Lawyers representing former Tesla investors, led by former heavy metal drummer Richard Tornetta, are seeking a fee of nearly $6 billion in Tesla stock as compensation for successfully arguing that CEO Elon Musk’s 2018 pay package was unlawful. This fee request, if approved by a Delaware judge, would set a new record for attorney paydays, surpassing the $688 million awarded to lawyers involved in Enron-related class actions in 2008.
The attorneys had previously convinced the Delaware chancery court to revoke Musk’s $56 billion pay package from 2018, with the judge ruling that Tesla’s board of directors failed to demonstrate its fairness to shareholders. In their petition for fees and expense reimbursement filed to the court, the lawyers argued that the requested fee is justified given the significant value they delivered to Tesla shareholders.
The lawyers are seeking just over 11% of the Tesla shares that would have been allocated to Musk, amounting to slightly more than 29.4 million shares. With Tesla’s stock closing at $202.64 per share on Friday, the fee would be valued at approximately $5.96 billion. The attorneys emphasized their willingness to accept payment in Tesla shares, stating that it demonstrates their commitment to “eat our cooking.”
The lawyers advocating for the nearly $6 billion award in Tesla shares highlighted several key points in their request. They emphasized that this compensation structure directly links the award to the benefit created without drawing any funds from Tesla’s balance sheet, making it tax-deductible by the company. Additionally, they noted that the shares they are requesting would be freely tradeable, unlike Musk’s stock options, which have a five-year holding period.
Despite characterizing the requested award as “conservative” under Delaware law, the lawyers refrained from seeking the full 33% of the quantifiable conferred benefit, which previous cases have warranted. They underscored that their work on the case was conducted on a contingency basis, meaning they would have received no compensation if they had lost. Furthermore, they outlined the substantial time and resources invested in litigating the case over six years, including significant out-of-pocket expenses.
Lead counsel for the plaintiffs, Greg Varallo, who heads the Delaware practice for Bernstein Litowitz Berger & Grossmann, did not provide immediate further comment. Representatives for Musk and Tesla also did not respond immediately to requests for comment.
The lawyers defended the hours logged on the case, amounting to 19,499.95 collectively, arguing that the per-hour rate of $305,550 should not be the primary focus, as Delaware aims to incentivize efficient litigation rather than punish it. Additionally, they requested an expense reimbursement of $1.1 million.
Tesla’s CEO Elon Musk has indicated plans to appeal the ruling that revoked his 2018 pay package, which was deemed the largest ever disclosed in corporate America by Delaware Chancery Court Judge Kathaleen McCormick. She criticized the process leading to the package as “deeply flawed,” highlighting Musk’s significant influence and the board’s dependence on him. Musk has also expressed intentions to relocate Tesla’s incorporation to Texas.