In a landmark legal battle, three law firms have been awarded a record $7 billion in attorneys’ fees for successfully challenging Elon Musk’s $56 billion Tesla pay package. This decision sets a precedent for holding corporate boards accountable, as stated by an attorney representing a company shareholder in front of a Delaware judge.
The legal teams for the company and the shareholder engaged in a heated debate for over six hours regarding the amount to be awarded to the three law firms that represented Richard Tornetta, a Tesla shareholder with nine shares who sued over Musk’s pay package in 2018.
Tornetta’s requested fee for the firms amounts to approximately $7.3 billion at Tesla’s current stock price, translating to a rate of around $370,000 per hour worked by the 37 lawyers, associates, and paralegals involved in the case.
Tesla’s lawyer, John Reed, expressed his opposition to the fee petition, labeling it as a “real-life lawyer joke” during the court proceedings in front of Chancellor Kathaleen McCormick of the Court of Chancery.
The legal fee awarded represents a portion of the value that Tornetta’s lawyers claim was generated for Tesla by a judge’s ruling in January that revoked Musk’s $56 billion pay package.
The firms that represented Tornetta, including Bernstein Litowitz Berger & Grossmann, argued that the fee amount sought was well within the legal limits, which allow for up to 33% of the benefit to Tesla from the lawsuit.
Greg Varallo, Tornetta’s attorney, advocated for a fee award of 11% of the total judgment paid in the form of 29 million Tesla shares, emphasizing the importance of incentivizing shareholder attorneys to defend small investors.
Reed countered by asserting that the January ruling had a negative impact on Tesla’s stock value, increasing uncertainty surrounding Musk’s future at the company, and recommended a significantly lower fee amount of $13.6 million.
Thousands of Tesla stockholders have voiced objections to the fee request, flooding the court with over 1,500 letters of protest. The requested fee far exceeds the previous record in shareholder litigation of $688 million in an Enron class action, according to Stanford Law School.
The legal battle took a surprising turn when Tesla shareholders voted to ratify Musk’s pay in June, a move that the company argues corrects the flaws in the 2018 process identified by Chancellor McCormick in her ruling.
However, the legal ramifications of this ratification vote and its impact on Tornetta’s victory are yet to be determined, with McCormick set to hear arguments on the matter in the weeks to come.
The final ruling on the legal fee may take weeks or even months, as the Delaware Supreme Court considers a $267 million fee request in a shareholder class action involving Dell Technologies, potentially offering guidance on fee determinations in similar cases.
