UNITED STATES NEWS

Judge who nixed Musk’s pay package hears arguments on massive fee request from plaintiff lawyers

Jul 8, 2024, 3:37 PM | Updated: 4:00 pm

WILMINGTON, Del. (AP) — A Delaware judge heard arguments Monday over a massive and unprecedented fee request by lawyers who successfully argued that a massive and unprecedented pay package for Tesla CEO Elon Musk was illegal and should be voided.

Attorneys for a Tesla stockholder who challenged Musk’s 2018 compensation package are asking Chancellor Kathaleen St. Jude McCormick to award them legal fees in the form of stock in the electric vehicle company valued at more than $7 billion at current trading prices. The 2018 compensation package for Musk that was rescinded by the judge was potentially worth more than $55 billion.

After a full day of expert-witness testimony and arguments by attorneys, McCormick gave no indication on when she would rule on the fee request.

The fee amount sought by plaintiffs’ attorneys dwarfs the current record $688 million in legal fees awarded in 2008 in litigation stemming from the collapse of Enron.

Attorneys for the Tesla shareholder argue that their work resulted in the “massive” benefit of returning shares to Tesla that otherwise would have gone to Musk and diluted the stock held by other Tesla investors. They value that benefit at $51.4 billion, using the difference between the stock price at the time of McCormick’s January ruling and the strike price of some 304 million stock options granted to Musk.

Attorney Greg Varallo told McCormick that he and his fellow plaintiff lawyers were simply asking for “a slice of the value pie we created.”

“We did battle with the very best,” Varallo added. “Litigation against Tesla is never easy. There are companies who play by the rules every day, and then there are companies like Tesla.”

The plaintiff attorneys argue that their fee request is “conservative” under Delaware law. Instead of a typical 33% fee recovery, they note that they are seeking only 11% of the shares now available to Tesla as the result of Musk’s options being rescinded by McCormick’s ruling. The judge agreed with the shareholder lawyers’ argument that Musk engineered the landmark 2018 pay package in sham negotiations with directors who were not independent.

Following the court ruling, Tesla shareholders met in June and ratified Musk’s 2018 pay package for a second time. McCormick made clear, however, that the June vote would not be considered in determining the request for attorney fees. It instead will be the subject of a separate hearing in early August.

Meanwhile, some opponents of the fee request argue that the plaintiff attorneys deserve no fee at all because they did not bestow any economic benefit on Tesla and instead may have even harmed the company. Opponents contend that the purported reversal of share dilution among Tesla stockholders is not a benefit to the Austin, Texas-based company itself and cannot be used to justify the fee request. They also note that the fee request fails to quantify or subtract potential negative consequences of the ruling, including the need to find a new way to compensate Musk for six years of non-salaried service to Tesla since 2018.

“The market did not react like this rescission remedy bestowed any benefit,” defense attorney John Reed told McCormick, noting that Tesla’s market capitalization dropped by $15 billion after her ruling.

Some critics argue that any fee award should be based only on the number of hours the plaintiff attorneys worked, and a reasonable hourly rate. Adding a multiplier to incentivize attorneys who work on a contingency basis in corporate disputes might also be appropriate, they have suggested. That approach could still result in a fee award of tens of millions of dollars. The current fee request equates to an hourly rate of about $288,000 for plaintiff attorneys and would result in an “unwholesome windfall,” according to opponents.

Acknowledging the criticism that the fee request has received, plaintiff attorneys in a recent court filing proposed an alternative fee structure. Under that scenario, they would be willing to accept $1.44 billion in cash, equating to an hourly fee of about $74,000.

United States News

This image made from video provided by KPLC shows a truck passing along the highway where a 1-year-...

Associated Press

Trucker describes finding ‘miracle baby’ by the side of a highway in Louisiana

NEW ORLEANS (AP) — Reginald Walton had just rolled his 18-wheeler into Louisiana, eastbound on Interstate 10 after making a Texas delivery, when he spotted what looked like a discarded baby doll sitting on the embankment. Then he saw movement. “I noticed that it moved and I called 911 and told them I thought I […]

3 minutes ago

Associated Press

Arizona wildfire sparks evacuations on reservation as officials warn of rising fire risk in the West

LOS ANGELES (AP) — A wildfire that authorities say was fueled by strong winds has led to the evacuation of residents on the San Carlos Apache Reservation in Arizona, as authorities in Western states warned of the rising risk of wildfires amid a protracted heat wave this week that dried out the landscape, set temperature […]

9 minutes ago

FILE - The Fulton County Jail is seen, April 11, 2023, in Atlanta. The Fulton County Sheriff said F...

Associated Press

Georgia sheriff laments scrapped jail plans in county under federal civil rights investigation

ATLANTA (AP) — The sheriff in a Georgia county where prison conditions have led to a federal civil rights investigation criticized a decision not to move forward with plans for a new jail, calling the vote “shortsighted” on Friday. The Fulton County Board of Commissioners on Wednesday voted 4-3 to approve a request for proposals […]

20 minutes ago

Associated Press

Gang used drugs, violence to commit robberies that led to four deaths, prosecutors say

A group of gang members who trafficked drugs and guns and used dating websites to connect with people interested in hiring prostitutes were responsible for a series of robberies that led to four deaths, federal prosecutors said Friday. Dubbed the “fentanyl robbery gang,” the group worked from New Hampshire to Virginia, according to Gerard Karam, […]

41 minutes ago

Associated Press

Ex-NYPD officer is convicted of assault for punching a man 6 times

A former New York City police officer has been convicted of assault for punching a man in the face several times and breaking his nose while on patrol in 2021. Former officer Juan Perez was found guilty Thursday following a two-day bench trial of assaulting Borim Husenaj in the Greenwich Village neighborhood on Nov. 10, […]

47 minutes ago

FILE - Karen Read smiles during a news conference in front of Norfolk Superior Court, Monday, July ...

Associated Press

Prosecutors in Karen Read case argue against dismissing any charges

BOSTON (AP) — Prosecutors in the Karen Read murder case filed a motion Friday, arguing against dropping any charges after her mistrial. Read was accused of ramming into her Boston police officer boyfriend with her SUV and leaving him for dead in a snowstorm in January 2022. Her two-month trial ended when jurors declared they […]

58 minutes ago

Sponsored Articles

...

DESERT INSTITUTE FOR SPINE CARE

Desert Institute for Spine Care is the place for weekend warriors to fix their back pain

Spring has sprung and nothing is better than March in Arizona. The temperatures are perfect and with the beautiful weather, Arizona has become a hotbed for hikers, runners, golfers, pickleball players and all types of weekend warriors.

...

COLLINS COMFORT MASTERS

Here are 5 things Arizona residents need to know about their HVAC system

It's warming back up in the Valley, which means it's time to think about your air conditioning system's preparedness for summer.

...

Collins Comfort Masters

Here’s 1 way to ensure your family is drinking safe water

Water is maybe one of the most important resources in our lives, and especially if you have kids, you want them to have access to safe water.

Judge who nixed Musk’s pay package hears arguments on massive fee request from plaintiff lawyers