Tesla looks to cut award for lawyers in Elon Musk pay lawsuit from $5.2bn to $13.6mn

Tesla has claimed in a court filing that a proposed $5.2bn award for lawyers who launched a successful challenge to Elon Musk’s pay package amounted to “the highest hourly rate in history” and that they deserve only $13.6mn.

In January, a Delaware court voided a proposed $56bn pay package for Musk, saying it was improperly approved by the carmaker’s board and had short-changed shareholders.

After the judgment, Greg Varallo, lead lawyer for the plaintiffs’ law firm Bernstein Litowitz, requested an award of roughly 29mn shares in Tesla stock.

He argued that receiving that portion of the roughly 267mn net shares that Musk would otherwise have received was in line with recent Delaware precedents that guide how much lawyers get to keep of the “conferred benefit” to shareholders. 

Tesla said in its filing on Friday that the supposed benefits from the original ruling were “therapeutic or unquantifiable”. It pointed out that the requested award, which was initially valued at $5.6bn, would be 17 times larger than any fee in Delaware legal history and equal to the state’s entire 2024 budget.

The company also calculated that the sum was equivalent to $288,000 an hour and would collectively make Bernstein Litowitz and two supporting law firms a top-three Tesla shareholder.

The “justification for this extraordinary request defies established Delaware case law, mangles basic economics, and seeks to evade entirely the fairness checks this court imposes on fees”, the company’s lawyers wrote in a court filing on Friday. 

“This case did not require the Herculean efforts that might justify the highest hourly rate in history by many orders of magnitude,” the filing said.

It is the latest salvo in Tesla’s wider campaign to discredit and overturn the judge’s decision. Next week it is set to hold two votes at its annual meeting. The first seeks shareholders’ backing to restore the $56bn award and the second would move the company’s domicile from Delaware to Texas.

At the time of Musk’s pay deal in 2018, Tesla took a $2.3bn accounting charge on the package. Tesla argued that this could be considered the maximum conferred benefit to shareholders, citing other legal precedents to arrive at the far lower $13.6mn figure.

Several small shareholders have also submitted “friend of the court” filings lobbying against Varallo’s historic request. Varallo declined to comment.

In Delaware, lawyers typically have to convince a court of how much value they added after a case is concluded to determine their fee.

The outcome of the vote at Tesla’s shareholder meeting next week is far from certain, and Musk’s future there may be at stake. If he loses, his ownership will remain at 13 per cent compared with more than 20 per cent if the award is granted. The billionaire — who also runs SpaceX and social media platform X — said he would prefer to develop future artificial intelligence products outside Tesla if he did not gain greater control.

Tesla’s chair Robyn Denholm has said that it needs to climb “Mount Everest” to win the votes, in particular for the reincorporation to Texas, which has a higher threshold for success.

Making the task more difficult, influential proxy advisers Institutional Shareholder Services and Glass Lewis have both urged investors to vote against the “excessive” and “outsized” pay award. Additionally, many of Tesla’s international shareholders have found it difficult or impossible to vote.