On July 8, Elon Musk informed Twitter that he was terminating his April agreement to purchase the company for $44 billion. Twitter responded last week by suing Musk in Delaware Chancery Court. Its legal complaint alleges that the contract Musk signed forbids him from backing out of the deal. Musk has not yet filed a full answer to the complaint, although he has filed a document objecting to Twitter’s request for a September trial date. The main contention of that opposition is that more time is needed to prepare for a trial, but the document also contests some of the allegations of the complaint.
Any conclusions one draws from the court filings must include the caveat that neither a complaint nor a motion is evidence. Still, if Twitter’s complaint is even roughly accurate—and Musk has not yet contested its key points—it paints a disturbing picture. Musk’s behavior is reminiscent of Donald Trump’s.
That’s potentially bad news for Musk. Should the courts rule that his legal defense is nothing but bluster and bullying, he will end up wasting billions of dollars on Twitter. But the news is also bad for the public, because Musk as Twitter’s owner could make the platform into a cesspool.
In April 2022, Musk agreed to buy (technically, to “merge” shell companies he owned with) Twitter by paying $54.20 per share for the company’s outstanding stock. A substantial premium above market price, that was a sweet deal for shareholders at the time, and it has become even sweeter since, as Twitter’s stock price (along with the broader market) has declined.
The falling stock market is a double whammy for Musk. Twitter wasn’t worth the $44 billion he agreed to buy it for in April and it’s worth even less today. Meanwhile, Musk has less money, because most of his wealth is in the form of Tesla stock, which has also dropped in value since April. Musk can still afford to buy Twitter, but he would better preserve his net worth if he can get out of the deal.
Accordingly, Twitter’s lawsuit alleges that Musk’s grounds for seeking to void the merger agreement are pretextual. And judging by the complaint’s allegations, Twitter has a point.
Musk’s main gripe is that Twitter has been insufficiently forthcoming with information that would enable an objective assessment of the percentage of accounts on Twitter that are fake or “bots.” Yet the complaint states that Twitter has gone above and beyond its disclosure obligations under the contract. More fundamentally, Twitter notes that Musk originally announced that he wanted to buy Twitter so that he could purge the platform of bot accounts. Thus, he can hardly be surprised by their existence; and if they really are more numerous than he estimated when he signed the deal, that is a consequence of his own lack of due diligence.
There are other points of disagreement between the parties, but Musk’s contention that a trial would be complex and thus cannot begin until next year depends on his prevailing with respect to points of law that the presiding judge could reject as early as this week, when she holds a hearing. If Twitter is correct that the contract denies Musk any right to more information than he received, then questions about how many bot accounts exist and how Twitter counts them could be legally irrelevant.
Musk as Trump
Twitter’s complaint nowhere mentions Donald Trump, but it portrays Musk in ways that call to mind the former President’s odious modus operandi in business and then politics.
Donald Trump is notorious for not paying his bills—whether hundreds of millions of dollars owed to banks or thousands to contractors whom Trump stiffed. As one of many stories recounts, Trump boasted that he would “renegotiate” his debt by saying to his creditors, “hey guess what, the economy crashed. I’m going to give you back half [of what I owe].” So too, according to the complaint, Musk hopes to wriggle out of his legal obligations in order to avoid losing money as a consequence of a market downturn—even though the contract specifically excludes such general market declines as a ground for excusing performance.
Meanwhile, like Trump, Musk is a troll. Rather than engage political rivals in reasoned argument, like a childish bully Trump insults them, typically with demeaning nicknames: “Little Marco,” “Lyin’ Ted,” “Crooked Hillary,” “Sleepy Joe.” Musk is likewise puerile. In a lengthy May 16 thread responding to Musk’s claims about bot accounts, Twitter CEO Parag Agrawal carefully and calmly explained the steps the company takes to identify and combat such accounts. Musk’s response? As the complaint notes, he tweeted a poop emoji.
Nearly all politicians sometimes shade the truth, but Donald Trump is a world-class liar. The Washington Post’s fact-checkers documented over thirty thousand lies Trump told during his four-year presidency. That figure does not include his repeated lies about the 2020 election since (extremely reluctantly) leaving office. Another Post story observed that Trump’s “tsunami of untruths kept rising the longer he served as president and became increasingly unmoored from the truth.” Musk is not in Trump’s league as a peddler of falsehoods, but according to Twitter’s complaint, he appears to be working from the same playbook. The complaint states that a June 17 letter from Musk and his lawyers “described an alternative reality in which Twitter had failed to cooperate in supplying Musk with information, entirely contrary to the facts, apparently in the belief that repeating a falsehood enough can make it true.”
Musk resembles Trump in one other way that is easy to overlook because Musk is smarter and better informed than the self-described “very stable genius.” For all his technical and business savvy, however, Musk combines arrogance and naivete. He seems especially naive regarding speech on social media platforms. Musk has stated that in running Twitter, he would reduce the platform’s role in content moderation, essentially allowing users to post anything that is not illegal—including by former users like Donald Trump who were banned for their abusive behavior.
That approach has a superficial appeal. Why should the owner of a platform—whether a publicly traded corporation or an individual—decide who gets to say what? But the anything-legal-goes approach ignores the factors that led Twitter, Facebook, and other platforms to adopt content moderation policies in the first place. In their absence, the platforms promote the most aggressive bullies, bigots, and purveyors of disinformation, intimidating or alienating other users.
To be sure, it is possible that Twitter under a Musk regime would enable users to rely on so-called middleware to choose their own content moderation tools, but the least sophisticated—and most gullible—users would not be well positioned to do so. The most likely outcome, at least in the short run, would be a platform rife with toxic content.
What’s the Remedy?
Twitter v. Musk thus appears to present a dilemma. The allegations in the complaint provide strong grounds for concluding that Musk should be compelled to go through with the deal. But a forced sale to Musk would likely make the platform less useful and more dangerous to democracy. Can the court ensure that Twitter’s shareholders get the benefit of the bargain Musk made without harming the public interest?
Maybe. In Delaware, as in every state, courts generally do not grant specific performance—an order to comply with the terms of a contract—unless an award of money damages cannot make the plaintiff whole. Here the wrong Twitter complains about is the financial harm to shareholders. If Musk is allowed to walk away from the deal, they will lose the difference between $54.20 and the market price of Twitter stock on every share they own. It thus looks like this is an easy case for a damages remedy. The court could order Musk to pay Twitter the difference between his $44 billion purchase price and Twitter’s market capitalization. That cash infusion would immediately be reflected in the share price.
However, there are two main obstacles to a damages remedy. First, the valuation question is tricky due to a timing issue. At what moment should Twitter’s market capitalization be measured? In April, when the deal was struck? On July 8, when Musk purported to terminate the deal? In October, when the deal was scheduled to be consummated? The fluctuations in share price themselves partly reflect the market’s best guess about the litigation’s outcome, rendering the enterprise somewhat circular, and given those fluctuations, the choice of date could affect the damages award by billions of dollars.
Difficulty of valuation is not by itself an insuperable obstacle to a damages award. In many contexts, the law authorizes damages based on inherently subjective criteria. But here there is a second reason for the court to order specific performance: the contract contains express language electing that remedy. Although no case of the Delaware Supreme Court says that a court should grant specific performance of a contract simply because it contains a clause authorizing that remedy, the Delaware Chancery Court tends to treat such a clause as an important factor in favor of such an order. Indeed, here is how the judge who will preside over Twitter v. Musk described the remedial issue in a case last year in which she ordered specific performance: “This court has not hesitated to order specific performance in” corporate acquisition disputes, “particularly where sophisticated parties represented by sophisticated counsel stipulate that specific performance would be an appropriate remedy in the event of breach.”
Does that mean that if Twitter prevails on the merits, Musk will be compelled to buy Twitter? Not necessarily. One of the three factors a Delaware court considers in deciding whether to grant specific performance is the balance of the equities, a broad notion of fairness that includes the public interest. Surely it is against the public interest for one of the dominant social media platforms to be run by a man-child who intends to adopt policies that would further subvert democracy. And yet, if the judge, Chancellor Kathaleen McCormick, conceives of the balance of equities in narrower financial terms, it is quite possible that she will order Musk to acquire Twitter.
Even then, there is some chance that the eccentric billionaire would not end up running the platform. An order of specific performance does not preclude subsequent settlement for a cash payment in lieu of purchase. Musk apparently does not want to own and run Twitter. If ordered to complete the purchase, he could offer Twitter a settlement amount that would be as lucrative to shareholders as a consummated deal. Such a negotiated exit would be superior to a judicial damages award in at least one sense: instead of the court trying to evaluate damages, the exit price would be determined by the parties through negotiation—with Twitter’s bargaining position greatly enhanced by the backstop of a forced sale.
Whatever the ultimate outcome of Twitter v. Musk, the case provides further evidence—as though any were needed—of the peril posed by social media in the hands of wealthy egomaniacs.