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Tesla shareholders are due to appear in court in Delaware on Monday to ask a judge to reject the company’s “exorbitant” demand for $7 billion in attorneys’ fees to the lawyers leading the lawsuit. CEO Elon Musk $56 billion compensation package.
The record compensation claim was filed by investor Richard Tornetta on behalf of three law firms representing Musk in a lawsuit over his compensation plan that is believed to be the largest of its kind among the CEOs of publicly traded U.S. companies.
Tornetta held nine shares of Tesla stock when he filed a lawsuit in 2018 challenging a compensation package approved by shareholders that was invalidated in January by Delaware Chancery Court Chief Justice Katherine McCormick. Tesla Shareholders They voted to reinstate the compensation plan, but it remains suspended pending resolution of the case.
According to court filings by Tornetta’s lawyers, the claim amounts to roughly $7.2 billion based on Tesla’s stock price on Friday, and would amount to $370,000 in hourly fees for a team of 37 lawyers, associates and paralegals, some of whom typically charge as little as $275 an hour.
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Tesla shareholders argue that the $7 billion legal fees demand is excessive. (Richard Bode/WireImage / Getty Images)
“The costs of litigation appear to be grossly disproportionate and exorbitant,” Nathan Chiu, a Tesla shareholder from New Jersey, wrote in a letter to Treasury Secretary Katherine McCormick in Congress. Delaware Court of Chancery According to court documents, in March.
Chiu, California Public Employees Retirement System More than 8,000 Tesla shareholders sent 1,500 letters and objections to the Delaware court over the requested legal fees, according to court documents.
The court moved a hearing scheduled for Monday from McCormick’s regular courtroom to the largest courtroom in the building to accommodate the 47 lawyers from 19 law firms appearing in the case, as well as potential shareholders.
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Tesla’s shares had fallen more than 20% year-to-date in recent months, but last week turned positive for the year. (Joe Raedl/Getty Images/Getty Images)
Tornetta’s lawyers argue that he is entitled to the fee as compensation for the benefits Tesla allegedly gained when a court struck down Musk’s compensation package, which would return to Tesla about 266 million shares that had been set aside for Musk’s stock options. The shares are worth about $67 billion at Friday’s share price of $251.82, but were valued at $56 billion as of Nov. 15, 2015. Annulled judgment Compensation package.
The lawyers say it’s the largest award ever made by a U.S. court, excluding punitive damages. They argue that Musk should receive 11 percent of the award, plus 29 million Tesla shares as compensation, but say they could have been justified in asking for up to 33 percent of Musk’s total compensation.
This fee request would be significantly higher than the current maximum. Shareholder litigation According to Stanford Law School, the Enron class action lawsuit resulted in $688 million in damages.
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Tesla CEO Elon Musk has taken steps to change the electric vehicle maker’s state of incorporation from Delaware to Texas in response to a court ruling that voided his compensation. (Frederick J. Brown/AFP via Getty Images/Getty Images)
Tesla argues that Tornetta’s initial legal victory turned into a loss when Tesla shareholders voted to re-approve Musk’s compensation package in June, so Tornetta’s lawsuit has not provided any benefit to Tesla or its shareholders and Tornetta’s legal team should receive at least $13.6 million.
Musk’s compensation package does not include a salary or bonus, but is based on stock options paid in installments. Electric vehicle manufacturer Achieve performance-based milestones.
A judge vacated the order in January, finding that the company’s board had failed to properly disclose close personal relationships between some directors and Musk and that the company was on pace to meet many of its performance-based goals.
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It could be weeks or months before McCormick rules on the case. The Delaware Supreme Court is currently considering a $267 million shareholder class action lawsuit involving Dell Technologies, and a decision in that case could affect the Chancery Court’s ruling on Tesla’s claim.
Reuters contributed to this report.
