Tesla Challenges $230 Million Legal Fee Over Director Pay Dispute

The electric car giant, Tesla, is set to push back against a whopping $230 million legal fee. This fee is being sought by shareholder attorneys who recently triumphed in a lawsuit regarding the pay of 's directors.

The company has termed this fee request as an “unwarranted windfall” and pointed out that it translates to an astounding hourly rate of $10,690. To give this some context, it's among the most extravagant fee requests ever presented in 's Court of Chancery, a notable forum for shareholder litigations.

The attorneys in question had taken up the cause of a Detroit police union pension plan, which challenged the pay of Tesla's directors from 2017 to 2020. It's worth noting that a significant chunk of this pay was in the form of stock options. These directors would only see a payday if Tesla's stock price surged. And surge it did, growing tenfold in recent years.

Tesla, on its part, reportedly hopes that Chief Judge Kathaleen McCormick will green-light a more palatable legal fee, capping it at $64 million. The 2020 lawsuit culminated in a settlement last July, where the directors consented to reimburse Tesla to the tune of $735 million.

This was a component of a broader $919 million agreement. Despite this concession, the directors have been vocal in their belief that their compensation was justified. Their primary motivation to settle? The looming specter of drawn-out litigation.

Among the twelve directors entangled in this legal fray are notable figures like James Murdoch, media titan Rupert Murdoch's offspring, and Larry Ellison, co-founder of Oracle. The attorneys have set their sights on pocketing a neat 25% of the settlement amount.

Interestingly, 's staggering $56 billion compensation, stemming from his position as Tesla's CEO, wasn't under the microscope in this lawsuit. That's a battle being fought on another front.

However, the crux of the disagreement between Tesla and the shareholder attorneys is the actual value of the settlement. Tesla contends that the attorneys have inflated this value. Their reasoning? The attorneys based it on what the settlement would cost the directors instead of its real benefit to Tesla. Tesla's own calculations peg this benefit at a more modest $295 million.

The heart of this disparity is stock options. During the July settlement, these options held a value of $458 million for the directors. But there's a twist. Tesla can't capitalize on these returned stock options.

As per court documents, the company asserts that the real advantage of reclaiming these options is offsetting the accounting cost they incurred when initially issued – a sum in the ballpark of $20 million.

It's essential to underscore that Musk hasn't financially contributed to this settlement. Furthermore, he hasn't pocketed any money for his board duties, as highlighted in a court document by the plaintiff.

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Haye Kesteloo
Haye Kesteloo

Haye Kesteloo is the Editor in Chief and Founder of EVXL.co, where he covers all electric vehicle-related news, covering brands such as Tesla, Ford, GM, BMW, Nissan and others. He fulfills a similar role at the drone news site DroneXL.co. Haye can be reached at haye @ evxl.co or @hayekesteloo.

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