What if Musk is told to cut a deal on Twitter and he just says no?

To imagine: Elon Muskknown for his delight in defying authority, is ordered to proceed with his $44 billion purchase of Twitter Inc.— and refuses.

This is an unusual scenario, but one in which the court would have tools to enforce its orders. It could impose an epic fine on Musk, appoint receivers to close the deal, or even allow his assets to be seized. Twitter sued Musk on Tuesday to force him to complete the acquisition after he pulled out.

Musk is not afraid of a fight. He mingled with everyone from the United States Securities and Exchange Commission about his provocative tweetsto a Briton cave specialist in a defamation case, donald trump. At the Delaware Chancery Court last summer in the SolarCity trialthe Tesla Inc. the chief executive openly mocked the lawyer questioning him, saying he had “great respect for the court” but not for the lawyer, a “bad human being”.

Musk’s respect for this tribunal may now be put to the test, if he imposes a remedy for the Twitter mess the world’s richest person doesn’t like.

Read more: Twitter-Musk case attributed to Delaware Chief Justice McCormick

“We’ve never had a situation like this in Delaware that I can remember,” said Larry Hamermesh, a law professor at the University of Pennsylvania, specializing in Delaware corporate litigation. “That would be pretty extreme.”

Musk’s attorneys did not respond to emails seeking comment on the case.

A huge fine

Lawyers for Twitter, San Francisco, said in their lawsuit that they will only need four days in court to show that Musk should be forced to honor his deal and pay $54.20 per share for the social media company.

If they prevail and the court issues a judgment holding Musk liable, he could invoke Delaware’s civil contempt laws if he doesn’t pay, said Brian Quinnlaw professor at Boston College who teaches mergers and acquisitions law.

“A judge could look down on him and fine him daily until he complies,” Quinn said. “For Musk, that should be a pretty big number.”

Musk’s net worth is $217.1 billion, according to the Bloomberg Billionaires Index.

Read more: Twitter explains how making Musk M&A Stick is a compelling case

This is what the former judge of the chancellery Andre Bouchard did so in a case involving the court decision sale from the transcription software manufacturer Transperfect Global Inc. When Transperfect officials ignored an order, Bouchard imposed a $30,000 daily fine, and the company quickly complied. The Delaware Supreme Court later upheld the judge’s contempt powers against Transperfect but dismissed the penalties against its owner.

Seizure of property, appointment of a receiver

Court could let Twitter sue Musk’s assets, says Robert Millerholds a chair in corporate finance and law at the Iowa College of Law.

The Chancery Court “is a court of equity, endowed with broad powers to fashion remedies. Tesla is a Delaware company,” Miller said. The court, he said, “would have no problem reaching Musk’s Tesla action.”

Miller warned that “nothing like this has ever happened before”, a scenario in which “someone gets an order from the chancery to make a deal and just ignores that order”. But legal deadbeats are not uncommon, he said, “and all states and courts have procedures by which the winning litigant can ‘enforce’ a judgment by acting against the loser’s assets.”

Read more: Twitter backtracks on Musk, sues to force $44 billion buyout

A court order that Musk refused to pay would become like any other debt, says Charles Elsonretired professor of finance from the University of Delaware and former chair of the department Weinberg Center for Corporate Governance. But seizing Tesla stock to collect that debt could be a long and tortuous legal route, he said.

“You would need to undertake the effort to pierce the corporate veil” on the deal because Musk created holding companies for the purpose of the acquisition, Elson said.

If the shell companies ignored Chancery’s judgment, the court could appoint a receiver to take them over and “do the trick,” Quinn said. The companies would then approach lenders for funding and grapple with Musk – suing him for the sum, if necessary.

A stay in prison

Under Delaware’s civil contempt proceedings, a judge can send an offender to jail to think about it. In 2014, the court issued an arrest warrant for a defendant ignoring an order to surrender his passports. But it’s rare for a chancery judge to summon the sheriff.

“In a contract dispute, they can’t point a gun at your head,” Elson said. “There is no contractual prison.”

Read more: Musk’s Twitter flip-flop sends Delaware takeover saga

Still, the court could impose a hefty fine on Musk, or even order his arrest, Miller said.

“There’s no way in the world that Delaware will lose its franchise as the premier corporate law jurisdiction where contracts are enforced because Elon doesn’t feel like it,” he said. .

Quinn agrees that the court should react forcefully. Delaware’s corporate statutes and its chancery court help bring companies into the state whose incorporation costs are up to one Fourth of its $5 billion annual budget, according to some estimates.

“This state lives and dies by its corporate laws,” Quinn said, and doesn’t want the reputation of being “where you can thumb your nose at a judge.”

The Case is Twitter c. Musk, 22-0613, Delaware Chancery Court (Wilmington).

To contact the reporters on this story:
Jeff Feeley in Wilmington, Delaware at [email protected];
Matthew Bultman in New York at [email protected];
Evan Peng in New York at [email protected]

To contact the editors responsible for this story:
Katia Porzecanski to [email protected]

Peter Jeffrey

© 2022 Bloomberg LP All rights reserved. Used with permission.

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