Few people in the world have the power to order Elon Musk. One of them is a soft-spoken, small-town raised, 44-year-old judge from Delaware named Kathaleen McCormick.
When the world’s richest person tried to back away from buying Twitter in 2022, it was McCormick who stood in the way, taking a no-nonsense approach to a lawsuit that ended with Musk backing out and consummating the deal. And last month, it was McCormick who made a landmark ruling against Musk in a Tesla shareholder lawsuit that could ultimately cost him as much as $50 billion and the title of the world’s richest person.
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The decision, which found that Musk’s control over Tesla’s board led to him being awarded an unfairly lavish compensation deal, left Musk furious. “Never incorporate your company in the state of Delaware,” he posted on X, before promising to hold a vote among Tesla shareholders on moving the company’s incorporation to Texas. The case is ongoing and the two sides will next argue over attorneys’ fees before likely appealing to the Delaware Supreme Court later this year.
Although Tesla has yet to hold a shareholder vote, Musk announced Tuesday that he has filed to move the incorporation of his private space company SpaceX from Delaware to Texas.
In the three years since she became the first woman to lead Delaware’s influential Court of Chancery, McCormick has quickly established herself as a force to be reckoned with in the high-stakes sphere of corporate litigation, insiders say. At a time when multibillionaires like Musk seem to have little control over their power, McCormick’s sharply written opinions have sent a message: Don’t mess with Delaware.
“The reason Elon Musk often escapes the attention of other judges is because they don’t see through his fantasies,” said Lauren Pringle, editor of the Chancery Daily, a legal publication that covers the Delaware courts. “They get wrapped up and impressed. Not McCormick. She is as clear-eyed as ever and willing to use the slings and arrows that she knows will come with making a harsh ruling.”
These slings and arrows now include a campaign by Musk to take away Delaware’s special status in the business world. But even with 172 million followers on .
“I don’t see it getting serious attention,” Lawrence Hamermesh, a professor emeritus at Widener University Delaware Law School and an expert on the state’s legal system, said of the call for companies to leave Delaware. “He’s kind of a one-off.”
Because the state is home to the majority of Fortune 500 companies, Delaware has enjoyed decades of dominance in corporate litigation, thanks in part to a unique legal system that puts decisions in the hands of judges rather than juries. The State Chancellery prides itself on handling all types of business disputes quickly and predictably.
Taxes from these companies make up a significant portion of Delaware’s state budget, increasing pressure on the courts to maintain the state’s business-friendly reputation.
“One description is that they are selling corporate law as a product,” said Edward Rock, a law professor at New York University, referring to a coin by legal scholar Roberta Romano. “They market it, they care about it, they keep it updated.”
For decades, the face of that product in Delaware was often old, white and male. Now it’s McCormick, a native of sleepy Smyrna, Del. – 13,000 inhabitants – who has risen to the top of the world of corporate law.
The daughter of the Irish Catholic McCormick, a public high school teacher, underwent spinal surgery at age 15 for scoliosis, but that didn’t stop her from playing softball and track. An academic standout, she was the rare Smyrna High student to attend Harvard, where she studied philosophy — and built an elaborate dorm bar that was the envy of her roommates.
McCormick has always been tough, her older brother, Sean McCormick, said during a 2019 ceremony in which she was sworn in as vice chancellor. “Kate doesn’t let herself be fooled,” he said. “Don’t be one. If so, she might call you the names her brothers called her when they helped her build her character.
After law school at Notre Dame, she returned to Delaware to start a family her career at a legal aid foundation, which is not the typical launching pad for a future Chancery Court judge.
“You’re dealing with the public interest, and you actually have real people whose future depends on what the court does,” Rock said, including cases involving evictions. “If you’ve had to deal with these kinds of real issues, I think you feel like you’re not intimidated by the kinds of things that corporate lawyers argue about.”
Motivated by family and personal considerations, McCormick left the nonprofit sector to become a corporate attorney at Young, Conaway, Stargatt & Taylor in Wilmington, Del., before being appointed to the court by Governor John Carney (D). Vice-Chancellor in 2018 and then Chancellor in 2021. She took charge of a role full of high-profile legal cases.
When Twitter sued Musk in 2022 over his attempt to avoid buying the company for $44 billion, McCormick conceded the case to herself rather than delegate what was sure to be a controversial, high-profile case to one of her vice chancellors.
She quickly put her stamp on the proceedings, rejecting requests from Musk’s lawyers to delay the trial so they could investigate whether Twitter hid evidence from Musk about the prevalence of bots on the platform. ‘We’ll never know, right? Because due diligence was not done,” she said, referring to the due diligence that Musk waived by agreeing to the deal.
With the trial underway, Musk opted to proceed with the purchase.
McCormick also presided over a lawsuit filed by a Tesla shareholder alleging that Musk’s 2018 compensation package, which reached a world-record value of nearly $56 billion in performance-based stock awards, was excessively generous. Attorneys for the plaintiff, Richard Tornetta, argued that Musk himself had control over the process by which Tesla’s board reached the deal, and that the board failed in its duty to fully inform shareholders before voting to approve the deal to approve. (In the vote, 73 percent of the shares represented at the meeting approved the deal; Musk and his brother Kimbal Musk, a board member, were not eligible to vote on their shares.)
Musk’s lawyers countered that the board had followed proper procedures and that Musk’s compensation was only so lavish because his phenomenal leadership drove the company’s stock to improbable heights – resulting in huge returns for shareholders.
In a factually detailed 200-page opinion, which McCormick peppered with her trademark puns, she concluded that Musk had in fact set his own terms, enriching himself more than necessary at the expense of other shareholders, and that the appropriate remedy was to nullify explaining the reward. package altogether. In discussions with the board about his pay, McCormick wrote: “Musk launched a self-driving process, gradually recalibrating speed and direction as he saw fit.”
McCormick rejects Musk’s claim that the pay negotiations must have been thorough because they took nine months and 10 meetings, writing: “Time spent only matters if it is well spent.”
McCormick’s role in the case is not over yet. The plaintiffs indicated in a letter to the court on Tuesday that they will seek attorneys’ fees from Tesla, which is likely to resist paying what Pringle said could be a very large amount. Meanwhile, Musk’s side will seek a stay of McCormick’s sentence pending an appeal, which would only be filed after she rules on legal costs.
Musk attorney Alex Spiro did not respond to a request for comment. Greg Varallo, co-lead attorney for the plaintiffs, said he expects Musk will appeal. But he scoffed at the idea that Delaware’s reputation will suffer from McCormick’s ruling.
“Investors in Delaware companies should welcome this outcome and insist that companies locate and remain in Delaware,” he said. “Because the court has once again shown that it is there to protect investors from overreaching controllers.”
Musk and Tesla will also have to decide when and how to implement his intention to move Tesla’s incorporation from Delaware to Texas, where Musk lives and the company is headquartered. To do this, a new shareholder vote is required, the outcome of which is uncertain.
Five business law experts said that while reasonable people could disagree with certain aspects of McCormick’s opinion, it was well-reasoned and generally appeared to be consistent with precedent. Given that, all five agreed that the statement was unlikely to spark the outrage from the rest of the business community that it did from Musk.
“I don’t expect a mass migration of companies from Delaware,” said Michal Barzuza, a law professor at the University of Virginia who specializes in corporate governance. According to her, the state’s legal expertise and large body of case law provide a relatively predictable legal environment, which most companies – and the lawyers and investors who advise them – prefer.
According to Barzuza, the biggest blow to Delaware’s system over the years has been that it is too friendly to businesses; the Chancery Court previously sided with Musk in a shareholder lawsuit challenging Tesla’s $2.6 billion acquisition of solar panel company SolarCity. But she said she does worry that states like Nevada could put pressure on Delaware courts by trying to lure companies with even laxer systems that make it harder to hold directors and officers accountable.
Still, Pringle doubts that many companies would be eager to make the switch. “Uncharted waters are generally not lawyers’ favorite places to swim. No general counsel in their right mind would recommend the company in a state with very little case law.”
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Faiz Siddiqui contributed to this report.
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