WILMINGTON, Del. (AP) — Lawyers in Delaware are seeking nearly $6 billion worth of Tesla stock as their fee for successfully arguing that CEO Elon Musk’s 2018 pay package was unlawful, according to court documents.
The requested fee would surpass previous records for attorney compensation if approved by a judge. In 2008, lawyers working on Enron-related class actions were awarded $688 million in fees.
The lawyers, who represented former heavy metal drummer Richard Tornetta and other Tesla investors, convinced the Delaware chancery court to invalidate Musk’s $56 billion pay package from 2018. The court ruled that Tesla’s board of directors failed to demonstrate fairness to shareholders.
In a petition filed to the court, the attorneys argued that the fee is justified based on the value they delivered to Tesla shareholders. They are asking for just over 11% of the Tesla shares initially allocated to Musk, equivocating to more than 29.4 million shares. At Tesla’s closing price on Friday, this would amount to approximately $5.96 billion.
Interestingly, the lawyers are requesting their payment in Tesla shares to demonstrate their commitment to the company’s success. They believe this would directly correlate their award to the benefit they created and would prevent any financial impact on Tesla’s balance sheet. Furthermore, such a structure would be tax-deductible by Tesla.
Moreover, the lawyers note that the shares they are asking for would be freely tradable, unlike Musk’s stock options that have a five-year holding period from the exercise date. They consider their requested compensation to be “conservative” under Delaware law, which allows them to secure 33% of the “quantifiable conferred benefit.” Nonetheless, they opt for a lower percentage out of an effort to exercise restraint, as they had taken the case on a contingency basis and would not have received any payment if they had lost.
Greg Varallo, the lead counsel for the plaintiffs, did not respond immediately to a request for comment. Representatives for Musk and Tesla also did not provide any comments.
Throughout the case’s history, the lawyers logged approximately 19,500 hours collectively. They argue that the number of hours worked is of secondary importance compared to the value provided by efficient litigation. In addition to the requested fee, the attorneys are asking for an expense reimbursement of $1.1 million.
In her ruling on Musk’s pay package, Delaware Chancery Court Judge Kathaleen McCormick stated that the process leading to its creation was flawed. She highlighted that Musk’s influence was significant since he drove the decision-making process, and the package was approved by Tesla board members who were under his influence.
It is expected that Musk will appeal the court’s ruling. The billionaire CEO has also expressed his intention to relocate Tesla’s incorporation to Texas.