years.” The Court noted that, as a general matter, a ruling granting rescission should result in the reversal of the consideration both sides receive in the transaction. Here, the plaintiff argued that rescission was fair, because Musk already had a large equity stake in Tesla under prior compensation packages, through which he financially benefited from his work to increase Tesla’s value. But the high Court explained, such financial benefits to Musk were not “new” consideration for his years of additional service. Finally, the Supreme Court explained that, although the defendants’ actions were subject to the entire fairness standard, the plaintiff nonetheless bore the burden to show that the remedy of rescission was appropriate, and also to seek any alternate remedies short of total rescission.
In the absence of proof of an alternate viable remedy, the Delaware Supreme Court ruled that only nominal damages of $1 were appropriate. The Supreme Court also accordingly reversed the Court of Chancery’s $345 million fee award for the plaintiff’s counsel, which had been based on the benefit to Tesla of setting aside Musk’s 2018 compensation. The Supreme Court ruled that a reduced fee award of $54.5 million, representing four times plaintiffs’ counsel’s lodestar, was appropriate under principles of quantum meruit.
Originally published in the American Bar Association's Business Law Today
The Court noted that, as a general matter, a ruling granting rescission should result in the reversal of the consideration both sides receive in the transaction. Here, the plaintiff argued that rescission was fair, because Musk already had a large equity stake in Tesla under prior compensation packages, through which he financially benefited from his work to increase Tesla’s value. But the high Court explained, such financial benefits to Musk were not “new” consideration for his years of additional service.
