Hiltzik: Could Musk defy a court order? Short answer is no

Most attorneys probably don’t know that the Delaware Premier Court even exists. Thanks to Elon Musk and Twitter, it’s about to become world famous.

The Delaware courts are the primary forum for legal disputes involving public companies in the United States That’s because most companies take advantage of the state’s company-friendly laws and procedures by incorporated into Delaware, this gives the jurisdictional court jurisdiction over a wide range of business disputes.

If you are a corporate attorney, you should have court proceedings and precedent at your fingertips. if you are anyone else, its rulings on contract law are confusing.

The logical thing… would be for people to sit down and figure out… some face-saving solution that Musk doesn’t own Twitter in the end, but Twitter can come up with a pretty good portion of the concealment. by Musk.

– UCLA Professor of Law Stephen M. Bainbridge

That’s about to change because both Twitter and Tesla, the holdings that make up the majority of Musk’s fortune, are integrated into Delaware.

You’ll be hearing a lot in the coming weeks and months about Prime Minister Kathaleen St. J. McCormick, is in fact the chief justice of the court who has attributed himself to the Musk/Twitter dispute.

Many experts think the case will be a challenge to the court for a number of reasons.

One is that Twitter was an unusually large company to be a party to in the bankruptcy deal. Another habit is Musk’s habit of putting his thumb in his nose in front of a government agency. As the nation’s chief arbiter of business law, the prime minister’s court cannot afford to allow its orders to be made.

Before we dive deeper into court options, let’s take a look at the background of this legal maelstrom.

As Cointelegraph reported, Musk signed a deal in April to acquire Twitter for $54.20 per share, or $44 billion, and take the social media platform private.

After that, the stock market plummeted, causing the value of Tesla shares to drop, part of which Musk pledged to finance the deal. Twitter’s value also plummeted, making his $54.20 offer look ridiculously overpriced.

Musk began using bogus transparency excuses to put the deal “on hold,” even though the merger deal left him with no such option.

On July 8, Musk formally withdrew from the deal, asserting (without proof) that Twitter misled him about the state of its business.

Twitter quickly filed a lawsuit in the Delaware Chancery Court, asking it to enforce a provision in the merger agreement that called for “specific performance” — meaning Musk must abide by the original terms of the deal.

Many legal experts believe that Twitter has a strong case. Stephen M. Bainbridge, professor of corporate law at UCLA, said: “If the case goes through the trials and appeals, I think Twitter will prevail in the justice system.

The merger agreement not only defined specific performance as a remedy for breach of contract, but also stated that neither Musk nor Twitter could challenge the suitability of the particular performance in court. In other words, even if Musk believes that being forced to buy Twitter is inappropriate or unfair, he can’t bring that argument before the Court of Chancery.

So what are the court’s options? Legal experts say there are three.

One is to allow Musk to withdraw from the $1 billion deal, a fee enshrined in the merger agreement if either party pulls out for any of the limited reasons. None of that seems to be related to this merge.

In any case, given the damage Musk is alleged to have done to Twitter by his repeated unruly behavior with its purchase, $1 billion looks like an appreciably small assessment. love.

The second is for the court to find some grounds for making a judgment somewhere between $1 billion and $44 billion. However, given the difficulty of finding the right number, that may not be the choice the Court of Chancery wants to make.

A third option is to order Musk to buy Twitter on the grounds of “specific performance.”

The Courts of Chancery have not hesitated to issue such orders on many occasions when the clause is explicitly contemplated in a merger agreement negotiated by complex parties represented by sophisticated attorneys, such as case here.

It is true that courts have some flexibility in ordering consolidation when one party objects. In a case cited in 2006, the court found that “when balancing stocks”[we] must be convinced that the particular execution of a duly formed contract will [not] causing more harm than it could have prevented. ‘”

Business law experts say the court has never exercised that option.

Maybe this is such a case. Courts may need to consider “the suitability of a merger claim against an unwilling buyer for a company of this size and this kind of social footprint,” said Ann Lipton, an expert on the matter. business law at Tulane University, said in a discussion hosted by UC Berkeley’s. law school on Wednesday.

The other side of the argument is the Court of Chancery’s interest in maintaining its own reputation. Legal and business authorities have debated online what could happen if Musk simply refused to comply with a court order to complete the Twitter acquisition or pay a heavy price to walk away from the deal. It is unlikely that the court will allow him to do so.

“The notion that Musk could somehow lose at the Chancery Court and refuse to come forward makes me feel ridiculous,” Bainbridge said. “The highlight of the Delaware laws is that they provide predictability and certainty…. If Delaware says ‘We’re going to make an exception for Elon Musk’, it damages Delaware’s brand. will be huge.”

Furthermore, Prime Minister McCormick is known as a tough judge. Bainbridge said: ‘She’s not one to be easily deceived. “She’s not someone threatened by wealth or power.”

If Musk is hit with an adverse judgment — an order where he must complete the acquisition or pay more than $1 billion in substantial damages, he will be under enormous pressure to comply.

Some pressure will come from his lawyers. David Hoffman, an expert in contract law at the University of Pennsylvania’s Carey School of Law, told me: “The reputation of his professionals will be on display. “Attorneys know that if they have a non-compliant client in Delaware where they must appear as litigants, there is a risk to them.”

Second, Delaware’s law allows it to essentially take control of Musk’s assets — mainly Tesla stock — and satisfy the ruling by “selling them on the block at auction,” Hoffman said. The court may appoint a receiver with authority to sell the shares, if necessary.

Then there is the fundamental fact that Tesla, as a Delaware company, is subject to the jurisdiction of the Delaware courts in many ways. “I don’t think it’s a matter of fact that you can be the head of a public company incorporated in Delaware and routinely belittled by the Delaware courts,” Lipton said on the Berkeley webcast.

The most likely outcome could be one in which the Prime Minister’s Court forces Musk and Twitter to the negotiating table.

“The best outcome for the court is always settlement,” says Hoffman. “I expect the prime minister will signal very strongly, if she is convinced that Musk is in breach of her contract, that she intends to grant a particular performance in the hope or expectation that the parties will resolve it. .”

Bainbridge agreed. “The logical thing that everyone should do, if we treat normal people,” he says, “people will sit down and figure out an arrangement that increases the breakup fee or is some sort of savings solution.” up appearances. In the end, Musk doesn’t own Twitter, but Twitter can extract a pretty good portion of Musk’s concealment.”

https://www.latimes.com/business/story/2022-07-15/elon-musk-twitter-delaware-chancery-court Hiltzik: Could Musk defy a court order? Short answer is no

Edmund DeMarche

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