Lawyers Who Voided Musk's "Excessive" $56 Billion Pay-Plan Seek $6 Billion Worth Of Legal Fees
In case you were wondering whether or not the lawyers challenging Elon Musk's pay plan were doing pro bono work on behalf of Tesla shareholders, that answer is starting to look like a resounding "no".
That's because it was reported on Friday that the lawyers who voided the "excessive" $56 billion pay plan are seeking $6 billion in Tesla stock as compensation. After all, who would know better about excessive compensation?
The fee works out to $288,888 per hour, a report from Reuters said. "We recognize that the requested fee is unprecedented in terms of absolute size," the three firms said in a filing at the Court of Chancery in Delaware.
"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," they continued, saying the fee would be tax deductible for Tesla.
The reasoning for the excessive fee rests on the fact that the victory to void Musk's pay plan results in 266 million shares being returned to the company.
Needless to say, Elon Musk didn't stop to find the irony in the situation. "The lawyers who did nothing but damage Tesla want $6 billion. Criminal," Elon Musk fired back on X on Friday.
For comparison, Reuters noted that in a securities fraud case concerning Enron Corp.'s collapse, a legal team secured a $7.2 billion settlement in federal court, receiving a record fee of $688 million in 2008.
Delaware courts have noted that legal battles that progress towards trial, involving extensive litigation efforts like depositions, warrant a higher recovery percentage due to the associated risks and efforts. This principle was applied in the trial over Elon Musk's compensation package, which spanned a week. Critics, however, argue for reducing attorneys' percentage fees as settlements and awards increase, to prevent excessive compensation.
The legal team in Musk's case sought about 11% of the judgment, advocating for stock compensation free of selling restrictions.
Recall on January 31, we wrote that the compensation case, which was launched by shareholder Richard Tornetta, argued that Tesla's board lacked independence in crafting Musk's pay, a view the judge supported.
Delaware Chancery Court Chief Judge Kathaleen St. J. McCormick cited inadequate disclosures and board conflicts of interest in her ruling. Musk, whose wealth largely comes from Tesla, the top auto company globally, has seen stock options from this plan vest as performance goals were met, though he hasn't exercised them yet.
The judge wrote: “In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit. The process arrived at an unfair price. And through this litigation, the plaintiff requests a recall.”
“The most striking omission from the process is the absence of any evidence of adversarial negotiations between the Board and Musk concerning the size of the grant,” she said in her ruling.