Elon Musk’s $56 Billion Pay Package Challenged: $7 Billion Attorney Fee Sparks Debate in Tesla Case

In a case about Elon Musk’s pay package, a shareholder’s lawyer argued that a record $7 billion in attorney fees should be awarded to three law firms. These firms successfully challenged Musk’s $56 billion pay package from Tesla. This fee would encourage lawyers to keep corporate boards accountable, the lawyer said during a hearing in Delaware.

Details of the Fee Request

The case revolves around Richard Tornetta, a shareholder who owned nine Tesla shares when he sued over Musk’s pay in 2018. The $7.3 billion fee request is based on Tesla’s stock price and amounts to about $370,000 per hour for the 37 lawyers, associates, and paralegals who worked on the case.


Tesla’s Counterargument

Tesla’s lawyer, John Reed, criticized the fee request, calling it excessive. He said it seemed like a joke and argued that the request should not have been filed. The fee represents a portion of the value that Tornetta’s lawyers claim was created for Tesla by a January court ruling that voided Musk’s pay package.

Greg Varallo, Tornetta’s attorney, said the legal team was asking for less than what the law allows, which could be up to 33% of the benefit to Tesla from the lawsuit. He argued that Tornetta’s lawyers should get 11% of that judgment in Tesla shares, which would be about 29 million shares. He added that a large fee award would motivate lawyers to protect small investors.

Impact on Tesla’s Stock

Reed countered by saying the January ruling harmed Tesla by lowering its stock price and creating uncertainty about Musk’s future at the company. He suggested a much lower fee of $13.6 million.

Thousands of Tesla shareholders have voiced objections to the fee request, sending over 1,500 letters to the court. The request is much higher than the current record fee in shareholder litigation, which is $688 million in an Enron class action.

Ratification of Musk’s Pay Package

In June, Tesla shareholders voted to ratify Musk’s pay package, which the company claims fixes the problems identified in the January ruling. This vote could affect the case’s outcome, and the court will discuss its legal impact soon. The judge, Chancellor Kathaleen McCormick, may take weeks or months to decide on the fee. Another fee request in a Dell Technologies case might also provide guidance on this issue.

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