Tesla Shareholders' Legal Battle Over $7 Billion Legal Fee Request

TapTechNews July 8th news, according to Reuters, Tesla shareholders will appear in court on Monday to argue that the company's request to pay more than $7 billion in legal fees is extremely outrageous, which is the latest development in the legal dispute surrounding Elon Musk's $56 billion compensation package.

Tesla Shareholders Legal Battle Over  Billion Legal Fee Request_0

The record-breaking legal fee request was made by investor Richard Tornetta on behalf of three law firms representing him. Tornetta filed a lawsuit against Tesla in 2018 due to Musk's stock option compensation package, when he held only 9 shares of Tesla. In January this year, Tornetta finally won the lawsuit, and at that time the compensation package was declared invalid.

According to the court documents submitted by Tornetta's lawyers, based on Tesla's share price on Friday, this legal fee is equivalent to about $7.2 billion (TapTechNews note: currently about 52.519 billion yuan), which is equivalent to about $370,000 per hour for each lawyer, paralegal, and legal assistant, while some of them usually charge as low as $275 per hour.

Nathan Chiu, a Tesla shareholder in New Jersey, said in a letter to Chancellor Kathaleen McCormick in March: The legal fee seems extremely unreasonable and outrageous.

The court documents show that Nathan Chiu, the California Public Employees' Retirement System, and more than 8,000 Tesla shareholders have submitted approximately 1,500 letters and objections to the Delaware Court of Chancery.

The hearing originally scheduled for Monday was moved from Judge McCormick's usual courtroom to the largest courtroom in the building to accommodate the 47 lawyers from 19 law firms in the case and potential shareholders.

Tornetta's lawyers argued that they deserve this legal fee because they believe that the judge's ruling invalidating Musk's compensation package has benefited Tesla significantly. The package returned approximately 266 million shares reserved for Tesla's stock options to Tesla, which is worth approximately $67 billion at Friday's share price of $251.82.

Tornetta's lawyers said that this is the largest amount awarded by a US court other than punitive damages. They argued that they should receive 11% of the judgment amount as the legal fee, which can be said to be very conservative according to Delaware's legal precedents. They requested to be paid this fee in the form of 29 million shares of Tesla.

Although federal courts tend to reduce the proportion of legal fees in the total amount as the judgment or settlement amount increases, the Delaware courts do the opposite, and they will award a higher proportion as an incentive for lawyers to seek greater compensation.

Tornetta's lawyer team said, they could have requested up to 33% of the value of Musk's compensation package as the legal fee.

In June, a dramatic turn occurred in the Musk compensation case. At that time, Tesla shareholders voted to approve Musk's compensation package. Tesla argued that this corrected the defect in the 2018 compensation formulation process pointed out by Judge McCormick in the ruling.

Tesla argued that Musk's compensation package has been restored, and Tornetta's legal victory has turned into a defeat. Therefore, the case has not brought any benefits to Tesla, and shareholder lawyers should only charge a fee of $13.6 million.

Some shareholders who oppose this request submitted formatted letters to the judge, but a few shareholders hired lawyers to submit formal objections.

Judge McCormick may take weeks or months to make a ruling. The Delaware Supreme Court is cur rently considering a $267 million legal fee request in a shareholder class action lawsuit involving Dell Technologies, and this ruling may provide guidance for the legal fee in this case.