Is the $6 billion legal fee in Musk’s Tesla lawsuit justified?
The legal team responsible for successfully voiding Elon Musk’s $56 billion Tesla pay package has made an unprecedented fee request of $6 billion, admitting its uniqueness while also asserting its potential value. This fee request, though extraordinary, prompts scrutiny over its reasonableness and compliance with legal standards, a decision that will soon rest with a judge in Delaware.
According to documents filed in the Court of Chancery in Delaware, the fee request translates to an hourly rate of $288,888 for each of the 37 lawyers, associates, and paralegals involved in the case. While this seems exorbitant compared to standard corporate legal fees, which typically hover around $2,000 per hour, it is noteworthy that top-tier attorneys often bill at such rates.
The legal team, comprised of three firms based in New York and Wilmington, is seeking compensation by claiming a portion of the Tesla stock relinquished by Musk as a result of the ruling, arguing that this would entail no direct cost to Tesla. This unusual approach diverges from the norm in shareholder lawsuits, where legal teams often work pro bono, anticipating a percentage of the settlement or judgment.
The size of the fee request is monumental, rivaling the record-breaking $688 million awarded to lawyers representing Enron shareholders in 2008, which represented 9.5% of the $7.2 billion settlement. In contrast, the Musk case fee request amounts to 11% of the stock Musk is forfeiting to Tesla.
While federal judges typically award lower percentages as settlements increase, exceptions exist, such as a 2016 case where a judge granted a fee of 25% of a $1.6 billion settlement, citing the extensive duration and risk involved.
The case’s adjudication in Delaware state court factors in the legal team’s efforts and the case’s complexity when assessing fees, aligning with a precedent set in a 2011 ruling that approved a fee of $304 million, equating to 15% of the $2 billion judgment.
However, Delaware’s approach to fee assessment might undergo revision, as evidenced by an ongoing appeal concerning a fee of 27% of a $1 billion settlement involving Dell Technologies in 2022. The appeal underscores a broader debate among legal scholars regarding the appropriate fee structures for such cases.
As legal proceedings unfold, the outcome will not only affect the stakeholders involved but also set precedents for future shareholder litigation, underscoring the nuanced interplay between legal fees, settlements, and the pursuit of justice in corporate law.
