In the wake of their successful lawsuit against Tesla’s directors for alleged overpayment, a legal team is now vying for substantial compensation. The lawyers are pursuing a fee of $229 million, equivalent to $10,690 per hour, as disclosed in a filing on September 8th in Delaware’s Court of Chancery.
One of the Largest Fee Awards in Shareholder Lawsuit History
This proposed fee would rank among the highest ever awarded in a shareholder lawsuit against a corporate board if approved. The substantial sum is intended to be distributed among lawyers from four firms that dedicated several years to building a case against Tesla’s director compensation spanning from 2017 to 2020.
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Legal Fee and Settlement Await Delaware Judge’s Approval
The legal fee and the settlement are pending approval by a Delaware judge, with a hearing scheduled for October. In the settlement, the 12 director defendants, including prominent figures like James Murdoch and Larry Ellison, have agreed to return $735 million in compensation, forgoing an additional potential $184 million. Furthermore, the settlement mandates overhauling the board’s approach to determining director pay. The settlement funds will ultimately benefit Tesla shareholders indirectly, as this case falls under the category of a derivative lawsuit.
Estimating the Total Settlement Value and Fees
The law firms involved in the case estimate the total settlement value at $919 million and are seeking a 25% fee based on this amount. Additionally, they are requesting around $1 million to cover expenses.
Dedicated Legal Teams Accumulate Significant Hours
Partners and staff from the law firms of Bleichmar Fonti & Auld and Fields Kupka & Shukurov, headquartered in New York, billed more than 10,000 hours during the lawsuit. McCarter & English attorneys and staff based in Wilmington, Delaware, and Ronald King, an attorney with the Clark Hill firm in Lansing, Michigan, also contributed hundreds of hours to the case.
Evaluating Fee Requests in the Legal System
The court is responsible for assessing fee requests, considering the need to reward risk-taking and effort while avoiding disproportionate windfalls that could undermine trust in the legal system. David Paige, founder of Legal Fee Advisors, a consulting firm, noted that comparing lawyers’ bills across different contingency-fee cases can be challenging. However, he described the Tesla plaintiffs’ fee request as “extraordinary” compared to typical hourly rates, which cost around $2,000 for elite corporate attorneys. Paige emphasized that the court will ultimately weigh the fee’s size against the litigation’s benefits.
Directors Expected to Challenge Fee Request
While Tesla’s directors have not yet objected to the fee request, it is anticipated that they will do so, according to a court filing by the plaintiffs’ lawyers. Attorneys representing the directors have not provided comments on the matter.
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