The Brandywine Review

Commentary on American law

Corporate and Securities Law

Corporate and Securities Law

Tesla's board approved a compensation package for Elon Musk potentially worth $55.8 billion, a Delaware judge voided the entire grant for breach of the duty of loyalty, Tesla's own shareholders voted months later to reinstate it anyway, and the company reincorporated in Texas before its dispute with that judge's ruling had even finished working its way through Delaware's own appellate courts. Each step tested a different piece of Delaware fiduciary law, and taken together the sequence left more of that law unsettled than it resolved.

Delaware director decisions ordinarily get the protection of the business judgment rule, a presumption, restated in Aronson v. Lewis, 473 A.2d 805 (Del. 1984), that directors acted on an informed basis, in good faith, and in the honest belief that their decision served the corporation. A transaction involving a controlling stockholder gets no such presumption. Under Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983), it is instead reviewed for entire fairness, meaning both fair dealing, the process by which the deal was negotiated and approved, and fair price, with the burden on the defendant to prove both unless the transaction was cleansed by disinterested approval.

Tornetta v. Musk, 310 A.3d 430 (Del. Ch. 2024), applied entire fairness to Musk's 2018 pay package after finding him a controlling stockholder despite owning only about a fifth of Tesla's stock, on the strength of his outsized influence over the board and the committee that negotiated the grant. Chancellor McCormick found the process compromised, several committee members insufficiently independent of Musk, and the ratifying stockholder vote uninformed because Tesla's own proxy statement omitted material information, leaving the defendants unable to carry their burden on either prong of entire fairness. The remedy she ordered was total rescission of the grant.

Tesla's shareholders voted in June 2024 to reinstate the same package and, separately, to reincorporate the company in Texas. Neither vote undid the Delaware judgment by itself. Ratification after the fact does not retroactively cure a breach a court has already found, and the reincorporation vote changed only where Tesla would be governed going forward, not what had already happened in Delaware.

The Delaware Supreme Court reversed the remedy, though not the underlying merits, in In re Tesla, Inc. Derivative Litigation, No. 534, 2024 (Del. Dec. 19, 2025). The court took what it called a narrower path, holding that total rescission was an improper remedy because it left Musk uncompensated for six years of work that could not be given back to him, and that the burden of proposing an adequate alternative remedy remained the plaintiff's to carry rather than the board's. It left undisturbed, because it did not need to reach, the question of whether the compensation decision itself actually satisfied entire fairness. In place of the $345 million in fees the Court of Chancery had awarded on a percentage-of-benefit basis, the Supreme Court ordered $1 in nominal damages and fees calculated on a quantum meruit basis, using a four-times multiplier of the plaintiff's own counsel's lodestar, without itself fixing a final dollar figure.

While the appeal was pending, the Delaware legislature acted on its own. Senate Bill 21, signed into law in March 2025, amended DGCL § 144 to create a statutory safe harbor for controlling stockholder transactions, shielding directors, officers, and controllers from equitable relief and damages when a deal is approved by a genuinely independent special committee or by a fully informed vote of the disinterested minority, with a going-private transaction requiring both. Rutledge v. Clearway Energy Group LLC (Del. Feb. 27, 2026) upheld the amendment against a constitutional challenge, rejecting the argument that narrowing the Court of Chancery's available remedies for a cleansed transaction amounted to stripping its jurisdiction, and rejecting the argument that applying the safe harbor retroactively took a vested property right from stockholders who had already sued before the statute changed.

Civil RICO is the other major remedy corporate and securities plaintiffs reach for, and the fight over it is narrower but no less unsettled: how far a 1995 statutory amendment actually reaches.

The Private Securities Litigation Reform Act amended the civil RICO statute in 1995 to bar a plaintiff from relying on any conduct that would have been actionable as securities fraud to establish a RICO violation, codified at 18 U.S.C. § 1964(c), unless the defendant has already been criminally convicted of that fraud. Congress's target was double recovery, RICO's treble damages and its racketeering label being used to route around the securities laws' own more limited remedies. MLSMK Investment Co. v. JP Morgan Chase & Co., 651 F.3d 268 (2d Cir. 2011), read that bar broadly in a case arising from Bernard Madoff's fraud, holding it forecloses a RICO claim built on conduct that would have counted as securities fraud even where the particular plaintiff could never have brought that securities fraud claim herself, because no private plaintiff may sue for aiding and abetting a securities fraud at all. The nature of the conduct triggers the bar, the Second Circuit held, not whether the plaintiff in front of the court could actually have sued on it.

Otto Candies, LLC v. Citigroup Inc., 137 F.4th 1158 (11th Cir. 2025), reads the bar for a different set of plaintiffs: bondholders who never bought or sold anything, only held. Reviving RICO and aiding-and-abetting claims against Citigroup over financing extended to a Mexican oil contractor accused of defrauding its own bondholders, the Eleventh Circuit reversed chiefly on ordinary Rule 9(b) pleading grounds, and along the way rejected Citigroup's alternative argument that the PSLRA bar defeated the bondholders' RICO claims because they had merely held, rather than purchased or sold, securities. As the panel put it, it is unclear why the PSLRA would foreclose those claims when Supreme Court precedent already forecloses a securities suit premised on holding alone. Citigroup asked the Supreme Court to resolve what it called at least a three-to-one split among the circuits over how far the bar reaches. The Court denied certiorari on January 12, 2026, without comment.