Laywers Seek Record $6B Legal Fee in Elon Musk Compensation Case

Legal representatives involved in voiding Elon Musk's $56 billion compensation are now seeking a groundbreaking legal fee totaling $6 billion, to be paid in the form of the electric car maker's stock. This information was disclosed in a recent court filing on Friday.

Unprecedented Fee Request

The three law firms made a statement in their filing with the Court of Chancery in Delaware, acknowledging that the requested fee represents an unprecedented amount in absolute terms. The fee, as detailed in the court filing, translates to an hourly rate of $288,888.

Legal Background

The legal battle stemmed from a lawsuit filed by Richard Tornetta, a Tesla shareholder, against Musk in 2018 over the pay package, which was subsequently nullified by a Delaware judge in January. The electric vehicle manufacturer, Tesla, is now being called upon to pay the $6 billion fee to the attorneys, as they argue that the company has benefited from the return of Musk's pay package. The legal team estimates that this return will result in the carmaker receiving 266 million shares.

Judge's Approval Required

Kathaleen McCormick, the judge overseeing the case, holds the authority to approve the fee request. In her ruling, she had previously referred to Musk's pay as "unfathomable."

Response from Involved Parties

Tesla, Musk's attorney and Musk himself have not yet responded to the request for comment. However, the company reserves the right to object to the fee, considering it has a similar fee request pending in another case related to the pay of its directors.

Structure and Rationale

The shareholder legal team emphasized that the fee structure has the advantage of directly linking the award to the benefit created, while ensuring that no funds are drawn from the Tesla balance sheet to cover the fees. Additionally, they highlighted that the fee is tax-deductible to Tesla.

Comparison to Previous Cases

In comparing this fee request to historical cases, the legal team indicated that the requested fee represents about 11% of the judgment. This stands in contrast to the largest settlements in shareholder cases, particularly in federal court, where the largest fee recorded was $688 million in 2008 for a legal team involved in a $7.2 billion settlement in a securities fraud case related to the collapse of Enron Corp.

Delaware's Legal Landscape

The fee request by the Tesla legal team coincides with the Delaware Supreme Court's consideration of an appeal concerning a $267 million fee in a separate case involving Dell Technologies, which settled for $1 billion. Delaware judges have expressed the view that cases pursued deep into litigation, including depositions and trials, should merit a higher percentage of the recovery to account for the associated risk and effort. Notably, the Musk pay case proceeded to a one-week trial.

Legal Team and Representation

The legal team representing the shareholder in this case comprises three law firms, namely Bernstein Litowitz Berger & Grossmann, Friedman Oster & Tejtel, and Andrews & Springer.

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