The Delaware Supreme Court has ruled in favour of Tesla, sharply reducing legal fees awarded to shareholder attorneys in a settled lawsuit against the automaker’s directors after finding the original calculation overstated the value of the settlement.
In its decision, the court cut the legal fee award to $70.9 million from $176.1 million, concluding that the lower court had improperly included the intrinsic value of returned stock options when assessing the settlement’s worth. The revision represents savings of about $105 million for Tesla.
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The shareholder lawsuit had been settled based on an agreement valued at roughly $919 million, under which certain stock options were returned. The Supreme Court said that while the settlement itself remained intact, the valuation used to justify the legal fees was flawed.
The ruling comes amid growing scrutiny in Delaware over large legal fee awards in corporate litigation. Delaware is the legal home for many Fortune 500 companies because of its business-friendly corporate laws and tax framework, making its courts highly influential in U.S. corporate governance.
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Legal scholars and advisers to corporate boards have increasingly raised concerns that escalating fee awards in shareholder cases could impose significant costs on companies, even when cases are settled without findings of wrongdoing.
In response to the trend, the Delaware State Bar Association has begun working on recommendations for potential legislative changes aimed at curbing excessive fee awards, though any reforms would require lengthy consultation with lawmakers and the legal community.
The Tesla ruling is expected to be closely watched by companies and litigators alike, as it signals a willingness by Delaware’s highest court to rein in fee calculations it views as inflated.