Lawyers Demand $7 Billion in Fees After Challenging Musk’s Tesla Pay Package

A Delaware judge is considering a record-setting $7 billion request for attorney fees from three law firms that successfully contested Elon Musk’s $56 billion pay package from Tesla. The firms, which represented Tesla shareholder Richard Tornetta, argue that the fee incentivizes legal accountability for corporate boards.

For over six hours on Monday, legal teams debated the appropriate compensation for the 37 lawyers, associates, and paralegals involved in the case. Tornetta, who held nine Tesla shares when he initiated the lawsuit in 2018, contends that the fee request equates to approximately $370,000 per hour of work based on Tesla’s current stock price.

Tesla’s lawyer, John Reed, dismissed the fee petition, calling it excessive. He argued that the legal team’s claim of creating significant value for Tesla is misleading, noting that the January ruling against Musk’s pay package negatively impacted Tesla’s stock by creating uncertainty about Musk’s role at the company.

The legal fees requested are calculated as 11% of the value attributed to Tesla from the January ruling, which Tornetta’s attorney, Greg Varallo, described as the largest judgment ever by a U.S. court excluding punitive damages. Varallo emphasized that a substantial fee would motivate shareholder attorneys to safeguard small investors and curb corporate misconduct.

Conversely, Reed suggested a more modest fee of $13.6 million, citing the adverse effects on Tesla’s stock and arguing that Tornetta’s legal win was effectively nullified when Tesla shareholders ratified Musk’s pay package in June. This ratification, according to Tesla, corrected the procedural flaws identified in the 2018 ruling.

The case has drawn significant attention from Tesla shareholders, with over 8,000 stockholders submitting approximately 1,500 letters and objections regarding the fee request.

Chancellor Kathaleen McCormick will deliberate on the fee request, with a decision potentially taking weeks or months. Additionally, the Delaware Supreme Court is reviewing a $267 million fee request in a related shareholder class action involving Dell Technologies, which may influence McCormick’s ruling.