The legal team that challenged Tesla (NASDAQ:TSLA) CEO Elon Musk’s $56 billion compensation package is seeking a $6 billion fee for their efforts. This request faces scrutiny from Delaware’s legal community, especially in light of a recent court ruling discouraging excessive legal fees. While the case centers on Musk’s controversial pay, it has broader implications for how legal fees are awarded in high-stakes corporate litigations.
Chancellor Kathaleen McCormick of the Delaware Court of Chancery is currently contemplating both the $6 billion fee request from the legal team and whether Tesla shareholders’ approval to reinstate Musk’s pay package is sufficient. The Delaware Supreme Court recently ruled in a separate case, approving a $267 million fee for shareholders’ attorneys but cautioned against such fees turning into “windfalls.” This ruling seems to indirectly address the Musk case by highlighting the fine line between fair compensation and excessive fees.
Tesla Shareholders’ Actions and Court Considerations
Tesla shareholder Richard Tornetta’s legal team has worked on the case without pay since 2018 under the agreement that they would receive a portion of the recovery. Their fee, if awarded, would be paid by Tesla, since the shareholders filed the suit for the company’s benefit. Tesla’s board has encouraged shareholders to reinstate Musk’s compensation, which involves no salary or bonus but includes valuable stock options based on performance targets.
The legal team described their fee request as “conservative,” noting it amounts to 11% of the stock Musk would have received had they won and kept the stock options. This breaks down to 29 million shares, valued at nearly $6 billion based on a recent stock price. Alternatively, they offered to accept a $1 billion cash fee. Tornetta’s attorneys argue that their fee request, though unprecedented, is justified by the significant judgment they secured, citing Delaware precedent supporting a fee up to 33%.
Potential Implications for Legal Fees and Corporate Governance
The Delaware Supreme Court’s August ruling did not clarify when fees become excessive but noted that $5,000 an hour is “at the high end.” This would suggest a fee around $100 million, just 10% of the requested amount, but the court acknowledges the complexity and duration of this specific case might merit a higher fee.
Legal experts and industry observers are closely watching how McCormick rules on this fee request, as it could set a precedent for future high-stakes corporate litigation. The ruling will also reflect on the balance between fair legal compensation and preventing disproportionate “windfalls.”
Should McCormick determine the shareholders’ vote to restore Musk’s pay was valid, Tesla may avoid a significant legal fee. However, the broader ramifications of the case could influence how shareholder lawsuits and executive compensation are handled in the future.
The court’s decision on the $6 billion fee request could shape future legal battles involving high-risk corporate litigation and impact how legal fees are awarded in such cases. Legal professionals and corporate governance experts will be drawing insights from the outcome to gauge its influence on similar lawsuits moving forward.
