WILMINGTON, Del. (Legal Newsline) - One of the richest class action law firms in America wants to line its pockets with billions of dollars of Tesla stock as a reward for challenging Elon Musk's paycheck.
Bernstein Litowitz is among the firms in a Delaware state court asking for $5.6 billion in stock, which would reportedly be the largest fee award in a class action ever. It, Andrews & Springer of Wilmington and Friedman Oster & Tejtel represent Tesla in a derivative class action that questioned a compensation package for Musk that could have reached $55.8 billion if certain conditions were met.
On Jan. 30, Chancellor Kathaleen St. J. McCormick issued a 201-page ruling that sided with the law firms, finding the Tesla board's plan was against the best interests of the company.
"In the face of a Superstar CEO, it is even more imperative than usual for a company to employ robust protections for minority stockholders, such as staunchly independent directors," she wrote.
"In this case, Tesla’s fiduciaries were not staunchly independent—quite the opposite..."
Armed with this ruling, Bernstein Litowitz asked for the massive fee award on March 1. It noted it worked on a contingency fee basis for more than five years and produced a "massive" benefit to the company.
Bernstein Litowitz is one of the country's main shareholder class action firms, often scoring large institutional investors like public pension systems as clients and frequently being named lead counsel in cases over stock drops.
A 2023 study showed it averaged almost $100 million in fees per year from 2005-2018. It and the firm Robbins Geller took in 44% of total fees in that time in those cases.
The article, "The Business of Securities Class Action Lawyering," was written by professors Stephen Choi of New York University, Jessica Erickson of the University of Richmond and Adam Pritchard of the University of Michigan.
They studied almost 2,500 class actions involving more than 700 law firms filed between 2005 and 2018 to compile fee awards as well as the size of target companies and indications of how risky each case was.
The top 10% of settlements averaged $288 million with an average fee of $42 million, or 15%. The next decile averaged only $47 million with fees averaging $11 million or 23%. Overall fee awards ranged between 28% and 15%, but the lodestar multiplier rose steadily from 0.73 at the bottom to 1.98 at top.
“Although judges award a lower percentage of the settlement amount in the cases with the largest settlements, these fee awards still compensate the plaintiffs’ firms more for their time than the awards for smaller settlements,” the author's concluded.
Bernstein Litowitz is no stranger to political contributions to officials who could hire the firm to represent public funds in shareholder litigation. Last year, it gave Mississippi Attorney General Lynn Fitch $31,000 for her re-election campaign, four years after donating to her as she battled an opponent who had promised he would stop the practice of private lawyers handling state issues on contingency fees.
The firm settled a lawsuit brought in 2014 that alleged a kickback scheme in that state.
Lawyer Bruce Bernstein alleged the firm, in the course of helping then-Mississippi Attorney General Jim Hood’s office represent a public employees retirement fund, gave unnecessary work to an attorney who was the wife of a member of Hood’s staff that resulted in that wife being paid more than $100,000.
Bernstein Litowitz had used the woman, Vaterria Martin, as local counsel in the case, filed against Satyam Computer Services.
The case was settled in principle in 2010 for $125 million. After the settlement, Bernstein Litowitz partner Max Berger assigned an unnecessary legal research project to Martin, Bruce Bernstein said.
Bruce Bernstein said he objected to the project. Eventually, Martin produced an 18-page memorandum and billed for 207 hours of work.
Bruce Bernstein said the memo drafted by Martin addressed the wrong pleading, contained no meaningful analysis and was “ridiculous.”
Martin was paid $112,500 from the funds received in the Satyam settlement. In a 2011 fee petition to the court, the firm did not disclose that payment.
As it turned out, Martin was married to DeShun Martin, then an assistant attorney general for Mississippi. When he had protested the unnecessary project given to Martin’s wife, Bruce Bernstein says he was told by a fellow partner, “Do you ever want us to work with Mississippi again?”