Warning of a "shaking of public confidence," a Tesla Inc. attorney on Wednesday asked Delaware's Supreme Court to cut a $176.2 million class attorney fee award to $40 million in a case that saw Delaware's chancellor cancel $730 million in the electric car company's director stock options.

Morgan L. Ratner of Sullivan & Cromwell LLP told the five justices that the fee award is "a windfall any way you slice it," falling just short of the highest fee-multiplier-based amount ever awarded by a Delaware court in a derivative case.

The court "needs to explain why that kind of extraordinary result is fitting," Ratner argued.

At issue is Chancellor Kathaleen St. J. McCormick's decision in January granting the fee to McCarter & English LLP, Fields Kupka & Shukurov LLP and Bleichmar Fonti & Auld LLP after more than four years of litigation over claims that Tesla's directors raked in "outrageous" compensation packages that cost the company hundreds of millions of dollars.

Tesla's attorneys argued that the Chancery decision relied on an 11.6-times multiplier of class attorneys' "lodestar" fees, producing a rate of $8,200 per hour. That compared with a $5,000 hourly fee and seven-times multiple awarded in a $1 billion cash settlement in a Dell Technologies Inc. case focused on claims targeting Dell's effort to exchange Class V stock for shares of Dell common stock. That case was decided in the Court of Chancery in 2023 and affirmed last year.

"This is not just a matter of an abuse of discretion, choosing one number or the other," Ratner said. "I think the court got it legally wrong" in settling on an 11.6-times fee multiplier.

But Andrew S. Dupre of Akerman LLP, counsel for lead plaintiff Police and Fire Retirement System of the City of Detroit, said Tesla incorrectly argued for a grant date fair value rather than the $458 million based on the time of settlement.

"I believe everyone agrees we have real current market value of breaching fiduciaries," Dupre told the justices. "Our argument is it's not an abuse of discretion to use real, current, market-day values as recorded in the stipulation."

Justice Karen L. Valihura asked Dupre what the justices should do with public policy concerns focused on past fee award litigation.

"Tesla makes the interesting observation in their brief that your fee is $60 million over and above the entire budget for the entire judiciary in the state of Delaware, for a case that settled," Justice Valihura said. "At some point, do we have to be concerned about the public perception of the size of the fee as a matter of acceptable corporate governance and our oversight?"

Dupre argued that Tesla's multiplied hourly rate of $8,200 fell between the $5,300 paid in the Dell litigation and $9,700 paid for class attorneys who handled the Activision Blizzard Inc. case, which settled last year.

Justice Abigail M. Legrow said, "It may be there is value in these returned options, from Tesla's perspective, but why is that value based on the strike price, or the value to directors, as opposed to some other value to Tesla that isn't in the record?"

"I think all the values are in the record," Dupre said. "We agreed on the real, current, present day value of the options. What Tesla is saying is, 'That's fine for settlement approval. We need a different number for fee approval — we need to disconnect those two things.'"

Chief Justice Collins J. Seitz Jr. told Ratner, "In the case law that we have about these kinds of benefits, we said they're hard to quantify, therefore we typically don't try to quantify that benefit, but there the benefit arguably was quantified."

The high court is being asked to make a decision about "where to draw the dividing line between benefits to stockholders and benefits to the corporation," Justice Seitz said, but "I must tell you, I am struggling with it."

Ratner said the trial court needed to recognize that the $8,200-per-hour rate used for the fee calculation "is extraordinary, and needs to explain why that kind of extraordinary result" fits case law.

"This is an extraordinary fee award for what is really an ordinary amount of litigation," Ratner said.

The Detroit retirement system is represented by Andrew S. Dupre of Akerman LLP, Derrick Farrell, Javier Bleichmar, Joseph A. Fonti, Nancy A. Kulesa, George N. Bauer and Thayne Stoddard of Bleichmar Fonti & Auld LLP and William J. Fields, Christopher J. Kupka and Samir Shukurov of Fields Kupka & Shukurov LLP.

Elon Musk and the other Tesla parties are represented by Raymond J. DiCamillo, Kevin M. Gallagher and Kyle H. Lachmund of Richard Layton & Finger PA and Vanessa A. Lavely of Cravath Swaine & Moore LLP.

Tesla is represented by John L. Reed and Ronald N. Brown of DLA Piper, Jason C. Jowers, Brett M. McCartney and Sarah T. Andrade of Bayard PA and Brian T. Frawley, Matthew A. Schwartz, Jeffrey B. Wall and Morgan L. Ratner of Sullivan & Cromwell LLP.

The case is In re: Tesla Inc. Director Compensation Stockholder Litigation, consolidated, case numbers 52,2025 and 53,2025, in the Supreme Court of the State of Delaware. The lower court case is Police and Fire Retirement System of the City of Detroit v. Elon Musk et al., case number 2020-0477, in the Court of Chancery of the State of Delaware.