Tesla urges judge to lower attorney fees in director pay case

Key Points

• 💼 Tesla is urging a Delaware judge to reduce the requested $230 million in legal fees to $64 million in a case related to compensation for the company’s board of directors.
• 💰 The case was settled in July, with Tesla’s directors agreeing to repay over $735 million to the company for stock option compensation from 2017 to 2020.
• 📝 Shareholder attorneys have requested 25 percent of the total $919 million settlement, which Tesla argues is an inflated figure not reflective of the overall benefit to the company.
• ⚖️ The Delaware judge, Kathaleen McCormick, heard arguments on the fee and settlement approval, but the ruling date has not been disclosed.
• 💸 If approved, the fees would be distributed to lawyers from four legal firms who worked on the case, making it one of the highest fee requests in Delaware’s Court of Chancery history.
• 🧔 Shareholder directors maintain that they received fair compensation but settled to avoid further litigation risks, while CEO Elon Musk faces a separate challenge over his $56 pay package in 2018.

Tesla has encouraged a Delaware judge to deny almost $230 million in legal fees requested by attorneys following a case that was settled earlier this year regarding compensation for the company’s board of directors.

In a request to Delaware judge Kathaleen McCormick, Tesla has asked that the $229 million in legal fees requested by shareholder attorneys be lowered to $64 million, as Reuters reported on Friday. The automaker reached a settlement on the case in July, with Tesla’s directors agreeing to pay back over $735 million to the company related to stock option compensation from 2017 to 2020.

The attorneys have asked for 25 percent of the total $919 million settlement on the lawsuit, which was originally filed in 2020. Tesla’s attorneys have responded that shareholder legal teams inflated the settlement’s value and requested fees, connecting the value to its cost to each director rather than to the overall benefit of the company.

Tesla said the fee was an “unwarranted windfall,” recently noting that it would represent as much as $10,690 per hour for attorneys who worked on the case.

After hearing roughly two hours of arguments on Friday over the fee and attorney requests to approve the settlement, McCormick didn’t disclose when she planned to announce a ruling. McCormick must also approve the settlement, though it isn’t clear when she’ll do so.

The fees would be paid out directly to lawyers across four legal firms who have worked on the case, including partners and staff members at New York-based Bleichmar Fonti & Auld and Fields Kupka & Shukurov, which both billed over 10,000 hours working on the case. Other firms include McCarter & English attorneys in Wilmington, Delaware, and an additional attorney at Clark Hill in Lansing, Michigan, both of which said they billed hundreds of hours on the case.

At the hearing, Tesla shareholder Mike Levin noted that the directors were being held liable for damages as a group rather than the settlement allocating specific damages to each director.

“We don’t want one defendant — CEO Elon Musk — to pay any or all of it,” Levin said. “That would compromise any independence of the directors.”

The fee represents one of the highest fee requests ever made in the Delaware Court of Chancery, which frequently hosts shareholder lawsuits like this one. The directors have maintained that they received fair compensation, though they settled to avoid further litigation risk.

CEO Elon Musk also faces a separate challenge over his $56 pay package in 2018.