The decision came at the end of the first hearing in the expedited case. When it filed the suit last week, days after Musk decided to end the deal, Twitter ( TWTR ) filed to expedite the proceedings and asked for a four-day trial in September. Musk’s legal team opposed the request.
Twitter’s lead attorney, William Savitt, came out against Musk early in the hearing as he argued in favor of a speedy trial. Savitt said the continued uncertainty hanging over the company from the pending deal and litigation is “hurting Twitter every day, every hour, every day.” He also pointed to what he described as Musk’s continued disregard for Twitter, including on his own platform.
“Musk was and remains contractually obligated to use his best efforts to close this deal,” Savitt said. “What it does is the exact opposite; this is sabotage.
Musk’s attorney Andrew Rossman shot back, saying Musk “has no incentive to keep this hanging for a long time,” noting that the billionaire remains one of Twitter’s largest shareholders. He also noted that Twitter did not sue Musk for his alleged violations of the deal until after it moved to terminate the deal, suggesting that the company’s waiting invalidated its desire to expediency. Musk’s team suggested the dispute be heard early next year.
“We’re not opposed to the expedition, and period, we don’t want years here,” Rossman said. “What we are proposing instead, your honor, is an incredibly fast and reasonable schedule.”
Following each side’s arguments, the judge overseeing the case, Delaware Court Chancellor Kathleen St. Jude McCormick, said Musk’s side “underestimates the ability of this court … to quickly process complex litigation.”
Even with this scheduling dispute, the stakes were high for Twitter. The company was already struggling to grow its user base and ad business before Musk’s intervention, and now it and many other tech companies are cutting costs amid rampant inflation and recession fears. Twitter needs a quick resolution to its battle with Musk to limit uncertainty for its shareholders, employees and customers, as well as any consequences for its business that could be exacerbated by costly, protracted litigation.
While Tuesday’s hearing was largely procedural, it offered a glimpse into how each side might approach what is likely to be a messy trial. It can also provide insight into how the judge overseeing the case approaches the dispute.
“There may be hints from what she’s asking and what she’s saying and what they’re saying at the hearing that might tell us something,” said Carl Tobias, a professor at Richmond University Law School. .
The case has already hit a small snag: While the hearing was originally scheduled to be held in person, McCormick sent a letter to both sides on Monday warning them that she had tested positive for Covid-19 and would be moving the hearing to Zoom.
Less than three months after closing the blockbuster acquisition deal, Musk decided to terminate the agreement. He accused Twitter of breaching the deal by making misleading statements about the number of bots and spam accounts on the platform and by claiming it was hiding data. Musk says he needs to assess the scale of the problem. Twitter hit back last week with a more than 60-page lawsuit alleging that it was Musk who violated the agreement. In the lawsuit, Twitter suggests that Musk is using bots as a pretext to try to get out of a deal he now has buyer’s remorse after the market slump sent shares of Twitter down, as well as those of Tesla (TSLA), which the billionaire is expected to finance the deal in part.
On Tuesday, Rossman called the idea that Musk’s concerns about bots were a pretext for pulling out of the deal “nonsense.”
“We have reason to believe, based on what we’ve seen so far, that the actual numbers [of bots and fake accounts on Twitter] are significantly higher [than Twitter has publicly reported]with huge implications for the long-term value of the company,” Rossman said. He added that Twitter’s claims that Musk was violating the deal were “fabricated to try to deprive Mr. Musk of his rights that he could terminate the agreement. ”
Twitter asked the court to force Musk to complete the deal to buy the company. While many legal experts say Twitter likely has the stronger case in the dispute, some also expect the company may eventually settle with the billionaire if the case drags on, in an effort to minimize disruption to its business.
As with the dispute as a whole, Twitter and Musk seem far apart on whether there should be a speedy trial. In its proposal, Twitter said the expedition was necessary to ensure the deal could be completed before the Oct. 24 “closing” date by which the two sides had previously agreed to close the deal, and to “protect of Twitter and its shareholders from continued market risk and operational harm arising from Musk’s attempt to escape a sealed merger agreement.”
In a court filing Friday, Musk’s lawyers called Twitter’s request “extreme expedition” and said the dispute was “extremely fact- and expert-intensive, requiring significant discovery time.” They also argued that the original agreement stipulated that the cutoff date would no longer apply if one of the parties filed a lawsuit over the deal, calling Twitter’s request “contentious” and asking that a 10-day trial period be scheduled on or after Feb. 13 , 2023
On Tuesday, Twitter’s lawyer rejected claims by Musk’s team that the discovery process would take months because it would require digging into details related to the number of bots and fake accounts on the platform. The bot issue is “definitely and clearly not before the court in this case,” Savitt said.
“Nothing in the merger agreement addresses this matter, there is no representation or warranty in the merger that relates to how many fake accounts Twitter may have,” Savitt said. He added that “Musk could have done due diligence on this” before signing the deal, but he didn’t.
McCormick likely won’t decide whether to expedite the proceedings during Tuesday’s hearing, according to Tobias, but rather will consider both sides’ arguments and how long it might take to prepare for the trial, including presenting discovery and coordinating expert testimony, and will then issue a decision at a later date.
“I think she’s going to try to work for something that’s reasonable in light of the complexity” of the dispute, Tobias said. “This court has a great reputation for resolving this type of litigation and will therefore be particularly careful to give [both sides] the best possible treatment.”
In the meantime, Twitter continues to take the necessary steps to proceed with the acquisition. On Friday, the company sent a letter to shareholders inviting them to vote on the deal to sell Twitter to Musk for $54.20 per outstanding share at a special meeting at an undisclosed date and time later this year, according to a regulatory filing. Twitter’s board previously unanimously recommended that shareholders vote in favor of the deal, a position it reiterated in the letter.
Despite Musk’s move to end the deal, “we are committed to closing the merger at the price and terms agreed upon with Mr. Musk,” Friday’s letter said. “Your vote at the special meeting is critical to our ability to complete the merger.”
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