Twitter wants a Delaware court to appoint Elon Musk to buy the social media company for $44 billion (nearly Rs. 3,60,000 crore) as he promised back in April. But what if a judge makes a decision and Musk flakes?
The reputation of a Tesla billionaire for dismantling government pronouncements has cause some concern that he might challenge an unfavourable judgment of the Delaware Court of Chancery, which is well-known for its handling of large-scale business disputes.
Musk hopes to win the case that is preparing for an October trial. He''s scheduled to be deposed by Twitter lawyers starting Thursday.
It''s difficult to lose, either by an order of specific performance that enables him to complete the transaction, or by walking away from Twitter, still coughing up a billion dollars or more for contract violation, which has raised concerns about the outcome.
The difficulty with a specific performance, particularly with Elon Musk, is that it''s unclear whether the court''s order would be obeyed, according to retired Delaware Supreme Court Justice Carolyn Berger in July. And the courts in Delaware all over are very concerned about whether or not a decision is made or an order that is then ignored and flouted.
In an interview with The Associated Press, Berger, who served as vice chancellor of the Chancery Court in the 1980s and 1990s, commented on those concerns, but said she doubted the Delaware state would go so far as to make him complete the deal.
The court may impose sanctions, and the court may type of forego Musk into taking over the company, according to the court. Why would the court do that when what is real about money?
Berger said she expects Twitter to prevail, but said that a less tumultuous solution for the company and its shareholders would pay monetary damages. The court isn''t going to be in a position to step in and essentially run this company, she said.
Musk and his lawyers contacted us without making a comment.
Other legal observers argue that defiance is almost impossible to imagine, even from a famously combative person like Musk. He acknowledged he might lose in August in reprimanding why he suddenly sold $7 billion (nearly Rs. 57,300 crore) worth of Tesla shares.
Ann Lipton, an associate law professor at Tulane University, says she respects him. He wants to win. Perhaps he''s got his own judgment about what the odds are. However, he''s also being kind of practical about this. He''s getting some cash ready so he doesn''t have to dump his Tesla shares if he''s ordered to buy the company.
Musk might have to pay up his $33.5 billion (nearly Rs. 2,74,000 crore) personal equity in the agreement, which has risen to $44 billion thanks to promise of financing from investors such as Morgan Stanley.
According to Tom Lin, a law professor at Temple University, the Delaware court has the power to enforce its orders and may appoint a receivership to confiscate some of Musk''s assets, namely Tesla stock.
The court has made such moves previously, such as in 2013, when it held Chinese company ZTS Digital Networks in contempt and appointed a receiver with authority to seize its assets. However, after coercive sanctions didn''t work, the receiver requested the court to issue bench warrants requesting the arrest of two senior executives the next time they visited the United States.
According to Berger, the notion that Musk might be threatened with prison time for failing to comply with a judgment is untrue. At least, not for the Court of Chancery, according to the former judge. It''s not the way the court operates.
But, especially important, Lin said Musk''s legal advisors will also enquire him to comply with the judgments of a court that routinely takes cases involving Tesla and other companies incorporated in the state of Delaware.
If you are an executive at a major American corporation that was incorporated in Delaware, it''s very difficult for you to do business and defy the chancery court''s orders, according to Lin.
Concerns about Musk''s compliance stem from his previous dealing with various arms of the government. In a long-running dispute with the Securities and Exchange Commission, he was accused of defying a securities fraud settlement that required his tweets to be approved by a Tesla attorney before being published. He publicly fought with California officials about whether Tesla''s electric automobile factory should be shut down during the early stages of the COVID-19 epidemic.
He''s also taken a combative approach in the Delaware Chancery Court, claiming an opposing attorney a bad person while defending Tesla''s 2016 acquisition of SolarCity against a lawsuit that blamed Musk for a deal rife with conflicts of interest and broken promises. He and his attorneys have another Delaware case pending, including one involving Tesla''s compensation package.
I think there''s a lot of players who, as loose as Elon Musk is, depend on the goodwill of the Delaware courts on an ongoing basis for their businesses," Lipton said.
Musk''s argument for winning his most recent Delaware lawsuit largely based on his allegation that Twitter misrepresented how it measures the scale of spam bot accounts that are useless to advertisers. However, most legal experts believe he is facing a difficult battle in convincing Chancellor Kathaleen St. Jude McCormick, the court''s head judge who is presiding over the case, that something has changed since the April merger agreement that has allowed the deal to terminate.
The trial begins on October 17 and whichever party loses may appeal to the Delaware Supreme Court, which is expected to act swiftly. Musk and Twitter may also resolve the case before, during, or after the trial, according to attorneys.
Delaware''s courts are well-respected in the business world, and any action to avoid them would be shocking and unexpected, according to Paul Regan, an associate professor of Widener University''s Delaware Law School. I think the reputational harm would be from Musk, not the court.