Tesla has recently scored a significant legal win in Delaware, with the state’s Supreme Court slashing over $100 million from the legal fees awarded to shareholder attorneys in a prolonged dispute over board compensation. The court reduced the fee award to approximately $71 million, a substantial decrease from the $176 million initially approved by the Delaware Chancery Court.
The case revolves around a derivative lawsuit challenging four years of compensation paid to Tesla’s directors between 2017 and 2020, which included CEO Elon Musk, Oracle founder Larry Ellison, Musk’s brother Kimbal Musk, and James Murdoch. The settlement mandates Tesla’s board to return stock and options valued at up to $735 million and forego an additional three years of compensation worth around $184 million.
In its ruling, the Delaware Supreme Court criticized the lower court for factoring in the intrinsic value of returned stock options when calculating the financial benefit used to justify the attorneys’ fees. Chief Justice Collins J. Seitz Jr. emphasized that while the value of the options was crucial in determining how many should be returned, it should not have been used to inflate the fee award. The justices deemed $71 million to be a reasonable fee and sought to prevent what they deemed a potential windfall for counsel.
During oral arguments, Tesla argued that a fee in that range was appropriate, a stance that the court ultimately supported. The Supreme Court upheld the underlying settlement but focused its decision solely on the size of the legal payout.
This ruling comes on the heels of another major victory for Tesla last month, when Delaware’s top court reinstated Elon Musk’s 2018 CEO compensation package, valued at approximately $56 billion when it fully vested. In that case, the court also significantly reduced the legal fees awarded to shareholder attorneys, indicating a growing reluctance to approve nine-figure payouts in corporate governance cases.
These decisions reflect a clear trend favoring Tesla. While shareholder lawsuits have prompted changes to board pay and governance, Delaware’s Supreme Court is setting stricter limits on how much plaintiffs’ lawyers can collect. For Tesla, this translates into saving hundreds of millions of dollars and securing another courtroom triumph during a critical juncture for the company.