WILMINGTON, Delaware, July 8 (Reuters) - Tesla

shareholders will appear in court on Monday to argue that an

unprecedented request for more than $7 billion in attorneys'

fees to be paid by the company is "outlandish," the latest twist

in a legal showdown over Musk's $56 billion pay package.

The record fee request was made by investor Richard Tornetta

on behalf of three law firms that represented him, including

Bernstein Litowitz Berger & Grossmann. Tornetta owned nine

shares of Tesla when he sued over Musk's pay package of stock

options in 2018, a legal battle he ultimately won in January

when the package was voided.

The fee equals around $7.2 billion at Tesla's Friday's stock

price and amounts to a rate of roughly $370,000 for every hour

worked by the 37 lawyers, associates and paralegals, some of

whom normally bill as little as $275 an hour, according to court

documents submitted Tornetta's lawyers.

"The legal fees appear exceedingly disproportionate and

outlandish," Nathan Chiu, a Tesla shareholder from New Jersey,

wrote to Chancellor Kathaleen McCormick in March, according to a

court filing.

Chiu, the California Public Employees' Retirement System and

more than 8,000 Tesla stockholders have flooded the Delaware

Chancery Court with some 1,500 letters and objections over the

fee, according to court documents.

A hearing scheduled for Monday was moved from McCormick's

usual courtroom to the largest in the building to accommodate

the 47 attorneys from 19 law firms appearing in the case, as

well potential stockholders.

Tornetta's lawyers argue they deserve the fee as a cut of

the benefit they say they conveyed to Tesla when a judge voided

Musk's pay package, which returned to Tesla around 266 million

shares reserved for the stock options. That stock would be worth

about $67 billion at Friday's price of $251.82 per share.

Tornetta's attorneys said it is the largest judgment ever

awarded by an American court, excluding punitive damages. They

argued they should receive a fee equal to 11% of that judgment,

a percentage that is arguably conservative by Delaware legal

precedent. They asked to be paid in the form of 29 million Tesla

shares.

RECORD FEE REQUEST

While federal courts tend to lower the fee as a percentage

of judgments or settlements as they get bigger, Delaware courts

have gone the opposite way, awarding a larger percentage as an

incentive for attorneys to push for a bigger recovery.

Tornetta's legal team said they would have been justified

asking for up to 33% of the value of Musk's pay package.

The fee request vastly outstrips the current record fee in

shareholder litigation of $688 million in an Enron class action,

according to Stanford Law School.

The Musk case took a dramatic turn when Tesla shareholders

in June voted to ratify Musk's pay, which Tesla has argued

corrected the flaws in the 2018 process that McCormick

identified in her ruling.

The company argues that Musk's pay package has been restored

and that Tornetta's legal victory has been transformed into a

loss. As a result, the case conveyed no benefit to Tesla and the

shareholder lawyers should receive as little as $13.6 million,

Tesla said.

Some of the shareholders who have opposed the request wrote

form letters to the judge, but a few have hired attorneys to

file formal objections to the fee, including Amy Steffens, a

pilot, and Kurt Panouses, an attorney who specializes in

representing lottery winners.

McCormick may take weeks or months to rule. The Delaware

Supreme Court is currently considering a $267 million fee

request in a shareholder class action involving Dell

Technologies ( DELL ) and that decision could provide fee guidance.