By Mark S. Nelson, J.D.
Gregory V. Varallo of Bernstein Litowitz Berger & Grossman LLP, attorneys for plaintiff Richard J. Tornetta, who had sued Tesla claiming that CEO Elon Musk’s executive compensation grant of several hundred million vested options, among other things, amounted to breach of fiduciary duty, seek attorney fees and an expense reimbursement equal to 11.0145 percent of the 266,947,208 shares freed up and returned to Tesla because the Delaware Chancellor concluded, after a trial, that CEO Elon Musk’s record stock grant should be rescinded. The fee request is the result of adjustments made to an initial request of 15 percent that was based on a prior large Delaware fee award (Tornetta v. Musk, March 1, 2024).
Tornetta’s attorneys won the trial after 4.5 years of discovery and a 5-day trial that featured testimony from multiple fact and expert witnesses. According to the plaintiff’s brief in support of the fee request, only two other U.S. cases produced larger recoveries and those cases involved the additional award of punitive damages.
The fee request asserts that a large award would mirror the benefit obtained from taking the case to trial at great risk to the plaintiff. More than 303 million vested options were cancelled and can now be used by Tesla for any corporate purpose, said the plaintiff’s brief. Lawyers for Tornetta also argued that Tesla will not have to pay a large cash amount and that Tesla may even enjoy tax benefits under the proposed award scheme. The proposed fee, said the brief, was consistent with other cases where fees were paid out as a percentage of shares and that the valuation employed in crafting the fee request would avoid having to explain whether the value of winning the rescission was the same or different from the value of the shares.
According to the plaintiff’s attorneys, the proper starting point for an award is 15 percent, the amount awarded in Southern Peru Copper, after a downward adjustment for the delay brought about by plaintiffs in that case. Here, Tornetta’s attorneys purport to seek a “conservative” recovery of a “fee awarded in kind” such that they would adjust the 15 percent baseline by a liquidity adjustment of 26.57 percent, ultimately yielding and a requested recovery of 11.0145 percent of 266,947,208 Tesla shares. Footnote 82 to the plaintiff’s brief spells out the math used to arrive at the fee request. The attorneys for Tornetta noted that, unlike the plaintiff in Southern Peru Copper, Tornetta and his counsel in the Tesla case had acted with “alacrity.”
The case is No. 2018-0408-KSJM.