Delaware Supreme Court Slashes Tesla Legal Fee Award by $100M, Musk Hails Decision

The Delaware Supreme Court delivered a significant blow to plaintiffs' attorneys on Friday, slashing a massive legal fee award in a high-profile shareholder lawsuit against Tesla Inc. (NASDAQ:TSLA). The court reduced the fees from an initial $176.1 million to $70.9 million, marking a cut of over $100 million.

The case, brought by the Detroit Police and Fire Retirement System, challenged excessive compensation for Tesla's board members. While the directors, including Chair Robyn Denholm and James Murdoch, previously agreed to return approximately $277 million in cash and stock options to the company—a settlement valued at $919 million—the dispute centered on the appropriate legal fees for the shareholder attorneys who secured the deal.

In its ruling, the Supreme Court found that a Chancery Court judge had "overvalued" the settlement when calculating the attorney fees. The justices also clarified that the intrinsic value of returned stock options should have been excluded from the settlement calculations used to determine the fee award.

Tesla CEO Elon Musk, who was not a party to this settlement, swiftly commented on the social media platform X. "Delaware Supreme is saving the state," he wrote, in a nod to the court's scrutiny of legal costs. The decision arrives amid heightened scrutiny of corporate legal fees in Delaware, the incorporation home to over half of U.S. publicly traded companies. Reuters reports the state's bar association is preparing recommendations for lawmakers on potential reforms.

The ruling follows a pattern of judicial pushback on outsized legal fees. Earlier this year, a $267 million fee award in a Dell Technologies Inc. (NYSE:DELL) case drew similar criticism. This latest decision is seen as a signal to the plaintiffs' bar that courts will closely examine fee requests, even in successful shareholder recoveries.

Market Analysts and Observers React:

"This is a prudent correction by the court," said Michael Thorne, a corporate governance analyst at Veritas Advisory. "While shareholder litigation serves a vital oversight function, fee awards must be proportionate. This ruling reinforces that principle and could temper more aggressive fee requests in future derivative suits."

"It's a disgrace," fired back Sarah Chen, a partner at the firm that represented the pension fund. "This decision punishes the very lawyers who risked millions and years of work to recover a quarter-billion dollars for Tesla shareholders. Slashing fees this drastically will only deter future enforcement of fiduciary duties, leaving corporate boards with less accountability."

"From an investor perspective, the reduced fee is a net positive for Tesla's balance sheet," noted David Park, a portfolio manager at Clearwater Capital. "However, the larger story is the ongoing tension between Musk, his company, and the Delaware court system. His separate, successful appeal on his own $56 billion compensation package shows this relationship remains complex and contentious."

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