WILMINGTON, Delaware - The lawyers who successfully challenged Elon Musk’s $56-billion compensation as excessive are seeking a record a $6-billion legal fee, payable in shares of the electric car maker.
They argue that the fee is justified since the ruling will save shareholders of Tesla billions of dollars.
“We recognise that the requested fee is unprecedented in terms of absolute size,” the three law firms said in a filing with the Court of Chancery in Delaware, a state known for some of the most business-friendly laws in the US.
The fee works out to an hourly rate of $288,888, they said.
Musk blasted the request as “criminal”, posting on his X platform that “the lawyers who did nothing but damage Tesla want $6 billion”.
Tesla and Musk’s attorney did not immediately respond to requests for comment.
The lawyers represented Richard Tornetta, a shareholder who sued Musk in 2018 over the pay package, which a Delaware judge overturned in January of this year.
The electric vehicle maker is being asked to pay the fee because it benefited from the return of Musk’s pay package, which the legal team said would result in the return to the carmaker of 266 million shares.
“This structure has the benefit of linking the award directly to the benefit created and avoids taking even one cent from the Tesla balance sheet to pay fees,” the lawyers wrote, adding that the fee would be tax-deductible to Tesla.
Judge Kathaleen McCormick, who is overseeing the case and will decide on the fee, called Musk’s pay “unfathomable” in her ruling.
The company may object to the fee, as it has to a fee request in a similar case over the pay for its directors.
The largest settlements in shareholder cases have occurred in US federal court. The biggest fee was $688 million in 2008 for the legal team that obtained a $7.2-billion settlement in a securities fraud case over the failure of Enron Corp.
The Tesla fee request comes as the Delaware Supreme Court considers an appeal of a $267-million fee in a case that was settled for $1 billion involving Dell Technologies.
Delaware judges have said that lawyers who pursue cases deep into litigation, through depositions and towards trial, should get a higher percentage of the recovery to reflect the risk and effort. The Musk pay case went to a one-week trial.
Opponents of this approach argue that as settlements and judgements grow in size, attorneys should collect a declining percentage to avoid overcompensation. The legal team said the requested fee worked out to about 11% of the judgement.
Musk’s pay package consisted of stock options that allowed him to buy Tesla shares at heavily discounted prices and required him to hold the stock for five years. The legal team said they were seeking stock without restrictions on selling it.
The shareholder’s legal team comprised three law firms: Bernstein Litowitz Berger & Grossmann and Friedman Oster & Tejtel, both based in New York, and Andrews & Springer of Wilmington.