Twitter wants a Delaware court to order Elon Musk to buy the social media service for $44 billion (about Rs 360,000 crore), as promised in April. But what if a judge makes that decision and Musk goes bald?
The Tesla billionaire’s reputation for defying government announcements has led some to worry that he may flout an adverse ruling from the Delaware Court of Chancery, known for dealing with high-profile business disputes.
Musk hopes to win the case that goes up for trial in October. He is to be deposed by Twitter’s lawyers from Thursday.
But the consequences of him losing badly — either by an order of “distinguishing performance” that forces him to complete the deal, or walking away from Twitter, but still paying a billion dollars for breach of contract or Has coughed more than that – has raised concerns about how the Delaware court will implement its final decision.
“The problem with specific performance, especially with Elon Musk, is that it is unclear whether a court order will be followed,” said retired Delaware Supreme Court Justice Carolyn Berger. Told CNBC in July “and the courts in Delaware — all courts — are very concerned about issuing a judgment or issuing an order that is then ignored, which is violated.”
Berger, who was also chancellor court chancellor in the 1980s and 1990s, stood by those concerns in an interview with the Associated Press, but said he doubted the Delaware institution would go so far as to complete the deal. .
“The court can impose a ban and the court can force Musk to take over the company,” she said. “But why would the court do this when money is really at stake?”
Berger said she expected Twitter to prevail, but said a less turbulent measure for the company and its shareholders would pay Musk monetary damages. “The court doesn’t want to be in a position to step in and essentially run this company,” she said.
Musk and his lawyers did not respond to requests for comment.
Other legal observers say it is nearly impossible to imagine such defiance even from a famous belligerent personality like Musk. He admitted that in August he may be losing ground in explaining why he suddenly sold shares of Tesla worth around $7 billion (about Rs 57,300 crore).
Ann Lipton, associate law professor at Tulane University, said, “I take him at his word. He wants to win. Maybe he’s got his verdict on what the odds are. But he’s also pragmatic about it. Is preparing some cash, so he won’t have to dump his Tesla shares if he finds out he’s been ordered to buy the company.
A decision of conspicuous performance could compel Musk to pay off his personal stake of $33.5 billion (about Rs 2,74,000 crore) in the deal; The price rose to $44 billion with promised funding from backers such as Morgan Stanley.
The Delaware court has powers to enforce its orders, and can appoint a receivership to seize some of Musk’s assets, namely Tesla stock, if he does not comply, according to Tom Lynn, a law professor at Temple University. Is.
The court has taken similar steps in the past, such as in 2013 when it held Chinese company ZTS Digital Networks in contempt and appointed a receiver to confiscate its assets. But after the forcible ban didn’t work, the receiver asked the court to issue a bench warrant five years later, seeking the arrest of the two senior officers the next time they went to the US.
Berger said it was unrealistic to speculate that Musk could be threatened with prison for failing to comply with a verdict. “At least, not for the Court of Chancery,” said the former judge. “That’s not the way the court works.”
But more importantly, Lin said Musk’s legal advisers would urge him to comply with court decisions that routinely take cases involving Tesla and other firms involved in the state of Delaware.
“If you are an executive in a major US corporation incorporated in Delaware, it is very difficult for you to do business and disobey Chancery Court orders,” Lin said.
Concerns about Musk’s compliance stem from his past dealings with various organs of government. In a long-running dispute with the US Securities and Exchange Commission, he was accused of defying a securities fraud agreement that required that his tweets be approved by Tesla’s attorney before being published. He publicly feuded with California officials over whether Tesla’s electric car factory should remain closed during the early stages of the COVID-19 pandemic.
He has also taken a combative approach in Delaware Chancery Court, calling an opposing lawyer a “bad guy” while defending Tesla’s 2016 acquisition of SolarCity against a lawsuit Musk called a conflict of interest and one with broken promises. blamed for the deal. He and his lawyers have other Delaware cases still pending, including one related to his compensation package at Tesla.
“I think we have a lot of players who, like Elon Musk loose as a cannon, rely on the goodwill of the Delaware courts on an ongoing basis for their businesses,” Lipton said.
Musk’s argument for winning his latest Delaware case rests largely on his allegation that Twitter misrepresented how it measures the magnitude of “spam bot” accounts that are useless to advertisers. But most legal experts agree that he faces an uphill battle in convincing Chancellor Kathleen St. Court Chief Justice Judd McCormick, who is presiding over the case, said something had changed since the April merger agreement that justified ending the deal.
The trial begins October 17 and whichever side loses can appeal to the Delaware Supreme Court, which is expected to act expeditiously. Lawyers said Musk and Twitter could also settle the matter before, during or after the trial.
Delaware courts are well respected in the business world and any move to violate them would be “shocking and unexpected,” said Paul Regan, associate professor at Widener University’s Delaware Law School, who has practiced in Delaware courts since the 1980s. has done. “If there was a crisis like this, I think the loss of reputation would be on Musk, not on the court.”