Two major corporate law battles are unfolding this week in Delaware’s Chancery and Supreme Courts, featuring Tesla, Inc. and Masimo Corporation. Both cases delve into critical questions of corporate governance, attorney ethics, and fiduciary duty — subjects that have long defined Delaware’s influential corporate law landscape.
Tesla Challenges $176 Million Attorney Fee Award
On October 29, Tesla’s legal team is set to argue before the Delaware Supreme Court in an appeal seeking to overturn a $176 million legal fee award that was granted to shareholder attorneys who successfully challenged excessive compensation packages granted to members of Tesla’s board of directors.
The underlying dispute — In re Tesla, Inc. Director Compensation Shareholder Litigation — centers on claims that Tesla’s board unfairly enriched itself through oversized stock option grants between 2017 and 2020. The directors named in the lawsuit included well-known figures such as Larry Ellison, founder of Oracle Corporation; Kimbal Musk, Elon Musk’s brother; and James Murdoch, son of media mogul Rupert Murdoch.
In 2023, the Delaware Court of Chancery approved a settlement under which the directors agreed to return stock and option awards valued at approximately $735 million and to forgo about $184 million in future compensation. The shareholder attorneys — from McCarter & English LLP, Fields Kupka & Shukurov LLP, and Bleichmar Fonti & Auld LLP — sought fees amounting to $176 million, arguing that the settlement had generated substantial benefits for Tesla and its shareholders.
Chancellor Kathaleen McCormick agreed, concluding that the attorneys had delivered an “exceptional result” in one of the most complex corporate-governance cases in recent years. The court based the award on a percentage of the recovery value, applying traditional benefit-based metrics used in shareholder litigation.
However, Tesla and its board are now challenging both the amount and the methodology used to calculate that award. In its March 2025 appellate brief, Tesla argued that the Chancery Court “grossly overstated” the monetary value of the returned options and misapplied the percentage-of-benefit approach. The company contends that when adjusted for the true market value of the canceled equity, the actual benefit to Tesla was closer to $70.9 million, not $735 million.
Tesla’s appeal also takes issue with the lodestar multiplier—the ratio courts use to adjust attorney-fee awards based on time spent versus value delivered. The automaker insists that the lodestar method would have yielded a dramatically lower fee and better reflected the limited practical benefit shareholders received.
Why the Outcome Matters
The Tesla appeal could significantly reshape how Delaware courts calculate attorney fees in corporate-governance cases. A decision narrowing what qualifies as a “corporate benefit” could reduce future incentive awards for plaintiffs’ firms pursuing derivative suits. Conversely, affirming the fee could reinforce Delaware’s status as a venue that rewards attorneys who bring successful shareholder actions, even when the benefits are primarily governance-related rather than purely monetary.
Legal observers are watching closely, as the ruling could also impact ongoing litigation over Elon Musk’s $56 billion compensation package, which was voided earlier this year in a separate Delaware case. Both matters hinge on how courts define fairness and value in compensation-related governance disputes.
Masimo vs. Kiani: A Conflict-of-Interest Showdown
Meanwhile, another high-stakes dispute is set for hearing on October 30 in Masimo Corp. v. Kiani, also before the Delaware Court of Chancery. This case pits Masimo Corporation, a medical-technology company, against its ousted founder and former CEO, Joe Kiani, in a legal tug-of-war over representation and attorney conflicts of interest.
Masimo recently hired Quinn Emanuel Urquhart & Sullivan LLP to represent it in derivative litigation connected to a bitter proxy battle with activist investor Politan Capital Management LP. However, Kiani has moved to disqualify Quinn Emanuel from the case, arguing that the firm previously represented him personally in related disputes and that it therefore possesses confidential information that could prejudice him.
Kiani’s counsel contends that Quinn Emanuel’s prior involvement creates an “irreconcilable conflict of interest,” particularly because the firm may have gained access to sensitive strategic and financial data during its earlier representation. Masimo, for its part, insists that no conflict exists because the firm’s earlier work did not involve Kiani in his personal capacity but rather in his role as the company’s chief executive officer.
Broader Implications
The Masimo dispute highlights the increasingly complex ethical terrain surrounding corporate representation and the duties law firms owe to individual executives versus the entities they serve. Delaware’s Chancery Court, known for its rigorous standards of fiduciary conduct, will have to determine whether Quinn Emanuel can continue to act for Masimo or whether the potential for divided loyalties requires its removal.
The decision could influence how corporate counsel navigate client relationships—especially in scenarios where executives and boards become adversaries following leadership changes or activist interventions.
Delaware’s Central Role
Both the Tesla and Masimo cases underscore Delaware’s unparalleled influence in shaping U.S. corporate law. As the state where most major corporations are incorporated, Delaware’s Chancery and Supreme Courts routinely set precedents that guide governance practices nationwide.
The Tesla appeal probes how far Delaware will go in rewarding shareholder litigation designed to check executive compensation, while the Masimo case tests ethical boundaries for law firms representing rival corporate factions.
Together, these matters demonstrate Delaware’s continuing role as the nation’s corporate courtroom, where billion-dollar pay packages, boardroom ethics, and attorney-client conflicts all converge in decisions that reverberate across boardrooms and law firms alike.
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