Lawyers Seek Record $6 Billion Fee in Voiding Elon Musk’s Excessive Pay
The lawyers who successfully challenged Elon Musk’s $56 billion compensation as excessive are now seeking an unprecedented $6 billion legal fee, to be paid in Tesla stock. In a filing with the Court of Chancery in Delaware, the three law firms justified their request, which translates to an hourly rate of $288,888.
Musk, however, vehemently criticized the demand, labeling it as “criminal” on his X platform. Tesla and Musk’s attorney have yet to comment on the matter.
The legal team represented Richard Tornetta, a shareholder who sued Musk in 2018 over the pay package that was ultimately nullified by a Delaware judge in January. Consequently, the fee is being sought from Tesla, as the company benefited from the return of Musk’s pay package, which the legal team claims will result in the return of 266 million shares to the carmaker.
To address concerns about the fee’s impact on Tesla’s balance sheet, the lawyers proposed a structure that links the award directly to the benefit created, ensuring no funds are taken from the company. Additionally, they highlighted the fee’s tax-deductible nature for Tesla.
Judge Kathaleen McCormick, overseeing the case and responsible for deciding on the fee, previously referred to Musk’s pay as “unfathomable” in her ruling. It remains to be seen whether Tesla will challenge the fee, as the company has already made a fee request in a similar case involving the pay of its directors.
While large settlements in shareholder cases typically occur in federal court, the Delaware Supreme Court is currently deliberating an appeal for a $267 million fee in a case settled for $1 billion concerning Dell Technologies.
Delaware judges have emphasized that pursuing cases through litigation, including depositions and trials, should warrant a higher percentage of the recovery to reflect the risks and efforts involved. In the Musk pay case, the trial lasted one week.
Critics of this approach argue that as settlements and judgments increase in size, attorneys should receive a declining percentage to avoid excessive compensation. The legal team clarified that the requested fee amounts to approximately 11% of the judgment.
Musk’s pay package consisted of stock options, enabling him to purchase Tesla stock at significantly reduced prices and obligating him to hold the stock for five years. The legal team is now seeking unrestricted stock that can be sold immediately.
The shareholder’s legal representation consisted of three law firms: Bernstein Litowitz Berger & Grossmann, and Friedman Oster & Tejtel, both based in New York, and Andrews & Springer of Wilmington.
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