A Delaware judge’s decision to put Twitter Inc. and Elon Musk on track for an October trial over their $44 billion acquisition agreement has set their legal teams on a breakneck pace, while signaling the high-profile case will be treated like other busted deals.
A five-day trial should take place in October, Delaware Chancery Court Chief Judge Kathaleen St. J. McCormick ruled during a hearing Tuesday. Musk asked the trial not start until February, arguing it will require analyzing large amounts of data about Twitter.
There have been questions about whether Musk, the world’s richest man, will get to play by a different set of rules. But McCormick stuck to a timeline seen in previous cases involving busted deals and public companies, said Eric Talley, a professor at Columbia Law School.
“It’s a pretty strong affirmation that this case is not going to be treated as exceptional, or special, or different from the other cases that have come before it that have at least remotely similar circumstances–and Musk is going to get the same form of justice that everyone else gets, as will Twitter,” Talley said.
Long Delay, Greater Risk
Twitter filed the lawsuit last week, seeking to force Musk to close the deal. It requested a late-September start date for the trial, arguing the public fight harms the social media company “with each passing day.” Musk wanted a trial to start Feb 13.
McCormick said Musk’s lawyers “underestimate the ability of this court” to quickly process complex litigation. The judge told the legal teams for both sides that she has “every confidence that you all will rise to the challenge.”
The timeline McCormick set for trial is similar to other broken deal cases in Delaware that involved public companies.
A fight involving chemical companies Huntsman and Hexion Specialty Chemical, for example, went to trial in under three months. A 2001 dispute between IBP Inc. and Tyson Foods Inc. was even faster–the case was filed at the end of March. The two sides had a ruling from the judge by mid-June.
Delay threatens the risk of irreparable harm, McCormick said Tuesday, adding “the longer the delay, the greater the risk.”
McCormick is clearly aware of the limbo Twitter is in until the issue is resolved, Brooklyn Law School professor Andrew Jennings said. “The court was looking at how quickly similar trials have occurred in similar circumstances and just what is possible,” Jennings said.
Musk has accused Twitter of not complying with its contract by failing to provide information to assess how prevalent bots are on the social media platform. Musk’s attorneys said it would take months to conduct a forensic review.
Musk and his attorneys appeared to be hoping to draw out the process and open a Pandora’s Box of bot data, Talley said. While there might still be some of that, Musk didn’t “get anywhere close to the cornucopia of a bot fishing expedition that he was hoping for,” he said.
McCormick didn’t mention the bots issue in her ruling. While cautioning against reading too much into the decision, Talley said that counting bots is a more time-consuming process than analyzing the systems that Twitter has put in place.
“The shorter schedule certainly is consistent with the view that Chancellor McCormick isn’t convinced that the bot counting exercise is the principal issue in this case,” Talley said.
Twitter’s lawyers don’t have much time for a victory lap.
They’re going to be “rallying the troops to get ready for what is going to be a breakneck” discovery process that will take place over the next couple months, Talley said. That will include conducting dozens of depositions, which likely will include Musk.
“The reward for having won an expedited trial is, it’s an all-hands-on-deck moment for both sides,” Talley said. “They’re going to be working incredibly hard to put together each of their best possible cases.”
One argument to pay attention to now is Twitter’s assertion that Musk willfully breached his obligation to make his best efforts to close the deal. Twitter’s lawyer William Savitt said at the hearing that Musk has been doing “the exact opposite” of his best efforts and is actively engaging in “attempted sabotage”.
Highlighting that Musk has encouraged the SEC to investigate Twitter, Savitt said it’s “difficult to imagine a more egregious breach” of his best efforts obligation.
In response, Musk’s team argues that he is complying with his obligations and that it’s Twitter that’s not complied or been cooperative as he seeks data on bot accounts.
But the best efforts standard is vague and can be difficult to gauge, said Adam Badawi, a professor at UC Berkeley.
Establishing that someone has breached a best efforts obligation requires pretty extreme conduct, Badawi said.
Ann Lipton, a professor at Tulane Law School, highlighted that Musk is openly asserting that he’s entitled to walk away from the deal because of Twitter’s actions. She said the “first and best” argument for Twitter is to argue that it’s never breached its end of the agreement.
The question of best efforts has frequently raised its head at the Delaware Chancery Court. It’s common for language like “best efforts” to appear in merger contracts, Lipton said. And there are several cases like this where one party wanted to get out of an agreement and was accused of trying to interfere with the conditions, she said.
For example, in a merger between Anthem and Cigna, a judge found that Anthem proved Cigna breached its obligation to make its best efforts to complete the agreement.
Last year, McCormick found that private equity firm Kohlberg & Co. breached its best efforts obligation to obtain debt financing in its acquisition of cake decoration supplier DecoPac.
“You can’t hook someone up to a machine and figure out how much they’re trying,” Badawi said.