Lawyers seek $6bn in Tesla shares in Elon Musk pay case

Lawyers representing shareholders in the Elon Musk pay case are seeking $6 billion in Tesla shares as compensation for defeating Musk’s $56 billion pay package. Bernstein Litowitz Berger & Grossmann, the lead counsel for the plaintiffs, described this request as “unprecedented” yet “conservative” in terms of value won for shareholders. The lawyers have chosen to take shares instead of a cash award to avoid impacting Tesla’s balance sheet. This follows a landmark ruling in which Musk’s pay package was rescinded due to governance issues. The request, if granted, would make Bernstein one of the top 10 largest shareholders of the company.

Lawyers in Elon Musk pay case seek $6bn in Tesla shares

Attorneys for the plaintiffs in the Elon Musk pay case are seeking a substantial award of $6 billion in Tesla shares. The law firm representing the shareholders, Bernstein Litowitz Berger & Grossmann, has described their request as both unprecedented and conservative. This article will provide an overview of the background information on the lawsuit, the details of the shareholders’ request, the contingency fee basis for the lawyers, Musk’s response and possible appeal, the implications of the requested shares, the reaction from other shareholders and stakeholders, and the overall significance of the case for corporate governance.

Background Information on the Lawsuit

The lawsuit against Elon Musk stems from a 2018 pay package that the Tesla board had granted to him. The package included multiple tranches of stock that would vest after the company met certain operating and financial milestones. However, in a landmark ruling last month, the judge overseeing the case rescinded the pay package, citing insufficient independence of the Tesla board from Musk and unfair treatment of other shareholders.

Overview of Elon Musk’s Pay Package

Elon Musk’s pay package was valued at $56 billion and included several tranches of stock options. These options would vest only if Tesla reached certain operating and financial milestones. The package was seen as highly ambitious and tied Musk’s compensation directly to the company’s success.

Ruling to Rescind the Pay Package

The judge overseeing the case ruled that the Tesla board was insufficiently independent of Musk and that the process leading to the grant of the pay package was unfair to other shareholders. As a result, the pay package was rescinded, and the shareholders’ attorneys are now seeking a substantial award in Tesla shares as compensation.

Details of the Shareholders’ Request

The plaintiffs’ attorneys, Bernstein Litowitz Berger & Grossmann, have requested an award of Tesla shares worth nearly $6 billion as payment. While acknowledging that this request is unprecedented in absolute value, the attorneys argue that it is conservative when considering the implied percentage of value won for shareholders. They also note that taking Tesla shares instead of a cash award avoids putting any additional burden on the company’s balance sheet.

Value of the Tesla Shares

Based on Tesla’s closing price on Friday, the requested award of 11% of the shares comes out to roughly 29 million shares, which would be worth $5.9 billion. If granted, Bernstein Litowitz Berger & Grossmann would become one of the top 10 largest shareholders of the company.

Comparison to Previous Delaware Awards

In their filing, the plaintiffs’ attorneys cited a Delaware case from 2012 in which plaintiffs’ lawyers were awarded a fee of nearly $300 million, or 15% of the shareholder recovery. They argue that their request for an 11% fee is lower than the previous case and is in line with past precedent.

Tax Deductibility for the Carmaker

The plaintiffs’ attorneys also highlighted that a fee paid in shares would be tax deductible for Tesla. This presents an additional benefit for the company if the requested shares are granted.

Contingency Fee Basis for Lawyers

Lawyers who bring civil suits typically work on a contingency basis, meaning they only receive payment if they win the case or secure a settlement. In the Musk pay case, the contingency fee basis is more complex since no cash changed hands in the nullification of the share grant. Bernstein Litowitz Berger & Grossmann believe they have shouldered significant risk in pursuing the case and have taken on the odds of winning as part of their compensation.

Bernstein Litowitz’s Risk in Pursuing the Case

The law firm emphasized the difficulty of litigating the case on a contingency fee basis and described it as a steep uphill climb. They believe they have shouldered significant risk in going up against elite defense counsel and are seeking a fair portion of the benefit conferred from the cancelled award.

Comparison to Previous Jury Awards in Texas

After the ruling, Elon Musk expressed his dissatisfaction with the Delaware corporate law court and urged other companies to consider relocating their domicile to Nevada or Texas. In their filing, Bernstein Litowitz Berger & Grossmann noted that there have been two larger jury awards in past US civil lawsuits, both of which were in Texas.

Elon Musk’s Response and Possible Appeal

Elon Musk has signaled that he will appeal against the decision to rescind his pay package. In addition, he has complained about the Delaware corporate law court and has shifted the incorporation of two of his companies to Texas and Nevada. It remains to be seen how Musk will respond to the shareholders’ request for Tesla shares as compensation.

Implications of the Requested Shares

If the requested shares are granted, it would have significant implications for both Bernstein Litowitz Berger & Grossmann and Tesla. The law firm would become one of the top shareholders of the company, and Tesla’s balance sheet would remain unaffected since the shares would not require a cash payout.

Bernstein Litowitz’s Position as a Shareholder

As one of the largest shareholders of Tesla if the requested shares are granted, Bernstein Litowitz Berger & Grossmann would have a vested interest in the company’s performance. This raises questions about potential conflicts of interest and the firm’s ability to act objectively as legal representatives for shareholders.

Potential Financial Impact on Tesla

Granting the requested shares as compensation would represent a substantial financial impact on Tesla. With the shares worth nearly $6 billion, the company’s ownership structure would be significantly affected. It remains to be seen how Tesla’s management and other shareholders will respond to this potential financial burden.

Reaction from Other Shareholders and Stakeholders

The requested shares have potential implications for other Tesla shareholders and stakeholders. Shareholders may be concerned about the dilution of their ownership if the shares are awarded to Bernstein Litowitz Berger & Grossmann. Other stakeholders, such as employees and customers, may also be interested in the outcome of the case and its impact on the company.

Potential Legal Precedents Set by the Case

The outcome of the Elon Musk pay case could set legal precedents for future cases related to executive compensation. If the requested shares are granted, it would establish a precedent for shareholders seeking substantial awards as compensation for unfair executive pay packages. This could have implications for corporate governance and the way executive compensation packages are structured.

Overall Significance of the Case for Corporate Governance

The Elon Musk pay case represents a significant moment for corporate governance. It highlights the importance of independent oversight and fair treatment of shareholders in executive compensation decisions. The case also raises questions about the role of shareholders and their ability to hold corporate leaders accountable for their actions.

Impact on Executive Compensation Packages

Whatever the outcome of the case, it is likely to have an impact on the design and scrutiny of executive compensation packages. Shareholders and regulators may become more vigilant in evaluating the fairness and independence of such packages, potentially leading to changes in the way they are structured and approved.

Timeline of the Lawsuit

The article does not provide specific details about the timeline of the lawsuit. However, it mentions that there was a landmark ruling last month rescinding Elon Musk’s pay package. Additional information about key events and developments in the lawsuit would be necessary to provide a comprehensive timeline.

Conclusion and Future of the Case

In conclusion, the request by attorneys in the Elon Musk pay case for $6 billion in Tesla shares represents an unprecedented yet conservative demand. The case has significant implications for both the shareholders and Tesla, and its outcome could set legal precedents in the realm of executive compensation. The future of the case hinges on Elon Musk’s response and potential appeal, as well as the decisions made by the Delaware state court. Whatever the outcome, the case has shed light on the importance of independent oversight and fairness in corporate governance.