Public policy favors USD 7 billion fee award in Elon Musk pay case

It would be the largest fee ever for three law firms who have achieved what was considered impossible – defeating Elon Musk’s USD 56 billion pay package at Tesla, in order to turn the tables and explain to corporate boards why they have to constantly worry about having lawyers on their back, as was stated in the Delaware court on Monday.

The legal teams for both the plaintiff and the defendants spent six hours arguing about compensation for representing shareholder Richard Tornetta who owned nine Tesla shares when he filed the lawsuit in April 2018. Tornetta’s counsel sought fees of approximately $7. Market value 3 billion at the current price of TSLA and amounts to roughly $370 000 per hour for the combined efforts of 37 lawyers, associates and paralegals as disclosed in the legal papers.

Tesla’s lawyer, John Reed, criticised the fee petition, and, referring to it as a ‘real-life lawyer joke,’ staunchly opposed its approval to the Chancellor Kathaleen McCormick of the Court of Chancery.

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The fee, which is a fraction of the value claimed to have been created for Tesla after January’s court ruling that terminated Musk’s compensation package, has provoked resistance from Tesla’s lawyers and thousands of shareholders. Reed further argued that the ruling had in fact lessened the value of Tesla through provoking stock price fluctuations brought about by the uncertainty over Musk’s position.

Greg Varallo, representing Tornetta, argued for the requested fee by stating that it is quite reasonable in light of legal standards that permit up to 33% for the benefit conferred and the company’s role in the transaction. He emphasised the historical significance of the January ruling which was the largest non-Punitive damages award by an American Court and recommended a fee award that will ensure lawyers protect small investors.

The issues discussed in the cases prior to Chancellor McCormick remain significant in shareholder litigation and corporate governance with referencing en masse the Enron class action case. Concerning the legal developments, the consequent of this and similar cases of fees might give precedential value for upcoming disagreements between shareholders or similar corporate responsibility cases.