wants a Delaware court to order Elon Musk to buy the social media service for $ 44 billion, as he promised in April. But what if a judge makes that sentence and Musk refuses?
Tesla’s billionaire’s reputation for rejecting government statements has some worried that he may ignore an unfavorable ruling by the Delaware Chancellery Court, known for its handling of high-profile trade disputes.
Musk hopes to win the case which is headed for an October trial. He is scheduled to be deposed by Twitter attorneys starting Thursday.
But the aftermath of his grave loss, whether from a “specific performance” order that forces him to complete the deal, or by walking away from Twitter but continuing to extort a billion dollars or more for breach of contract, have raised concerns about how the Delaware court would enforce its final ruling.
“The problem with specific performance, particularly with Elon Musk, is that it’s unclear whether the court order would have been obeyed,” retired Delaware Supreme Court Justice Carolyn Berger told CNBC in July. “And the courts of Delaware – courts all over the world – are very concerned with making a decision or issuing an order that is then ignored, laughed at.”
Berger, who was also Vice Chancellor of Chancery Court in the 1980s and 1990s, argued these concerns in an interview with the Associated Press, but said he doubted the Delaware institution would go so far as to make him complete the l ‘agreement.
“The court can impose penalties and the court can somehow force Musk to take over the company,” he said. “But why should the court do this when money is at stake?”
Berger said he expects Twitter to prevail, but said a less tumultuous remedy for the company and its shareholders would make Musk pay the monetary damages. “The court doesn’t want to be able to step in and basically run this company,” he said.
Musk and his lawyers did not respond to requests for comment.
Other legal observers say such a challenge is nearly impossible to imagine, even from a notoriously combative personality like Musk. He acknowledged that he could lose in August by explaining why he suddenly sold nearly $ 7 billion worth of Tesla stock.
“I take him at his word,” said Ann Lipton, an associate professor of law at Tulane University. “He wants to win. Maybe he has his own judgment on what the odds are. But he’s also a bit practical on that. He is preparing some money so that he does not have to dump his Tesla shares if it turns out that he has been ordered to buy the company. “
A specific performance ruling could force Musk to pay his personal share of $ 33.5 billion in the deal; the price increases to $ 44 billion with funding promised by backers like Morgan Stanley.
The Delaware court has the power to enforce his orders and could appoint a receivership to seize some of Musk’s assets, most notably Tesla stock, if he doesn’t comply, according to Tom Lin, a law professor at Temple University.
The court has made such moves before, such as in 2013 when it scorned Chinese firm ZTS Digital Networks and appointed a bankruptcy trustee with the power to seize its assets. But after the coercive sanctions didn’t work, the bankruptcy trustee asked the court five years later to issue judicial warrants asking for the judgment of two senior executives the next time they would visit the United States.
Speculation that Musk may be threatened with imprisonment for failing to comply with a sentence is unrealistic, Berger said. “At least, not for the Chancellery Court,” the former judge said. “That’s not how the court works.”
More importantly, Lin said Musk’s legal advisers will strongly urge him to comply with the rulings of a court that regularly takes cases involving Tesla and other corporations incorporated in the state of Delaware.
“If you are an executive of a large American corporation incorporated in Delaware, it is very difficult for you to do business and defy the court orders of the clerk’s office,” Lin said.
Concerns about Musk’s compliance stem from his past behavior towards various branches of government. In a lengthy dispute with the US Securities and Exchange Commission, he was accused of defying a securities fraud settlement that required his tweets of him to be approved by a Tesla attorney before they were published. He has publicly quarreled with California officials over whether Tesla’s electric car factory should remain closed during the early stages of the COVID-19 pandemic.
He also took a combative approach in the Delaware Chancery Court, calling an opposing attorney a “bad human being” while defending Tesla’s 2016 takeover of SolarCity against a lawsuit accusing Musk of a conflict-of-interest settlement and broken promises. He and his lawyers have other cases still pending in Delaware, including one involving his compensation package with Tesla.
“I think we have a lot of players who, however vagrant Elon Musk is, rely on the goodwill of the Delaware courts on an ongoing basis for their business,” Lipton said.
Musk’s argument for winning his latest Delaware case is largely based on his claim that Twitter has misrepresented how it measures the size of “spam bot” accounts that are useless to advertisers. But most legal experts believe they will face a tough battle to convince Chancellor Kathaleen St. Jude McCormick, the presiding judge of the court, that something has changed since the April merger agreement justifies the termination of the case. ‘agreement.
The trial begins on October 17, and whoever loses can appeal to the Delaware Supreme Court, which should act quickly. Musk and Twitter could also settle the case before, during or after the trial, the lawyers said.
Delaware courts are highly respected in the business world and any move to ignore them would be “shocking and unexpected,” said Paul Regan, an associate professor at Widener University’s Delaware Law School who has practiced in Delaware courts since the 1980s. “If there was some sort of crisis like that, I think the reputational damage would be all about Musk, not the court.”