The Delaware Supreme Court on Friday delivered a sharp rebuke to a massive fee award in a shareholder settlement, trimming nearly $100 million from what attorneys were set to collect in the closely watched Tesla $100M Atty Fees dispute.
In a ruling that recalibrates how courts value corporate benefits, the state’s high court reduced the Delaware Chancery Court’s January 2025 attorney fee award from nearly $176.2 million to about $70.9 million. The justices rejected the lower court’s decision to count $458 million in the intrinsic value of returned stock options as part of the financial benefit used to calculate fees.
High Court Rejects Intrinsic Value Calculation
The underlying litigation, filed in June 2020 by the Police and Fire Retirement System of the City of Detroit, targeted Tesla CEO Elon Musk and company directors. The pension fund alleged years of “outrageous” board stock awards that it said drained hundreds of millions of dollars from the company.
After three years, the parties reached a settlement valued at approximately $735.2 million, consisting of stocks, options and cash. As part of that deal, director defendants agreed to return the value of roughly 3 million stock options — collectively pegged at about $735.3 million. However, they did not agree to surrender all unexercised options.
A central flashpoint emerged over whether $458 million in intrinsic value tied to certain returned options should count as a benefit to Tesla for purposes of calculating attorney fees. Neither Tesla nor the directors agreed that it should.
Chancellor Kathaleen St. J. McCormick nonetheless concluded that the settlement required her to include the intrinsic value in the benefit lookback. The Supreme Court disagreed.
“By accepting and canceling the returned options, Tesla did not receive $458 million in value that contributed to a common fund,” the high court wrote. The settlement mandated cancellation of the options, meaning Tesla could not exercise or resell them for market value.
The justices added that although the settlement quantified the option amount using intrinsic value, those options did not generate liquid assets that could be “paid by Tesla” to plaintiffs’ counsel.
Even if the stipulation suggested otherwise, the court said, the Chancery Court had an obligation to independently assess the actual benefit conferred on the corporation.
