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

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

The Tesla billionaire’s reputation for dismissing government pronouncements has some worried he could ignore an unfavorable ruling from the Delaware Court of Chancery, known for its handling of high-profile trade disputes.

Musk hopes to win the case that heads to trial in October. It is scheduled to be deposited by Twitter’s lawyers starting Thursday.

But the fallout from him losing badly, either by a “specific performance” order forcing him to complete the deal, or by walking away from Twitter but still shelling out $1 billion or more for breach of contract, has raised concerns. about how the Delaware court would enforce its final judgment.

“The problem with the specific performance, especially with Elon Musk, is that it’s not clear if the court order will be obeyed,” retired Delaware Supreme Court Justice Carolyn Berger told CNBC in July. “And the Delaware courts, the courts all over the world, are very concerned about making a decision or making an order that is then ignored, mocked.”

Berger, who was also deputy chancellor of the Chancery Court in the 1980s and 1990s, raised those concerns in an interview with The Associated Press, but said he doubted the Delaware institution would go so far as to get him to complete the deal.

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

Berger said he hopes Twitter prevails, but said a less tumultuous remedy for the company and its shareholders would see Musk pay monetary damages. “The court doesn’t want to be in a position to step in and essentially run this company,” he said.

Musk and his attorneys did not respond to requests for comment.

Other legal observers say such a challenge is nearly impossible to imagine, even from a famously combative personality like Musk. He acknowledged that he could lose in August when explaining why he suddenly sold nearly $7 billion worth of Tesla stock.

“I’ll take his word for it,” said Ann Lipton, an associate professor of law at Tulane University. “He wants to win. He maybe he has his own judgment about what the odds are. But he’s also being practical about it. He’s preparing some cash so he doesn’t have to dump his Tesla stock if he happens to be ordered to buy the company.”

A specific performance failure could force Musk to pay his $33.5 billion personal stake in the deal; the price rises to $44 billion with promised financing from backers like Morgan Stanley.

The Delaware court has powers to enforce his 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. .

The court has taken similar steps before, such as in 2013 when it held Chinese company ZTS Digital Networks in contempt and appointed a trustee with the power to seize its assets. But after coercive sanctions failed to work, the trustee asked the court five years later to issue warrants calling for the arrest of two top executives the next time they visited the US.

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

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

“If you’re an executive of a major US corporation incorporated in Delaware, it’s very difficult for you to do business and defy chancery court orders,” Lin said.

Concerns about Musk’s compliance stem from his past behavior in dealing with various arms of government. In a long-running dispute with the US Securities and Exchange Commission, he was accused of defying a securities fraud agreement that required his tweets to be approved by a Tesla lawyer before being published. He has publicly fallen out with California officials over whether Tesla’s electric car factory should remain closed during the early stages of the COVID-19 pandemic.

He also took a combative approach in Delaware Chancery Court, calling the other side’s attorney a “bad human being” as he defended Tesla’s 2016 acquisition of SolarCity against a lawsuit that blamed Musk for a deal plagued. of conflicts of interest and broken promises. He and his attorneys have other cases pending in Delaware, including one related to his compensation package at Tesla.

“I think we have a lot of players who, as loose as Elon Musk is, rely on the goodwill of the Delaware courts on an ongoing basis for their business,” Lipton said.

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

The trial begins on October 1. On October 17, any losing party can appeal to the Delaware Supreme Court, which is expected to act quickly. Musk and Twitter could also resolve the case before, during or after the trial, the lawyers said.

Delaware courts are highly respected in the business world and any move to ignore them would be “shocking and unexpected,” said Paul Regan, an associate professor at Widener University Delaware School of Law who has practiced in the courts. of Delaware since the 1980s. “If there were any kind of crisis like that, I think the reputational damage would be Musk’s, not the court’s.”

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