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Lawyers have asked a Delaware judge to award them Tesla stock worth nearly $6 billion as of Friday as a fee for successfully arguing that CEO Elon Musk's 2018 pay package was illegal.
The fee would dwarf attorneys' payday records if approved by a judge. Lawyers who worked on Enron-related class actions earned $688 million in fees in 2008.
Lawyers had previously convinced a Delaware court to void Musk's $56 billion pay package from 2018, with the judge ruling that Tesla's board had failed to prove it was fair to shareholders.
On Friday, in a petition filed with that court over fees and expense reimbursements, lawyers argued that the fees would be justified given the amount of value they provided to Tesla shareholders. The lawyers represent former heavy metal drummer Richard Tornetta, who filed the lawsuit on behalf of fellow investors in Tesla.
Lawyers are demanding just over 11% of Tesla shares that would have gone to Musk, or just over 29.4 million shares. Tesla stock closed Friday at $202.64 per share, meaning the fee would be about $5.96 billion.
Getting paid in Tesla stock indicates they are willing to “eat our cooking,” the lawyers wrote.
They added: “This structure has the advantage of linking the prize directly to the benefit created and avoids taking a dime off Tesla's balance sheet to pay the fees. It is also tax deductible by Tesla.”
They indicated that the shares they request will be freely tradable, while Musk's stock options include a five-year holding period starting from the date of their exercise.
However, the lawyers described the roughly $6 billion worth of shares as “conservative” under Delaware law, which they said entitled them to 33% of the “quantifiable vested benefit.”
“However, in an effort to be conservative, plaintiff's counsel does not seek the 33%” warranted by the prior cases, they wrote.
They indicated that they took the case on an emergency basis and would get nothing if they lost
“Plaintiff's counsel were not paid for their work, none of their costs or expenses were reimbursed, and the litigation of this action required the dedication of a significant amount of Plaintiff's counsel's time and resources over a period of six years, including significant out-of-pocket expenditures,” they wrote.
Greg Varallo, the plaintiffs' lead attorney and the attorney who signed the brief, did not immediately respond to a request for further comment. He is head of the Delaware practice of the law firm Bernstein Litowitz Berger & Grossman.
Representatives for Musk and Tesla also did not immediately respond to requests for comment
Over the course of the case history, they collectively logged 19,499.95 hours — meaning the roughly $6 billion award would equate to a rate of $305,550 per hour, the attorneys wrote. However, they argued that working hours were of secondary importance, if they were worth considering at all
“Delaware seeks to stimulate, not punish, effective litigation,” they wrote.
The attorneys, based in Delaware and New York, are also seeking reimbursement of $1.1 million in expenses.
Musk's pay package was the largest ever disclosed in corporate America, according to Delaware Circuit Judge Kathleen McCormick's 200-page ruling. She said the process that led to the package was “deeply flawed” in part because Musk led the process of defining it, and it was agreed upon by Tesla board members “who were beholden to Musk.”
Musk is expected to appeal the ruling. The CEO and billionaire also said he would seek to move Tesla's founding location to Texas.
