Judge deals a blow to Musk
Billionaire sought to delay Twitter trial until 2023, but jurist sets date for October.
Elon Musk lost a fight to delay Twitter’s lawsuit against him as a Delaware judge on Tuesday set an October trial, citing the “cloud of uncertainty” over the social media company after the billionaire backed out of a deal to buy it.
“Delay threatens irreparable harm,” said Chancellor Kathaleen St. Jude McCormick, the head judge of Delaware’s Court of Chancery, which handles many high-profile business disputes. “The longer the delay, the greater the risk.”
Twitter had asked for an expedited trial in September, while Musk’s team called for waiting until early next year because of the complexity of the case. McCormick said Musk’s team underestimated the Delaware court’s ability to “quickly process complex litigation.”
Twitter is trying to force the billionaire to make good on his April promise to buy the social media giant for $44 billion — and the company wants it to happen quickly because it says the dispute is harming its business.
“It’s a very favorable ruling for Twitter in terms of moving things along,” said Carl Tobias, a law professor at the University of Richmond. “She seemed very concerned about the argument that delay would seriously harm the company, and I think that’s true.”
Musk, the world’s richest man, pledged to pay $54.20 a share for Twitter but now wants to back out of the agreement.
“It’s attempted sabotage. He’s doing his best to run Twitter down,” said William Savitt, an attorney representing Twitter in Delaware’s Court of Chancery before McCormick. The hearing was held virtually after McCormick said she had tested positive for the coronavirus.
Musk has said that the company has failed to provide adequate information about the number of fake, or “spam bot,” Twitter accounts, and that it has breached its obligations under the deal by firing top managers and laying off a significant number of employees. Musk’s team expects more information about the bot numbers to be revealed in the trial court discovery process, when both sides must hand over evidence.
Twitter argues that Musk’s reasons for backing out are just a cover for buyer’s remorse after Musk agreed to pay 38% above Twitter’s stock price shortly before the stock market stumbled and shares of electric-car maker Tesla, where most of Musk’s personal wealth resides, lost more than $100 billion in value.
Savitt said the contested merger agreement and Musk’s tweets disparaging the company were inflicting harm on the business and questioned Musk’s request for a delayed trial, asking “whether the real plan is to run out the clock.”
“He’s banking on wriggling out of the deal he signed,” Savitt said.
But Andrew Rossman, Musk’s attorney, said the idea that the Tesla chief executive is trying to damage Twitter is “preposterous. He has no interest in damaging the company.” Rossman said Musk is Twitter’s second-largest shareholder and has a far larger stake than the entire board.
Savitt emphasized the importance of an expedited trial starting in September for Twitter to be able to make important business decisions affecting such things as employee retention and relationships with suppliers and customers.
Rossman said more time is needed because it is “one of the largest take-private deals in history” involving a “company that has a massive amount of data that has to be analyzed. Billions of actions on their platform have to be analyzed.”
Tobias said it’s still possible that Musk and Twitter will settle the case before it goes to trial because both might find a drawn-out fight or the judge’s final decisions costly to their businesses and reputations. One option is that Musk could pay the $1-billion breakup fee both he and Twitter agreed to if either was deemed responsible for the deal falling through. Or Twitter could push for him to pay more to make up for damages — but not the full $44 billion.
“Does Musk really want to run that company? Do they really want Musk to run that company?” Tobias said. “They could always settle somewhere in between.”