Tesla shareholders challenge $7bn legal fees in court

Tesla shareholders will appear in court on Monday to argue that the company’s unusual request for over $7bn in lawyers’ fees is “outlandish.”

This is the recent twist in a legal showdown over Musk’s $56 billion pay package.

Background and Legal Battle

Tesla shareholders are set to appear in court on Monday to contest an unprecedented request for over $7 billion in attorneys’ fees to be paid by the company. This request arises from a legal showdown concerning Elon Musk’s $56 billion pay package.

The request was made by investor Richard Tornetta on behalf of three law firms that represented him, including Bernstein Litowitz Berger & Grossmann. Tornetta, who owned nine shares of Tesla, sued over Musk’s 2018 pay package of stock options and ultimately won in January when the package was voided.

Details of the Fee Request

The requested fee, equivalent to approximately $7.2 billion at Tesla’s stock price as of Friday, translates to about $370,000 for each hour worked by the 37 lawyers, associates, and paralegals involved in the case.

Some of these professionals normally bill as little as $275 per hour, according to court documents submitted by Tornetta’s lawyers.

Nathan Chiu, a Tesla shareholder from New Jersey, described the legal fees as “exceedingly disproportionate and outlandish” in a letter to Chancellor Kathaleen McCormick in March.

Also read: CHINA’S BYD ACQUIRES 20% STAKE IN THAI DISTRIBUTOR REVER AUTOMOTIVE

This sentiment is echoed by the California Public Employees’ Retirement System and over 8,000 Tesla stockholders, who have collectively submitted around 1,500 letters and objections to the Delaware Chancery Court regarding the fee request.

Court Hearing and Reactions

The upcoming hearing has been moved to the largest courtroom in the building to accommodate the 47 attorneys from 19 law firms involved in the case, as well as potential stockholders.

Tornetta’s lawyers argue that they deserve the fee as a percentage of the benefit they provided to Tesla by having Musk’s pay package voided. This decision returned approximately 266 million shares, valued at about $67 billion, to Tesla.

Attorneys’ Argument and Legal Precedent

Tornetta’s attorneys claim this is the largest judgment ever awarded by an American court, excluding punitive damages.

They assert that their fee request, which equals 11% of the judgment, is conservative by Delaware legal precedent. The attorneys have requested to be paid in the form of 29 million Tesla shares.

Shareholders’ Concerns

The substantial fee request has drawn significant backlash from Tesla shareholders, who argue that the amount is exorbitant and unjustifiable.

The outcome of this hearing will set a precedent for future legal fee disputes and could have a significant impact on corporate governance and shareholder rights in similar cases.

Conclusion

As the court prepares to hear arguments from both sides, the decision will not only affect the involved parties but also shape the landscape of legal fee awards in high-stakes corporate litigation.

The Tesla shareholders’ challenge highlights the ongoing debate over reasonable compensation for legal representation in cases with substantial financial implications.