Record Legal Fee Request
Tom Borman, LawFuel contributing editor
We reported recently on a record-breaking ‘first’ billion dollar legal fee in the Elon Musk executive compensation case – but away under-estimated – with the fee looking at several billion more.
The lawyers who successfully challenged Elon Musk’s $56 billion compensation package as excessive are now seeking a legal fee of $6 billion, to be paid in Tesla shares, according to court documents filed on Friday.
The three law firms behind the legal victory acknowledged the unprecedented nature of the requested fee, equivalent to an hourly rate of $288,888, as outlined in the filing submitted to the court of chancery in Delaware.
The rationale behind the substantial fee lies in the lawyers contending that Tesla, the electric vehicle manufacturer, directly benefited from the reinstatement of Elon Musk’s stock options.
The legal team estimates that Musk’s pay package, contested by Tesla shareholder Richard Tornetta in 2018 and annulled by a Delaware judge in January, will result in the return of 266 million shares to the carmaker.
In justifying the hefty fee, the legal team emphasized that the structure links the award directly to the benefit created, avoiding any impact on Tesla’s balance sheet. They also highlighted the tax-deductible nature of the fee for Tesla.
The fee request must gain approval from Judge Kathaleen McCormick, who presides over the case. In her January ruling, she deemed Musk’s pay as “unfathomable.” Neither Tesla, Musk’s legal representation, nor Musk himself has responded to requests for comment as of now.
It is anticipated that Tesla may contest the fee, considering a similar fee request in another case concerning director compensation. The legal firms seeking the $6 billion fee are Bernstein Litowitz Berger & Grossmann, (lead lawyer being Greg Varallo, left), Friedman Oster & Tejtel, both based in New York, and Andrews & Springer of Delaware.
The context of this fee request occurs amid ongoing deliberations in the Delaware Supreme Court regarding a $267 million fee appeal in a case involving Dell Technologies, settled for $1 billion.
Legal Fee Awards From Delaware
Delaware judges have previously emphasized that pursuing cases extensively through litigation, depositions, and trial efforts should merit a higher percentage of recovery to account for risk and exertion. However, critics argue that as settlements and judgments increase in size, attorneys should receive a diminishing percentage to prevent overcompensation.
The legal team, in this instance, asserted that the requested fee represents approximately 11% of the judgment.
Elon Musk’s pay package primarily comprised stock options allowing him to purchase Tesla stock at discounted prices, with a requirement to hold the stock for five years. The lawyers specified that they are seeking unrestricted stock without selling restrictions.
