WILMINGTON, Delaware (Reuters) – Tesla Inc is set to challenge a request for $230 million in legal fees put forth by a group of shareholder attorneys who successfully reached a settlement in a dispute concerning director compensation.
The electric vehicle manufacturer has characterized this fee request as an “unjustifiable windfall,” which translates to an hourly rate of $10,690—an amount among the highest ever sought in Delaware’s Court of Chancery, a crucial venue for shareholder litigation.
Tesla is advocating for Chief Judge Kathaleen McCormick to approve legal fees of no more than $64 million.
The attorneys acted on behalf of a Detroit police union pension plan, which sued Tesla’s directors over what they deemed excessive compensation during the years 2017 to 2020. The directors’ compensation mainly consisted of stock options, with payouts contingent on the company’s stock performance, and it has grown significantly over the past few years.
It’s worth noting that Elon Musk’s $56 billion compensation as Tesla’s CEO was not part of this particular lawsuit, as it is facing a separate challenge.
The lawsuit initiated in 2020 was settled in July, with the directors agreeing to return $735 million to Tesla as part of a $919 million agreement. The directors maintained that their compensation was fair, and they settled to eliminate the risk of continued litigation.
The attorneys are seeking a fee equal to 25% of the settlement amount with the 12 directors, including James Murdoch, the son of media magnate Rupert Murdoch, and Oracle co-founder Larry Ellison.
This case was pursued as a derivative lawsuit, meaning it benefits the company directly rather than the shareholders themselves.
Tesla contends that the attorneys for the shareholders overstated the value of the settlement, including their requested fee, by tying it to the directors’ costs rather than the advantages to the company. Tesla calculated its benefit from the settlement at $295 million.
The key discrepancy between the two valuations centers on the stock options. At the time of the settlement in July, the options were valued at $458 million for the directors.
However, the company has no intention of exercising these returned stock options. Tesla clarified in court documents that the main benefit of regaining the options is the reversal of the accounting cost that was initially recorded when they were granted, amounting to approximately $20 million.
It is important to note that Elon Musk is not contributing to the settlement, and he did not receive any compensation for his role on the board, as per a court filing by the plaintiff.
