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

Analyst: Damages for breach of contract might be a possible remedy if Tesla owner loses court battle
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FILE - Tesla Motors, Inc. CEO Elon Musk speaks at the Paris Pantheon Sorbonne University as part of the COP21, United Nations Climate Change Conference in Paris on Dec. 2, 2015. An early prototype of Tesla Inc.鈥檚 proposed Optimus humanoid robot slowly and awkwardly walked onto a stage, turned, and waved to a cheering crowd at the company鈥檚 artificial intelligence event Friday, Sept. 30, 2022. (AP Photo/Francois Mori, 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鈥檚 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鈥檚 headed for an October trial. He鈥檚 scheduled to be deposed by Twitter attorneys starting Thursday.

But the consequences of him losing badly 鈥 either by an order of 鈥渟pecific performance鈥 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 鈥 has raised concerns about how the Delaware court would enforce its final ruling.

鈥淭he problem with specific performance, especially with Elon Musk, is that it鈥檚 unclear whether the order of the court would be obeyed,鈥 retired Delaware Supreme Court Justice Carolyn Berger told CNBC in July. 鈥淎nd the courts in Delaware 鈥 courts all over 鈥 are very concerned about issuing a decision or issuing an order that then is ignored, flouted.鈥

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.

鈥淭he court can impose sanctions and the court can kind of coerce Musk into taking over the company,鈥 she said. 鈥淏ut why would the court do that when what really is at stake is money?鈥

Berger said she expects Twitter to prevail, but said a less tumultuous remedy for the company and its shareholders would make Musk pay monetary damages. 鈥淭he court doesn鈥檛 want to be in a position to step in and essentially run this company,鈥 she said.

Musk and his lawyers didn鈥檛 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.

鈥淚 take him at his word,鈥 said Ann Lipton, an associate law professor at Tulane University. 鈥淗e wants to win. Maybe he鈥檚 got his own judgment as to what the odds are. But he鈥檚 also being sort of practical about this. He鈥檚 getting some cash ready so he doesn鈥檛 have to dump his Tesla shares if it turns out he is ordered to buy the company.鈥

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鈥檚 assets, namely Tesla stock, if he doesn鈥檛 comply, according to Tom Lin, a law professor at Temple University.

The court has made such moves before, such as in 2013 when it held Chinese company ZTS Digital Networks in contempt and appointed a receiver with power to seize its assets. But after coercive sanctions didn鈥檛 work, the receiver asked the court five years later to issue bench warrants calling for the arrest of two senior executives the next time they visited the U.S.

Speculation that Musk could be threatened with jail time for failing to comply with a ruling is unrealistic, said Berger. 鈥淎t least, not for the Court of Chancery,鈥 said the former judge. 鈥淭hat鈥檚 not the way the court operates.鈥

But more important, Lin said Musk鈥檚 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.

鈥淚f you are an executive at a major American corporation incorporated in Delaware, it鈥檚 very hard for you to do business and defy the chancery court鈥檚 orders,鈥 Lin said.

Concerns about Musk鈥檚 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鈥檚 electric car factory should remain shut down during the early stages of the COVID-19 pandemic.

He鈥檚 also taken a combative approach in Delaware Chancery Court, calling an opposing attorney a 鈥渂ad human being鈥 while defending Tesla鈥檚 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.

鈥淚 think we鈥檝e 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,鈥 Lipton said.

Musk鈥檚 argument for winning his latest Delaware case largely rests on his allegation that Twitter misrepresented how it measures the magnitude of 鈥渟pam bot鈥 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鈥檚 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鈥檚 courts are well-respected in the business world and any move to flout them would be 鈥渟hocking and unexpected,鈥 said Paul Regan, associate professor of Widener University鈥檚 Delaware Law School who has practiced in Delaware courts since the 1980s. 鈥淚f there was some kind of crisis like that, I think the reputational harm would be all on Musk, not the court.鈥

鈥擬att O鈥檅rien, The Associated Press





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