What If Musk Loses The Case Against Twitter But Still Defies The Court?

TWTR 2.97% want a Delaware court to force Musk to acquire the social networking business for $44 billion. What if Musk fights the ruling?

Tesla’s billionaire may ignore an adverse verdict from the Delaware Court of Chancery, notorious for high-profile commercial conflicts.

What If Musk Loses The Case Against Twitter But Still Defies The Court?
What If Musk Loses The Case Against Twitter But Still Defies The Court?

Musk wants to win in October. Twitter lawyers will depose him Thursday.

The consequences of him losing badly — either by an order of “specific performance” that forces him to complete the deal, or by walking away from Twitter and still paying a billion dollars or more for breach of contract — have raised concerns about how the Delaware court would enforce its final ruling.

“It’s uncertain if Elon Musk would execute a particular performance order,” a former Delaware Supreme Court justice told CNBC in July. “And courts in Delaware — courts everywhere — are worried about ignoring or flouting a ruling or order.”

Berger, a deputy chancellor of the Delaware Chancery Court in the 1980s and 1990s, echoed similar worries but believed the institution would force him to complete the sale.

“The court may compel Musk into taking over the firm,” she stated. Why would the court do that when money is involved?

Berger expects Twitter will win, but a less controversial solution would be making Musk pay damages. She stated the court doesn’t want to manage the corporation.

Musk’s attorneys didn’t comment.

Other legal analysts believe such resistance is hard to comprehend, even from Musk. In explaining why he sold $7 billion in Tesla shares in August, he said he may lose.
Tulane law professor Ann Lipton stated, “I believe him.” He’s competitive. Maybe he knows the odds. He’s also pragmatic. He’s saving money so he won’t have to sell Tesla shares if required to do so.

Specific performance might require Musk to pay his $33.5 billion investment in the agreement; with guaranteed funding from Morgan Stanley, the price rises to $44 billion.

Tom Lin, a law professor at Temple University, says the Delaware court may execute its orders and take Musk’s assets, including Tesla shares, if he doesn’t comply.

In 2013, the court found Chinese corporation ZTS Digital Networks in contempt and appointed a receiver with asset-seizure jurisdiction. After coercive measures failed, the receiver urged the court five years later to arrest two top executives the next time they entered the U.S.

Berger said it’s unreasonable to think Musk might face prison time for violating a rule. The old judge responded, “Not for Chancery.” “That’s not how courts work.”

Lin said Musk’s legal experts would encourage him to comply with a Delaware court’s decisions.

“It’s impossible for a Delaware-incorporated CEO to disregard the chancery court’s directives,” Lin added.

Musk’s prior conduct with government agencies raises compliance concerns. He was accused of breaking a securities fraud deal that required his tweets to be reviewed by a Tesla attorney. He feuded with California regulators about whether Tesla’s electric vehicle manufacturing should stay closed during the COVID-19 outbreak.

In Delaware Chancery Court, he called an opposing counsel a “terrible human being” while defending Tesla’s 2016 purchase of SolarCity against a complaint that faulted Musk for conflicts of interest and violated commitments. His attorneys have other Delaware litigation ongoing, including one over his Tesla pay.

“As loose-cannon as Elon Musk is, a lot of players depend on the Delaware courts for their businesses,” Lipton said.

Musk’s argument for winning his latest Delaware lawsuit is that Twitter misrepresented how it evaluates “spam bot” accounts. Most legal experts feel he has an uphill task persuading Chancellor Kathaleen St. Jude McCormick, the court’s chief judge, that anything changed since April to justify canceling the contract.

The trial starts Oct. 17 and whomever loses may appeal to the Delaware Supreme Court, which will act quickly. Lawyers said Musk and Twitter might deal before, during, or after trial.

Any effort to disregard Delaware’s courts would be “surprising and unexpected,” said Paul Regan, an associate professor at Widener University’s Delaware Law School. If a crisis arose, Musk, not the court, would suffer reputational damage.

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