Elon Musk could stand to gain $56 billion from the outcome of Tesla’s annual meeting next Thursday, when the automaker’s shareholders will vote on the CEO’s record-breaking 2018 pay package.
But there’s another group that’s poised for a record windfall: The legal team that successfully argued against Musk’s payout in a Delaware court earlier this year is seeking a whopping $5.6 billion equity claim based legal fees – 17 times higher than the highest reimbursement in the history of the US economy. History of Delaware.
“We recognize that the relief sought is unprecedented… The magnitude of the relief sought is large because the value of the benefit to Tesla that plaintiff’s counsel obtained was enormous,” the plaintiff’s legal team wrote in a court filing. “We are willing to ‘eat our food.’”
Tesla shareholders will give Musk a response later this week, but opposing lawyers will have to wait until a hearing scheduled for July 8 before the Delaware Court of Chancery to approve or deny the fees they are seeking.
Musk himself has strongly opposed the attorney fee proposal. “The lawyers who only harmed Tesla want $6 billion. Criminal,” Musk previously wrote in a message on his personal X account.
The lawyers seeking the $5.6 billion in fees represented plaintiff Richard Tornetta, a Tesla shareholder who filed a lawsuit in 2018 challenging Musk’s compensation package, which had previously received approval from Tesla’s board and 70% of the shareholders of the company.
It was structured so that Musk would unlock certain stock rewards if he led the company to various milestones based on metrics such as market capitalization. Under Musk’s leadership, Tesla exceeded these milestones faster than anyone expected, reaching a market cap of $1 trillion in 2021.
But Delaware Chancellor Kathaleen McCormick sided with Tornetta earlier this year, concluding that Musk’s pay package was an “unfathomable amount” and that the process for approving it was “deeply flawed,” in part because the board of Tesla has many close friends and colleagues of Musk.
This Thursday, Tesla shareholders will decide whether to overturn the Delaware court ruling. But regardless of the outcome, the plaintiff’s attorneys have won the case and are demanding their pound of flesh. Although extremely high in dollars, the fee the lawyers are asking for is well below what other litigants have received on a percentage basis: just 10% of the $56 billion they saved Tesla shareholders by voiding Musk’s payout.
Last year, the Delaware Court of Chancery awarded lawyers 27% of a $1 billion settlement in a merger and acquisition case involving Dell, and in 2011 lawyers received 15% of the $2 billion in damages arising from a case involving mining company Southern Peru Copper Corp was involved.
Delaware courts reward lawyers who pursue complex cases into the late stages of litigation and achieve “real results,” Delaware Vice Chancellor J. Travis Laster said in approving Dell’s fee application.
But even though the percentage is relatively modest, the monumental magnitude of the ruling makes the application of attorneys’ fees extraordinary.
“The dollar amount requested in the petition is unusual,” McCormick admitted in a court filing.
Even if Tesla shareholders were to vote to reinstate Musk’s pay package, there is no guarantee he will actually get the money. Corporate law is not clear on whether a shareholder vote is enough to overturn a legal ruling, and Musk may be required to go back to court to get final approval for the money. If shareholders don’t vote in his favor, analysts have speculated that Musk could stop paying so much attention to Tesla and devote more of his time to his other businesses.
“Elon is not a typical CEO, and Tesla is not a typical company,” said Tesla Chairman Robyn Denholm. “So the typical way companies compensate key executives will not deliver results for Tesla. Motivating someone like Elon requires something different.”
This story originally appeared on Fortune.com
