Lawyers representing a Tesla investor have made an unusual request to have their legal fees paid in the form of about $6B of stock in the electric-car maker. This comes after they successfully persuaded a judge to throw out Elon Musk’s $55.8B pay package.

The Case Against Musk’s Pay Package

The case against Musk’s pay package was initiated by a Tesla shareholder named Richard Tornetta. Tornetta, who held just nine Tesla shares at the time, sued Musk and several Tesla directors in 2018, alleging that Musk’s pay package was excessive and constituted a breach of fiduciary duty. The lawsuit claimed that Musk personally dictated the landmark 2018 pay package in sham negotiations with directors who were not independent.

In January 2024, Delaware Judge Kathaleen McCormick agreed with Tornetta’s argument and invalidated Musk’s pay package. McCormick called Musk’s pay “unfathomable” in her ruling. The pay package consisted of stock options that allowed Musk to purchase Tesla stock at heavily discounted prices and required him to hold the stock for five years.

The Request for Legal Fees

Following the successful lawsuit, the lawyers representing Tornetta are now seeking a record legal fee worth $6B, payable in Tesla’s stock. This request is unprecedented in terms of size with the fee working out to an hourly rate of $288,888, according to the filing.

The lawyers argue that Tesla should pay the fee because it benefited from the return of Musk’s pay package. They claim that this will result in the return to the carmaker of 266 million shares. The three law firms involved in the case are Bernstein Litowitz Berger & Grossmann and Friedman Oster & Tejtel, both based in New York, and Andrews & Springer of Wilmington.

Ann Lipton, Corporate Law Professor at Tulane University, said that the fee request is the largest she has ever heard of. “I assume the plaintiffs’ attorneys figured if they sought $6B in cash in fees it could cripple Tesla,” she said. “Since the case involved a stock award to Musk, they thought it would be appropriate to ask for the fee in shares so it wouldn’t be as rough for Tesla shareholders. That makes a lot of sense to me.”

Implications and Reactions to the Fee Request

The request for legal fees in the form of company stock is unusual and has sparked discussions in the legal and business communities. The lawyers argue that the fee is justified because they worked purely on a contingency basis for more than 5 years.

The legal team said the requested fee worked out to about 11% of the judgment. They also noted that the fee was tax-deductible to Tesla. As of now, Tesla, Musk’s attorney, and Musk have not responded to the request for comment. The company may object to the fee, as it has a fee request in a similar case over the pay for its directors.

This case is a significant development in corporate governance and executive compensation, and its outcome could set a precedent for future lawsuits involving executive compensation and corporate governance.