By Tom Hals
WILMINGTON, Delaware (Reuters) - A legal team that forced Tesla (NASDAQ:TSLA)'s directors to agree in July to return more than $700 million in compensation to the automaker for allegedly overpaying themselves are now seeking a huge payday of their own.
The lawyers want a judge to approve $229 million in fees, or $10,690 an hour, according to a Sept. 8 filing in Delaware's Court of Chancery.
The proposed fee award, if approved, would be among the largest ever to result from a shareholder lawsuit filed against a board. The sum would be distributed among lawyers from four firms that spent several years building a case against the compensation paid to Tesla's directors from 2017 to 2020.
The legal fee and the settlement must be approved by a Delaware judge at a hearing scheduled for October.
The 12 director defendants, including James Murdoch and Larry Ellison, agreed to return $735 million in compensation, forego another potential $184 million and overhaul the way the board determines director pay. The money from the settlement will be paid to Tesla and benefits shareholders indirectly, a type of case known as a derivative lawsuit.
The law firms estimate the total settlement value at $919 million and are seeking 25% of that as fee. They are also seeking about $1 million in expenses.
Partners and other staff from the law firms of Bleichmar Fonti & Auld and Fields Kupka & Shukurov, both of New York, each billed more than 10,000 hours on the case. McCarter & English attorneys and staff in Wilmington, Delaware and Ronald King, a Lansing, Michigan-based attorney with the Clark Hill firm, also billed hundreds of hours.
George Bauer of the Bleichmar firm declined to comment and attorneys from the other firms did not immediately respond to a request for comment.
Courts review fee requests by examining the need to reward risk-taking and effort while preventing a disproportionate windfall that can undermine confidence in the legal system, said David Paige, the founder of Legal Fee Advisors, a consulting firm.
Paige said it was difficult to compare lawyers' bills across different types of contingency-fee cases, but he called the Tesla plaintiffs' request "extraordinary" compared to hourly rates that top out around $2,000 for star corporate attorneys. Paige said the court will ultimately have to assess the size of the fee against the benefit of the litigation.
The Telsa directors have not objected to the fee request but are expected to do so, according to a court filing by the plaintiffs' lawyers.
Attorneys for the directors did not respond to a request for comment.
Delaware courts have approved higher hourly rates. In 2012, the Delaware Supreme Court affirmed a $304 million fee in a Southern Copper (NYSE:SCCO) shareholder lawsuit involving $2 billion of damages. The fee worked out to $35,000 an hour, and the defendants opposed it. The state's high court said judges should examine the outcome achieved, not the hourly rate.
The Delaware Court of Chancery judge overseeing the Tesla case, Kathaleen McCormick (NYSE:MKC), has scheduled a hearing on Oct. 13 to approve the settlement and the fee. Tesla shareholders have until Friday to file an objection.