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Lawyers who voided Elon Musk's pay as excessive want $6 billion fee

Published 2024-03-01, 06:00 p/m
Updated 2024-03-03, 08:21 a/m
© Reuters. FILE PHOTO: Elon Musk, CEO of SpaceX and Tesla and owner of X, formerly known as Twitter, attends the Viva Technology conference dedicated to innovation and startups at the Porte de Versailles exhibition centre in Paris, France, June 16, 2023. REUTERS/Gon

By Tom Hals

WILMINGTON, Delaware (Reuters) -The lawyers who voided Elon Musk's $56 billion compensation as excessive on Friday sought a record a $6 billion legal fee, payable in the electric car maker's stock.

"We recognize 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.

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 (NASDAQ:TSLA) want $6 billion."

Tesla and Musk's attorney did not immediately respond to requests for comment.

The company would pay the lawyers who represented Richard Tornetta, a shareholder who sued Musk in 2018 over the pay package, which a Delaware judge nixed in January.

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 will 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 (NYSE:MKC), 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 a fee request in a similar case over the pay for its directors.

The largest settlements in shareholder cases have occurred in 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 settled for $1 billion involving Dell Technologies.

Delaware judges have said that pursuing cases deep into litigation, through depositions and toward 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 judgments 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 judgment.

© Reuters. FILE PHOTO: Elon Musk, CEO of SpaceX and Tesla and owner of X, formerly known as Twitter, attends the Viva Technology conference dedicated to innovation and startups at the Porte de Versailles exhibition centre in Paris, France, June 16, 2023. REUTERS/Gonzalo Fuentes/File Photo

Musk's pay package consisted of stock options that allowed him to buy Tesla stock 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.

Latest comments

Typical Lawyers. The world needs fewer of them as well as boards that look out for themselves rather than shareholders. Tesla shareholders should take note
Can any spell HYPOCRISY?
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