Imagine this: Elon Musk, known for his delight in defiance of power, has been ordered to proceed with his $44 billion purchase of Twitter Inc.
This is an unusual scenario, but a scenario in which the court will have the tools to enforce its orders. It could impose an epic fine on Musk, appoint receivers to negotiate the deal or even enable the confiscation of his assets. Twitter sued Musk on Tuesday to force him to complete the acquisition after backing out.
Musk does not shy away from fighting. He has engaged with everyone from the US Securities and Exchange Commission over his inflammatory tweets, a British cave expert on defamation cases to Donald Trump. In the SolarCity trial last summer in Delaware Chancery Court, Tesla Inc.’s chief executive openly mocked the lawyer investigating him, saying he had “a lot of respect for the court,” but not for the lawyer, a “Bad Man”.
Kasturi’s honor may now be tested for the same court if it finds some remedy for Twitter’s mess that the world’s richest man doesn’t like.
“There was never a situation in Delaware that I can remember,” said Larry Hammermesh, a law professor at the University of Pennsylvania specializing in Delaware corporate law disputes. “That would be very extreme.”
Musk’s lawyers did not respond to an email seeking comment on the matter.
a fine fine
Lawyers for Twitter in San Francisco said in their lawsuit that they would need only four days in court to show that Musk was forced to honor his agreement and pay $54.20 per share for the social media company. should go.
If they prevail and the court enters a judgment holding Musk liable, it could invoke Delaware’s civil contempt laws if he doesn’t pay, says Boston College law professor Brian Quinn, who teaches about merger-and-acquisition law.
“A judge can hold him in contempt and impose a daily fine unless he complies,” Quinn said. “For Musk, that must be a huge number.”
According to the Bloomberg Billionaires Index, Musk has a net worth of $217.1 billion.
That’s what former Chancery Judge Andre Bouchard did in a court-ordered sale of transcription software maker Transperfect Global Inc. When Transperfect executives ignored an order, Bouchard levied a daily fine of $30,000, and the company quickly complied. The Delaware Supreme Court later upheld the judge’s contempt powers against Transperfect but lifted sanctions against its owner.
confiscate property, appoint receiver
The court may let Twitter go after Musk’s assets, said Robert Miller, who holds a chair in corporate finance and law at the Iowa College of Law.
The Chancery Court is “a court of equity with broad powers to treat fashion. Tesla is a Delaware corporation,” Miller said. “There will be no problem with Musk accessing Tesla stock,” the court said.
Miller cautioned that “nothing like this has ever happened before,” a scenario in which “someone is ordered by chancery to close a deal and disregards that order.” But legal deadlocks are not uncommon, he said, “and all states and all courts have procedures in place whereby the winning plaintiff can ‘execute’ a judgment by going against the property of the loser.”
If Musk refuses to pay, it will become like any other debt, said Charles Elson, a retired University of Delaware finance professor and former head of the school’s Weinberg Center for Corporate Governance. But to seize Tesla shares that debt could be a long, tortuous legal road, he said.
“You’ll need to try to pierce the corporate veil on the deal,” Elson said, as Musk set up holding companies for the purpose of acquisitions.
If shell companies ignore Chancery’s decision, the court can appoint a receiver to pick them up and “make a deal,” Quinn said. The companies would then approach lenders for financing and scramble with Musk — if necessary, to sue him for the amount.
a term in prison
Under Delaware’s civil contempt process, a judge can send a ridiculer to prison for considering it. In 2014 the court issued an arrest warrant for a defendant for violating an order to surrender his passport. But it is rare for a chancery judge to dispatch a sheriff.
“In a contract dispute, they can’t hold a gun to your head,” Elson said. “There is no such thing as a contract prison.”
Still, the court could impose a hefty fine on Musk, or even order his arrest, Miller said.
“There’s no way in the world Delaware is going to lose its franchise as the major corporate law jurisdiction where contracts are enforced because Elon doesn’t feel like doing that,” he said.
Quinn agrees that the court will have to respond forcefully. Delaware’s corporate law and its Court of Chancery help state companies whose incorporation fees account for a quarter of its annual $5 billion budget, by some estimates.
“That state lives and dies on its corporate laws,” Quinn said, and doesn’t want a reputation “where you can thumb your nose at a judge.”
The case is Twitter v Musk, 22-0613, Delaware Chancery Court (Wilmington).