Why Tesla Shareholders Are Fuming Over a $7 Billion Legal Fee Battle
Tesla shareholders are rolling up their sleeves and gearing up for a courtroom skirmish that could set a new precedent in corporate governance. The bone of contention? A staggering $7.2 billion legal fee claim from attorneys representing shareholders in a monumental case that saw a Delaware judge nullify CEO Elon Musk’s colossal $56 billion compensation package.
A Judge's Bold Move
Earlier this year, Delaware Judge Kathaleen McCormick delivered a seismic ruling, invalidating Musk’s 2018 compensation plan. The lawsuit, spearheaded by Tesla shareholder Richard Tornetta, contended that Musk's gigantic pay package was excessive and primarily engineered to keep him at the helm. This legal milestone has since spiraled into a heated debate over the astronomical legal fees involved.
The Battle Over Legal Fees
The attorney firms Bernstein Litowitz Berger & Grossmann, along with two other law offices, initially claimed a jaw-dropping 29 million Tesla shares as their fee, equating to $7.2 billion at recent stock valuations. Such a demand translates into a record-breaking pay rate of approximately $370,000 per hour for the 37 lawyers and professionals involved.
One Tesla shareholder, Nathan Chiu from New Jersey, encapsulated the general sentiment in a March filing with a succinct protest: “The legal fees appear exceedingly disproportionate and outlandish.” Chiu's perspective is echoed by significant institutional investors like the California Public Employees’ Retirement System, along with over 8,000 individual Tesla shareholders who have collectively submitted more than 1,500 letters and objections to the court.
Adjusting the Claims
Facing significant backlash and scrutiny, the legal team scaled back their claim last month to $1.44 billion. Yet, this adjusted request still signifies an extraordinary rate of over $200,000 per hour for the work done. Court documents also illuminate that some of the legal professionals involved typically bill at much more modest rates, starting from $275 per hour.
Musk's Outrage
Elon Musk, never one to mince words, lambasted the legal fee request in a series of tweets. Describing the demand as “utterly disgraceful,” “ironic,” and “criminal,” Musk went as far as labeling the attorneys involved as “evil.” Musk also criticized the legal landscape in Delaware, suggesting that it might be best to distance the company from the state entirely.
The system is broken. Best to get out of Delaware as soon as possible.
— Elon Musk (@elonmusk) March 2, 2024
Relocating and Moving Forward
As part of their strategy to counter these legal complications, Tesla’s shareholders recently voted in favor of relocating the company’s incorporation from Delaware to Texas. This decision was ratified during the 2024 annual shareholder meeting, which also reaffirmed the previously approved compensation plan, albeit with more scrutiny and likely revisions ahead.
What Lies Ahead
Tesla shareholders will once again find themselves in court this Monday, contending against the excessive legal fees. The outcome has the potential to redefine not just Tesla’s future, but could set a landmark precedent in how shareholder lawsuits and corporate compensation packages are managed going forward. As this legal saga unfolds, the implications for corporate America and the very mechanics of shareholder activism are being watched closely by both critics and advocates of corporate accountability.
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