Attorneys Scrutinizing Elon Musk’s Excessive Pay Demand $6 Billion Fee

The attorneys who invalidated Elon Musk’s $56 billion compensation as excessive on Friday pursued a groundbreaking $6 billion legal fee, payable in the electric car maker’s stock. “We recognize that the requested fee is unprecedented in terms of absolute size,” the three law firms conveyed in a filing with the Court of Chancery in Delaware.

The fee equates to an hourly rate of $288,888, they stipulated.

Musk criticized the request as “criminal,” expressing on his X platform that “the lawyers who did nothing but damage Tesla want $6 billion.” Tesla and Musk’s attorney did not immediately respond to requests for comment.

The company would compensate the attorneys who represented Richard Tornetta, a shareholder who sued Musk in 2018 over the pay package, which a Delaware judge nullified in January. The electric vehicle maker is tasked with paying the fee because it reaped the benefits of Musk’s pay package, which the legal team stated would result in the return of 266 million shares to the carmaker.

The Law Book
Judge McCormick criticizes Musk’s pay as “unfathomable” while the Delaware Supreme Court reviews the appeal. (Credits: Pexels)

“This structure has the benefit of linking the award directly to the benefit created and avoids taking even one cent from the Tesla balance sheet to pay fees,” the attorneys wrote, adding that the fee would be tax-deductible to Tesla.

Judge Kathleen McCormick, presiding over the case and responsible for deciding on the fee, labeled Musk’s pay “unfathomable” in her ruling. The company might contest the fee, as it has a fee request in a similar case concerning the pay for its directors. The most substantial settlements in shareholder cases have occurred in federal court.

The most significant fee amounted to $688 million in 2008 for the legal team that secured a $7.2 billion settlement in a securities fraud case involving the collapse of Enron Corp. The Tesla fee request arises as the Delaware Supreme Court deliberates on an appeal of a $267 million fee in a case that settled for $1 billion concerning Dell Technologies.

Tesla, Elon Musk
Musk’s compensation package was nullified; the legal battle involved 266 million shares and tax deductions. (Credits: India Today)

Delaware judges have indicated that pursuing cases extensively into litigation, through depositions, and toward trial, should warrant a higher percentage of the recovery to reflect the risk and effort. The Musk pay case proceeded to a one-week trial.

Critics of this approach argue that as settlements and judgments increase in size, attorneys should receive a diminishing percentage to prevent overcompensation. The legal team noted that the requested fee amounted to about 11% of the judgment.

Musk’s pay package comprised stock options enabling him to purchase Tesla stock at substantially discounted prices and mandated him to retain the stock for five years. The legal team expressed their intention to seek stock without restrictions on selling it.

The shareholder’s legal team consisted of three law firms: Bernstein Litowitz Berger & Grossmann and Friedman Oster & Tejtel, both headquartered in New York and Andrews & Springer of Wilmington.

Michael Manua
Michael Manua
Michael, a seasoned market news expert with 29 years of experience, offers unparalleled insights into financial markets. At 61, he has a track record of providing accurate, impactful analyses, making him a trusted voice in financial journalism.
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