Attorneys for Tesla, its principals and Elon Musk told Delaware's chancellor on Tuesday that the company's widely trumpeted corporate charter move from Delaware to Texas should doom a Court of Chancery consolidated stockholder suit challenging a string of actions by the company and Musk.

"The plaintiffs enthusiastically endorse the internal affairs doctrine" making the laws in the state of incorporation control, "except when it's inconvenient," Brian T. Frawley of Sullivan & Cromwell LLP, counsel to Tesla, told Chancellor Kathaleen St. J. McCormick during a late afternoon dismissal hearing.

"The immutable rules of directorial conduct are governed by the state of incorporation at the time of the conduct," Frawley said during arguments, citing Texas as the company's new official sheriff. "We submit that the application of the internal affairs doctrine at the time of the conduct at issue requires dismissal of these cases."

The comments and those in rebuttal sent to the chancellor long-brewing questions regarding which state's business laws govern Tesla and its often-in-the-news founder in the wake of the company's redomestication from Delaware to Texas in June 2024.

The charter relocation, validated by the chancellor earlier this year, followed a bitter court fight over Musk's $56 billion compensation package, struck down in January 2024 and often cited as a major spur for the company's exodus — along with legislation in Delaware that expanded liability shields for otherwise conflicted corporate acts, among other changes.

In the months since, stockholders have nevertheless continued to pursue suits accusing Musk of leveraging nonpublic Tesla information for sales of his stock and manipulating public markets, arguing in part that Tesla's new home did not immediately nullify duties under Delaware law.

Among other claims, the suit up for dismissal arguments on Tuesday accused Musk of using Tesla and its assets to promote his side businesses — including X, formerly Twitter, and xAI — at a cost to Tesla.

"There is nothing aspirational about a court order. There is also nothing aspirational about a code of ethics," said John T. Nicolaou of Lieff Cabraser Heimann & Bernstein, counsel to the Employees Retirement System of Rhode Island.

Nicolaou termed "remarkable" what he described as arguments that Tesla shareholder votes for directors named in the suit is "somehow a defense to a fiduciary duty claim."

"It is not true that the only important financial reporting obligation relates to finance," Nicolaou said. "The purpose of these requirements is to honestly inform shareholders about management conflicts of interest" and to comply with positive law.

Boris Feldman of Freshfields US, counsel to all the individuals named except Musk, said a strong majority of noncontroller shareholders support the company's initiatives, including those involving artificial intelligence. Litigation in Delaware, meanwhile, has focused on the Court of Chancery and its judicial officers, with arguments that they are protecting the rights of stockholders.

"But in the case of Tesla, for all current outside directors, in every election, they have been elected" by a majority ranging from 63% to 68%, with Musk holding his position by 95.3% most recently.

The largest of the now-consolidated suits, led by the Rhode Island employee pension fund, accused Musk of concealing his true intent to sell $16 billion worth of Tesla stock as his Twitter takeover took shape, allegedly allowing the shares to go for inflated prices to buyers kept in the dark about the true purpose.

Tesla's stock price dropped after the public learned of Musk's plan to buy Twitter, triggering reports that he and his brother Kimball, a board member, would have made $2 billion less on their sales had the plan come to light.

On Tuesday, however, Feldman told the chancellor that the company's shares hit a record high, valuing the business at $1.4 trillion — or 13 times that of Ford and General Motors combined — while shares have appreciated at more than double the rate of the S&P 500 index.

"This matters because it relates to why shareholders continue to support this board and its management, even though they may be unconventional," Feldman said.

Delaware's Supreme Court one day earlier took under advisement arguments on an appeal from Chancellor McCormick's strike-down of Musk's $56 billion, multiyear compensation plan last year, along with questions regarding how he could regain the original benefit if the decision is reversed.

In a brief, the stockholders argued that to the extent the case presents some novel issues, it is because "the [Tesla] directors are using unprecedented tactics to evade Delaware law."

The stockholders also argued that, although derivative cases can require an initial demand that independent stockholders first have a chance to pursue claims on behalf of the company, the strength of the case and board conflicts would have undercut Tesla's chance at recovery.

"A demand futility analysis turns on the independence of each person on the board," said Marcus E. Montejo of Prickett Jones & Elliott PA, counsel to the stockholders. "The whole point of the underlying policy demand is about the presumption of independence."

Tesla had argued that its conversion to a Texas corporation invalidated stockholders' claim that Delaware was the proper forum for the dispute, the complaint noted.

"The Texas bylaw's presumptive validity doesn't invalidate Delaware bylaws that govern this action," Montejo argued.

The litigation was consolidated under Employees' Retirement System of Rhode Island v. Elon Musk et al., case number 2024-0631; Cleveland Bakers and Teamsters Pension Fund et al. v. Elon Musk et al., case number 2024-0646; and Perry v. Musk et al., case number 2024-0560, with an order for coordination on briefing and dismissal arguments.

The Employees' Retirement System of Rhode Island is represented by Marcus Montejo, Bruce Jameson, Kevin Davenport, John Day and Seth Ford of Prickett Jones & Elliott PA and Daniel Chiplock, John Nicolaou, Sean Petterson, Richard Heimann, Katherine Benson and Bruce Leppla of Lieff Cabraser Heimann & Bernstein LLP.

The Cleveland Bakers and Teamsters Pension Fund as well as Daniel Hazen and Michael Giampietro are represented by Christine M. Mackintosh, Vivek Upadhya and William G. Passannante II of Grant & Eisenhofer PA, Thomas Curry, David J. Schwartz, David L. Wales and Adam D. Warden of Saxena White PA, and Brian Schall of The Schall Law Firm.

Tesla Inc is represented by Rudolf Koch and Andrew L. Milan of Richards Layton & Finger PA, John L. Reed and Ronald N. Brown III of DLA Piper, and Brian T. Frawley and Matthew A. Schwartz of Sullivan & Cromwell.

Elon Musk is represented by Michael A. Barlow, Shannon M. Doughty, Alex B. Spiro, Christopher D. Kercher and Jonathan E. Feder of Quinn Emanuel Urquhart & Sullivan LLP.

Tesla's directors are represented by David E. Ross, Garrett B. Moritz and Thomas C. Mandracchia of Ross Aronstam & Moritz LLP and Boris Feldman, Doru Gavril and Rebecca Lockert of Freshfields US.