Biplab Das 
Tesla Inc is set to contest a USD 230 million legal fee request from a group of shareholder attorneys who secured a settlement in a director pay dispute.
Tesla Labels Fee Request as ‘Unwarranted Windfall’
The electric vehicle manufacturer, Tesla, has strongly opposed the USD 230 million fee request presented by a team of shareholder attorneys. The company argues that this fee represents an “unwarranted windfall,” equating to an astonishing hourly rate of $10,690. This figure ranks among the highest fee requests ever witnessed in Delaware’s Court of Chancery, a pivotal arena for shareholder litigation.
Tesla is making a case for a considerably lower fee, urging Chief Judge Kathaleen McCormick to approve no more than $64 million.
The Lawsuit Over Excessive Director Compensation
The lawsuit in question was filed by attorneys representing a Detroit police union pension plan. It accused Tesla’s directors of receiving exorbitant compensation between 2017 and 2020, primarily in the form of stock options. Notably, the directors would only receive payment if the company’s stock exhibited growth. In recent years, Tesla’s stock value has surged tenfold.
It’s essential to distinguish this lawsuit from the separate challenge against Elon Musk’s $56 billion compensation as Tesla’s CEO.
Resolution and Settlement
The 2020 lawsuit reached a settlement in July. As part of the agreement, the directors, which include individuals such as James Murdoch, the son of media mogul Rupert Murdoch, and Oracle co-founder Larry Ellison, committed to returning USD 735 million to Tesla. The total settlement was valued at USD 919 million. The directors maintained that their compensation was reasonable and emphasized that they opted for the settlement to eliminate the specter of prolonged litigation.
Attorneys’ Fee Claim
The attorneys representing the Detroit police union pension plan, pursuing a 25% fee based on the settlement value, are seeking a substantial fee for their role in resolving the case. It’s important to note that this type of lawsuit is classified as a derivative lawsuit, which primarily benefits the company itself rather than its shareholders directly.
The hearing set for Friday will determine whether the court approves the requested USD 230 million fee or endorses Tesla’s proposal of a significantly lower fee, not exceeding USD 64 million.
This legal dispute underscores the intricate and high-stakes nature of legal battles involving prominent corporations and their directors, with enormous financial implications at stake for both the litigants and the company.
