Public policy favors awarding $7 billion in Musk case, Tesla shareholder’s lawyer says

WILMINGTON, Delaware, July 8 (Reuters) – A record $7 billion in attorney fees for three companies that successfully challenged Elon Musk’s $56 billion pay package at Tesla is creating an incentive for lawyers to hold corporate boards accountable, a lawyer for a company shareholder told a Delaware judge on Monday.

For more than six hours, the company’s legal teams and a shareholder argued over how much damages should be awarded to three law firms representing Richard Tornetta, who owned nine Tesla shares when he sued Musk in 2018 over his compensation.

The fee Tornetta sought on behalf of the companies totals about $7.3 billion based on Tesla’s stock price on Monday, representing about $370,000 per hour worked by 37 lawyers, associates and paralegals, according to court documents filed by Tornetta’s lawyers.

John Reed, a lawyer for Tesla, said Monday that the petition for payment should never have been filed.

“This looks like a joke about a real lawyer,” said Court of Chancery Chancellor Kathaleen McCormick.

The legal fees are part of the value that plaintiffs’ lawyers say was created for Tesla (TSLA.O)opens a new tab following a Delaware judge’s ruling in January that invalidated a $56 billion payment to Musk.

Among the firms representing Tornetta was Bernstein Litowitz Berger & Grossmann.

Greg Varallo, a lawyer for Tornetta, said the shareholder’s legal team is seeking a much lower amount than the law allows, which could be as much as 33% of the benefits Tesla received from the lawsuit.

He said the January ruling was the largest ever issued by a U.S. court, not including punitive damages, and argued that Tornetta’s lawyers should receive 11% of the judgment in the form of 29 million Tesla shares.

Varallo argued that awarding such a high fee would encourage shareholder lawyers to try to protect small investors.

“If Delaware continues to see value in prosecuting misconduct, then narrowing incentives would be a very bad idea,” Varallo said.

Reed responded that the ruling in January had destroyed the value of Tesla shares because it created uncertainty about Musk’s future at the company.

He asked McCormick to award him a fee of at least $13.6 million.

More than 8,000 Tesla shareholders have sent about 1,500 letters and objections to the court over the fee, court documents show.

That amount far exceeds the current record $688 million in class-action settlements against Enron, according to Stanford University Law School data.

Musk’s case took a dramatic turn when Tesla shareholders voted in June to ratify Musk’s compensation, which Tesla said corrected flaws in the 2018 lawsuit that McCormick identified in her ruling.

The company says Musk’s pay has been returned and Tornetta’s legal victory has turned into a defeat.

In the coming weeks, McCormick will hear arguments about the legal implications of the ratification vote.

McCormick could take weeks or months to rule on his legal fees. The Delaware Supreme Court is considering a $267 million fee request in a shareholder class action lawsuit involving Dell Technologies, and the decision could provide a guide to fees.

Reporting by Tom Hals in Wilmington, Delaware; Editing by Aurora Ellis, Rod Nickel and Richard Chang

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Tom Hals is an award-winning reporter with 25 years of experience in Asia, Europe and the U.S. Since 2009, he has covered legal issues and high-stakes battles, from challenges to pandemic politics and Elon Musk’s campaign to end his Twitter deal.