Lawyers for Tesla and shareholders clashed in court on Monday over the value of a lawsuit challenging CEO Elon Musk’s huge compensation package and seeking the company to pay a record $7 billion in legal fees.
The two experts testified for more than three hours in opposition to each other about the benefits to Tesla of a Delaware court’s January decision to void Musk’s $56 billion compensation package.
The legal costs are being sought by Richard Tornetta, who held nine shares of Tesla stock when he sued in 2018 over Musk’s compensation package. The legal costs amount to about $7.3 billion at Tesla’s stock price as of Monday, and roughly $370,000 per hour for 37 lawyers, associates and paralegals, according to court documents filed by Tornetta’s lawyers. Some lawyers typically charge as little as $275 an hour.
Tornetta was represented by three law firms, including Bernstein Litowitz Berger & Grossmann.
Tornetta’s lawyers argue he is entitled to the compensation as part of the benefits he allegedly conveyed to Tesla when Treasury Secretary Katherine McCormick voided Musk’s compensation package and returned about 266 million shares that had been reserved for stock options to Tesla.
Former Securities and Exchange Commission Commissioner Robert Jackson testified Monday in Delaware Chancery Court that the judgment could be worth as much as $51 billion in the form of the return of Tesla shares that had been reserved for Musk’s options.
Daniel Fishel, a law professor at the University of Chicago, countered that there would be no cash cost to Tesla if Musk exercises his stock options.
“The withdrawal of the subsidy did not save Tesla a dollar,” Fishel said.
As a result, paying billions of dollars in legal fees would be an “unjust enrichment,” he said.
More than 8,000 Tesla shareholders sent about 1,500 letters and objections to the fees to the court, according to court documents.
Tornetta’s lawyers said the January ruling was the largest ever awarded by a U.S. court, excluding punitive damages. They argued that Tornetta should receive a fee equal to 11% of the judgment, a modest percentage under Delaware precedent. They asked for 29 million Tesla shares as compensation.
Record charges
The claim significantly exceeds the current record of $688 million in a shareholder lawsuit in the Enron class action lawsuit, according to Stanford Law School.
Musk’s case took a dramatic turn when Tesla shareholders voted in June to approve his compensation, which Tesla argues corrected flaws in the 2018 proceedings that McCormick cited in his ruling.
McCormick is expected to hear arguments on the legal ramifications of the ratification vote in the coming weeks.
The company claims Musk’s compensation package has been restored and Tornetta’s legal victory has been turned into a loss. As a result, Tesla said the lawsuit has brought no benefit to the company and that shareholder lawyers should receive a minimum of $13.6 million.
It could be weeks or months before McCormick rules on costs. The Delaware Supreme Court is currently considering a $267 million cost claim in a shareholder class action involving Dell Technologies, and that ruling could provide guidance on costs.
