In a landmark legal maneuver, attorneys who successfully challenged the legality of Tesla CEO Elon Musk's $56 billion compensation package have made an audacious request to a Delaware judge for a fee of nearly $6 billion in Tesla stock. This request, if granted, would set a new precedent for attorney compensation, far surpassing the previous record of $688 million awarded in 2008 for Enron-related class actions.
The legal team, representing plaintiff Richard Tornetta, argued that their efforts have substantially benefited Tesla shareholders by contesting Musk's 2018 pay package, which was deemed excessive by the Delaware Chancery Court. The court's ruling, which highlighted flaws in the board's approval process and Musk's undue influence, has led to the potential return of 266 million shares to the company.
The attorneys have proposed taking their fee in the form of just over 11% of the Tesla shares initially allocated to Musk, amounting to more than 29.4 million shares. At the closing price of $202.64 per share last Friday, the requested fee totals approximately $5.96 billion. The lawyers defend their proposal as a method of aligning their interests with those of Tesla shareholders, emphasizing that it would not impact Tesla's balance sheet and would be tax-deductible for the company.
However, the request raises questions about the appropriateness of such a large fee, calculated at an hourly rate of $305,550 based on 19,499.95 logged hours. The legal team argues that their contingency basis for taking the case justifies the amount, as they risked receiving nothing had they lost. They also point out that Delaware law might entitle them to a third of the "quantifiable conferred benefit" to Tesla shareholders, although they have chosen to request a more "conservative" 11%.
This fee request comes at a time when Tesla may also contend with a similar fee request in a case concerning the pay for its directors. Moreover, the Delaware Supreme Court is currently deliberating on an appeal against a $267 million fee in a $1 billion settlement involving Dell Technologies, spotlighting the ongoing debate over attorney compensation in large-scale settlements and judgments.
The case, overseen by Judge Kathaleen McCormick, who described Musk's pay as "unfathomable," now awaits her decision on the fee request. This decision will not only impact the involved legal teams but could also set a significant precedent for future cases involving large corporate settlements.
