Delaware Chancery Court Chief Judge Kathaleen St Jude McCormick ruled Tuesday that a five-day trial should take place in October. The decision is an early victory for Twitter, in a case in which many legal experts have said Musk will be an underdog.
Lawyers for San Francisco-based Twitter had said they needed only four days to prove the world’s richest person must honour his agreement and pay $54.20 a share for the company. Twitter filed suit last week, requesting a September 19 start for the non-jury trial.
In Tuesday’s hearing, held remotely to accommodate the judge’s case of Covid, a lawyer for Twitter argued that Musk was “contractually obligated to use his best efforts to close deal”. Instead, he is “doing the exact opposite”, attorney William Savitt told the judge. “He’s engaging in sabotage.”
‘Cloud of Uncertainty’
Under the buyout agreement, Musk is obligated to finalise the deal within two days of all the closing conditions being met, Savitt said. Those conditions will be met in early September, he said.
“Mr Musk has no intention of keeping any of his promises,” the lawyer said.
The judge said that in asking for a February trial, Musk’s lawyers “underestimate the ability of this court to quickly process” complex legal disputes over merger and acquisition cases.
The dispute over the teetering transaction is “creating a cloud of uncertainty” over Twitter that is harming the company, McCormick concluded after hearing arguments on whether the case should be fast-tracked.
Twitter shares jumped as much as 5.4% after the ruling. They were trading at $39.63, up 3.2%, at 1.56pm in New York. From the day Musk tweeted that the deal was “on hold” in mid-May, the stock had fallen as much as 22%. It hasn’t traded near the deal price since the first two weeks after the acquisition was announced.
Musk’s legal team has said Twitter was unfairly pushing for a “warp speed” trial. Musk said Twitter violated the terms of the buyout deal by not turning over detailed information about so-called spambot accounts within its system. The case requires a “forensic review and analysis of large swaths of data” about the bots, along with other legal issues, Musk’s lawyers said in the filing, seeking a trial date in February or later.
In the hearing on Tuesday, Andrew Rossman, a lawyer for Musk, argued there was no need to rush a trial to meet an October deadline specified in the deal. The important date is when the financing commitments for the purchase expire, near the end of April of next year, he told the judge. A February trial would give the court enough time to decide the case and leave room for an appeal, Rossman said.
“The idea of running this case in 60 days [was] extraordinary,” he said of Twitter’s proposed September 19 trial start. “It’s a preposterous time frame.”
Rossman rejected Twitter’s assertion that Musk is trying to run out the clock so the financing commitments lapse. His client “continued to use his best efforts to do the deal” by lining up financing and having his lawyers stay in communication with Twitter on the details right up to the day the company filed suit, he said.
“Mr Musk has no motivation to harm Twitter,” given that he’s its second-largest shareholder, Rossman said.
In the end, he failed to persuade McCormick to deny Twitter an expedited schedule.
Chancery judges in Delaware – the corporate home to more than half of US public companies – are known for being able to parse legal thickets of complex merger and acquisition disputes more quickly than many other US courts. Unlike in some states where it can take several years to get a case to trial, Delaware Chancery Court generally moves quicker, with cases often argued within five or six months of being filed.
Musk backed out of the deal to buy the platform on July 8, saying in a regulatory filing that Twitter had made “misleading representations” over the number of bot accounts. Twitter also hasn’t “complied with its contractual obligations” to provide information about how to assess how prevalent the bots are on the social media service, Musk said.
Twitter countered that Musk is asking for information that “does not exist, has already been provided, or is the subject of requests only made recently”. The billionaire “refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests”, Twitter said in its lawsuit.