Judge who rejected Musk’s pay package hears arguments on plaintiff lawyers’ massive fee request

WILMINGTON, Del. A Delaware judge heard arguments Monday on a huge and unprecedented fee request by lawyers who successfully argued that a huge and unprecedented pay package for Tesla CEO Elon Musk was illegal and should be thrown out.

Lawyers for a Tesla shareholder who challenged Musk’s 2018 compensation package are asking Chancellor Kathaleen St. Jude McCormick to award them legal fees in the form of shares in the electric vehicle company valued at more than $7 billion at current prices. current negotiations. The 2018 compensation package for Musk, which was rescinded by the judge, was potentially worth more than $55 billion.

After a full day of expert testimony and arguments from attorneys, McCormick gave no indication of when he would rule on the fee request.

The value of the fees requested by the plaintiffs’ lawyers exceeds the current record of US$688 million in legal fees awarded in 2008 in litigation arising from the collapse of Enron.

Lawyers for the Tesla shareholder argue that their work resulted in the “enormous” benefit of returning shares to Tesla that would otherwise have gone to Musk and diluting shares held by other Tesla investors. They value that benefit at $51.4 billion, using the difference between the stock price at the time of McCormick’s decision in January and the exercise price of about 304 million stock options granted to Musk.

Attorney Greg Varallo told McCormick that he and his fellow plaintiff attorneys were simply asking for “a slice of the value pie we have created.”

“We fight the best,” Varallo added. “Litigation against Tesla is never easy. There are companies that comply with the rules every day and there are companies like Tesla.”

The plaintiffs’ attorneys argue that their fee request is “conservative” under Delaware law. Instead of a typical 33% fee recovery, they note that they are only seeking 11% of the shares now available to Tesla as a result of Musk’s termination of options by McCormick ruling. The judge agreed with shareholder lawyers’ argument that Musk planned the historic 2018 pay package in fake trades with directors who were not independent.

After the court ruling, Tesla shareholders met in June and ratified Musk’s 2018 salary package for the second time. McCormick made it clear, however, that the June vote would not be considered in determining the attorney’s fee request. Instead, it will be the subject of a separate hearing in early August.

However, some opponents of the fee request argue that the plaintiff lawyers do not deserve any fees because they did not provide any economic benefit to Tesla and, instead, may have even harmed the company. Opponents argue that the supposed reversal of share dilution among Tesla shareholders is not a benefit to the Austin, Texas-based company itself and cannot be used to justify requesting fees. They also note that the fee request does not quantify or subtract potential negative consequences from the decision, including the need to find a new way to compensate Musk for six years of unsalaried service to Tesla since 2018.

“The market did not react as if this termination solution had any benefit,” defense attorney John Reed told McCormick, noting that Tesla’s market capitalization fell by $15 billion following his decision.

Some critics argue that any award of fees should be based solely on the number of hours the plaintiff lawyers worked and a reasonable hourly rate. Adding a multiplier to incentivize lawyers working on a contingency basis in corporate disputes may also be appropriate, they suggested. This approach could still result in a fee award of tens of millions of dollars. The current fee request amounts to an hourly rate of about $288,000 for plaintiff attorneys and would result in a “windfall,” according to opponents.

Recognizing the criticism the fee request has received, plaintiffs’ attorneys, in a recent court filing, proposed an alternative fee structure. In this scenario, they would be willing to accept $1.44 billion in cash, which equates to an hourly rate of about $74,000.