Tesla CEO Elon Musk is once again in the legal spotlight as plaintiffs contesting his enormous compensation package demand billions in attorney fees. The contentious court clash took place on Monday, highlighting a new chapter in the ongoing legal saga surrounding Musk’s pay.
What Happened:
Tesla has urged a judge to deny awarding billions of dollars in shares to the attorneys who challenged Musk’s substantial pay package. The automaker portrayed the lawyers as opportunists seeking to profit from Musk’s achievements, according to the Financial Times.
During a hearing in the Delaware Court of Chancery, Tesla’s counsel and the plaintiff’s attorney engaged in a heated exchange. John Reed, a partner at DLA Piper representing Tesla, described the fee request as a “real-life lawyer joke.” An expert witness for Tesla termed the fee request an “unjustifiable windfall.”
This hearing marked the first in-court meeting since a June vote in which 72% of Tesla shareholders, excluding Musk and his brother Kimbal Musk, overwhelmingly approved the same pay package terms that Chancellor Kathaleen McCormick had rejected in January. Tesla argued that this vote should prompt McCormick to reverse her previous decision.
The court is set to hear further arguments later this summer on how the June “ratification” vote impacts the January ruling. Observers expect McCormick to address both the fee and ratification consequences in a single ruling later this year.
Legal Reactions:
Lead plaintiff’s attorney Greg Varallo from Bernstein Litowitz criticized Musk’s attempts to reinstate the pay plan, calling them a “clown show.” Varallo also revealed that his client, Richard Tornetta, a shareholder with fewer than 200 shares, has received death threats from Tesla supporters.
Why It Matters:
The legal dispute over Musk’s pay package, initially valued at around $56 billion and now worth over $75 billion due to Tesla’s rising share price, has been highly contentious. The lawyers representing the shareholders have requested 29 million shares, currently valued at over $7 billion.
Despite strong backing from small investors, recent declines in sales and stock prices have intensified opposition. The pay package faces months of litigation before any shares can be awarded to Musk.
Context:
In June, Gary Black, Managing Partner at Future Fund, criticized Delaware judges for what he termed “judicial activism” in this case, arguing that they were overstepping their roles by trying to override the law.
Market Impact:
Tesla Inc.’s stock closed at $252.94 on Monday, up 0.56% for the day. In after-hours trading, the stock slightly dipped to $252.71. Year to date, Tesla’s stock has increased by $4.52, representing a 1.82% gain, according to Benzinga Pro.