A hot potato: In a move that some might call hypocritical, the lawyers who stopped Elon Musk’s $56 billion Tesla pay package by successfully arguing it was excessive are now asking to be paid the equivalent of $6 billion in the EV giant’s stock. According to a court filing, that works out at an hourly rate of $288,888.
More than five years after shareholder Richard Tornetta filed suit against Tesla over claims it breached its fiduciary duty by unjustly enriching its CEO to the tune of $56 billion, a Delaware judge voided Musk’s pay package in January.
In a court filing last week, lawyers from the three law firms that represented Tornetta – Bernstein Litowitz Berger & Grossmann, Friedman Oster & Tejtel, and Andrews & Springer – wrote “We recognize that the requested fee is unprecedented in terms of absolute size.”
The lawyers argue that Tesla is being asked to pay the massive fee because it will benefit from the return of Musk’s compensation, which they claim will result in 266 million shares being returned to the company.
“This structure has the benefit of linking the award directly to the benefit created and avoids taking even one cent from the Tesla balance sheet to pay fees,” the shareholder legal team said, adding that the fee was tax-deductible for Tesla.
Lawyers wrote in their filing that they believed they could have fairly asked for a third of the “benefit conferred” from Musk’s canceled $56 billion pay award, based on past precedent. They noted that a Delaware case from 2012 saw lawyers awarded nearly $300 million, or 15% of the shareholder recovery, whereas they are willing to accept 11%.
Kathaleen McCormick, the judge who denied Musk’s Tesla pay package for being excessive, must approve the lawyers’ fee request. The Guardian notes that Tesla may also object, as it did to a fee request in a similar case over the pay for its directors.
If the lawyers get their way, they will receive just over 29.4 million shares, making them one of Tesla’s top ten shareholders. They described the request as “conservative” under Delaware law, which they say entitles them to 33% of the “quantifiable conferred benefit.”
It was also noted that the lawyers worked on a contingency basis, having been paid nothing for their six years of work and risked receiving nothing if they lost. They are also asking for an expense reimbursement of $1.1 million.
Elon Musk responded to the news of the requested fee with a post on X/Twitter that read: “The lawyers who did nothing but damage Tesla want $6 billion. Criminal.”
The lawyers who did nothing but damage Tesla want $6 billion. Criminal.
– Elon Musk (@elonmusk) March 2, 2024
The previous highest fee awarded in a shareholder case in federal court was the $688 million granted in 2008 to the legal team that secured a $7.2 billion settlement in the Enron securities fraud case.
Musk is expected to appeal McCormick’s pay package ruling. He is also moving his companies out of the state of Delaware in retaliation.
In other news, a law firm was rebuked by a judge last month for using ChatGPT to calculate lawyers’ fees at an “excessive” $600 per hour.