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Tesla claimed in a lawsuit that the proposed $5.2 billion award to lawyers who launched a successful challenge to Elon Musk’s pay package amounted to the “highest hourly rate in history” and that they were only entitled to $13.6 million.
In January, a Delaware court threw out a proposed $56 billion pay package for Musk, saying it was improperly approved by the automaker’s board and changed shareholders.
After the ruling, Greg Varallo, lead attorney for the plaintiffs’ law firm Bernstein Litowitz, requested an award of approximately 29 million Tesla shares.
He said getting that portion of the roughly 267 million net shares that Musk would otherwise have gotten is consistent with recent Delaware precedents directing how much of the “conveyance benefits” lawyers can retain for shareholders.
Tesla said in its filing on Friday that the supposed benefits from the original ruling were “therapeutic or not measurable.” She noted that the requested compensation, initially estimated at $5.6 billion, would be 17 times larger than any fee in Delaware’s legal history and equal the state’s entire 2024 budget.
The company also calculated that the amount equates to $288,000 per hour, and would make Bernstein Litowitz and two supporting law firms the top three shareholders in Tesla.
“The justification for this extraordinary request defies established Delaware case law, distorts basic economics, and seeks to completely evade this Court’s fairness checks on fees,” the company’s lawyers wrote in a lawsuit on Friday.
“This case did not require as arduous efforts as would justify the highest hourly rate in history by several orders of magnitude,” the filing said.
It’s the latest salvo in Tesla’s broader campaign to discredit and overturn the judge’s decision. It is scheduled to hold two votes next week at its annual meeting. The first is seeking shareholder support to recover $56 billion in compensation, and the second is to move the company’s headquarters from Delaware to Texas.
At the time of Musk’s pay deal in 2018, Tesla took a $2.3 billion accounting charge on the package. Tesla argued that this could be considered the maximum benefit given to shareholders, citing other legal precedents to arrive at a much lower figure of $13.6 million.
Several small shareholders also filed “friend of the court” documents to lobby against Varallo’s landmark request.
In Delaware, attorneys usually have to convince the court how much value they added after the case is over to determine their fees.
The outcome of the vote at Tesla’s shareholder meeting next week is far from certain, and Musk’s future there could be at stake. If he loses, his ownership will remain at 13 percent compared to more than 20 percent if the award is awarded. The billionaire – who also runs SpaceX and social media platform X – said he would prefer future AI products to be developed outside Tesla if he did not gain greater control.
Tesla CEO Robin Denholm said the company needed to climb “Mount Everest” to win votes, particularly to reincorporate in Texas, which has a higher threshold for success.
What makes the task more difficult is that influential proxy advisers, Institutional Shareholder Services and Glass Lewis, have urged investors to vote against the “excessive” and “massive” pay award. In addition, many international Tesla shareholders found it difficult or impossible to vote.
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