Attorneys for
The deal would require Tesla’s board—including CEO
Attorneys for the investors’ law firms seek $230 million in fees. That breaks down to a rate exceeding $10,000 an hour.
Tesla argues a $63.5 million award would be more appropriate. The settlement only would confer a benefit worth about $295 million to the company, not $919 million, Tesla’s attorney, Jason Jowers of Bayard PA, said during a hearing Friday before the Delaware Court of Chancery.
Delaware law and previous settlements in Chancery Court don’t support awarding attorneys fees that would amount to 78% of the deal’s value to the company in terms of the stock options being returned, he said.
“There are no funds coming back to Tesla as part of this settlement tranche because nothing went out the door,” Jowers said. “There is no common fund here.”
The pension fund leading the lawsuit argues the fee award amounts to a quarter of the deal’s overall $919 million value. It would be one of the largest shareholder settlements in the court’s history, second only to a recent deal involving Dell Technologies Inc.
If Tesla believes the stock options being returned to the company are “worth nothing, then pay them to us for the attorneys fees,” said the pension fund’s attorney, Andrew Dupre of McCarter & English LLP.
“The value is the value that the parties settled on,” he said.
Shareholder Objection
Tesla’s board, along with Musk, includes his brother Kimbal, Oracle Corp. co-founder Larry Ellison, and James Murdoch, son of media mogul Rupert Murdoch. Under the terms of the proposed settlement, they also would make corporate governance changes to the way board-level compensation issues are reviewed.
One Tesla shareholder objects to the settlement, arguing that because it doesn’t specify how much each individual director would pay, it could create a situation where Musk, the world’s richest person, could pay the full amount himself.
Michael Levin asked Chancellor Kathaleen St. Jude McCormick to assure shareholders that the independence of Tesla’s directors would be preserved, and to require an enforcement mechanism in the event that shareholders reject board compensation packages in an annual vote that’s part of the proposed corporate governance changes.
“The idea of a vote on the director comp is very important. I would describe that as almost unprecedented in US corporate governance,” Levin said. “That would be a powerful way for Tesla shareholders to exert some influence over the board the nominally elect.”
McCormick will decide whether to approve the settlement and attorneys fees.
Musk and his companies have become regular visitors to her courtroom over the last year. She’s expected to rule soon in a separate case challenging Musk’s $55 billion pay package at Tesla, which would be the largest ever for the CEO of a publicly traded company.
She also oversaw the legal dispute tied to Musk’s attempt to get out of his $54.20-per-share offer to buy the social-media platform formerly known as Twitter Inc. Musk capitulated in October 2022, and the company is now known as X Corp. Earlier this month, McCormick ordered X Corp. to pay $1.1 million in legal fees racked up by ex-Twitter executives ousted after Musk took over.
Tesla is represented by Bayard PA. Its board is represented by Richards, Layton & Finger PA and Cravath, Swaine & Moore LLP. The pension fund is represented by McCarter & English LLP, Fields Kupka & Shukurov LLP, and Bleichmar Fonti & Auld LLP. Levin is representing himself.
The case is Police & Fire Ret. Sys. of the City of Detroit v. Musk, Del. Ch., No. 2020-0477, hearing 10/13/23.
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