Panelists Al Root and Jack Otter discuss how Tesla shareholders voted to reinstate a roughly $50 billion compensation package on Barron's Roundtable.
Lawyers file lawsuit seeking Tesla CEO's resignation Elon Musk's $56 billion compensation package They are seeking $6 billion in legal costs, but their demands could run afoul of a new court ruling that requires judges to refrain from awarding “windfalls” as litigation costs.
Delaware Court of Chancery Chief Justice Katherine McCormick is currently seeking $6 billion in compensation from the defense team, Tesla Shareholder Vote Restoring Musk's compensation package, which McCormick had voided in January, was enough to reinstate the compensation plan.
On August 14, the Delaware Supreme Court awarded $267 million in fees to shareholder lawyers in an unrelated case, but warned that such fees “may result in windfall profits.”
The judges' warning, likely in reference to Musk's lawsuit, Tulane Law School professor Anne Lipton told Reuters: “The judges are making it clear to McCormick and others that while extremely high, eye-watering and surprising fees are certainly appropriate, there is a line where the amount is unnecessarily high to encourage risky litigation.”
Tesla investors ask judge to dismiss 'exorbitant' $7 billion legal bill in Musk compensation lawsuit
A Delaware judge is considering whether a shareholder vote that reinstated Tesla CEO Elon Musk's compensation plan was valid and how plaintiffs' lawyers should be compensated. (Etienne Laurent/AFP/via Getty Images)
Lawyers for Tesla shareholder Richard Tornetta have been working on the case for free since a lawsuit challenging Musk's compensation plan was filed in 2018, on the condition that they receive a share of any recovery.
| Ticker | safety | last | change | change % |
|---|---|---|---|---|
| TSLA | Tesla Inc. | 206.28 | +0.53 |
+0.26% |
The fees will be paid by Tesla because shareholders filed the lawsuit on behalf of the company's interests, but Tesla's board of directors has asked shareholders to reinstate Musk's compensation package, which does not include a salary or bonus but does include valuable incentives. Stock options Based on achieving performance goals.
The compensation package was valued at $56 billion. The judge struck down the planHowever, it will fluctuate depending on the stock price.
Tesla and Musk's opponents clash over settling compensation lawsuit
Tesla shareholders voted to reinstate Musk's compensation package in June. (Patrick Pullul/File/Pool via Reuters Photo)
of Shareholder Legal Team In March, the company asked McCormick to approve a “conservative” fee of 11 percent of the stock Musk would have received if he had won the lawsuit and kept stock options at the center of the argument.
The claim covers 29 million shares, equivalent to nearly $6 billion at Wednesday's closing price of $205.75.As an alternative, the company offered to accept a $1 billion cash fee.Tornetta's lawyers argued that the claim is unprecedented because the company won the largest judgment in U.S. history, and pointed to a Delaware precedent in which courts had upheld a high fee request of 33 percent.
Tornetta's attorney fee bill works out to more than $280,000 per hour for the 19,500 hours that the firm's attorneys, associates and paralegals worked on the case. The highest-paid attorneys on the case typically charge $1,150 per hour, but some contract attorneys and paralegals charge as much as $250 per hour.
Tesla claims in court filing that Musk received compensation package through a shareholder vote
Tesla's lawyers asked the judge not to award Tornetta's legal team huge legal fees. (Antonio Masiello/Getty Images/Getty Images)
In 2012, Delaware Supreme Court It approved $304 million in fees for lawyers who won $2 billion in verdicts, the equivalent of about $35,000 per hour. By comparison, the highest-paid corporate lawyers, who bill by the hour and are paid regardless of the outcome, can make more than $2,500 per hour.
A Delaware Supreme Court ruling this month did not specify when a fee becomes unjust income, but said $5,000 per hour is a “cap.”
That would require Tesla to pay about $100 million in compensation, just 10% of the cash compensation sought, and Lipton noted that the lawyers could potentially receive much more than that, given that they have been working on the case for six years without compensation, overcoming legal hurdles, taking the case to court and winning favorable rulings.
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If the judge rules that the shareholder vote that reinstated Musk's compensation package stands, Tesla could avoid incurring huge legal costs. “You ask whether Elon Musk is overpaid. We want to ask whether the plaintiffs' attorneys are overpaid,” company lawyer John Reed told McCormick at a July hearing.
Reuters contributed to this report.
