Nandini Roy Choudhury, writer
News in brief
Tesla shareholders are set to argue in court that the company’s request for over $7 billion in attorneys’ fees is “outlandish,” following a legal dispute over Elon Musk’s $56 billion compensation package. Investor Richard Tornetta submitted the record fee request on behalf of three law firms representing him, including Bernstein Litowitz Berger & Grossmann. The fee, equivalent to approximately $7.2 billion at Tesla’s stock price, is equivalent to approximately $370,000 per hour worked by 37 lawyers, associates, and paralegals. Tesla shareholders, including New Jersey shareholder Nathan Chiu, have written to Chancellor Kathaleen McCormick in March, stating that the legal fees “appear exceedingly disproportionate and outlandish.” The Delaware Chancery Court has received approximately 1,500 letters and objections regarding the fee, with a hearing moved to accommodate the 47 attorneys from 19 law firms and potential stockholders involved in the case. Tesla argues that Musk’s compensation package has been reinstated and that Tornetta’s legal victory has been converted into a loss.
News in details
Delaware, July 8 (Reuters) – Tesla shareholders will contend in court on Monday that the company’s unprecedented request for over $7 billion in attorneys’ fees is “outlandish,” the latest development in a legal dispute over Musk’s $56 billion compensation package.
Investor Richard Tornetta submitted the record fee request on behalf of three law firms that represented him, including Bernstein Litowitz Berger & Grossmann. In 2018, Tornetta filed a lawsuit against Musk regarding his stock option compensation package. He ultimately prevailed in the legal battle, which resulted in the package’s cancellation in January. Tornetta owned nine shares of Tesla at the time.
According to court documents submitted by Tornetta’s attorneys, the fee equivalent to approximately $7.2 billion at Tesla’s stock price on Friday is equivalent to approximately $370,000 per hour worked by the 37 lawyers, associates, and paralegals. Some of these individuals typically charge as little as $275 per hour.
According to a court filing, Nathan Chiu, a Tesla shareholder from New Jersey, wrote to Chancellor Kathaleen McCormick in March that the legal fees “appear exceedingly disproportionate and outlandish.”
According to court documents, the Delaware Chancery Court has received approximately 1,500 letters and objections regarding the fee from Chiu, the California Public Employees’ Retirement System, and over 8,000 Tesla stockholders.
In order to facilitate the 47 attorneys from 19 law firms and potential stockholders who are involved in the case, a hearing that was originally scheduled for Monday was relocated from McCormick’s normal courtroom to the largest in the building.
Tornetta’s attorneys contend that they are entitled to the fee as a portion of the benefit they claim they provided to Tesla when a judge invalidated Musk’s compensation package, which resulted in the return of approximately 266 million shares reserved for stock options. At the price of $251.82 per share on Friday, that stock would be valued at approximately $67 billion.
Tornetta’s counsel asserted that it is the most substantial judgement ever rendered by an American court, with the exception of punitive damages. They contended that they should be awarded a commission equivalent to 11% of the judgement, a figure that is considered conservative by Delaware legal precedent. They requested payment in the form of 29 million Tesla shares.
REQUEST FOR RECORD FEE
Delaware courts have taken the opposite approach, awarding a higher percentage as an incentive for attorneys to pursue a larger recovery, despite the fact that federal courts typically decrease the fee as a percentage of judgements or settlements as they increase in size.
According to Tornetta’s legal team, they would have been justified in requesting up to 33% of the value of Musk’s pay package.
According to Stanford Law School, the fee request significantly exceeds the current record fee in shareholder litigation of $688 million, which was established in an Enron class action.
Tesla shareholders voted to ratify Musk’s pay in June, which Tesla has argued corrected the defects in the 2018 process that McCormick identified in her ruling. This marked a significant turn in the Musk case.
The company contends that Musk’s compensation package has been reinstated and that Tornetta’s legal victory has been converted into a loss. Tesla stated that the case did not provide any benefit to the company, and as a result, the shareholder attorneys should receive a minimum of $13.6 million.
Some shareholders who have opposed the request have submitted form letters to the judge. However, a small number have retained solicitors to submit formal objections to the charge. These individuals include Amy Steffens, a pilot, and Kurt Panouses, an attorney who specialises in representing lottery victors.
It may take weeks or months for McCormick to make a decision. The Delaware Supreme Court is presently reviewing a $267 million fee request in a shareholder class action involving Dell Technologies, and the outcome of this case could offer fee guidance.
