The Delaware Supreme Court issued a ruling that significantly lowered the legal fees due in a shareholder suit over director pay at Tesla, ordering the company to pay $70.9 million to the attorneys who represented the Detroit firefighter and police pension fund that brought the case.
That amount is 60% less than a Delaware Chancery Court judge had awarded earlier - a $176.1 million fee grant - and represents a reduction of more than $100 million from the prior award.
At the heart of the dispute was a settlement in which several Tesla directors, including Chair Robyn Denholm and James Murdoch, agreed to return roughly $277 million in cash and to give back millions of stock options to the company. Shareholder counsel had valued the overall settlement at $919 million, and based their fee request on that figure. Because Tesla benefited from the agreement, the company was responsible for covering the lawyers' fees.
But the Delaware Supreme Court concluded the Chancery judge had overstated the settlement's value by failing to exclude the intrinsic value of the returned stock options from the calculation. The higher court said that component should not have been included when assessing the benefit the settlement conferred on Tesla, which reduced the appropriate fee award.
The decision arrives amid increasing criticism of large legal fee awards handled in Delaware courts. The opinion noted the broader context in which academics and counsel for corporate boards have questioned the scale of fee grants, pointing to a 2024 award of $267 million in a case involving Dell Technologies as an example of contentious large awards. Delaware's bar association is preparing recommendations for state lawmakers on possible changes to address these concerns.
The ruling did not involve Elon Musk, the company's chief executive and the world's richest person. Musk was not a party to the settlement and has defended his compensation in separate litigation.
Readers should note the court's decision focused on the proper method for valuing settlements for fee-setting purposes and did not alter the underlying returns of cash and options that the directors agreed to give back to Tesla.