A recent Law 360 story by Rose Krebs, “Tesla Calls $230M Fee Bid For Pay Suit Deal ‘Unreasonable’”, reports that Tesla is opposing a $230 million attorney fee request in connection with the proposed settlement of a shareholder suit in Delaware Chancery Court that accuses company directors of pocketing excessive compensation, asserting the request is "demonstrably unreasonable."

In a brief, Tesla, the nominal defendant in the derivative suit, took aim at the bid for $229.6 million in attorney fees and roughly $1 million in legal expenses by the plaintiff, the Police and Fire Retirement System of the City of Detroit. Tesla argued that no more than $64 million should be awarded "based on the actual monetary benefit conferred to Tesla."

Tesla says the pension fund's counsel, in a filing in support of the request, misstated "the purported benefit of the settlement," in part, by improperly including "the value of options that the director defendants agreed to forgo in 2021, 2022, and 2023 (estimated at about $184 million)."

"But nothing was paid by Tesla to the director defendants for those years, and nothing is being returned to Tesla as part of this settlement," Tesla contends.  "Plaintiff's counsel offer only hypothetical scenarios about what the director defendants could have been paid if they had not forgone compensation those years.  But they did."  Tesla argues that the pension fund's counsel "offer no authority for including a hypothetical amount, premised on a counter-factual, in the 'benefit conferred' denominator."  "Tesla will receive no benefit from the forgone compensation, so it should not be included in the calculation of the fee award," the filing said.

In a brief made public last month, the pension fund argued that the settlement, which has yet to be approved by the court, is valued at $919 million, including roughly $735 million in shares, stock options and cash to be returned by director defendants and the elimination of three years of compensation for 2021 to 2023 that is "conservatively valued" at roughly $184 million.

The pension fund asserted that the proposed deal is "the largest derivative claim settlement in" the Chancery Court's history and "the second-largest settlement of any kind behind only In re Dell Technologies Class V Stockholders Litigation."  In July, the Chancery Court approved a $266.7 million fee award for the Dell shareholder suit settlement.

In its filing, the pension fund said that "the $735,266,505 returned compensation alone captures 45% to 99% of possible trial damages, depending on what the court would deem 'fair,' as opposed to 'excessive,' compensation."  "The settlement fairly balances the strengths and trial risks of the claims," the pension fund argued.  Also, the proposed deal "delivers strong shareholder value," and thus, an award equal to 25 percent of the $919 million "monetary benefit" is reasonable, the pension fund said.

But in the filing, Tesla said the "actual total benefit conferred to Tesla by this settlement" is actually about $295 million.  In addition to arguing that the $184 million should not have been included in calculating the fee bid, Tesla takes issue with the $735 million valuation of stocks, options and cash to be returned.

In its brief, the pension fund applied the $184 million value for the eliminated compensation to calculate the fee request.  Tesla argues that the amount should not be included and also takes aim at the $735 million valuation.  "In quantifying the purported benefit of this settlement, plaintiff's counsel seem to forget who they represented in this action," Tesla contends.  "Plaintiff's counsel are entitled to a reasonable percentage of the monetary benefit conferred to Tesla.  Plaintiff's counsel misstate the purported benefit of the settlement as $919 million."

As the nominal party represented in the litigation, Tesla is set to receive only "about $19.9 million for the returned options" and about $276 million in returned cash and stock, the filing asserts.  Tesla said it "does not dispute that it will receive a benefit of approximately $276 million from the returned cash/stock," but argues the almost $459 million valuation for the returned options is wrong.

"However, unlike the returned cash/stock, which has a recognizable value to Tesla, the returned options cannot be monetized, which necessarily impacts the analysis of the benefit conferred to Tesla," the company contends.  The formula used to calculate the value of the returned options was flawed as Tesla will not in fact be able to exercise the options to get the value set forth in the settlement, the company says.  "The value of an option in the hands of a director defendant is not the same as the value of that option in the hands of Tesla," the company said.

"The requested fee award would amount to about 78% of the actual benefit conferred to Tesla — or about $229 million of $295 million, with Tesla keeping only 22% of that benefit," the company argues.  "That request is demonstrably unreasonable.  No Delaware court has awarded a fee at that percentage."