A judge in Delaware has set a hearing for Tuesday to hear arguments for Twitter’s request for a September trial in its lawsuit against Elon Musk, Reuters reported Thursday.
After agreeing in April to buy the social media company for $44 billion, Musk announced last week that he intended to walk away from the deal. He said Twitter was not fully disclosing the necessary information about spam accounts, The New York Times reported.
The company then sued Musk in Chancery Court in Delaware, trying to force the billionaire to go through with the deal.
This has set the stage for what is expected to be a long and complicated legal battle — and the first step will take place on Tuesday.
Kathaleen McCormick, the chancellor of Delaware’s Court of Chancery, set a 90-minute hearing that will begin at 11 a.m. in Wilmington, Reuters reported.
The court will have to determine whether Musk is still on the hook to finish the deal or if Twitter violated its legal obligations to provide Musk will all the data he requested. If Twitter violated these obligations, Musk is entitled to walk away from the deal.
“Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests,” Twitter said in the lawsuit. “Musk apparently believes that he — unlike every other party subject to Delaware contract law — is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away.”
Musk did sign a legally binding agreement with Twitter that included a clause allowing the social media platform to sue to force the deal, the Times reported.
The dispute over spam accounts on the platform threw a monkey wrench into the deal when it arose two months ago.
Musk has said he believes at least 20 percent of the accounts are “fake/spam,” while Twitter has claimed in financial documents that figure is less than 5 percent.
20% fake/spam accounts, while 4 times what Twitter claims, could be *much* higher.
My offer was based on Twitter’s SEC filings being accurate.
Yesterday, Twitter’s CEO publicly refused to show proof of <5%.
This deal cannot move forward until he does.
— Elon Musk (@elonmusk) May 17, 2022
In May, the Tesla and SpaceX CEO announced the deal was on hold, saying, “My offer was based on Twitter’s SEC filings being accurate.”
He has made it clear that Twitter has not handed over the data he requested, as required.
Musk’s legal team filed a letter with the U.S. Securities and Exchange Commission on July 8 outlining that the company “has not complied with its contractual obligations” and declaring that he was terminating the purchase agreement.
“While Section 6.4 of the Merger Agreement requires Twitter to provide Mr. Musk and his advisors all data and information that Mr. Musk requests ‘for any reasonable business purpose related to the consummation of the transaction,’ Twitter has not complied with its contractual obligations,” the letter read.
“For nearly two months, Mr. Musk has sought the data and information necessary to ‘make an independent assessment of the prevalence of fake or spam accounts on Twitter’s platform.’”
Now, as a hearing is set and the lawsuit is poised to get underway, there is no predicting the outcome of this immense legal battle.
— Elon Musk (@elonmusk) July 11, 2022
Eric Talley, a professor at Columbia Law School, told Fortune that the outcome is anything but certain.
“There’s an interesting game of reading the tea leaves,” he said.
Will Musk win in court?
Talley said there are strong arguments on both Musk’s and Twitter’s sides, depending on how the judge interprets the contractual clauses and the various factors behind the deal and its financing.
Talley compared the legal battle to a roulette wheel, with a wide variety of possible outcomes.
“The ball is still spinning around and we don’t know where it’s going to land,” he said. “And that ball may be spinning around for a long time.”
“Both sides are going to have to take as sober a look as they can at these various contingencies, these various outcomes, and how much it’s going to cost,” Talley said, “and try to figure out whether there is a number that makes them both feel more comfortable.”
