Tesla shareholders are requesting a judge to dismiss the proposed $7 billion legal fee in the Musk compensation case, deeming it excessive and unreasonable.

Tesla shareholders will be present in court on Monday to assert that an unprecedented demand for legal fees exceeding $7 billion to be borne by the company is “unreasonable,” marking a new development in the ongoing legal dispute concerning Mr. Musk’s $56 billion compensation package.

The request for a record fee was submitted by investor Richard Tornetta on behalf of the three law firms representing him, including Bernstein Litowitz Berger & Grossmann. Tornetta held nine shares of Tesla when he initiated legal proceedings against Musk’s compensation package of stock options in 2018. This legal dispute concluded in January with the successful invalidation of the compensation package..

The fee is approximately $7.2 billion based on Tesla’s stock price on Friday. This equates to an hourly rate of approximately $370,000 for the 37 lawyers, associates, and paralegals involved, some of whom typically bill as low as $275 per hour, as per the court documents submitted by Tornetta’s lawyers.

"The legal fees seem excessively disproportionate and exorbitant,” Nathan Chiu, a Tesla shareholder from New Jersey, wrote to Chancellor Kathaleen McCormick in March, as per a court filing.

The California Public Employees' Retirement System, Mr. Chiu, and over 8,000 Tesla shareholders have submitted approximately 1,500 letters and objections to the Delaware Chancery Court regarding the fee, as indicated in court documents.

A hearing originally scheduled for Monday has been relocated from McCormick’s customary courtroom to the largest courtroom in the building. This change was made to accommodate the substantial number of legal professionals involved in the case, including 47 attorneys representing 19 different law firms, as well as potential stockholders.

Tornetta’s legal representatives assert their entitlement to the fee as a portion of the advantage they claim to have bestowed upon Tesla when a judicial authority nullified Musk’s compensation package, resulting in the return of approximately 266 million shares designated for stock options to Tesla. At the current market price of $251.82 per share on Friday, the value of these shares would be approximately $67 billion.

Tornetta’s legal representatives asserted that the judgment is the largest ever awarded by an American court, excluding punitive damages. They contended that they should receive a fee equivalent to 11% of the judgment, a percentage that is arguably conservative by Delaware legal precedent. They requested payment in the form of 29 million Tesla shares.

RECORD FEE REQUEST

In contrast to the general trend in federal courts of reducing attorney fees as a percentage of judgments or settlements as they increase in size, Delaware courts have adopted a different approach. They award a larger percentage as an incentive for attorneys to strive for a more substantial recovery.

Tornetta’s legal counsel indicated that they would have been within their rights to request up to 33% of the value of Musk’s compensation package.

The fee request significantly exceeds the current record fee of $688 million awarded in an Enron class action lawsuit, as reported by Stanford Law School.

The Musk case underwent a significant development when Tesla shareholders voted in June to approve Mr. Musk’s compensation package. Tesla has maintained that this action rectified the shortcomings identified by Judge McCormick in her 2018 ruling regarding the compensation process.

The organization asserts that Mr. Musk’s compensation package has been reinstated, effectively reversing Mr. Tornetta’s legal victory. Consequently, the lawsuit did not provide any tangible benefit to Tesla, and the shareholder attorneys should be compensated accordingly, with a proposed sum of $13.6 million, as per Tesla’s statement.

Several shareholders who disagree with the request sent form letters to the judge, while a select few have retained legal counsel to file formal objections to the fee. Among these individuals are Amy Steffens, a professional aviator, and Kurt Panouses, an attorney specializing in representing lottery winners.

McCormick may require several weeks or months to issue a ruling. The Delaware Supreme Court is presently deliberating on a substantial fee request of $267 million in a class action lawsuit involving shareholders of Dell Technologies. The court’s decision in this matter could potentially serve as a guiding precedent for future fee determinations.