Tesla Lawyers Seek Record $229M Fee After Historic Compensation Case Victory

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The attorneys responsible for compelling the directors of Tesla to return over US$700 million in compensation to the company on the grounds of self-overpayment, now seek a monumental remuneration for their services. The legal team has requested a judge to sanction US$229 million in fees, which equates to a staggering US$10,690 per hour, as stated in a Sept. 8 filing in Delaware’s Court of Chancery.

If granted, this proposed fee would record one of the largest awards resulting from a board-targeted shareholder lawsuit. The four legal enterprises that devoted numerous years building a case against Tesla’s directors’ compensation from 2017 to 2020 will divide the sum.

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For the legal fee and the settlement to be executed, a Delaware judge needs to sanction them at a hearing scheduled for October.

The defendants, including James Murdoch and Larry Ellison, reached an agreement to return US$735 million in compensation and give up a potential US$184 million. Moreover, they will modify how the board stipulates director pay. The settlement money will be paid to Tesla, indirectly benefiting the shareholders in what is known as a derivative lawsuit.

The law firms calculate the total settlement value at US$919 million and are seeking 25 per cent of that sum as the fee, along with approximately US$1 million in expenses. Several partners and staff from the law firms of Bleichmar Fonti & Auld and Fields Kupka & Shukurov each devoted over 10,000 hours to the case, as did attorneys and staff from McCarter & English and Ronald King from Clark Hill firm.

Legal Fee Advisors’ founder, David Paige, divulged that courts scrutinize fee requests by balancing the need to reward risks and effort against the prevention of an excessive profit that could undermine faith in the legal system. He emphasized the extraordinary nature of the Tesla plaintiffs’ request compared to common top rates for notable corporate attorneys, which typically cap at US$2,000 per hour. The court’s ultimate task will be evaluating the size of the fee against the litigation’s benefit.

The Tesla directors are yet to object the fee request, though it is expected they will, as indicated in a court filing by the plaintiffs’ lawyers. Neither party’s attorneys had responded to a request for a comment.

Past instances show Delaware courts approving higher rates. In 2012, a US$304 million fee in a shareholder lawsuit involving US$2 billion of damages was sanctioned with an hourly rate of US$35,000. The defendants challenged it, but the state’s high court argued that the achieved outcome, not the hourly rate, should be the crux of scrutiny.

The Delaware Court of Chancery’s judge overseeing the Tesla case, Kathaleen McCormick, has arranged the settlement and fee approval hearing for Oct. 13. Tesla shareholders have until the end of this week to file an objection.