In 2018, an investor named Richard Torrenta sued Musk and three Tesla directors, alleging that Musk’s pay deal was unreasonable. Tornetta possessed only nine Tesla shares, but the acquisition was questioned by big pension fund California State Teachers’ Retirement System (CalSTRS) and proxy advisory companies for being too large.
Musk’s 2018 compensation package included stock grants worth around 1% of Tesla’s equity each time the business met one of 12 tranches of escalating operational and financial targets. Tornetta claimed that shareholders were not advised how easily the targets would be met when they voted on the package.
Tesla shareholders are pushing a judge to reject the $7 billion legal fee sought by the lawyers who successfully overturned Elon Musk’s $56 billion compensation package. This charge, which would be paid in Tesla stock, is considered unusual. The legal team believes that this structure favors Tesla because it takes no cash from its balance sheet and is tax-deductible. Musk called the fee request “criminal,” claiming that lawyers who “did nothing but damage Tesla” should not be rewarded so generously. The fee equals around 11% of the stock that would be returned to Tesla due to the voided compensation package, and it is compared to the maximum fee previously granted in a shareholder dispute, which was $688 million in the Enron case.
The judge’s judgment on this fee request is likely soon, and Musk will have the ability to appeal once the ruling is finalized.
Tornetta’s lawyers claim they deserve the fee as a portion of the advantage they claim they gave Tesla when a judge overturned Musk’s pay package, returning to Tesla almost 266 million shares designated for stock options. That stock is worth almost $67 billion at Friday’s price of $251.82 per share.
Tornetta’s counsel stated that it is the highest judgment ever awarded by an American court, excluding penalties. They advocated for a fee equivalent to 11% of the verdict, which is arguably conservative in light of Delaware legal history. They sought for payment in the form of 29 million Tesla shares.
Federal courts prefer to reduce fees as a percentage of decisions or settlements as they grow in size, Delaware’s courts have gone the other way, granting a higher proportion as an incentive for lawyers to seek for a larger recovery. Tornetta’s legal team stated that they would have been justified in seeking up to 33% of Musk’s compensation amount.
