©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 center in Paris, France, June 16, 2023. REUTERS / Gon
By Tom Hals
WILMINGTON, Delaware (Reuters) -Lawyers who on Friday struck down Elon Musk’s $56 billion settlement as excessive have called for a record legal fee of $6 billion, payable in shares of the electric car maker.
“We recognize that the requested fee is unprecedented in terms of its absolute size,” the three law firms said in a filing with the Court of Chancery of Delaware.
The fee amounts to an hourly rate of $288,888, they said.
Musk called the request “criminal,” posting on his X platform that “lawyers who have done nothing but harm Tesla (NASDAQ:) want $6 billion.”
Tesla and Musk’s lawyer did not immediately respond to requests for comment.
The company would pay lawyers who represented Richard Tornetta, a shareholder who sued Musk in 2018 over the compensation package, which a Delaware judge struck down in January.
The electric vehicle maker is being asked to pay the tax because it benefited from the return of Musk’s salary package, which the legal team says will result in the automaker returning 266 million shares.
“This structure has the advantage of linking the premium directly to the benefit created and avoids taking even a single cent from Tesla’s balance sheet to pay fees,” the lawyers wrote, adding that the fee would be tax deductible to Tesla.
Judge Kathaleen McCormick (NYSE:), who is overseeing the case and will decide the fee, called Musk’s pay “unfathomable” in her ruling.
The company may object to the compensation, since in such a case it has a compensation claim on the remuneration of its directors.
The largest settlements in shareholder cases have occurred in federal court. The largest settlement was $688 million in 2008 for the legal team that obtained a $7.2 billion settlement in a securities fraud case following the bankruptcy of Enron Corp.
The compensation request for Tesla 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 (NYSE:).
Delaware judges have said that pursuing cases deep into litigation, through depositions and toward trial, should achieve a higher recovery rate to reflect the risk and effort. Musk’s pay case went through a week-long trial.
Opponents of this approach argue that as settlements and judgments grow in size, lawyers should collect a decreasing percentage to avoid excessive compensation. The legal team said the requested fee was approximately 11% of the judgment.
Musk’s compensation package consisted of stock options that allowed him to buy Tesla shares at deeply discounted prices and required him to hold the shares for five years. The legal team said they were seeking unrestricted shares on the sale.
The shareholder’s legal team consisted of three law firms, Bernstein Litowitz Berger & Grossmann and Friedman Oster & Tejtel, both based in New York, and Andrews & Springer of Wilmington.