Tesla (TSLA) shareholders will appear in court on Monday, July 8, arguing that the demand for Tesla to pay more than $7 billion in legal fees is "ridiculous" and the latest turn in legal disputes over Musk's $56 billion compensation plan. #2024 Macro Outlook# #2024 Investment Strategy#
Tesla's stock price fell more than 1% in pre-market trading on Monday.
(Image source: finance.yahoo)
The record-breaking cost request was filed by investor Richard Tornetta, representing three law firms including Bernstein Litowitz Berger and Grossmann. Tornetta owned nine Tesla stocks at the time he sued Musk's stock option compensation plan in 2018 and won the case in January this year, resulting in the compensation plan being canceled.
According to court documents submitted by Tornetta's attorneys, the fee is equivalent to about $7.2 billion in Tesla's stock price on Friday, equal to a fee of about $0.37 million per hour for 37 lawyers, assistants, and legal assistants, some of whom have a normal billing rate as low as $275 per hour.
New Jersey Tesla shareholder Nathan Chiu wrote in a court document provided to Judge Kathaleen McCormick in March, "These legal fees appear incomparably disproportionate and absurd."
According to court documents, the California Public Employees' Retirement System and more than 8,000 Tesla shareholders have submitted about 1,500 letters and opposition to the Delaware state court.
Monday's hearing was originally scheduled to be held in Judge McCormick's usual courtroom and was later moved to the largest courtroom in the building to accommodate 47 lawyers from 19 law firms and potential shareholders.
Tornetta's attorneys claimed that they should be awarded the fee because they believed that they brought benefits to Tesla by having the Musk's compensation plan canceled by the judge, which brought back about 0.266 billion shares used for stock options. At a price of $251.82 per share on Friday, these stocks are worth about $67 billion.
Tornetta's lawyers said this was the largest ruling issued by US courts, not including punitive damages, and they argued that they should receive 11% of the amount, which is a conservative figure in Delaware legal precedents. They requested to be paid in the form of 29 million Tesla stocks.
Record-breaking cost request
Although federal courts tend to reduce the percentage of fees as the amount of the judgment or settlement increases, Delaware courts, on the contrary, grant higher percentages as incentives for lawyers to seek greater compensation.
Tornetta's legal team said they could have requested up to 33% of the value of Musk's compensation plan.
According to data from Stanford Law School, the highest fee in shareholder lawsuits is $0.688 billion in the Enron Corporation class action lawsuit.
When Tesla shareholders voted for Musk's compensation in June, the Musk case had a dramatic turn and Tesla argued that the flaws pointed out by Judge McCormick in the 2018 procedure had been revised.
The company claimed that Musk's compensation plan had been restored and Tornetta's legal victory had turned into a failure. Therefore, the minimum fee that shareholder lawyers should receive is $13.6 million, Tesla said.
Some shareholders who oppose this request have written formal letters to the judge, but a few shareholders have hired lawyers to submit formal opposition.
It may take weeks or months for Judge McCormick to make a ruling. The Delaware Supreme Court is currently considering a $0.267 billion fee request in a Dell Technologies shareholder class action lawsuit, which may provide guidance on legal fees.