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Winning lawyers in Elon Musk’s $56 billion pay dispute in line for fee windfall

Written by The Anand Market

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Lawyers who represented victorious Tesla shareholders could be in line for a record payout worth hundreds of millions, if not billions, of dollars after a Delaware court on Tuesday vacated a $56 billion pay package. dollars for Elon Musk.

The 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 “benefit conferred” by the decision. — in other words, what value was returned to shareholders.

The amount will depend on the court. When initially awarded to Musk, the stock-based incentive program in question was valued at $2.6 billion. But that amount jumped to $55.8 billion after the electric car maker hit financial performance and stock price targets set in the deal. One lawyer said the court’s calculation of the benefit to other shareholders could ultimately be based on a figure somewhere between those two ends of the equation.

The pay package ruling also needs to be strong enough to survive any appeal Tesla might bring to the Delaware Supreme Court.

“There has never been a ruling of this magnitude, so we are in somewhat uncharted territory,” said another prominent Delaware litigator not affiliated with the case. “And they’ll probably make a slightly more modest request for optical reasons. But I would be stunned if they didn’t charge a fee, in any form, worth several billion dollars.

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Greg Varallo, Bernstein Litowitz’s lead attorney representing shareholders, said it could be a few weeks before his team submits its fee request, but declined to comment on how much it would seek.

In the United States, plaintiffs’ attorneys often take most or all of their fees from part of a settlement or judgment, called a contingency agreement.

Attorney 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 billion-dollar settlement with Dell Technologies over its complex $24 billion cash-and-stock merger with VMware . Several investment funds holding VMware shares appealed the fees to the Delaware Supreme Court, saying the amount was excessive.

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

Awarding the fees in this case will be more difficult, however, given that Musk is simply returning the shares granted to him and no money changes hands between the parties. Bernstein and two other law firms working with him could end up collecting fees on Tesla shares, some lawyers have speculated.

Chancellor Kathaleen McCormick, who issued her ruling this week on Elon Musk’s salary, is expected to rule soon on awarding fees to lawyers representing plaintiffs who separately sued members of the board of directors of the car maker electric cars, alleging they were overpaid. Tesla and shareholders settled this case for a value set at more than $900 million.

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Tesla and the plaintiffs’ attorneys are disputing not only the amount of the fee, but also the value of the settlement — which the automaker says is ambiguous due to the need to value the actions involved in the settlement.

Over the past decade, Delaware courts have cracked down on the long-standing practice of awarding nominal fees in routine merger and acquisition litigation that followed many transactions, which did not brought little or no concrete benefit to the shareholders in question. Instead, it was willing to award large settlements to lawyers based on significant judgments or settlements in which the attorneys involved could demonstrate how their work directly benefited plaintiffs.

Shortly after the stock award decision, Musk on X criticized Delaware as a business-unfriendly location.

But Bernstein’s Varallo vigorously defended Delaware as a fair place for shareholders and businesses. “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.”