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Delaware Court of Chancery
Case No. 2018-0408-KSJM
Richard J. Tornetta v. Elon Musk

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 EFiled: Jun 05 2024 11:17AM EDT
Transaction ID 73297831
Case No. 2018-0408-KSJM
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

)
RICHARD J. TORNETTA, Individually )
and on Behalf of All Others Similarly )
Situated and Derivatively on Behalf of )
Nominal Defendant TESLA, INC. )
)
Plaintiff, )
)
v. ) C.A. No. 2018-0408-KSJM
)
ELON MUSK, ROBYN M. DENHOLM, )
ANTONIO J. GRACIAS, JAMES )
MURDOCH, LINDA JOHNSON RICE, )
BRAD W. BUSS, and IRA EHRENPREIS, )
)
Defendants, )
)
-and- )
)
TESLA, INC, a Delaware corporation, )
)
Nominal Defendant. )
)

AMY STEFFENS’S OBJECTION TO PLAINTIFF’S

MOTION FOR AWARD OF ATTORNEYS’ FEES AND EXPENSES

Dated: June 5, 2024 MARGRAVE LAW LLC

Anthony A. Rickey (Bar. No. 5056)
OF COUNSEL: 3411 Silverside Road
Baynard Building, Suite 104
Donald B. Verrilli Wilmington, Delaware 19810
Elaine J. Goldenberg Phone: (302) 604-5190
MUNGER, TOLLES & OLSON LLP [email protected]
601 Massachusetts Ave. Suite 500E
Washington DC 20001-5369 Counsel for Objector Amy Steffens
Phone: (202) 220-1100
(continued on next page)
Achyut J. Phadke
MUNGER, TOLLES & OLSON LLP
560 Mission Street
San Francisco CA 94105-3089
Phone: (415) 512-4000

Joseph A. Grundfest
STANFORD LAW SCHOOL
559 Nathan Abbott Way
Stanford CA 94305
Phone: (650) 723-0458
 TABLE OF CONTENTS
Page

INTRODUCTION .....................................................................................................1
STATEMENT OF FACTS........................................................................................5
A. Ms. Steffens Makes a Significant Investment in Tesla.........................5
B. Ms. Steffens Reviews the 2018 Proxy. .................................................6
C. Ms. Steffens Benefits From Tesla’s Dramatic Growth After the
2018 Grant.............................................................................................9
D. Ms. Steffens Learns of the Court’s Decision. .....................................11
E. Tesla Stockholders’ Response to the Opinion. ...................................12
ARGUMENT...........................................................................................................14
I. MS. STEFFENS HAS STANDING TO OBJECT TO
THE FEE REQUEST. ..............................................................14
II. PLAINTIFF’S FEE MOTION IS CONTRARY TO LAW
AND MUST BE DENIED........................................................16
A. Plaintiff’s Assertion That His Suit Created a Benefit
of $51 Billion Lacks Merit. ............................................16
1. Under Sugarland, Plaintiff Cannot Take
Credit for the Value of the Increase in Tesla
Shares Following His Lawsuit. ............................17
2. Plaintiff’s Claimed $51 Billion Benefit Is
Factually Unsupported. ........................................22
B. The Requested Fee Would Constitute an
Impermissible Windfall. .................................................27
III. TO THE EXTENT THIS COURT WERE TO AWARD
FEES, THEY MUST BE CALCULATED IN A VERY
DIFFERENT MANNER THAN PLAINTIFF
PROPOSES...............................................................................32
A. Quantum Meruit is the Best Measure of Fees in This
Case. ...............................................................................33
1. Rescission Has Only A Non-Quantifiable
Therapeutic Value. ...............................................33

i
 2. Because the Net Value of the Benefit is Not
Readily Ascertainable, the Court Should
Award a Fee Based on Quantum Meruit..............38
B. In the Alternative, the Court Should Rely, at Most,
on the 2018 Value of the Options, with Appropriate
Reductions to Account for the Potential that the
2018 Grant May Be Reinstated and Incentive
Effects.............................................................................42
CONCLUSION .......................................................................................................44

ii
 TABLE OF AUTHORITIES

Page(s)
CASES

In re Activision Blizzard, Inc. S’holder Litig.,

2015 WL 2415559 (Del. Ch. May 20, 2015) .....................................................15

In re AMC Ent. Holdings, Inc. S’holder Litig.,

2023 WL 5165606 (Del. Ch. Aug. 11, 2023).....................................................21

Americas Mining Corp. v. Theriault,

51 A.3d 1213 (Del. 2012).............................................................................19, 20

Anderson v. Magellan Health, Inc.,

298 A.3d 734 (Del. Ch. 2023) ..............................................................................2

In re Coleman Co. Inc. S’holders Litig.,

750 A.2d 1202 (Del. Ch. 1999), as revised (Nov. 22, 1999)..............................16

Dann v. Chrysler Corp.,

215 A.2d 709 (Del Ch. 1965), aff’d, 223 A.3d 384 (Del. 1966) ....................1, 19

In re Dell Technologies Inc. Class V Stockholders Litigation,

300 A.3d 679 (Del. Ch. 2023) (appeal pending) ...................................19, passim

In re Diamond Shamrock Corp.,

1988 WL 94752 (Del. Ch. Sept. 14, 1988).........................................................39

In re Dunkin’ Donuts S’holders Litig.,

1990 WL 189120 (Del. Ch. Nov, 27, 1990).................................................40, 41

In re Ebix, Inc. S’holder Litig.,

2014 WL 3696655 (Del. Ch. 2014)......................................................................4

In re First Interstate Bancorp Consol. S’holder Litig.,

756 A.2d 353 (Del. Ch. 1999),
aff’d sub nom. First Interstate Bancorp v. Williamson, 755 A.2d
388 (Del. 2000)...................................................................................................39

Franklin Balance Sheet Inv. Fund v. Crowley,

2007 WL 2495018 (Del. Ch. Aug. 30, 2007)...............................................27, 28

iii
In re Golden State Bancorp Inc. S’holders Litig.,
2000 WL 62964 (Del. Ch. Jan. 7, 2000) ............................................................39

Louisiana State Employees’ Retirement System v. Citrix Systems, Inc.,

2001 WL 1131364 (Del. Ch. Sept. 19, 2001)..........................................3, passim

Off. v. Ross,
2009 WL 4725978 (Del. Ch. Dec. 10, 2009) .....................................................41

Rosenblatt v. Getty Oil Co.,

493 A.2d 929 (Del. 1985)...................................................................................11

Rovner v. Health-Chem Corp.,

1998 WL 227908 (Del. Ch. Apr. 27, 1998)........................................................41

In re S. Peru Copper Corp. S’holder Derivative Litig.,

52 A.3d 761 (Del. Ch. 2011) ..............................................................................21

Sciabacucchi v. Howley,
2023 WL 4345406 (Del. Ch. July 3, 2023) ............................................16, 28, 39

Seinfeld v. Coker,
847 A.2d 330 (Del. Ch. 2000) ......................................................................28, 29

State of Wisconsin Inv. Bd. v. Bartlett,

2002 WL 568417 (Del. Ch. Apr. 9, 2002),
aff’d, 808 A.2d 1205 (Del. 2002) .......................................................................27

Sugarland Industries, Inc. v. Thomas,

420 A.2d 142 (Del. 1980)........................................................................1, passim

TSC Indus., Inc. v. Northway, Inc.,

426 U.S. 438 (1976) ...........................................................................................11

RULES

Ch. Ct. R. 23.1 ...................................................................................................14, 15

iv
OTHER AUTHORITIES

eToro, Record number of Tesla retail investors turn out to back Musk
pay deal following firm's rallying cry (May 21, 2024),
https://www.etoro.com/news-and-analysis/press-releases/record-
number-of-tesla-retail-investors-turn-out-to-back-musk-pay-deal-
following-firms-rallying-cry/ .............................................................................13

Lisa Kailai Han, Fred Imbert, All the market-moving chatter from
Wall Street Wednesday morning, CNBC (Jan. 31, 2024)...................................25

Maximilian Holland, Tesla Passes 1 Million EV Milestone & Model 3

Becomes All Time Best Seller, CleanTechnica (retrieved Apr. 20,
2024), https://cleantechnica./2020/03/10/tesla-passes-1-million-ev-
milestone-and-model-3-becomes-all-time-best-seller/.......................................10

Angus MacKenzie, Surprised? Here’s 2023’s Best-Selling New Cars,

Trucks, and SUVs in America, Motortrend (Jan. 11, 2024),
https://www.motortrend.com/news/best-selling-cars-trucks-suvs-
in-america-2023/.................................................................................................10

NASDAQ Tesla stock on March 21, 2018, January 30, 2024, and
March 1, 2024, https://www.nasdaq.com/market-
activity/stocks/tsla/historical ..........................................................................9, 17

Al Root, Who Owns Tesla Stock? A Lot of Ordinary Investors, March

1, 2023, https://www.barrons.com/livecoverage/tesla-investor-
day/card/who-owns-tesla-s-stock-a-lot-of-ordinary-investors--
esTdA99yJqp9uxiy4e0L, Barron’s (updated March 2, 2023)..............................5

State of Delaware, Governor Carney’s FY 2025 Budget,

https://governor.delaware.gov/fy25/.....................................................................1

Wedbush Securities, In a Shocker Delaware Judge Voids Musk Comp

Package; Next Move in Board’s Hands (Jan. 31, 2024) ....................................24

v
 INTRODUCTION

Amy Steffens, a long-term Tesla stockholder who owns over 19,000 Tesla

shares, respectfully submits this objection to Plaintiff’s request that his attorneys be

awarded Tesla stock worth over $5 billion—an amount that is almost as large as

Governor Carney’s fiscal year 2025 operating budget request.1 The proposed fee

award, if granted, would seriously harm Tesla stockholders like Ms. Steffens by

reducing the value of their holdings for the benefit of Plaintiff’s counsel. Ms.

Steffens holds a far larger amount of Tesla stock than Plaintiff does. She read

Tesla’s 2018 proxy statement with great care and approved of the grant of

compensation to Mr. Musk that Plaintiff challenged. In her view, the rescission of

that grant damages her interests without benefiting her in any way, and she recently

voted to restore that grant. She should not be forced to bear the further burden of an

exorbitant fee award to Plaintiff’s counsel.

The proposed fee violates controlling Delaware Supreme Court precedent and

constitutes an unconscionable windfall. Under Sugarland Industries, Inc. v.

Thomas, 420 A.2d 142 (Del. 1980), and Dann v. Chrysler Corp., 215 A.2d 709, 725

(Del. Ch. 1965), aff’d, 223 A.3d 384 (Del. 1966), Plaintiff cannot take credit for the

massive appreciation in Tesla’s stock price after the date of the 2018 Grant because

that appreciation occurred for reasons having nothing to do with this litigation. Yet

1 See Governor Carney’s FY 2025 Budget, https://governor.delaware.gov/fy25/.

that is exactly what he seeks to do in claiming that his lawsuit created a $51 billion

“benefit.” Counsel cannot be compensated for value they did not create.

Plaintiff’s valuation of the purported benefit also lacks evidentiary support. If

Plaintiff were correct that the rescission order created a $51 billion benefit (an

amount representing over 9% of Tesla’s market capitalization at the time), the stock

market would have recognized that benefit, driving Tesla’s stock price up. As

explained in the accompanying affidavit of Professor David Larcker, however, that

did not happen—and so the market perceived no net benefit to Tesla or Tesla

stockholders from the rescission itself. Rescission does not increase Tesla’s future

cash flows or profitability; it therefore cannot increase Tesla’s enterprise value.

Further, any assertion that the rescission enabled Tesla to sell stock in the open

market for $51 billion is fiction. Tesla always had the ability to issue additional

stock to the public, and the rescission order does not enhance Tesla’s ability to do

so.

Even apart from those defects in Plaintiff’s fee request, Delaware law does

not condone a windfall exceeding the amount necessary to incentivize the filing and

prosecution of “wholesome levels of litigation.” Anderson v. Magellan Health, Inc.,

298 A.3d 734, 755 (Del. Ch. 2023). If a fee exceeding 400 times the value of

counsel’s invested time does not constitute a windfall, nothing ever will. As the

accompanying affidavit of Professor Adam Pritchard explains, Plaintiff’s lead law

2
firm regularly provides legal services in complex contingency-fee cases and often

invests far more hours than it did in this case while expecting returns one-hundredth

of the amount sought here. Plaintiff’s counsel routinely seek and receive fee awards

based on a 1.5x lodestar for complex litigation of similar scale and scope. To avoid

a windfall that compensates counsel more than would be required to incentivize

similar litigation, a fee award should reflect an amount between the average and the

highest multiple of lodestar that Plaintiff’s lead counsel has received—a range from

1.45x to 3.45x. Applying that range here would lead to a fee award between

approximately $20 million and $47 million (the “Non-Windfall Range”).

Should the Court award fees other than those Plaintiff has requested, those

fees would need to be calculated very differently than Plaintiff proposes—and the

result would be a fee award that is several orders of magnitude lower than the fee

that Plaintiff seeks. The net economic impact of rescission is unquantifiable, and its

impact is likely to be zero or negative factoring in (i) the disincentivizing effects of

rescission on Mr. Musk and others at Tesla, and (ii) the probability that Tesla

stockholders will ratify the 2018 Grant or approve replacement compensation for

Mr. Musk. Accordingly, the most reasonable method for calculating fees here is

quantum meruit—the method of calculation that is used when litigation results in a

therapeutic benefit that is speculative or difficult to quantify. That would track the

approach that then-Chancellor Chandler took in Louisiana State Employees’

3
Retirement System v. Citrix Systems, Inc., 2001 WL 1131364, at *6 (Del. Ch. Sept.

19, 2001), under analogous circumstances. Under quantum meruit principles, the

Court could reasonably arrive at a fee award somewhere in the Non-Windfall Range.

But even if the Court were to undertake the extremely speculative endeavor

of placing a numerical value on any benefit conferred by this litigation, that estimate

would need to start with the value of the rescinded 2018 Grant as of the March 21,

2018 grant date—a number that, consistent with Sugarland, excludes the value

subsequently created by Mr. Musk and others at Tesla. That number would then

need to be adjusted downward to account for the probability that the 2018 Grant will

be restored or Mr. Musk will be awarded replacement compensation to make up for

the rescission, as well as for rescission’s disincentivizing effects. The fee award that

would result from that approach would still be orders of magnitude lower than

Plaintiff’s request.

Whatever the approach used to calculate fees, Plaintiff’s exorbitant fee request

cannot be justified. When Plaintiff sued to challenge Mr. Musk’s pay, he sought to

“stand in the shoes” of Tesla’s directors. In re Ebix, Inc. S’holder Litig., 2014 WL

3696655, at *19 (Del. Ch. 2014). It is no more reasonable for a derivative plaintiff

standing in the corporate directors’ shoes to compensate his counsel at rates

exceeding $200,000 per hour than it is for corporate directors themselves to pay such

excessive amounts in attorneys’ fees.

4
 STATEMENT OF FACTS

A. Ms. Steffens Makes a Significant Investment in Tesla.

Ms. Steffens is an airline pilot. Steffens Aff. ¶ 2.2 Before becoming a pilot,

she worked as a wholesaler of financial products, holding a Series 7 license, and

before that, she was a paralegal. Id. She has never previously appeared in a

representative action, whether in the stockholder derivative context or otherwise. Id.

¶ 10.

Ms. Steffens first purchased Tesla shares shortly after the company’s 2010

IPO. Id. ¶ 5. Between that date and the present, she amassed a significant holding.

As of May 30, 2024, the value of the Tesla shares she owns exceeded $3.4 million.

Id. ¶ 8. That is a sizeable percentage of her net wealth, far exceeding the value of

all her other investment holdings.3 Id.

2 “Steffens Affidavit” or “Steffens Aff.” refers to the Affidavit of Amy L. Steffens in

Support of Her Objection to Plaintiff’s Motion for Award of Attorneys’ Fees and
Expenses, which accompanies this brief.
3 “Retail” investors like Ms. Steffens make up a significantly larger fraction of Tesla’s
stockholder base than is true of other large companies like Facebook, Microsoft,
Amazon, Netflix, and Google. See Al Root, Who Owns Tesla Stock? A Lot of
Ordinary Investors, March 1, 2023, https://www.barrons.com/livecoverage/tesla-
investor-day/card/who-owns-tesla-s-stock-a-lot-of-ordinary-investors--
esTdA99yJqp9uxiy4e0L, Barron’s (updated March 2, 2023).

5
 By contrast, Plaintiff Tornetta owned only nine shares of Tesla on the date

this litigation was filed.4 See Dkt. 225 ¶ 23. He is a repeat participant in Delaware

Chancery litigation.5 On January 8, 2024, he received a $10,000 incentive award in

another Delaware case, equivalent to nearly 50 percent of the value of his estimated

Tesla holdings as of this filing.6

B. Ms. Steffens Reviews the 2018 Proxy.

In 2017 and 2018, Tesla faced existential business challenges as it attempted

to dramatically scale up its production of electric cars while also becoming

profitable. As the Court explained, “[n]o one thought Tesla could mass produce the

Model 3.” Op. at 13. Tesla faced heavy skepticism regarding its future prospects,

and “as of March 2017, approximately 20% of Tesla’s total outstanding shares were

sold short, making it the most shorted company in U.S. capital markets at that time.”

Id. As the Court put it, “[e]veryone was betting against Tesla and the man at its

helm.” Id.

4 This brief assumes that Mr. Tornetta owns approximately 135 shares of Tesla stock
today, following a 3-for-1 and 5-for-1 stock split, and has neither sold nor purchased
shares while his counsel were in possession of confidential discovery information.
5 See, e.g. Tornetta v. Maffei, C.A. No. 2019-0649-KSJM; Tornetta v. Musk, C.A.
No. 2018-0408-KSJM; Sciabacucci v. Malone, C.A. No. 2015-11418-VCG
(appearing as interested party).
6 Order and Final Judgment, Tornetta v. Maffei, C.A. No. 2019-0649-KSJM (Del. Ch.
Jan. 8, 2024) (approving request for a $10,000 incentive award to Plaintiff).
Plaintiff was represented in Maffei, as here, by Friedman Oster & Tetjel PLLC and
Andrews & Springer LLC.

6
 Accordingly, in 2018 the Tesla Board approved a compensation package (the

“2018 Grant”) designed to “keep[] Mr. Musk focused and deeply involved in the

Company’s business” so as to “ensure that Mr. Musk focuses his innovation,

strategy, and leadership on the Company and its mission.” Op. at 43. The proposed

compensation package was subject to stockholder approval.

That package was structured in twelve tranches that vested only if the

company achieved specific market capitalization and performance milestones (based

on both total revenue and adjusted EBITDA). Id. at 80. The vesting of each tranche

would give Mr. Musk options to purchase 1% of Tesla shares outstanding on January

19, 2018, at a split-adjusted price of $23.33 per share. Id. at 81-82.

Ms. Steffens read Tesla’s 2018 proxy statement (the “Proxy”) carefully: she

understood both the mechanics and magnitude of the proposal, and she fully

appreciated that it would constitute the most valuable executive compensation

package awarded to a CEO in U.S. history. Steffens Aff. ¶¶ 17, 20-25. In her view,

because Mr. Musk would have to lead Tesla to unprecedented performance

milestones in order to reap any benefits, such unprecedented compensation was fully

warranted. Id. ¶ 22. That view was cemented by the fact that the proposed

compensation was modeled on the structure of Mr. Musk’s prior compensation

package (the “2012 Grant”), which was likewise entirely performance-based, see

7
Op. at 16, and which Ms. Steffens believed had been responsible for motivating Mr.

Musk and increasing the value of her Tesla holdings. Id. ¶ 20.

Plaintiff “received” the Proxy. Dkt. 225 ¶¶ 24-25. There is no allegation in

the Complaint, and no evidence stipulated to in the pre-trial order, that Plaintiff ever

actually read the Proxy.

On March 21, 2018, Tesla stockholders overwhelmingly approved the 2018

Grant. Ms. Steffens voted all her shares in favor of the 2018 Grant. Steffens Aff.

¶ 14. Seventy-three percent of all votes cast by stockholders at that meeting—cast

by holders of 63,014,339 Tesla shares—came out the same way.7 See Op. at 88.

Ms. Steffens’s view, and presumably the view of those many other shareholders,

was that the 2018 Grant was essential to securing Mr. Musk’s continued services for

Tesla and that motivating Mr. Musk with those economic terms would benefit the

company and its stockholders.

Plaintiff “abstained from voting his shares” in the vote on the 2018 Grant.

Dkt. 225 ¶ 25. Again, there is no allegation or evidence that prior to the vote Plaintiff

sought to raise any objections relating to the 2018 Grant or discussed any concerns

regarding that grant with other Tesla stockholders.

7 Mr. Musk and his brother Kimbal Musk did not vote.

8
 C. Ms. Steffens Benefits From Tesla’s Dramatic Growth After the
2018 Grant.

Tesla performed extremely well between approval of the 2018 Grant and the

date of this Court’s decision on rescission, resulting in four tranches of the 2018

Grant vesting in 2020, three vesting in 2021, and five vesting in 2022. Op. at 92;

Dkt. 225 ¶¶ 265-76. As the Court recognized, Mr. Musk was (and remains)

“singularly instrumental to Tesla.” Op. at 181.

Investors like Ms. Steffens (and Plaintiff) realized the benefits of Mr. Musk’s

exceptional performance. Adjusting for stock splits, Tesla shares increased in value

from $21.10 on the date the 2018 Grant was approved to $191.59 on the decision

date—an increase of 900%.8

During the relevant period, Mr. Musk led Tesla’s transformation from a niche

electric-vehicle manufacturer to a mainstream automaker and a dominant force in

the growing electric-vehicle market. Tesla scaled up its vehicle production by a

factor of 18, increasing total vehicle production from approximately 100,000 in 2017

to more than 1.8 million in 2023.9 In particular, Tesla successfully scaled up

8 Those numbers come from NASDAQ historical closing price data for Tesla stock
on March 21, 2018, and January 30, 2024, https://www.nasdaq.com/market-
activity/stocks/tsla/historical.
9 Tesla, Inc. 2017 Form 10-K at 39 (February 23, 2018) (“2017 10-K”),
https://www.sec.gov/Archives/edgar/data/1318605/000156459018002956/tsla-
10k_20171231.htm); Tesla, Inc. 2023 Form 10-K at 33 (January 29, 2024) (“2023
10-K”), https://www.sec.gov/Archives/edgar/data/1318605/000162828024002390
/tsla-20231231.htm.

9
production of the Model 3, which became the best-selling electric car in history.10

Tesla also introduced the Model Y (which became the fifth best-selling vehicle in

the United States in 2023) and began delivery of the Cybertruck.11 2023 10-K at 4.

Tesla’s phenomenal operational growth created great financial success. Mr.

Musk oversaw a massive increase in Tesla’s revenue while driving the business from

multi-billion-dollar net losses (a $2 billion loss in 2017) to double-digit billions in

profit ($15 billion of profits in 2023).12 2017 10-K at 38; 2023 10-K at 51. As a

result of that growth in revenue and profitability, Tesla’s market capitalization

increased from $60 billion as of January 2018 to $610 billion on the date of the

Court’s rescission decision. See Larcker Aff. ¶ 12.13

10 Maximilian Holland, Tesla Passes 1 Million EV Milestone & Model 3 Becomes All
Time Best Seller, CleanTechnica (retrieved Apr. 20, 2024), https://cleantechnica.
com/2020/03/10/tesla-passes-1-million-ev-milestone-and-model-3-becomes-all-
time-best-seller/.
11 Angus MacKenzie, Surprised? Here’s 2023’s Best-Selling New Cars, Trucks, and
SUVs in America, Motortrend (Jan. 11, 2024), https://www.motortrend.com/news/
best-selling-cars-trucks-suvs-in-america-2023/.
12 Tesla became profitable on a full-year basis for the first time in 2020 and has
remained so in all subsequent full-year reporting periods. Tesla, Inc. 2020 Form
10-K at 30 (Feb. 8, 2021) (“2020 10-K”),
https://www.sec.gov/Archives/edgar/data/1318605/000156459021004599/tsla-
10k_20201231.htm; 2023 10-K at 50.
13 “Larcker Affidavit” or “Larcker Aff.” refers to the Affidavit of Professor David F.
Larcker, which accompanies this brief.

10
 D. Ms. Steffens Learns of the Court’s Decision.

Plaintiff brought suit on June 5, 2018 to challenge the process by which the

2018 Grant was approved. He continued to pursue litigation notwithstanding Tesla’s

extraordinary performance subsequent to the filing of the suit.

On January 30, 2024, this Court issued its decision (the “Opinion”) applying

entire fairness review to the 2018 Grant. The Court concluded that the vote on the

2018 Grant was not fully informed and rescinded the 2018 Grant. The Court relied

on the Proxy’s failure to disclose that (1) members of the Compensation Committee

lacked independence from Mr. Musk; (2) other members of the Compensation

Committee received such outsized compensation from Tesla that their independence

was compromised; and (3) board member Mr. Ehrenpreis and Mr. Musk had a

conversation in which Mr. Musk “established the key terms of the 2018 Grant.” Op.

at 149-55.

Under Delaware law, an omitted fact may be material without “proof of a

substantial likelihood that disclosure of the omitted fact would have caused the

reasonable investor to change [his or her] vote.” Rosenblatt v. Getty Oil Co., 493

A.2d 929, 944-45 (Del. 1985) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S.

438, 449 (1976)). Thus, the Opinion contains no findings suggesting that the

stockholder vote on the 2018 Grant would have turned out differently had additional

information been disclosed. Although the “Public Reaction” section of the Opinion

11
discusses the reactions of stockholders that were antagonistic to the 2018 Grant

before it was approved, the Opinion does not conclude that stockholders who voted

in favor of the Grant would have voted differently had they possessed the omitted

information.

Ms. Steffens, for example, reviewed the Opinion, and it has not changed her

view that the 2018 Grant should have remained in place, or that Mr. Musk deserves

the compensation he obtained under the 2018 Grant given his extraordinary efforts

on behalf of Tesla and stockholders like her. See Steffens Aff. ¶ 27. Indeed, there

is no reason to believe that disclosure of the information would have caused a

majority of stockholders to reject a grant that, as the Opinion recognizes, “has a lot

of appeal” at “a high level.” Op. at 6. Effectively, Ms. Steffens’s vote has been

nullified by Mr. Tornetta.

E. Tesla Stockholders’ Response to the Opinion.

The release of the Opinion rescinding the 2018 Grant garnered broad and

immediate media coverage—yet Tesla’s stock price did not react significantly. In

after-hours trading after the Opinion’s release, Tesla’s stock price declined slightly,

by approximately 5% at the lowest point. See Larcker Aff. ¶ 27. The next trading

day (January 31), Tesla’s stock price closed at $187.29, slightly below the prior

day’s pre-Opinion close at $191.59. Id.

12
 Numerous stockholders reacted to the Opinion by voicing support for the 2018

Grant. Within a few days, nearly 6,000 retail stockholders had signed a petition

(organized in part by Ms. Steffens) asking Tesla’s board to reinstate the 2018

Grant.14 Many other retail investors voiced the same opinion. See 2024 Proxy at E-

21 to -22. So, too, did multiple institutional investors, including T. Rowe Price. See

2024 Proxy at 88; see also id. at E-5 (quoting from T. Rowe Price letter).

After the Opinion issued, Mr. Musk informed Tesla’s Board that he believed

that he should be compensated for his years of past work. He explained that “he

feels that he worked extraordinarily hard, and made many sacrifices, to meet the

terms of the deal that had been agreed on.” Id. at 87.

In the 2024 Proxy, the company sought ratification of the 2018 Grant as well

as a stockholder vote on potential reincorporation of the company in Texas. See id.

at 21, 64. Tesla included the full text of the Opinion as an exhibit to that proxy. See

id. at Annex I. A stockholder vote on ratification is scheduled for June 13, 2024;

many shares have already been voted in favor of ratification, including all of Ms.

Steffens’s shares.15 Steffens Aff. ¶ 30. Plaintiff responded to the announcement of

14 See Steffens Aff. ¶ 28; see also Tesla, Inc. Preliminary Proxy Statement on Schedule
14A at 88 (April 17, 2024) (“2024 Proxy”), https://www.sec.gov/Archives/edgar
/data/1318605/000110465924048040/tm2326076d13_pre14a.htm.
15 See also eToro, Record number of Tesla retail investors turn out to back Musk pay
deal following firm’s rallying cry (May 21, 2024), https://www.etoro.com/news-
and-analysis/press-releases/record-number-of-tesla-retail-investors-turn-out-to-
back-musk-pay-deal-following-firms-rallying-cry/.

13
the vote by moving to sequester Tesla shares in the event that fully informed

stockholders vote to ratify the 2018 Grant. Plaintiff also moved for an anti-suit

injunction—although there is no pertinent litigation to enjoin—and for an order

implementing the rescission required by the Opinion. Dkts. 308, 309, 310. The

Court ultimately denied those motions. Dkt. 340.

Ms. Steffens offers this objection because she believes that Tesla’s

stockholders should be permitted to speak to the Company’s future and that those

stockholders should not have to pay for legal services they did not ask for, have not

benefited from, and would never have agreed to pay over $200,000 per hour to

receive.

ARGUMENT

I. MS. STEFFENS HAS STANDING TO OBJECT TO THE FEE

REQUEST.

Ms. Steffens has standing to object to Plaintiff’s fee request. Any person

“with standing to object to a proposed dismissal or settlement” also has standing to

object to a fee award, Ch. Ct. R. 23.1(e)(2)—and “[a]ny person situated similarly to

the derivative plaintiff may object to [a] proposed dismissal or settlement.” Ch. Ct.

R. 23.1(d)(4)(A). In addition, “[a]ny person from whom payment is sought may

oppose” a fee award. Ch. Ct. R. 23.1(e)(2).

Ms. Steffens has standing to object on each of those grounds. First, she

unquestionably would have standing to object to any dismissal or settlement here.

14
See Ch. Ct. R. 23.1(e); In re Activision Blizzard Inc. S’holder Litig., 124 A.3d 1025,

1042-43, as revised (May 21, 2015), judgment entered sub nom. In re Activision

Blizzard, Inc. S’holder Litig., 2015 WL 2415559 (Del. Ch. May 20, 2015). In every

way that matters, Ms. Steffens is “situated similarly to the derivative plaintiff” in

this case. Ch. Ct. R. 23.1(d)(4)(A). Like Plaintiff, Ms. Steffens held Tesla stock at

the time of the 2018 Grant, and she has continued to hold Tesla stock throughout the

course of this litigation. See Steffens Aff. ¶ ¶¶ 5-6, 8-9, 32-33. Accordingly, this

case, and a fee award to Plaintiff’s counsel, will have the same financial effect on

her as it will on Plaintiff—albeit magnified as to her given her much greater

stockholding.

Second, Ms. Steffens is a “person from whom payment is sought” under the

fee request given Plaintiff’s request for a fee award consisting of freely tradable

Tesla shares. Ch. Ct. R. 23.1(e)(2). If that request were granted, Plaintiff’s counsel

would receive 29,402,900 shares of Tesla stock. Pl. Br. at 11. That means that

Tesla’s fixed market capitalization would be divided among a larger number of

shares, which would drive share prices down. Larcker Aff. ¶ 40. Stockholders

would suffer dilution of approximately 1 percent. Id. That dilution is significant—

it would cost Ms. Steffens approximately $31,000. Id. The requested fees therefore

would come from the pockets of stockholders like Ms. Steffens.

15
 Finally, simple equity requires allowing Ms. Steffens to object here. If equity

permits a small stockholder to sue derivatively to oppose supposedly excessive pay

to a CEO, it would be inequitable not to allow other stockholders to participate when

that stockholder seeks to pay his counsel hundreds of thousands of dollars per hour.

II. PLAINTIFF’S FEE MOTION IS CONTRARY TO LAW AND MUST

BE DENIED.

A. Plaintiff’s Assertion That His Suit Created a Benefit of $51

Billion Lacks Merit.

Plaintiff carries the burden of establishing whether this litigation conferred

any benefit on Tesla and, if so, the amount of that benefit—a matter that must be

given “rigorous scrutiny.” In re Coleman Co. Inc. S’holders Litig., 750 A.2d 1202,

1212 (Del. Ch. 1999), as revised (Nov. 22, 1999); see Sciabacucchi v. Howley, 2023

WL 4345406, at *3 (Del. Ch. July 3, 2023). In deciding whether such a benefit

exists, courts consider the factors set forth in Sugarland Industries, Inc. v. Thomas,

420 A.2d 142 (Del. 1980): “(1) the results achieved for the benefit of the

shareholders; (2) the efforts of counsel and the time spent in connection with the

case; (3) the contingent nature of the fee; (4) the difficulty of the litigation; and (5)

the standing and ability of counsel involved.” Citrix, 2001 WL 1131364, at *6

(citing Sugarland, 420 A.2d at 149). Of those factors, the greatest weight should be

accorded to the results achieved. Id.

16
 Plaintiff seeks a fee award for his counsel that exceeds 29 million freely

tradeable shares—shares worth approximately $5.9 billion as of the date of his

filing.16 Plaintiff argues that the value of those shares amounts to 11% of the benefit

conferred on Tesla by the result in this suit. Pl. Br. at 22. Thus, Plaintiff’s

fundamental contention is that his suit created a quantifiable $51 billion benefit to

Tesla, for which Plaintiff’s counsel is entitled to liquid Tesla shares valued at the

time of his request at nearly $6 billion. That is wrong—and the fee request should

be denied on that basis alone.

1. Under Sugarland, Plaintiff Cannot Take Credit for the

Value of the Increase in Tesla Shares Following His
Lawsuit.

Plaintiff’s effort to seek full credit for stock-price appreciation reflecting six

years of Tesla’s business accomplishments flouts controlling Delaware Supreme

Court precedent. Plaintiff’s motion is not a way to “eat [his] cooking,” Pl. Br. at 2,

but rather an attempt to feast on the work of others.

There is no question that most of the claimed “benefit” here derives from the

massive increase in the value of Tesla’s stock since its stockholders approved the

2018 Grant. But that benefit was not created by Plaintiff’s suit. Rather, all of the

increase in the value of that stock is attributable to a combination of the efforts of

16 Plaintiff seeks a fee award of 29,402,000 Tesla shares for his counsel. Pl. Br. at 11.
Per NASDAQ historical closing price data, Tesla stock closed at $202.64 on March
1, 2024, resulting in a total value of over $5.958 billion as of that date.

17
Tesla’s employees (chief among them Mr. Musk) and market factors that are

unrelated to the rescission that the Court ordered in this case. Larcker Aff. ¶¶ 10-

16.

The increase in Tesla’s market capitalization during this period—from $60

billion when the 2018 Grant was announced to approximately $610 billion as of the

date of the Opinion—was attributable to the company’s successful operations.

Larcker Aff. ¶¶ 10, 12. That period saw stunning growth in Tesla’s profitability,

driven by a vast expansion of production capacity and a series of highly successful

launches of innovative new products. See id. ¶¶ 13-15. Plaintiff cannot point to a

single change that Tesla made as a result of his lawsuit that had anything at all to do

with the massive appreciation in Tesla’s stock price. See id. ¶ 16.

Plaintiff’s effort to base a fee award on a purported “benefit” amount that

reflects the efforts of others is contrary to decisions of the Delaware Supreme Court

and other Delaware courts, which make abundantly clear that a plaintiff seeking a

fee award can claim credit only for the benefit actually attributable to the plaintiff’s

own suit. In Sugarland Industries, Inc. v. Thomas, 420 A.2d 142 (Del. 1980), for

example, the Delaware Supreme Court reversed a decision that a law firm that

successfully sued to force a company to seek out competing purchase offers could

take full credit for the company’s increased sale price. See id. at 151. The law firm

had been retained by would-be buyers who did not end up submitting the highest bid

18
after they successfully enjoined a sale at a lower price. See id. at 144-45, 150-51.

Noting that “attorneys . . . are not brokers or real estate agents seeking a commission

or a percentage of sale price for having produced a buyer,” the Supreme Court

concluded that the differential between the price offered by those would-be buyers

and the ultimate sale price was not a benefit for which the law firm could “take

credit” for purposes of calculating a fee award. Id. at 150-51 (citation and internal

quotation marks omitted).

The decision in Dann v. Chrysler Corp., 215 A.2d 709, 725 (Del. Ch. 1965),

aff’d, 223 A.3d 384 (Del. 1966), sets forth and applies the same principle. That case

concerned claims that certain plaintiffs had brought about management changes that

created a benefit for Chrysler. The court ruled that the plaintiffs could not reasonably

claim credit for improved performance by Chrysler in the wake of those management

changes when the improvement was actually attributable to industry trends. See id.

at 716. The court thus rejected any fee award premised on “the benefit flowing from

the great increase in profits to the extent they resulted from the general resurgence

of the automobile industry.” Id.

This case is also nothing like the decisions approving fee awards on which

Plaintiff heavily relies. E.g., Pl. Br. at 18-22. Both In re Dell Technologies Inc.

Class V Stockholders Litigation, 300 A.3d 679 (Del. Ch. 2023) (appeal pending),

and Americas Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012) (“Southern

19
Peru”), involved a claimed benefit that was entirely attributable to the plaintiff’s

efforts in the litigation—and thus both are fully consistent with Sugarland and

Chrysler and distinguishable from this case.

First, in Dell, the plaintiff achieved a $1 billion cash settlement of the

plaintiff’s claims on the eve of trial. Dell, 300 A.3d at 685. Vice Chancellor Laster

correctly described that as “an obvious and self-quantifying benefit” from the

plaintiff’s suit, id. at 693, and no party disputed that $1 billion was the benefit

achieved by the litigation for purposes of the Sugarland test. But this case could not

be more different. Here, the “wealth proposition for plaintiffs’ counsel” articulated

by Vice Chancellor Laster in Dell—“[i]f you want more for yourself, get more for

those whom you represent”—does not apply, because the vast majority of the

claimed benefit is the result of efforts by Tesla’s employees and executives such as

Mr. Musk that are entirely divorced from this litigation. Id. In addition, analyzing

the benefit of rescission (if any) to Tesla or stockholders is far more conjectural and

speculative than the simple analysis involved in assessing a cash settlement accruing

to the relevant class of stockholders.

Second, in Southern Peru, the “benefit” was a damages award—a form of

benefit that is obviously tied directly to the existence of the suit in which the damages

were obtained. Southern Peru, 51 A.3d at 1252. Although Plaintiff highlights the

fact that in Southern Peru the trial court permitted Grupo Mexico to “satisfy the

20
judgment by agreeing to return to Southern Peru such number of its shares as are

necessary to satisfy this remedy,” In re S. Peru Copper Corp. S’holder Derivative

Litig., 52 A.3d 761, 819 (Del. Ch. 2011), payment in kind is not akin to rescission

of options: such a payment is still a transfer of real value from one party to another.

Here there has been no comparable conferral of value on Tesla or its stockholders.

Certainly there was not a payment of any kind made to Tesla or its stockholders.

And there is no evidence of any implicit transfer of value: Tesla’s stock price did

not move in response to the order of rescission, see infra Section II.A.2, and Ms.

Steffens and other stockholders have not seen any quantifiable gains in the value of

their Tesla holdings based on the rescission order.

Those decisions illustrate the opportunistic nature of Plaintiff’s fee request. If

Plaintiff had succeeded at the outset of the litigation in enjoining the options grant

to Mr. Musk (as counsel in Sugarland succeeded in enjoining a sale), he obviously

would not be able to claim any stock-price appreciation from 2018-2024 as part of

the purported benefit. Similarly, if Tesla’s share price had declined precipitously

after Plaintiff succeeded in obtaining the rescission order in this litigation, Plaintiff’s

counsel would almost certainly be seeking a cash fee award rather than a payment

of fees via Tesla shares. See, e.g., In re AMC Ent. Holdings, Inc. S’holder Litig.,

2023 WL 5165606, at *36 (Del. Ch. Aug. 11, 2023) (seeking cash fee award of $20

million, rather than payment in kind of percentage of stock received in settlement,

21
where company issuing the stock was in danger of bankruptcy). Where Tesla’s stock

price instead increased by 900%, Plaintiff cannot take advantage of that good fortune

for his attorneys’ benefit. “Heads I win, tails you lose” is not a cognizable principle

of law in the context of fee awards or anywhere else.

2. Plaintiff’s Claimed $51 Billion Benefit Is Factually

Unsupported.

Plaintiff’s requested fee award also must be rejected on an independently

sufficient ground: it lacks factual support. In two simple ways, the expert reports

and evidence Plaintiff presents fail to show a benefit of more than fifty billion dollars

as a result of this litigation.

First, Plaintiff ignores the lack of market impact after the rescission order was

made public, which demonstrates that the net economic benefit to Tesla and its

stockholders from that order was likely zero. In Plaintiff’s telling, the Opinion

produced a corporate benefit of nearly ten percent of the company’s market

capitalization on the date the Opinion issued, amounting to approximately $51

billion. Pl. Br. at 37; Larcker Aff. ¶ 12 (market capitalization as of date Opinion

issued of approximately $610 billion). One would expect that the announcement of

such a (purportedly) massive benefit to Tesla would have some positive stock price

impact. Larcker Aff. ¶¶ 38-39.

Just the opposite was true. The stock price dropped after the Opinion issued,

both in after-hours trading and in the following trading session. Larcker Aff. ¶ 27.

22
And an event analysis performed by Ms. Steffens’s expert, Professor David Larcker,

confirms that the Opinion, and the alleged “benefit” Plaintiff produced, had no

statistically significant impact on Tesla’s stock price. Larcker Aff. ¶¶ 17-26

(describing methodology and results behind event study).17 As Professor Larcker

explains, the event analysis indicates that Tesla stockholders did not experience an

unusual stock-price increase when the Opinion was released, and that lack of benefit

to Tesla stockholders suggests market concern for the disincentivizing effects of

rescission on Mr. Musk. Id. ¶¶ 33-34, 39.

Case law confirms that the lack of stock price movement after a court’s ruling

indicates that the ruling did not confer a “benefit” sufficient to support a fee award.

For instance, in Louisiana State Employee Retirement System v. Citrix, 2001 WL

1131364 (Del. Ch. Sept. 19, 2001), Chancellor Chandler concluded that the lack of

any such movement after withdrawal of a proposal to allocate additional equity

options to an employee-compensation plan indicated that there was “no clear net

economic benefit or harm” from withdrawal of the plan. Id. at *8. In that case,

similar to here, the plaintiffs successfully challenged and forced withdrawal of a

proposal to increase the shares available through an employee-compensation plan.

17 Professor Larcker’s analysis, which addresses the relevant facts, stands in stark
contrast to the expert reports of Plaintiff’s experts. Although each of Plaintiff’s
economic experts is qualified to conduct such an event study (and has done so in the
past), none of Plaintiff’s experts chose to conduct one here, and none of them
explains or even mentions the way that the market received the rescission order.

23
Id. at *1-3. The plaintiffs then sought a fee award based on expert analysis valuing

the “dilutive costs” of the additional proposed shares at $183 million. Id. at *3. In

rejecting that theory, Chancellor Chandler relied on a professor’s event study

demonstrating that the market neither “reacted negatively to any disclosure of

information” related to the compensation proposal nor “reacted positively to any

disclosure concerning the withdrawal of” that proposal. Id. at *8.

The argument that any benefit arose is even weaker here than it was in Citrix.

There, the market reaction was neutral. Here, by contrast, to the extent that analyst

reports detailing market reaction in the month following the Opinion discussed the

Opinion at all, they largely concluded that the rescission negatively affected Tesla’s

value. Analysts highlighted the uncertainty created by the rescission due to its likely

effects on Mr. Musk’s incentives going forward, described a “tornado situation,”18

urged Tesla’s Board to “use this as an opportunity to lock Musk into the Tesla

story,”19 and noted that rescission “will create a negative overhang on the stock until

18 Wedbush Securities, In a Shocker Delaware Judge Voids Musk Comp Package;

Next Move in Board’s Hands (Jan. 31, 2024) (Rickey Aff., Ex. A). “Rickey Aff.”
refers to the Transmittal Affidavit of Anthony A. Rickey in Support of Amy Steffens’s
Objection to Plaintiff’s Motion for Award of Attorneys’ Fees and Expenses, which
accompanies this brief.
19 Id.

24
additional clarity is given” and that shares were “expect[ed]” to “trade down on this

news.”20

Second, Plaintiff’s $51 billion estimate of the benefit is premised on the

counterfactual assertion that the rescission award enabled Tesla to sell more than

300 million new shares into the market at the prevailing trading price on the day of

the Order. Pl. Br. at 15-16. Specifically, Plaintiff’s expert Taylor implausibly

speculates that Tesla “could have sold the 303,960,630 shares to the market at a price

that is greater than or equal to $191.59.” Dkt. 296, Taylor Aff. ¶ 15 (emphasis

added).

That argument has several manifest failings. To start, Taylor’s analysis is

based on a false premise: that rescission somehow enabled Tesla to issue and sell

shares that it otherwise could not have issued or sold. In fact, Tesla could have

issued an additional 300 million shares and offered them for sale (at whatever price

the market could bear) at any time. At all relevant times between the 2018 Grant

and the Opinion, Tesla possessed sufficient registered shares (on a split-adjusted

basis) to issue that number of shares.21 Rescission does not enhance Tesla’s ability

20 Lisa Kailai Han, Fred Imbert, All the market-moving chatter from Wall Street
Wednesday morning, CNBC, at 7 (Jan. 31, 2024) (Rickey Aff., Ex. B).
21 See 2023 10-K at 49 (6 billion shares authorized; 3.185 billion and 3.164 billion
shares issued and outstanding as of December 31, 2023, and 2022, respectively);
Tesla 2020 10-K at 54 (6 billion split-adjusted shares authorized, 2.88 billion and
2.718 billion issued as of December 31, 2020, and December 31, 2019).

25
to do so; indeed, it is entirely irrelevant. As Professor Larcker explains, “Tesla could

at any time have issued this volume of stock in the open market to raise capital and

can in the future do so regardless of the Court’s opinion.” Larcker Aff. ¶ 41.

Equally fundamentally, a stock offering does not as a matter of corporate

finance increase the value of a company. As noted, “an increase or decrease in the

number of shares outstanding does not” in itself “alter the value of Tesla as a

corporation.” Id. ¶ 43. Given the lack of evidence that stock-offering proceeds

would have enabled “Tesla . . . to pursue business opportunities it could not

otherwise have pursued because of a liquidity constraint,” there is nothing to suggest

any “benefit [to] the corporation’s expected future cash flows” or Tesla’s corporate

value. Id.

Further, even assuming that Professor Taylor’s basic premise were correct,

his approach is fanciful in other ways. He does not consider how the sale of hundreds

of millions of newly liquid Tesla shares would affect existing demand for Tesla

shares and drive down the stock price. As Professor Larcker explains, any rigorous

consideration of whether Tesla could reasonably sell 300 million new shares into the

market would require (1) sophisticated analysis by an investment bank experienced

in multi-billion-dollar issuances; (2) an understanding of the then-existing market

for Tesla stock; and (3) assessment of existing academic research finding that equity

issuances have a statistically significant negative effect on the current market price

26
of a company’s shares. See id. ¶¶ 44-48. Taylor’s report acknowledges that the total

Tesla trading volume on January 30 (and most days in January 2024) was close to

100 million shares, but offers no conclusions regarding the effect that selling several

times that number of never-before-traded shares would have on overall market price.

Dkt. 296, Taylor Aff. ¶¶ 14-15.

Indeed, in analyzing prior fee awards, Delaware courts have explained that

any such “massive sell off” would have “depressed [the Company’s] stock price,”

creating “practical and real limitations on [plaintiffs’ firms’] theoretical benefit

analysis” that “rob that analysis of any force.” State of Wisconsin Inv. Bd. v. Bartlett,

2002 WL 568417, at *4-5 (Del. Ch. Apr. 9, 2002), aff’d, 808 A.2d 1205 (Del. 2002).

The Court should reject that purported support for the $51 billion benefit number as

“a mathematical construct that springs from the fertile and creative imagination of

those who would lay claim to a part of” a “benefit” created by someone else, and

then “expect someone else to pay it.” Id. at *4.

B. The Requested Fee Would Constitute an Impermissible

Windfall.

This Court also should reject the requested fee as an inequitable windfall.

Delaware law does not condone windfall awards that vastly exceed an amount that

is necessary to “provide[] the proper incentives” for attorneys to bring suits like this

one. Franklin Balance Sheet Inv. Fund v. Crowley, 2007 WL 2495018, at *12 (Del.

Ch. Aug. 30, 2007). But that is exactly what Plaintiff requests.

27
 Fee awards must compensate a plaintiff’s counsel for opportunity costs (their

hourly rate), account for the risks associated with litigation, and pay counsel a

premium to incentivize bringing meritorious litigation. See Franklin, 2007 WL

2495018, at *12. But a fee “can reach a point where it no longer operates as an

incentive, and rather morphs into a ‘socially unwholesome windfall.’” Id. (citation

omitted); see Seinfeld v. Coker, 847 A.2d 330, 334 (Del. Ch. 2000) (stating that “if

a fee of $500,000 produces” the proper “incentives” to bring the litigation “in a

particular case, awarding $1 million is a windfall, serving no other purpose than to

siphon money away from stockholders and into the hands of their agents”).

Accordingly, to set an appropriate fee, a court must “estimate the point at which

proper incentives are produced in a particular case” without harming the

stockholders that a plaintiff purports to represent. Seinfeld, 847 A.2d at 334. That

may mean rejecting a requested fee that seeks a “percentage of the benefit” produced

by the litigation. Howley, 2023 WL 4345406, at *4 (citing Seinfeld, 847 A.2d at

337).

Plaintiff never addresses Delaware’s policy against excessive fees or mentions

the word “windfall.” But a windfall is plainly what Plaintiff requests: if a fee

exceeding $288,000 per hour for every timekeeper is not a windfall, the word has no

meaning. Plaintiff’s counsel concede that they want this Court to give them 400

28
times the value of their investment in this case.22 That far exceeds the amount

necessary to produce an incentive to litigate and simply “siphon[s] money away from

stockholders” like Ms. Steffens. Seinfeld, 847 A.2d at 334.

Empirical evidence confirms that Plaintiff’s counsel routinely commit far

greater resources to complex cases despite anticipating and receiving far lower fee

awards, based on lodestar multipliers less than one-hundredth of Plaintiff’s request

here. The attached expert affidavit of Adam C. Pritchard, professor at the University

of Michigan Law School (“Pritchard Aff.”), compiles results from a study of

publicly available fee awards in securities class actions pursued by Bernstein

Litowitz Berger & Grossman (“BLBG”) between 2005 and 2018. After examining

the 104 cases in which BLBG served as lead counsel (alone or as part of a lead

counsel group), he concludes that (a) the average federal securities class action

required an average of 37,808 hours (nearly double the hours committed here);

(b) the average lodestar for the lead counsel team was approximately $16.7 million;

(c) the average fee award was approximately $20.2 million; and (d) the average

lodestar multiplier was 1.45. Pritchard Aff. ¶ 10. Considering only the 48 cases

with reported hours exceeding 19,500 (approximately the hours reported in this

lawsuit), the average multiplier was 1.33. Id. ¶ 11.

22 Plaintiff’s counsel’s lodestar is $13,624,462.75, and their calculated lodestar

multiple is 413.55x. Pl. Br. at 38-39 & n.127.

29
 To provide additional robust comparators, Professor Pritchard examined the

cases in which BLBG participated as lead counsel with (a) the ten largest recoveries;

(b) the ten largest lodestars; and (c) the ten largest lodestar multipliers. Pritchard

Aff. ¶ 12. The average lodestar multiplier for each set was 1.65, 0.93, and 3.00,

respectively. Id. ¶¶ 13-14. In no case did the lodestar multiplier exceed 3.45. Id. at

Tables 1, 2, and 3.

To provide further perspective, Professor Pritchard also considered the ten

largest securities settlements that did not include BLBG as counsel. The results were

similar: the average lodestar multiplier was 1.88, and the lodestar multiplier did not

exceed 3.70 in any case. Id. ¶ 16 & Table 4.

Considering Professor Pritchard’s analysis, any award outside the “Non-

Windfall Range” of approximately $20 million to $47 million—which reflects a

range from BLBG’s historical average lodestar multiplier of 1.45 to its highest

lodestar multiplier of 3.45—would constitute a windfall. See Pritchard Aff. ¶ 6.

Awards above that range go beyond the amount required to create incentives to

litigate similar cases.

To be sure, this Court recently concluded that Delaware cases are “different”

than federal securities litigation. Dell, 300 A.3d at 715 (appeal pending). But they

cannot be over one hundred times riskier or more challenging than similar litigation

that BLBG willingly pursues in other courts for a fraction of the cost. Even in Dell,

30
which created a recent highwater mark for fee awards in major Delaware litigation

(and is distinguishable for the reasons discussed above), the fee award approved by

the court represented approximately a 7x multiplier to lodestar and an implied hourly

rate of approximately $5,000 per hour. See Dell, 300 A.3d at 726. The 413.5x

multiplier of lodestar that Plaintiff requests here, see supra n.22, is approximately

60 times the lodestar multiple requested in Dell.

Plaintiff’s request for a windfall underscores the fundamental unfairness and

unreasonableness of his proposed fee. Plaintiff supposedly pursued this litigation to

vindicate his belief that Mr. Musk and the Individual Defendants breached their

fiduciary duties by granting Mr. Musk too much pay—even though that exceptional

pay was conditioned on exceptional performance, which Mr. Musk delivered. Op.

at 81-82. Yet when Plaintiff acts as a fiduciary for the same stockholders, he offers

no protest when his counsel seek over $288,000 in compensation per hour in a case

reviewed under the plaintiff-friendly entire fairness standard. There is no evidence

that Plaintiff ever attempted to restrain his counsel, or in any way set limits on their

fees, as Tesla doubled, and doubled, and doubled again in value, making an eventual

fee based on a percentage of that appreciation in value increasingly unreasonable.23

23 Plaintiff’s reaction to the June 13 ratification vote is also telling. Faithful

stockholder fiduciaries should welcome fully informed stockholder votes allowing
a corporation’s owners to express their preferences—and be willing to see those
preferences be honored. Instead, Plaintiff rushed to Court seeking to sequester

31
 Given his limited holdings in Tesla, Plaintiff will not bear the cost of his fee

request. It will be stockholders such as Ms. Steffens—who have substantial

stockholdings in Tesla, who voted for the 2018 Grant, and who would vote for it

again in the belief that the incentive effects created by these grants benefit all

stockholders—who will be materially harmed. If Plaintiff’s fee request is granted,

the shareholdings of Ms. Steffens and all other stockholders will be reduced by

nearly 1% in value—against the wishes of the vast majority of Tesla stockholders

who approved the 2018 Grant. Op. at 88. For example, Ms. Steffens’s holdings

would be diluted by approximately $31,000 by Plaintiff’s proposed fee. Larcker

Aff. ¶ 40. There must be a limit to the economic injury that can be inflicted on

stockholders for a company’s failure to follow the procedural requirements of

Delaware corporate law, and Plaintiff’s unreasonable fee request goes well past that

limit.

III. TO THE EXTENT THIS COURT WERE TO AWARD FEES, THEY

MUST BE CALCULATED IN A VERY DIFFERENT MANNER THAN
PLAINTIFF PROPOSES.

Plaintiff has the burden to justify his requested fee award yet has failed to do

so for all of the reasons set forth above. To the extent that the Court awards fees

different than those that Plaintiff has requested, those fees must be calculated in a

Tesla’s shares and prevent a fully informed stockholder vote from being given
effect. See Dkt. 309.

32
very different manner than Plaintiff has proposed. The best approach to fees here

would be to apply quantum meruit principles, which are used where—as here—the

value of the benefit conferred by the litigation is not ascertainable. Another, less apt

alternative would be to start with the value of the 2018 Grant as of the grant date and

adjust that value downward to account for the negative incentive effects of rescission

and the likelihood that Tesla will reinstate the 2018 Grant or provide Mr. Musk with

replacement compensation. Those downward adjustments would require a

significant amount of conjecture, confirming that quantum meruit is the more

analytically sound approach to calculating any fee award.

A. Quantum Meruit is the Best Measure of Fees in This Case.

Neither Tesla the corporation nor Tesla’s stockholders receive a net economic

benefit from rescission. The only non-speculative benefit is the therapeutic value

from rescission itself—and because the value of that benefit is not ascertainable,

calculation of fees under quantum meruit principles is appropriate.

1. Rescission Has Only A Non-Quantifiable Therapeutic

Value.

a. Tesla as a corporate entity. Even assuming that the 2018 Grant is not

reinstated after the June 13 stockholder vote, the benefit from the rescission to Tesla,

the corporate entity, is zero or negative as an economic matter.

Professor Larcker explains why, at best, the economic impact on Tesla is zero.

As he states, rescinding Mr. Musk’s 2018 compensation package will, to a first order

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of approximation, have no effect on Tesla’s enterprise value, which is defined as the

discounted expected value of future earnings streams. Larcker Aff. ¶¶ 30-31. The

return of Mr. Musk’s options has no impact on Tesla’s cash flow or operations;

Tesla’s economic performance will be neither enhanced nor diminished by the

number of outstanding shares. Id. ¶ 30. The effect of rescission is to remove Mr.

Musk’s yet-to-be exercised shares, thereby diminishing the number of shares

outstanding. Id. ¶ 32. But that would not affect Tesla’s market capitalization. As a

result rescission would, at most, affect Tesla’s share price (because Tesla’s overall

value would be spread across fewer shares, although that anti-dilution effect would

be offset by other factors such as incentive effects). Id. But the quantifiable financial

impact on Tesla’s enterprise value would be zero. Id.

Professor Larcker also concludes that the overall economic effect of the

litigation on Tesla the corporate entity is likely to be negative. Larcker Aff. ¶ 33.

First, rescission has a strong disincentivizing effect on Mr. Musk and others at Tesla

that harms the value of the company. As the 2024 Proxy states, Mr. Musk has “made

clear that his ownership interest in Tesla is … very meaningful to him,” that “the

2018 compensation plan had been motivating,” and that “ratification of it would

motivate him to continue devoting his time and energy to Tesla.” 2024 Proxy at E-

23.

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 The same is true for other Tesla employees whose work is critical to Tesla’s

success. Tesla “continues to emphasize structuring compensation incentives to

reward [its] named executive officers based on performance.” 2024 Proxy at 16. It

does so based on the “belie[f] that compensation for the individuals who are

responsible for Tesla’s strategic direction and operations should motivate them to

achieve sustainable stockholder value and/or tangible milestones rather than to

simply remain at Tesla or maintain the status quo.” Id. at 123. If employees view

their incentives as voidable at some later date through rescission, the positive

benefits of incentive-based compensation at Tesla will be diluted. Larcker Aff. ¶ 34.

Second, the costs relating to the litigation are harmful to Tesla and make the

net economic impact of this litigation a negative one. Of course, Tesla had to pay

for attorneys’ fees and other litigation costs in this matter and the independent

director litigation. Tesla also had to expend substantial resources on the special-

committee process preceding the upcoming stockholder vote. That committee

retained multiple advisors, including Sidley Austin, Abrams & Bayliss, Anthony

Casey, and Houlihan Lokey. 2024 Proxy at 19. The Special Committee met over

16 times and spent more than 200 hours working on this matter. Id. at 20. The

Committees’ advisors also expended very substantial resources. For example,

Sidley Austin’s two lead attorneys each spent over 600 hours on this matter, and

they were aided by 40 additional lawyers. Id. at E-6. Such a thorough process comes

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at great expense. Finally, the tax implications of reinstatement or replacement

compensation, if either of those things occurs, also could be negative.

Given those circumstances, the only possible benefit from this litigation to

Tesla as a corporate entity is therapeutic. See Larcker Aff. ¶¶ 52-53 (discussing

therapeutic benefit). The Opinion clarified additional disclosure and process

requirements for the stockholder vote and special committee process, and Tesla will

presumably govern itself in accordance with those requirements in the future. But

there is no obvious monetary value associated with those improved procedures, and

Plaintiff makes no attempt to provide any numerical valuation of the therapeutic

benefit (which, of course, was enforced here only at substantial cost).

b. Stockholders. Tesla’s stockholders (separately from Tesla the corporate

entity) have obtained that same unquantifiable therapeutic benefit of improved

procedures. But any other benefit to stockholders from rescission is highly

speculative, and quite likely zero or negative. That remains true regardless of

whether the 2018 Grant is reinstated or Mr. Musk receives replacement

compensation—but the possibility of those events reinforces the conclusion that no

positive benefit exists here.

As Professor Larcker notes, if the 2018 Grant is reinstated, that reinstatement

will entirely negate the reduction in stockholder dilution that results from the

Opinion. Larcker Aff. ¶ 52. Stockholders would be diluted in the same way that

36
they would have been if the litigation had never taken place. And even if the 2018

Grant is not reinstated, Tesla could still grant substitute compensation to Mr. Musk,

negating any purported value to stockholders from the rescission. There is a clear

prospect that Tesla will take action to avoid paying Mr. Musk nothing for his efforts

since 2018. The tax implications of replacement compensation could make the

economic impact of rescission sharply negative for Tesla’s stockholders. As Tesla’s

2024 Proxy concluded, “any replacement compensation plan would likely have to

be less than 10% of the size of the 2018 CEO Performance Award to avoid a new

accounting charge for compensation expense that is greater than the reversal of the

2018 charge.” 2024 Proxy at 87. Assuming that any replacement compensation has

a higher net present value than the 2018 Grant did at the time it was granted, the

harmful tax impact on the company could be significant.

Neither reinstatement of the 2018 Grant nor an award of replacement

compensation is necessary to the conclusion that rescission has no positive,

quantifiable value for Tesla stockholders, however. Even if neither of those things

happens, the conclusion remains true. That is because any benefit to stockholders

from rescission is likely entirely negated, or at least substantially reduced, by the

negative incentive effects flowing from rescission (as discussed above). Larcker

Aff. ¶¶ 33-34; see supra Section III.A.1. Indeed, there is substantial evidence that

stockholders themselves view rescission negatively because they understand that it

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will negatively affect incentives at Telsa going forward. After the Court issued its

post-trial opinion, “6,000 individuals claiming to be stockholders owning more than

23 million total shares—equivalent to the 11th largest institutional stockholder—

sent unsolicited letters and emails to the Board or to the Tornetta court supporting

the reinstatement of Mr. Musk’s equity compensation.” 2024 Proxy at 86. And

T. Rowe Price sent a letter to the board supporting the ratification vote and stating

that the Court’s order was a “negative surprise.” Id. at 86, E-21. Those

communications make clear that the majority of Tesla stockholders believe that the

2018 Grant created a surplus for them and that the rescission has cost them that

surplus.24

2. Because the Net Value of the Benefit is Not Readily

Ascertainable, the Court Should Award a Fee Based on
Quantum Meruit.

Because the value of the benefit created through this litigation is at best

speculative and non-ascertainable, quantum meruit is the best method for calculating

fees. Courts commonly award fees based on quantum meruit principles where there

24 Far from permitting the synergies that flow from equity-based compensation, the
Opinion comes close to imposing a “Zuckerberg” rule on Tesla—that is, requiring
Mr. Musk to “forgo[] compensation entirely” on the ground that he is a “visionar[y]
with large pre-existing equity holdings.” Op. at 177-78. But there is no reason to
think that such a rule would result in continued corporate growth akin to that seen
by Tesla since stockholders awarded the 2018 Grant to Mr. Musk. And after the
Opinion, any incentive-based compensation package awarded to Mr. Musk will
come with the price tag of predictable litigation by stockholders like Plaintiff.

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is no reliable basis to “quantify the benefit,” because in that circumstance the court

lacks “any yardstick against which to measure the reasonableness of the … fee

request, other than on a quantum meruit basis.” In re Diamond Shamrock Corp.,

1988 WL 94752, at *4 (Del. Ch. Sept. 14, 1988); see, e.g., In re First Interstate

Bancorp Consol. S’holder Litig., 756 A.2d 353, 358-59 (Del. Ch. 1999), aff’d sub

nom. First Interstate Bancorp v. Williamson, 755 A.2d 388 (Del. 2000). “A

percentage-based assessment” of benefit “may be particularly inapt for a projected

therapeutic benefit that is speculative or difficult to quantify.” Howley, 2023 WL

4345406, at *4. As a result, “[o]ftentimes, when this Court determines fee awards

in a therapeutic benefit case, it uses a quantum meruit analysis.” In re Golden State

Bancorp Inc. S’holders Litig., 2000 WL 62964, at *3 (Del. Ch. Jan. 7, 2000).

When relying on notions of quantum meruit, courts do not work to ascertain

the amount of a benefit and base a fee award on that amount. Rather, they analyze

“the work the attorneys performed to achieve the benefit” and “the amount and value

of attorney time required for that purpose, taking into account the experience of

counsel and the contingent nature of the case.” In re Diamond Shamrock Corp.,

1988 WL 94752, at *4 (Del. Ch. Sept. 14, 1988).

The fees decision in Louisiana State Employees’ Ret. Sys. v. Citrix Sys., Inc.,

2001 WL 1131364 (Del. Ch. Sept. 19, 2001), is illustrative. As discussed above, the

plaintiff in that case challenged a plan to increase the number of stock options

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available to all employees by about 10 million. Id. at *1. After the plaintiff filed

suit, Citrix withdrew the plan. See id. at *4. The plaintiff then made a “benefit”

argument similar to the one that Plaintiff makes here, asserting that withdrawal of

the option plan conferred on stockholders an anti-dilution benefit of approximately

$183 million. Id. at *6.

The court in Citrix rejected that argument, concluding that evaluating any

benefit was “at best an inexact science.” 2001 WL 1131364, at *8. The court

explained that the plaintiff failed to account for possible but difficult-to-value

benefits that were erased when the option plan was withdrawn, such as attracting,

retaining, and motivating employees. Id. at *7-8; see id. at *8 (attempt to arrive at

exact number was “like ill-conceived alchemy”). The court in Citrix therefore ruled

that “no good reason exists . . . to engage in complicated and highly speculative

intellectual exercises in attempting to quantify what is, in essence, the non-

quantifiable benefit achieved by this litigation.” Id. at *8.

Instead, the court followed a quantum meruit approach, which is “appropriate

. . . when an unquantifiable benefit is involved” and “gives the Court a more

equitable means of determining a reasonable fee.” 2001 WL 1131364, at *8 (quoting

In re Dunkin’ Donuts S’holders Litig., 1990 WL 189120, at *8 (Del. Ch. Nov, 27,

1990)). Applying that approach, the court awarded an amount that would

“adequately compensate[] plaintiff’s counsel for the contingent risk inherent in th[e]

40
litigation and for performing the work that created a non-quantifiable, yet clearly

intended and valued benefit.” Id. at *10; see Rovner v. Health-Chem Corp., 1998

WL 227908, at *5 (Del. Ch. Apr. 27, 1998) (employing quantum meruit approach

because value of retained options was speculative).

To the extent the Court awards a fee, the Court should take an approach

similar to that taken in Citrix. Given the highly speculative nature of the benefit

Plaintiff asserts and the difficulty of offsetting that incalculable benefit with the harm

arising from rescission, quantum meruit is the appropriate framework for evaluating

the fee motion. See Citrix, 2001 WL 1131364, at *9.

The quantum meruit approach would not bar the Court from awarding a

sizable fee amount. For example, that approach would permit the Court to add a

“multiplier for contingency.” Off. v. Ross, 2009 WL 4725978, at *7 (Del. Ch. Dec.

10, 2009). Thus, for example, applying the average (1.45) and maximum (3.45)

lodestar multipliers identified in Professor Pritchard’s data for Plaintiff’s lead firm

would result in a fee award within the Non-Windfall Range discussed above, which

is approximately $20 million at the low end and $47 million at the high end. See

Pritchard Aff. ¶ 4. That approach would avoid highly speculative evaluations of net

benefit that are based on faulty premises and that ignore the negative effects of

rescission on incentive-based compensation at Tesla, the countervailing benefits that

41
resulted from the 2018 Grant, and the probability that stockholders will reinstate the

award or the corporation will grant Mr. Musk substitute compensation.

B. In the Alternative, the Court Should Rely, at Most, on the

2018 Value of the Options, with Appropriate Reductions to
Account for the Potential that the 2018 Grant May Be
Reinstated and Incentive Effects.

If this Court rejects both Plaintiff’s approach and the quantum meruit

approach yet still wants to award attorneys’ fees in some amount on the view that

the litigation created some ascertainable economic value, there is one more possible

approach—albeit one that makes clear the difficulties in estimating a dollar value of

the purported benefit. The Court could use as the starting point the value of the

options as of the date of the 2018 Grant: $2.3 billion. Op. at 89. As discussed

above, it is legally impermissible to use instead the current value of the 2018 Grant,

because that value is attributable to various facts that have nothing to do with this

litigation.

If the Court were to follow that path, the next step would be to reduce the $2.3

billion grant-date valuation by offsetting costs that flow directly from the rescission.

First, the $2.3 billion figure would have to be reduced by the expected expense that

will come from Tesla reinstating the 2018 Grant or granting replacement

compensation, multiplied by the likelihood of Tesla doing so. There is already

ample evidence that stockholders continue to support the 2018 Grant, and the

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likelihood of reinstatement or of a grant of replacement compensation is reasonably

high. See supra Section III.A.1.

Second, the $2.3 billion figure would have to be reduced by the negative

impact that rescission will have on Tesla’s future performance. As discussed above,

Mr. Musk was motivated by the 2018 Grant, and he achieved major outcomes for

Tesla and its stockholders after it was approved. See supra Section III.A.1. The

motivation that came from the 2018 Grant is now gone by virtue of its rescission,

and the positive incentive effect for Mr. Musk and others at Tesla from future

incentive compensation is reduced. See id.

Finally, this Court should reduce the figure to account for the views of

stockholders who voted in favor of the 2018 Grant. Those stockholders made clear

through their votes that they saw the 2018 Grant as beneficial to Tesla. For them, as

for Ms. Steffens, Steffens Aff. ¶ 31, rescission is not a benefit at all; it is the erasure

of a bargain that they supported and still support.

That approach—which necessarily requires guesswork and speculative

assumptions—also leads to a range of possible outcomes that fall well below

Plaintiff’s requested fee. Reducing the $2.3 billion figure to account for the

likelihood of successful ratification of the 2018 Grant or replacement compensation

as well as the negative impact on future incentives for performance could easily lead

to a figure ranging from negative numbers to a small fraction of $2.3 billion. That

43
figure would then need to be reduced again to account for the fact that Mr. Tornetta

effectively represents only those stockholders who, unlike Ms. Steffens, did not vote

for the 2018 Grant and would not do so today.

It is hard to come up with a reasonable valuation of the benefit that justifies a

fee award greater than BLBG’s average $20 million fee award in cases in which

plaintiff’s attorneys expend even more hours, on average, than they did here. See

Pritchard Aff. ¶ 10. Even using Dell’s top-end ranges of 25-33% of the benefit and

a 7x lodestar multiple, the court would have to discern a benefit of approximately

$300-$400 million to support a fee award with a similar lodestar multiple here—an

award of approximately $95.4 million.25 And, of course, that figure based on the

Dell award—a case with a far clearer and easier-to-value benefit—is less than one

fiftieth the amount Plaintiff seeks in fees.

That range of potential awards and the guesswork required to arrive at them

indicates a high degree of uncertainty in the analysis. And that uncertainty confirms

that quantum meruit is a better fit for this case.

CONCLUSION

Plaintiff’s unreasonable fee request should be denied. In the alternative, the

Court should limit any fee award to reasonable fees calculated based on quantum

meruit principles.

25 Seven multiplied by Plaintiff’s lodestar of $13.624 million equals $95.37 million.

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Dated: June 5, 2024 Respectfully submitted,

MARGRAVE LAW LLC

OF COUNSEL: /s/ Anthony A. Rickey

Anthony A. Rickey (Bar No. 5056)
Donald B. Verrilli 3411 Silverside Road
Elaine J. Goldenberg Baynard Building, Suite 104
MUNGER, TOLLES & OLSON LLP Wilmington, Delaware 19810
601 Massachusetts Ave. Ste. 500E Phone: (302) 604-5190
Washington DC 20001-5369
Phone: (202) 220-1100 Words: 10,767
Word Limit: 14,000
Achyut J. Phadke
MUNGER, TOLLES & OLSON LLP Counsel for Objector Amy Steffens
560 Mission Street
San Francisco CA 94105-3089
Phone: (415) 512-4000

Joseph A. Grundfest
STANFORD LAW SCHOOL
559 Nathan Abbott Way
Stanford CA 94305
Phone: (650) 723-0458

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