A legal team that forced Tesla’s board of directors to return over $700 million in salary is now requesting an astounding $229 million in legal fees in a case that has been compared to a high-stakes poker game. This demand, which translates to an astounding $10,690 per hour of legal work, has drawn attention and sparked debates about the limits of legal costs in shareholder cases. We examine the specifics of this spectacular case, the firms concerned, and the potential effects of this action in this article.
Credits: Reuters
The Road to Redemption: Forcing Tesla’s Directors to Return Compensation
When a group of tenacious attorneys accused Tesla’s directors of overpaying themselves from 2017 to 2020, the legal conflict got underway. The legal team persuaded the directors, including well-known individuals like James Murdoch and Larry Ellison, to return $735 million in pay after spending years developing their case. Additionally, they persuaded them to change how director pay is decided and forgo an additional $184 million in potential revenue. This significant win was the outcome of a derivative case, and the settlement funds will ultimately indirectly benefit Tesla’s shareholders.
A Striking Fee Request: $229 Million in the Spotlight
Now, the legal team behind this extraordinary result is requesting a fee that is just as extraordinary: $229 million. If authorized, this amount would without a doubt rank among the biggest sums ever awarded in a shareholder case against a company board. Four law firms’ worth of attorneys, who all put in a lot of time and effort to develop the case, would split the fee. Both Fields Kupka & Shukurov and Bleichmar Fonti & Auld, based in New York, were essential to the legal procedures. Together, their partners and employees billed more than 10,000 hours. Ronald King, an attorney from the Clark Hill firm in Lansing, Michigan, and McCarter & English, based in Wilmington, Delaware, both contributed sizable contributions.
Assessing the Request: Is $229 Million Justified?
This fee request’s outrageousness begs the question of why it is being made. Although it can be difficult to directly compare legal costs for various contingency-fee cases, David Paige, the founder of the consulting company Legal Fee Advisors, notes that the requested $10,690 per hour stands out when compared to typical hourly rates, even for top-tier corporate attorneys, which top out at around $2,000 per hour.
When evaluating such fee claims, the court’s job is to strike a balance between the necessity to reward initiative and risk-taking and the danger of giving out an excessive windfall that can damage the public’s confidence in the judicial system. The Tesla plaintiffs’ request is unquestionably unique in this situation. The court will finally need to compare the cost of the case to the benefits it will provide, analyzing the results rather than the hourly rate.
Tesla Directors’ Response: Expected Objections
While the Tesla directors have not yet objected to the fee request, it is widely anticipated that they will do so in due course. Given the astronomical sum involved, their objections may be pivotal in determining the final outcome of this legal drama.
Precedents in Delaware: Higher Hourly Rates Approved
In noteworthy cases, Delaware courts have a history of granting higher hourly rates for lawyer costs. Notably, in a Southern Copper shareholder action involving $2 billion in damages, the Delaware Supreme Court upheld a $304 million charge in 2012. The defendants objected to the charge, which was an astounding $35,000 per hour. But rather than concentrating exclusively on the hourly rate, the court underlined the significance of evaluating the results obtained.
Upcoming Hearing: October Showdown
The Delaware Court of Chancery judge overseeing the Tesla case, Kathaleen McCormick, has scheduled a critical hearing for October 13th. During this hearing, the settlement and the proposed fee will come under intense scrutiny. Tesla shareholders have until Friday to file any objections they may have.
