Tesla, shareholder clash over $7-billion legal fee request in Musk pay case

By Tom Hals

WILMINGTON, Delaware (Reuters) -Legal teams for Tesla and a shareholder clashed in court on Monday over the value of a lawsuit that successfully challenged CEO Elon Musk’s enormous pay package and a request for the company to pay a record legal fee worth $7 billion.

For more than three hours, two experts offered opposing testimony about the benefit created for Tesla by a Delaware judge’s January ruling that rescinded Musk’s $56-billion pay package.

The legal fee is being pursued by Richard Tornetta, who owned nine shares of Tesla when he sued over Musk’s pay package in 2018. It equals around $7.3 billion at Tesla’s Monday stock price and amounts to a rate of roughly $370,000 for every hour worked by the 37 lawyers, associates and paralegals, some of whom normally bill as little as $275 an hour, according to court documents submitted by Tornetta’s lawyers.

Three law firms represented Tornetta, including Bernstein Litowitz Berger & Grossmann.

Tornetta’s lawyers argue they deserve the fee as a cut of the benefit they say they conveyed to Tesla when Chancellor Kathaleen McCormick voided Musk’s pay package, which returned to Tesla around 266 million shares reserved for the stock options.

Robert Jackson, a former commissioner at the Securities and Exchange Commission, testified in Delaware’s Court of Chancery on Monday that the ruling was worth $51 billion in the form of returned stock to Tesla that had been reserved for Musk’s options.

Daniel Fischel, a University of Chicago law professor, countered that there was no cost in cash to Tesla if Musk exercised the grant of stock options.

“The rescission of the grant did not save Tesla one dollar,” said Fischel.

He said awarding billions in attorneys’ fees as a result would be an “unjustified windfall.”

The hearing will continue into the afternoon.

More than 8,000 Tesla stockholders have flooded the court with some 1,500 letters and objections over the fee, according to court documents.

Tornetta’s attorneys said the January award was the largest judgment ever awarded by an American court, excluding punitive damages. They argued they should receive a fee equal to 11% of that judgment, a percentage that is arguably conservative by Delaware legal precedent. They asked to be paid in the form of 29 million Tesla shares.


The fee request vastly outstrips the current record fee in shareholder litigation of $688 million in an Enron class action, according to Stanford Law School.

The Musk case took a dramatic turn when Tesla shareholders in June voted to ratify Musk’s pay, which Tesla has argued corrected the flaws in the 2018 process that McCormick identified in her ruling.

McCormick will hear arguments about the legal impact of the ratification vote in the coming weeks.

The company argues that Musk’s pay package has been restored and that Tornetta’s legal victory has been transformed into a loss. As a result, the case conveyed no benefit to Tesla and the shareholder lawyers should receive as little as $13.6 million, Tesla said.

McCormick may take weeks or months to rule on the legal fee. The Delaware Supreme Court is currently considering a $267 million fee request in a shareholder class action involving Dell Technologies and that decision could provide fee guidance.

(Reporting by Tom Hals in Wilmington, Delaware; Editing by Aurora Ellis and Rod Nickel)


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