Tesla investors to urge judge to reject record $7 bln legal fee in Musk pay case

07.07.2023

In Wilmington, Delaware, Tesla shareholders are heading to court on Monday to contest what they argue is an excessive demand for over $7 billion in legal fees from the company. The request, unprecedented in scale, stems from a legal battle over Elon Musk’s $56 billion compensation package. Investor Richard Tornetta, representing three law firms including Bernstein Litowitz Berger & Grossmann, made the record fee request. Tornetta, who owned nine Tesla shares when he challenged Musk’s stock option package in 2018, ultimately prevailed in January when the package was invalidated.

The requested fee amounts to approximately $7.2 billion at Tesla’s recent stock price, translating to about $370,000 per hour for the work of 37 legal professionals, some of whom typically bill as low as $275 per hour. Nathan Chiu, a Tesla shareholder from New Jersey, described the legal fees as “extremely disproportionate and excessive” in a communication to Chancellor Kathaleen McCormick earlier this year.

Chiu, alongside the California Public Employees’ Retirement System and over 8,000 other Tesla shareholders, has inundated the Delaware Chancery Court with objections, totaling around 1,500 letters. Monday’s hearing has been moved to accommodate the 47 attorneys from 19 law firms involved in the case, as well as potential stockholders, highlighting the scale and complexity of the dispute.

Tornetta’s legal team argues that the fee reflects the substantial benefit they claim to have secured for Tesla by nullifying Musk’s pay package, which returned approximately 266 million shares reserved for stock options back to the company. At current prices, these shares would be valued at about $67 billion. They are requesting payment in the form of 29 million Tesla shares, citing Delaware legal precedent that supports their claim for a fee equivalent to 11% of the judgment.

While federal courts typically reduce fees as a percentage of judgments or settlements increase, Delaware courts have historically increased them to incentivize attorneys to pursue larger recoveries. Tornetta’s lawyers contend that their fee request, which dwarfs the previous record fee in shareholder litigation, is justified given the magnitude of the judgment and the benefit conferred upon Tesla.