The legal representatives who effectively invalidated Elon Musk's $56 billion compensation package on the grounds of excessiveness are currently pursuing a record-breaking $6 billion legal fee, to be compensated in the form of Tesla's stock, the electric vehicle manufacturer.
In a filing presented to the Court of Chancery in Delaware, the three law firms involved acknowledged the unprecedented nature of their fee request in terms of sheer magnitude. They elaborated that the requested fee equates to an astronomical hourly rate of $288,888.
Elon Musk swiftly condemned the request, denouncing it as "criminal" through a post on his X platform, contending that the legal practitioners, who he claimed had inflicted harm upon Tesla, were now demanding $6 billion.
Neither Tesla nor Musk's attorney has issued an immediate response to requests for commentary on the matter.
The legal representatives for Richard Tornetta, a shareholder who initiated the lawsuit against Musk in 2018 concerning the contentious compensation package, are seeking compensation from Tesla due to the benefits reaped by the company from the annulment of Musk's pay agreement. They argue that Tesla stands to regain 266 million shares as a result of their efforts.
The proposed fee structure is designed to directly correlate with the benefits realized by Tesla, thus circumventing any direct depletion of the company's financial reserves to cover legal costs. Furthermore, the legal team asserts that the fee would be tax-deductible for Tesla.
Judge Kathleen McCormick, presiding over the case and tasked with adjudicating on the fee request, characterized Musk's compensation as "unfathomable" in her ruling.
Tesla reserves the right to contest the fee request, similar to its response to a fee request in a separate case of director compensation.
Historically, the largest settlements in shareholder litigation have been resolved in federal courts. For instance, the legal team that secured a $7.2 billion settlement in a securities fraud case involving Enron Corp. received a fee of $688 million in 2008, setting a precedent.
The fee request for the Tesla case coincides with the Delaware Supreme Court's review of a $267 million fee in a lawsuit against Dell Technologies, settled for $1 billion.
Delaware judges advocate for a tiered approach to compensating attorneys, correlating fees with the depth of litigation, including depositions and trial proceedings, to reflect the associated risks and efforts. In this context, the Musk pay case proceeded to a one-week trial.
Critics of this methodology argue for a diminishing percentage of recovery as settlements and judgments escalate in magnitude, to prevent potential overcompensation. The legal team contends that the proposed fee represents approximately 11% of the judgment.
Elon Musk's compensation package primarily comprised stock options permitting him to acquire Tesla shares at substantially discounted rates, with a requirement to retain the stock for five years. The legal representatives advocate for unrestricted stock compensation without selling restrictions.
The legal team representing the shareholder comprises three law firms: Bernstein Litowitz Berger & Grossmann and Friedman Oster & Tejtel, both headquartered in New York, alongside Andrews & Springer of Wilmington.
