Lawyers Seek Record $6 Billion Legal Fee in Voided Elon Musk Compensation Package Case
Elon Musk, the CEO of Tesla, has found himself in the midst of a legal battle over his voided $56 billion compensation package. The lawyers who successfully argued for the package to be rescinded are now seeking an unprecedented $6 billion legal fee, payable in Tesla stock. This exorbitant request has raised eyebrows and sparked controversy within the legal and business communities.
The law firms involved in the case filed a document with the Delaware Court of Chancery, acknowledging that their requested fee is of an unprecedented size. They argue that it equates to an hourly rate of $288,888 for representing Tesla shareholder Richard Tornetta in the lawsuit. The lawyers’ request comes after a Delaware judge voided Musk’s compensation package due to undisclosed ties with the directors who approved the deal and easier performance targets than initially acknowledged.
Elon Musk himself took to X (formerly Twitter) to express his disdain for the lawyers’ fee request. In a post, he wrote, “The lawyers who did nothing but damage Tesla want $6 billion. Criminal.” Musk’s strong reaction highlights the contentious nature of this legal battle and the potential implications it may have for Tesla.
The lawyers are seeking payment from Tesla because they argue that the company benefited from the voiding of Musk’s pay package. They claim that this will result in the return of 266 million shares of stock. The structure of their fee request aims to link the award directly to the benefit created, avoiding any direct impact on Tesla’s balance sheet. Additionally, they assert that the fee would be tax-deductible for the company.
However, it remains to be seen whether Tesla will object to the requested legal fee. In a similar case challenging its directors’ pay, Tesla did raise objections. As of now, the company has not responded to requests for comment on this matter.
The requested $6 billion fee is unprecedented in the realm of shareholder cases. Historically, the largest settlements in such cases have occurred in federal court, with the highest fee reaching $688 million. This fee was awarded to the legal team that secured a $7.2 billion settlement in a securities fraud case involving Enron’s failure. The Delaware Supreme Court is currently considering an appeal of a $267 million fee in a case that settled for $1 billion, which involved Dell Technologies.
Delaware judges have previously stated that law firms pursuing cases through extensive litigation, including depositions and trials, should receive a higher percentage of the recovery to reflect the risk and effort involved. In the case of Musk’s compensation package, the trial lasted one week. Critics argue that as settlements and judgments increase in size, attorneys should collect a declining percentage to avoid excessive compensation.
Under the terms of his compensation plan, Musk was granted stock options at discounted prices and was required to hold the stock for five years. The shareholder’s legal team is now seeking stock without any restrictions on selling it.
The shareholder’s legal team consists of three law firms: Bernstein Litowitz Berger & Grossmann, Friedman Oster & Tejtel, both based in New York, and Andrews & Springer of Wilmington.
As this legal battle unfolds, it raises important questions about executive compensation and the role of lawyers in shareholder cases. The outcome of this case will undoubtedly have far-reaching implications for both Tesla and the legal landscape surrounding corporate governance.
