Tesla challenges $230 million legal fee request in recent board pay settlement

Tesla is heading back to court over a $230 million legal fee request by a team of shareholder attorneys who recently won a settlement in a dispute in which Tesla’s board of directors agreed to return $735 million in pay. Tesla refers to the fee as an “unwarranted windfall” that would translate into an exorbitant hourly rate of $10,690, making it one of the highest fee requests ever in Delaware’s Court of Chancery.

In response to the request, Tesla is urging Chief Judge Kathaleen McCormick to approve a fee of no more than $64 million, marking a substantial gulf between the two parties.

The dispute arose when a Detroit police union pension plan sued Tesla’s directors for what they perceived as excessive compensation between 2017 and 2020, primarily in the form of stock options tied to the company’s stock performance. With the company’s stock price surging tenfold during this period, tensions flared.

Elon Musk, who was awarded $56 billion in compensation as Tesla’s CEO during the same timeframe, was not part of this lawsuit and faces a separate challenge regarding his compensation package.

The lawsuit ultimately settled in July, with the directors agreeing to return $735 million to Tesla as part of a $919 million agreement. Despite this resolution, the attorneys are now seeking a substantial share of the settlement, specifically 25% of the sum paid by the 12 directors.

However, Tesla is contesting the requested fee, claiming that the attorneys inflated the settlement’s value by assessing it against the cost to the directors, rather than the benefits accrued by the company. Tesla’s estimate of its gain from the settlement stands at $295 million, Reuters reports.

At the heart of the discrepancy are the stock options, which were valued at $458 million at the time of the settlement. Tesla argues that its primary benefit is not the ability to exercise these stock options but rather reversing the accounting cost recorded when they were initially issued, approximately $20 million.

Elon Musk is not part of this settlement, and no monetary compensation is expected to be awarded for his role on the board.

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