What if Musk loses the Twitter case but defies the court?

Oct 3, 2022, 12:01 AM | Updated: Oct 4, 2022, 3:09 pm
FILE - The Twitter page of Elon Musk is seen on the screen of a computer in Sausalito, Calif., on M...

FILE - The Twitter page of Elon Musk is seen on the screen of a computer in Sausalito, Calif., on Monday, April 25, 2022. Twitter wants a Delaware court to order Elon Musk to buy the social media service for $44 billion, as he promised back in April. But suppose a judge makes that ruling and Musk balks? The Tesla billionaire's reputation for dismissing government pronouncements has some worried about how he’d react to an unfavorable ruling of the Delaware Court of Chancery, known for its handling of high-profile business disputes. (AP Photo/Eric Risberg, File)

(AP Photo/Eric Risberg, File)

Twitter wants a Delaware court to order Elon Musk to buy the social media service for $44 billion, as he promised back in April. But what if a judge makes that ruling and Musk balks?

The Tesla billionaire’s reputation for dismissing government pronouncements has some worried that he might flout an unfavorable ruling of the Delaware Court of Chancery, known for its handling of high-profile business disputes.

Musk hopes to win the case that’s headed for an October trial. He’s scheduled to be deposed by Twitter attorneys starting Thursday.

But 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 but still coughing up a billion dollars or more for breach of contract — has raised concerns about how the Delaware court would enforce its final ruling.

“The problem with specific performance, especially with Elon Musk, is that it’s unclear whether the order of the court would be obeyed,” retired Delaware Supreme Court Justice Carolyn Berger told CNBC in July. “And the courts in Delaware — courts all over — are very concerned about issuing a decision or issuing an order that then is ignored, flouted.”

Berger, who was also a vice chancellor of the Chancery Court in the 1980s and 1990s, stood by those concerns in an interview with The Associated Press but said she doubted the Delaware institution would go so far as to make him complete the deal.

“The court can impose sanctions and the court can kind of coerce Musk into taking over the company,” she said. “But why would the court do that when what really is at stake is money?”

Berger said she expects San Francisco-based Twitter to prevail, but said a less tumultuous remedy for the company and its shareholders would make Musk pay monetary damages. “The court doesn’t want to be in a position to step in and essentially run this company,” she said.

Musk and his lawyers didn’t respond to requests for comment.

Other legal observers say such defiance is almost impossible to imagine, even from a famously combative personality such as Musk. He acknowledged he might lose in August in explaining why he suddenly sold nearly $7 billion worth of Tesla shares.

“I take him at his word,” said Ann Lipton, an associate law professor at Tulane University. “He wants to win. Maybe he’s got his own judgment as to what the odds are. But he’s also being sort of practical about this. He’s getting some cash ready so he doesn’t have to dump his Tesla shares if it turns out he is ordered to buy the company.”

A ruling of specific performance could force Musk to pay up his $33.5 billion personal stake in the deal; the price increases to $44 billion with promised financing from backers such as Morgan Stanley.

The Delaware court has powers to enforce its orders, and could appoint a receivership to seize some of Musk’s assets, namely Tesla stock, if he doesn’t comply, according to Tom Lin, a law professor at Temple University.

In a precedent set just this week involving contempt for noncompliance with a court order, a judge affirmed that shares of a company incorporated in Delaware are personal property subject to the Court of Chancery’s jurisdiction. The judge noted in his Monday ruling that it might be the first time the court has invoked its authority to address ownership of shares in a contempt proceeding, as he divested an entity of its shares and transferred title to another party in the lawsuit.

Speculation that Musk could be threatened with jail time for failing to comply with a ruling is unrealistic, said Berger. “At least, not for the Court of Chancery,” said the former judge. “That’s not the way the court operates.”

But more important, Lin said Musk’s legal advisers will strongly urge him to comply with the rulings of a court that routinely takes cases involving Tesla and other firms incorporated in the state of Delaware.

“If you are an executive at a major American corporation incorporated in Delaware, it’s very hard for you to do business and defy the chancery court’s orders,” Lin said.

Concerns about Musk’s compliance derive from his past behavior dealing with various arms of the government. In a long-running dispute with the U.S. Securities and Exchange Commission, he was accused of defying a securities fraud settlement that required that his tweets be approved by a Tesla attorney before being published. He publicly feuded with California officials over whether Tesla’s electric car factory should remain shut down during the early stages of the COVID-19 pandemic.

He’s also taken a combative approach in Delaware Chancery Court, calling an opposing attorney a “bad human being” 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 lawyers have other Delaware cases still pending, including one involving his compensation package at Tesla.

“I think we’ve got a whole lot of players who, as loose a cannon as Elon Musk is, rely on the goodwill of the Delaware courts on an ongoing basis for their businesses,” Lipton said.

Musk’s argument for winning his latest Delaware case largely rests on his allegation that Twitter misrepresented how it measures the magnitude of “spam bot” accounts that are useless to advertisers. But most legal experts believe he faces an uphill battle in convincing Chancellor Kathaleen St. Jude McCormick, the court’s head judge who is presiding over the case, that something changed since the April merger agreement that justifies terminating the deal.

The trial begins Oct. 17 and whichever side loses can appeal to the Delaware Supreme Court, which is expected to act swiftly. Musk and Twitter could also settle the case before, during or after the trial, lawyers said.

Delaware’s courts are well-respected in the business world and any move to flout them would be “shocking and unexpected,” said Paul Regan, associate professor of Widener University’s Delaware Law School who has practiced in Delaware courts since the 1980s. “If there was some kind of crisis like that, I think the reputational harm would be all on Musk, not the court.”

—-

AP reporter Randall Chase in Dover, Delaware, contributed to this report.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


              FILE - Tesla and SpaceX Chief Executive Officer Elon Musk speaks at the SATELLITE Conference and Exhibition in Washington on March 9, 2020.  Twitter wants a Delaware court to order Elon Musk to buy the social media service for $44 billion, as he promised back in April. But suppose a judge makes that ruling and Musk balks? The Tesla billionaire's reputation for dismissing government pronouncements has some worried about how he’d react to an unfavorable ruling of the Delaware Court of Chancery, known for its handling of high-profile business disputes. (AP Photo/Susan Walsh, File)
            
              FILE - The Twitter page of Elon Musk is seen on the screen of a computer in Sausalito, Calif., on Monday, April 25, 2022.  Twitter wants a Delaware court to order Elon Musk to buy the social media service for $44 billion, as he promised back in April. But suppose a judge makes that ruling and Musk balks? The Tesla billionaire's reputation for dismissing government pronouncements has some worried about how he’d react to an unfavorable ruling of the Delaware Court of Chancery, known for its handling of high-profile business disputes.    (AP Photo/Eric Risberg, File)

AP

Associated Press

How major US stock indexes fared Monday 11/28/2022

Stocks fell broadly on Wall Street as protests spread in China calling for President Xi Jinping to step down amid growing anger over severe restrictions imposed as part of his “zero COVID” strategy in the world’s second-largest economy. The S&P 500, the Dow Jones Industrial Average and the Nasdaq fell. Small-company stocks fell more than […]
16 hours ago
FILE - In this Nov. 19, 2019, photo James Bullard, president of the St. Louis Federal Reserve Bank,...
Associated Press

2 Fed officials favor keeping key rate at peak through 2023

WASHINGTON (AP) — Two Federal Reserve officials said Monday that they favor raising the Fed’s key rate to roughly 5% or more and keeping it at its peak through next year — longer than many on Wall Street have expected. John Williams, president of the Federal Reserve Bank of New York, who is among a […]
16 hours ago
This photo provided by the Missouri Department of Corrections shows Kevin Johnson. The Missouri man...
Associated Press

Missouri Supreme Court weighs fate of death row inmate

Kevin Johnson might not be facing imminent execution if he was white, attorneys speaking on his behalf told the Missouri Supreme Court on Monday. Meanwhile, Gov. Mike Parson announced he will not grant clemency. Johnson, 37, is scheduled to die by injection at 6 p.m. Tuesday for killing Kirkwood, Missouri, Police Officer William McEntee in […]
16 hours ago
Protesters hold up blank papers and chant slogans as they march in protest in Beijing, Sunday, Nov....
Associated Press

China’s ‘zero-COVID’ limits saved lives but no clear exit

China’s strategy of controlling the coronavirus with lockdowns, mass testing and quarantines has provoked the greatest show of public dissent against the ruling Communist Party in decades. Most protesters on the mainland and in Hong Kong have focused their anger on restrictions that confine families to their homes for months. Global health experts have criticized […]
16 hours ago
Kentucky Attorney General Daniel Cameron speaks at a news conference on Monday, Nov. 28, 2022, in F...
Associated Press

Kentucky AG avoids talk of more exceptions to abortion ban

FRANKFORT, Ky. (AP) — Kentucky’s attorney general stood firmly behind the state’s near-total abortion ban Monday, saying he promotes Kentucky values “without fear or favor” though the Republican gubernatorial candidate stopped short of saying whether he supports adding more exceptions to the ban. At a news conference, Daniel Cameron refrained from commenting on calls for […]
16 hours ago
House Speaker Nancy Pelosi of Calif., speaks on the House floor at the Capitol in Washington, Thurs...
Associated Press

HBO to air Nancy Pelosi doc shot by daughter Alexandra

LOS ANGELES (AP) — A documentary on House Speaker Nancy Pelosi’s life and groundbreaking political career, shot and edited by her daughter, will debut on HBO next month. Alexandra Pelosi’s “Pelosi in the House” will premiere Dec. 13 and will include footage shot during the Jan. 6 insurrection. Some of that footage, including moments when […]
16 hours ago

Sponsored Articles

...
Quantum Fiber

Stream 4K and more with powerful, high-speed fiber internet

Picking which streaming services to subscribe to are difficult choices, and there is no room for internet that cannot handle increased demands.
...
Quantum Fiber

How high-speed fiber internet can improve everyday life

Quantum Fiber supplies unlimited data with speeds up to 940 mbps, enough to share 4K videos with coworkers 20 times faster than a cable.
...
SCHWARTZ LASER EYE CENTER

Key dates for Arizona sports fans to look forward to this fall

Fall brings new beginnings in different ways for Arizona’s professional sports teams like the Cardinals and Coyotes.
What if Musk loses the Twitter case but defies the court?