Legal Team Seeks $229M in Fees from Tesla Directors After $700M Payout

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In an unexpected turn of events, the legal team that successfully persuaded Tesla directors to reimburse the automaker over US$700 million for alleged self-overpayment is now seeking a generous remuneration for their efforts.

In a recent court filing, the attorneys have requested a staggering US$229 million in fees, averaging an hourly rate of US$10,690. This sum, if sanctioned, would rank among the most generous settlements originating from a board anguished by a shareholder lawsuit.

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The beneficiaries of this compensation, should it be approved, would be the lawyers of four firms who collectively committed several years in building a substantial case against the stipends received by Tesla’s directors from 2017 to 2020.

Before the settlement or the legal fee can be dispensed, there is an additional hurdle of approval by a Delaware judge. These items are scheduled for scrutiny in a court hearing set for October.

The dozen defending directors, including well-known figures such as James Murdoch and Larry Ellison, had decided to recompense a total of US$735 million, pass on a possible extra US$184 million and revamp how the board evaluates director remuneration. These funds from the settlement will be directed back into Tesla, indirectly benefiting shareholders. This form of legal action is referred to as a derivative lawsuit.

Estimating the complete value of the settlement at US$919 million, the law firms are claiming a neat 25 percent of that in fees, in addition to roughly US$1 million in expenses.

Members of two New York law firms, Bleichmar Fonti & Auld and Fields Kupka & Shukurov, along with attorneys and staff from McCarter & English and Clark Hill, all contributed colossal hours in developing a successful case against Tesla’s directors.

The magnitude of the requested legal fees is under scrutiny. While it is important to appropriately reward legal firms for their risks taken and their effort, caution is needed to deter an imbalance that could potentially sabotage faith in the legal procedures.

In typical fee assessments of contingency cases, there can be no direct comparison due to their varying types. Nevertheless, the exorbitant requested amount in regard to this Tesla case has been labeled as “extraordinary”, certainly exceeding the standard hourly rates for top-ranking corporate attorneys.

The Tesla directors, though yet to lodge a formal objection against the fee request, are anticipated to do so, alluding to a court filing by the plaintiff’s representatives.

While large settlements are not uncommon, the Delaware Court of Chancery evaluates the outcome rather than focusing solely on the hourly rate. A similar case occurred in 2012 when the court endorsed a fee of US$304 million, corresponding to a US$35,000 hourly rate, in a Southern Copper shareholder lawsuit, despite the objections raised by the defendants.

The Tesla matter will be examined by the Delaware Court of Chancery judge, Kathaleen McCormick, in a scheduled hearing for Oct. 13. Any Tesla shareholders intending to file an objection against the proposed settlement and fees only have until Friday to do so.

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Melinda Cochrane is a poet, teacher and fiction author. She is also the editor and publisher of The Inspired Heart, a collection of international writers. Melinda also runs a publishing company, Melinda Cochrane International books for aspiring writers, based out Montreal, Quebec. Her publication credits include: The art of poetic inquiry, (Backalong Books), a novella, Desperate Freedom, (Brian Wrixon Books Canada), and 2 collections of poetry; The Man Who Stole Father’s Boat, (Backalong Books), and She’s an Island Poet, Desperate Freedom was on the bestseller's list for one week, and The Man Who Stole Father’s Boat is one of hope and encouragement for all those living in the social welfare system. She’s been published in online magazines such as, (regular writer for) ‘Life as a Human’, and Shannon Grissom’s magazine.