X (formerly Twitter) CEO Elon Musk attends a symposium on “Anti-Semitism Online” during the European Jewish Union conference in Krakow, January 22, 2024. (Photo by BARTOSZ SIEDLIK / AFP) (Photo by BARTOSZ SIEDLIK/AFP via Getty Images)
Bartosz Siedlik | AFP | Getty Images
Lawyers asked a Delaware judge to award them nearly $6 billion worth of Tesla stock starting Friday as their fee for successfully arguing that CEO Elon Musk in 2018 the payment package was illegal.
The fee would reduce records for attorneys’ paydays if the judge approves it. Attorneys who worked on Enron-related class actions awarded $688 million in fees in 2008.
The lawyers had earlier persuaded the Delaware court to revoke Musk’s $56 billion compensation package from 2018, with the judge ruling that Tesla’s board failed to prove it was fair to shareholders.
On Friday, in a request for reimbursement of fees and expenses filed in this court, the lawyers argued that the fee would be justified given the value they delivered to Tesla shareholders. The lawyers are representing former heavy metal drummer Richard Tornetta, who filed the lawsuit on behalf of his fellow Tesla investors.
The lawyers are asking for just over 11% of the Tesla stock that would have gone to Musk, or just over 29.4 million shares. Tesla stock closed Friday at $202.64 per share, meaning the commission would be worth about $5.96 billion.
Taking their pay in Tesla stock shows they are ready to “eat our cooking,” the lawyers wrote.
They added: “This structure has the advantage of tying the award directly to the benefit generated and avoids taking even a cent from Tesla’s balance sheet to pay the fees. It is also tax deductible by Tesla.”
The shares they are asking for will be freely tradable, they noted, while Musk’s stock options included a five-year vesting period from the time he exercised them.
But lawyers described the nearly $6 billion in shares as “conservative” under Delaware law, which they said entitles them to 33 percent of the “measurable benefit.”
“However, in an effort to be conservative, plaintiff’s counsel is not seeking the 33%” warranted by prior cases, they wrote.
They noted that they took the case on a contingency basis and would have gotten nothing if they had lost.
“Plaintiff’s attorneys have not been paid for their work, nor have their costs or expenses been reimbursed, and the trial of this action has required the allocation of a substantial amount of plaintiff’s counsel’s time and resources over six years, including a substantial amount of out of pocket expenses,” they wrote.
Greg Varallo, lead counsel for the plaintiffs and the attorney who signed the filing, did not immediately respond to a request for further comment. He is the head of the Delaware office for the law firm Bernstein Litowitz Berger & Grossmann.
Representatives for Musk and Tesla also did not immediately respond to requests for comment.
The attorneys wrote that, throughout the history of the case, they collectively logged 19,499.95 hours — meaning an award of nearly $6 billion would equate to an hourly rate of $305,550. They argued, however, that working hours were of secondary importance, if worth considering at all.
“Delaware seeks to incentivize, not penalize, effective litigation,” they wrote.
The attorneys, based in Delaware and New York, are also seeking $1.1 million in costs.
Musk’s pay package was the largest ever disclosed in corporate America, according to Delaware District Court Judge Kathleen McCormick. 200 page decision. He said the process that led to the package was “deeply flawed” in part because Musk led the process to set it and it was agreed upon by Tesla board members “who were beholden to Musk.”
Musk is expected to appeal the decision. The CEO and multi-billionaire also said he would seek to move Tesla’s incorporation location to Texas.