A trio of law firms has thrown down the gauntlet, demanding a staggering $6 billion in legal fees from Tesla, payable in stock. This audacious request follows their successful bid to dismantle Elon Musk‘s colossal $56 billion compensation package, decried as excessively lavish. “We’re charting new territory with this fee request – it’s unparalleled in sheer magnitude,” the firms brazenly declared in a Delaware Court of Chancery filing.
The proposed fee equates to an eye-watering hourly rate of $288,888, a figure that has Tesla‘s visionary leader, Musk, crying foul, decrying the move as “criminal” on his X platform. He lambasted the attorneys for their destructive antics, accusing them of seeking a multi-billion dollar windfall for their assault on Tesla.
The request for a record-shattering legal fee eclipses the previous high-water mark of $688 million paid out in 2008 to the legal architects behind a $7.2 billion Enron Corp securities fraud settlement. This audacious bid for compensation is now under the microscope as the Delaware Supreme Court ponders over a $267 million fee appeal in a separate billion-dollar settlement involving Dell Technologies.
At the heart of this legal maelstrom is Tesla shareholder Richard Tornetta, a drummer turned David against the Goliath of corporate excess, who initiated the lawsuit against Musk’s princely remuneration. The legal tussle, representing the interests of Tesla stockholders, spotlighted Musk’s iron grip over the compensation approval process and accused the board of duping investors during the CEO’s pay package vote.
In a landmark January ruling, Judge Kathaleen McCormick of the Court of Chancery sided with Tornetta, slamming Musk’s pay as “an unfathomable sum” funneled through a “deeply flawed” process, ultimately failing to showcase fairness to shareholders. This legal victory could see the return of 266 million shares to Tesla, a windfall the legal team argues justifies their unprecedented fee request. They contend this arrangement ties their reward directly to the value recouped by Tesla, sparing the company’s balance sheet from the brunt of the fee—a move they note would be tax-deductible for Tesla.
Yet, as Judge McCormick, who branded Musk’s compensation as “unfathomable,” deliberates over the fee, Tesla stands at a crossroads, potentially contesting the demand as it grapples with a similar fee challenge concerning director compensation.
This legal saga unfolds against a backdrop of escalating settlements and fees in shareholder litigation, igniting debate over the ethics of ballooning legal compensations. As the case has progressed through intensive litigation to a week-long trial, the attorneys argue their requested fee—about 11% of the judgment—reflects the risks and labor invested. Yet, detractors caution against excessive attorney rewards, particularly as settlements soar to astronomical figures.
Central to Musk’s embattled pay package were stock options offering him Tesla shares at steep discounts, bound by a five-year holding requirement. Meanwhile, the lawyers are gunning for unrestricted stock, ready to be sold off at their discretion.
Spearheading this legal battle are Bernstein Litowitz Berger & Grossmann, Friedman Oster & Tejtel from New York, and Wilmington’s Andrews & Springer, forming an alliance in pursuit of a financial juggernaut that could reshape the landscape of legal remuneration.
