WILMINGTON, Del. (AP) – A Delaware judge heard arguments Monday on a massive and unprecedented fee request from lawyers who successfully argued that a massive and unprecedented pay package for Tesla CEO Elon Musk was illegal and should be thrown out .
Attorneys for a Tesla shareholder who objected to Musk’s 2018 compensation package are asking Chancellor Kathaleen St. Musk’s 2018 compensation package, which was thrown out by the judge, was potentially worth more than $55 billion.
After a full day of expert witness testimony and arguments from attorneys, McCormick gave no indication of when he would rule on the fee request.
The fee amount sought by plaintiffs’ attorneys is paltry current record $688 million in legal fees awarded in 2008 in litigation stemming from the Enron collapse.
The Tesla shareholder’s lawyers argue that their work resulted in the “massive” benefit of returning shares in Tesla that would otherwise have gone to Musk and diluting the shares held by other Tesla investors. -s. They estimate that benefit at $51.4 billion, using the difference between the stock price at the time of McCormick’s January decision and the strike price of the roughly 304 million stock options granted to Musk.
Attorney Greg Varallo told McCormick that he and his fellow plaintiff attorneys were simply looking for “a piece of the value pie that we created.”
“We fought with the best,” added Varallo. “Litigation against Tesla is never easy. There are companies that play by the rules every day, and then there are companies like Tesla.”
The plaintiff’s attorneys argue that their fee request is “conservative” under Delaware law. Instead of a typical fee recovery of 33%, they note that they are only asking for 11% of the shares now available to Tesla as a result of Musk’s options being revoked by The McCormick decision. The judge agreed with the shareholder attorneys’ argument that Musk designed the landmark 2018 pay package in fake negotiations with directors who were not independent.
After the court decision, Tesla shareholders met in June and ratified Musk’s 2018 pay package for the second time. However, McCormick made it clear that the June vote will not be considered in determining the attorney’s fee request. Instead it will be the subject of a separate hearing in early August.
Meanwhile, some opponents of the fee request argue that the plaintiff attorneys don’t deserve a fee at all because they provided no economic benefit to Tesla and instead may have harmed the company. Opponents contend that the purported dilutive change among Tesla shareholders is not a benefit to the Austin, Texas-based company itself and cannot be used to justify the fee request. They also note that the fee request fails to address or discount the potential negative consequences of the decision, including the need to find a new way to compensate Musk for six years of unpaid service at Tesla since 2018.
“The market did not react as if this rescission tool provided any benefit,” defense attorney John Reed told McCormick, noting that Tesla’s market capitalization fell by $15 billion after its decision.
Some critics argue that any fee should be based only on the number of hours plaintiff attorneys have worked and a reasonable hourly rate. Adding a multiplier to incentivize lawyers who work on a casual basis in corporate disputes may also be appropriate, they suggest. This approach can still result in a fee of tens of millions of dollars. The current fee request equates to an hourly fee of about $288,000 for the plaintiff’s attorneys and would result in an “unhealthy windfall,” according to opponents.
Acknowledging the criticism the fee requirement has received, plaintiff attorneys in a recent court filing proposed an alternative fee structure. Under this scenario, they would be willing to accept $1.44 billion in cash, equal to an hourly rate of about $74,000.