Winning lawyers in Elon Musk’s $55 billion litigation pay in line with compensation

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Lawyers who represented winning Tesla shareholders could be in line for a record payout worth hundreds of millions, or even billions, of dollars after a Delaware court on Tuesday struck down a $55 billion pay package for Elon Musk.

Lawyers told the Financial Times that Bernstein Litowitz Berger & Grossmann, the law firm that led the representation of investors challenging the compensation plan, could ask the Delaware Court of Chancery to pay them up to a third of the “conferred benefit.” from the ruling – in other words, how much value was returned to shareholders.

The court will decide how much. When it was initially awarded to Musk, the equity incentive package in question was valued at $2.6 billion. But the value rose to $55.8 billion after the electric car maker achieved financial performance and stock price targets set in the deal. One lawyer said the Court’s calculation of the benefit conferred to other shareholders could ultimately be based on a figure between these two registers.

The compensation package decision must also be strong enough to survive any appeal Tesla might file with the Delaware Supreme Court.

“There has never been a ruling of this magnitude, so we are in uncharted territory,” said another prominent Delaware litigant unaffiliated with the case. “And they will probably ask a little more modestly for reasons of optics. But I would be amazed if they didn’t ask for compensation, in any form, worth several billion dollars.

Greg Varallo, Bernstein Litowitz’s lead lawyer representing the shareholders, said it could be a few weeks before his side files the compensation request, but he declined to comment on what amount they will seek.

In the United States, plaintiffs’ lawyers often take most or all of their fees from one side of a settlement or judgment, a so-called contingency agreement.

Attorneys’ fees have become a hot topic in Delaware courts, where more than 300 S&P 500 companies are incorporated. In 2023, a Delaware judge awarded $267 million to lawyers representing shareholders who agreed to a $1 settlement. billion with Dell Technologies on its complex $24 billion cash-and-stock merger with VMware. This fee is being challenged in the Delaware Supreme Court by several investment funds that own VMware stock who argue that the amount is excessive.

The largest fee ever awarded to plaintiffs’ attorneys in the Delaware Court of Chancery was $285 million in 2012, or about 15 percent of damages in a lawsuit challenging the merger of two natural resources companies, Southern Peru and Minera Mining.

Awarding the commission in this case will be more challenging, however, given that Musk is simply returning the shares he was granted and no cash is changing hands between the parties. Bernstein and two other law firms working with it could end up taking payouts in Tesla stock, some lawyers have speculated.

Chancellor Kathaleen McCormick, who issued this week’s ruling on Musk’s pay, will rule shortly on awarding fees to lawyers representing plaintiffs who separately sued members of the electric car maker’s board, claiming they had been overpaid. Tesla and the shareholders settled the case for a value set at more than $900 million.

Tesla and the plaintiffs’ lawyers are contesting not only the amount of the fee, but also the value of the settlement, which the auto company says is ambiguous due to the need to value the shares involved in the settlement.

Over the past decade, Delaware courts have cracked down on the long-standing practice of awarding nominal fees in routine M&A disputes that follow many deals, resulting in little or no concrete benefit to the shareholders in question. Instead he was willing to award large fees to lawyers based on large verdicts or settlements in which the lawyers involved could demonstrate how their work directly benefited plaintiffs.

Shortly after the decision on his stock award, Musk on X criticized Delaware as a place hostile to corporate headquarters.

But Bernstein’s Varallo vigorously defended Delaware as a fair venue for both shareholders and corporations. “The decision demonstrates that Delaware’s historic role in overseeing the exercise of fiduciary duties is alive and well, perhaps better than it has been in some time.”

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