Lawyers who voided Elon Musk's pay as excessive want a $6 billion fee

FILE PHOTO: Elon Musk, CEO of SpaceX and Tesla and owner of X, formerly known as Twitter, attends the Viva Technology conference dedicated to innovation and startups at the Porte de Versailles exhibition centre in Paris, France, June 16, 2023. REUTERS/Gonzalo Fuentes/File Photo

By Tom Hals

WILMINGTON, Delaware (Reuters) -The lawyers who voided Elon Musk’s $56 billion compensation as excessive are seeking a record legal fee worth $6 billion, payable in the electric car maker’s stock, according to a Friday court filing.

“We recognize that the requested fee is unprecedented in terms of absolute size,” said the filing with the Court of Chancery in Delaware by the three law firms.

The fee works out to an hourly rate of $288,888, according to the court filing.

The fee will be paid by Tesla to attorneys who represented Richard Tornetta, a Tesla shareholder who sued Musk in 2018 over the pay package, which a Delaware judge nixed in January.

The electric vehicle maker is being asked to pay the fee because it benefited from the return of Musk’s pay package, which the legal team said will result in the return to the carmaker of 266 million shares.

The fee request must be approved by Kathaleen McCormick, the judge overseeing the case. She called Musk’s pay “unfathomable” in her ruling.

Tesla, Musk’s attorney and Musk did not immediately respond to a request for comment.

The company may object to the fee, as it has a fee request in a similar case over the pay for its directors.

“This structure has the benefit of linking the award directly to the benefit created and avoids taking even one cent from the Tesla balance sheet to pay fees,” said the shareholder legal team, noting the fee is also tax-deductible to Tesla.

The largest settlements in shareholder cases occur in federal court and the biggest fee was $688 million in 2008 for the legal team that obtained a $7.2 billion settlement in securities fraud case over the failure of Enron Corp.

The Tesla fee request comes as the Delaware Supreme Court is considering an appeal of a $267 million fee in a case that settled for $1 billion involving Dell Technologies .

Delaware judges have said that pursuing cases deep into litigation, through depositions and toward trial, should get a higher percentage of the recovery to reflect the risk and effort. The Musk pay case went to a one-week trial.

Opponents of this approach argued that as settlements and judgments grow in size, attorneys should collect a declining percentage to avoid overcompensation.

The legal team said the requested fee worked out to about 11% of the judgment.

Musk’s pay package consisted of stock options that allowed him to purchase Tesla stock at heavily discounted prices and required him to hold the stock for five years. The legal team said they are seeking stock without restrictions on selling it.

The shareholder’s legal team comprised three law firms, Bernstein Litowitz Berger & Grossmann and Friedman Oster & Tejtel, both based in New York, and Andrews & Springer of Wilmington.

(Reporting by Tom Hals in Wilmington, Delaware; Editing by Leslie Adler and Diane Craft)