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The Delaware Supreme Court handed Tesla a significant legal victory Friday, trimming by more than $100 million the attorney fees owed to shareholder lawyers who successfully sued the company’s directors over compensation they agreed to return.

In the long-running Tesla Director Pay Lawsuit, the state’s highest court ruled that Tesla must pay $70.9 million to the attorneys representing the Detroit firefighter and police pension fund that spearheaded the case. The amount is roughly 60% lower than the $176.1 million fee previously awarded by a judge in the Delaware Court of Chancery.

Court Says Settlement Was Overvalued

In its opinion, the Supreme Court concluded that the lower court judge overstated the value of the settlement when calculating the fee award.

At issue was how to measure the benefit Tesla received after directors — including Chair Robyn Denholm and board member James Murdoch — agreed to return approximately $277 million in cash and millions of stock options to the company.

Shareholder attorneys argued the settlement was worth $919 million, a figure that formed the basis for their request for $176.1 million in fees. Because Tesla benefited from the directors’ repayment, the company was responsible for covering the legal fees.

But the Supreme Court found the calculation inflated. The justices said the intrinsic value of the returned stock options should not have been included when determining the settlement’s worth to Tesla, effectively shrinking the pool from which fees could be derived.

The ruling recalibrates not only the payout but also the methodology courts may use in valuing corporate settlements.

Debate Over Delaware Legal Fees Intensifies

Friday’s decision lands amid mounting criticism from academics and corporate defense lawyers about large attorney fee awards in Delaware, the nation’s preeminent forum for corporate litigation.

The debate intensified after a separate 2024 case involving Dell Technologies resulted in a $267 million fee award. In response to the growing scrutiny, Delaware’s bar association is preparing recommendations for state lawmakers on potential reforms.

The Tesla dispute has become part of that broader conversation — a legal tug-of-war over how much shareholder attorneys should collect when they claim to deliver corporate governance reforms or financial recoveries.

Musk Not Part of Settlement

Elon Musk, Tesla’s chief executive and the world’s richest person, was not a party to the settlement involving the directors. He continues to defend his own record-breaking compensation package in a separate lawsuit.

The Supreme Court’s ruling narrows the financial impact of the director compensation case, but it also underscores a larger reckoning within Delaware’s corporate courts — where billion-dollar valuations and nine-figure fee requests can hinge on how judges interpret the fine print of equity awards.

As the dust settles in the Tesla Director Pay Lawsuit, the message from Delaware’s high court is clear: when it comes to attorney fees, precision matters — and even towering figures can be cut down to size.