The lawyers who blocked Elon Musk’s Tesla pay package are demanding a $5.6 billion payout and are prepared to ‘eat our cooking’

Jun 11, 2024

Elon Musk could have $56 billion riding on the outcome of Tesla’s annual meeting this Thursday, when the automaker’s stockholders will vote on the CEO’s record-setting 2018 pay package.

But there’s another group that stands to land a record windfall: The legal team that successfully argued against Musk’s payout in a Delaware court earlier this year is seeking a whopping $5.6 billion in stock-based legal fees—17 times as large as the biggest fee in Delaware history.

“We recognize that the requested fee is unprecedented … The size of the requested award is great because the value of the benefit to Tesla that Plaintiff’s Counsel achieved was massive,” the plaintiff’s legal team wrote in a court filing. “We are prepared to ‘eat our cooking.’”

Tesla shareholders will give Musk an answer later this week, but the opposing lawyers will have to wait until a hearing scheduled for July 8 for the Delaware Court of Chancery to approve or deny the fees they’re seeking.

Musk himself has voiced strong opposition to the lawyers’ fee proposal. “The lawyers who did nothing but damage Tesla want $6 billion. Criminal,” Musk previously wrote in a post on his personal X account.

The lawyers seeking the $5.6 billion in fees represented plaintiff Richard Tornetta, a Tesla shareholder who filed a suit in 2018 protesting Musk’s compensation package, which had earlier received the approval of Tesla’s board and 70% of the company’s shareholders.

It was structured so that Musk would unlock certain stock awards if he guided the company to various milestones based on metrics like market capitalization. Under Musk’s leadership, Tesla blew past those milestones faster than anyone expected, hitting $1 trillion in market cap by 2021. (It’s since retreated, to just over $551 billion today.)

But Delaware Chancellor Kathaleen McCormick sided with Tornetta earlier this year, concluding that Musk’s pay package was an “unfathomable sum” and the process to approve it was “deeply flawed,” in part because the Tesla board contains many of Musk’s close friends and colleagues.

Tesla shareholders will decide whether to reverse the Delaware court decision this Thursday. But regardless of the outcome, the plaintiff’s lawyers won the case, and they’re demanding their pound of flesh. While extremely high in dollar terms, the fee the lawyers are requesting is well below what other litigators have been awarded in percentage terms—just 10% of the $56 billion they saved Tesla shareholders by voiding Musk’s payout.

Last year, the Delaware Court of Chancery awarded lawyers 27% of the $1 billion settlement from an M&A case involving Dell, and in 2011 lawyers netted 15% of the $2 billion in damages stemming from a case involving mining company Southern Peru Copper Corp.

Delaware courts reward lawyers who pursue complex cases into the late stages of litigation and get “real results,” Delaware Vice Chancellor J. Travis Laster said in approving the Dell litigators’ fee application.

But even though the percentage might be relatively modest, the monumental scale of the ruling makes the lawyers’ fee application extraordinary.

“The dollar amount requested in the fee petition is unusual,” McCormick conceded in a court filing.

Even if Tesla shareholders vote to reinstate Musk’s pay package, there’s no guarantee he would actually get the money. Corporate law isn’t clear on whether a shareholder vote is sufficient to overturn a legal ruling, and Musk could be required to go back to court to get final approval for the money. If shareholders don’t vote in his favor, analysts have speculated Musk could stop paying as much attention to Tesla and spend more of his time focusing on his other companies.

“Elon is not a typical executive, and Tesla is not a typical company,” Tesla board chair Robyn Denholm said. “So the typical way in which companies compensate key executives is not going to drive results for Tesla. Motivating someone like Elon requires something different.”

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