Delaware court grants win for Twitter in first hearing in Musk trial

Clara D. Flaherty

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A Delaware Chancery Court judge largely granted Twitter’s request for an expedited trial Tuesday, an early win for the social media company in its court battle against Elon Musk, the world’s richest man.

Chancellor Kathaleen McCormick approved Twitter’s appeal for an early court date, setting a five-day trial in October. Twitter had requested a September date — an effort, lawyers argued, to prevent Musk from causing further damage to the company through his firebrand Twitter account and his legal team’s capacity to request reams of potentially damaging internal documents.

Musk’s team had asked for a February date, allowing seven months to compel data and information from Twitter — a request that McCormick said “underestimates ability of this court to quickly process litigation” and went against precedent.

“The reality is the delay [requested by Musk] threatens irreparable harm to the sellers and to Twitter,” McCormick, who was contending with covid-19, said in a raspy voice. The hearing was held virtually after she tested positive for the coronavirus.

Musk is trying to get out of the $44 billion deal to buy the influential social media company, arguing it concealed information about the extent of spam and bots on its service. Twitter aims to enforce the terms of the deal by taking Musk to court.

Twitter’s lawyers have argued, in legal filings and in Tuesday’s hearing, that the case is simple: Musk broke an ironclad agreement to buy the company. Because the merger agreement doesn’t reference bots, the billionaire’s requests for information on the subject is irrelevant, Bill Savitt, Twitter’s lead lawyer on the case, said during the hearing.

“That question is emphatically and plainly not before the court,” Savitt said. “What we have here is a buyer looking to conjure an exit ramp for a deal that doesn’t have one.”

Savitt noted that Musk’s team wants to take 52 depositions from Twitter employees and others — a large number, but one he said could be completed in a two-month time frame. He added the Delaware Chancery Court has completed plenty of major cases in a similar time frame.

“Candidly, we expect Mr. Musk wants to delay this trial long enough to never face a reckoning,” Savitt said. “Mr. Musk has made it very clear: He doesn’t intend to keep any of his promises.”

Musk’s lawyers fired back that Twitter gave their team a “runaround” that was “alarming,” even after they notified Twitter that the company was breaching an “information rights” clause in the contract.

“We got obfuscation, we got delays. We didn’t get the actual firehose for almost two months; we got a nonworking replica of the actual working firehose,” said Musk lawyer Andrew Rossman, highlighting a claim that Twitter purposefully sabotaged the massive stream of data it had provided. This stream, also known as the “firehose,” comprises more than 500 million tweets each day.

But the judge appeared somewhat skeptical of Rossman’s examples of cases of great complexity that went on for many months. She noted that one case Rossman cited was completed in a three-month time frame.

Savitt reiterated Twitter’s argument that it has given Musk’s team huge amounts of data to satisfy its concerns. Musk initially ran 500,000 searches on the firehose data, then asked for more, and Twitter upped his limit to 10 million, Savitt said.

“Mr. Musk’s team has been running searches on this data for months and months,” Savitt said. He argued Musk’s team was using Twitter’s own data not to answer legitimate questions, but to build a case to exit the deal.

Rossman, Musk’s lawyer, said the data has already led them to believe that Twitter’s estimates that five percent of the accounts of its platform are fake or spam are too low. They need more data and time to analyze it to settle the matter, he said, adding that it would be impossible even for computers to process the data in the time frame the company is requesting.

“If your honor looks for a minute at their schedule, they will see how unworkable it is,” he said.

In the hearing, Savitt pushed back, saying Musk’s argument hinges on a false premise that Twitter promised its bot numbers are firm. The company, he argued, has been clear that the numbers are estimates and could go even higher.

“It was largely a Twitter-friendly opinion,” said Adam Badawi, a law professor at the University of California at Berkeley. The judge said public companies face higher risks when trials like this get drawn out too long. “You might infer that she’s saying that delay allows Elon Musk to harm Twitter more, so we should move forward,” Badawi said.

Badawi said the judge left the door open to compelling Musk to complete his purchase, by hinting the case might require more than a $1 billion breakup fee to resolve.

Still, Twitter may be laying the groundwork for a resolution that doesn’t include Musk’s ownership. Twitter’s lawyer argued that Musk had breached the deal, which, if the court agrees, allows the company to recoup more than the $1 billion breakup fee in damages, according to Badawi.

Twitter sued Elon Musk last week to force him to make good on his promise to buy the social media company for $44 billion. Musk promised to complete the deal barring a major change to the company’s financials. But his team argues such contracts are now invalid because Twitter concealed key information about the extent of spam and fake accounts on its service, which Musk’s team has repeatedly claimed are far more prevalent than the company publicly reports.

Twitter countered that argument by taking Musk to court, contending that it has provided Musk with extensive information about how it estimates fake accounts and noting that the billionaire’s team has yet to find any information to bolster his suspicion, despite receiving reams of data. Twitter estimates that spam and bot accounts comprise fewer than 5 percent of its 229 million daily active users.

Twitter sues Elon Musk, setting stage for epic legal battle

Musk claimed in a filing that Twitter’s process for assessing spam and bots is largely manual. But the company has extensive AI systems that cull fake accounts, and the manual process is an additional safeguard, said people familiar with the company’s inner workings, who spoke on the condition of anonymity to describe them.

In a filing late Monday, Twitter doubled down on its reasons for a quick trial that would take place in September.

“Musk offers no reason to think discovery must be so expansive that a trial must wait until next year,” the document states, adding that his fixation on bots is ultimately a “sideshow” his team is using to prolong the litigation and is irrelevant to the contract Musk signed.

Twitter echoed the arguments in its initial complaint, in which it begged a judge to stop Musk from further hurting the company, in Monday’s filing.

Musk fires back at Twitter in new legal filing

“This very public dispute harms Twitter with each passing day Musk is in breach. Musk amplifies this harm by using the Company’s own platform as a megaphone to disparage it,” the filing said. “Millions of Twitter shares trade daily under a cloud of Musk-created doubt. No public company of this size and scale has ever had to bear these uncertainties.”

Now, both parties will gear up for a discovery hearing in which they will argue about what information needs to be provided before the trial begins.

“Musk is going to ask for everything under the sun with respect to bots, and Twitter’s going to fight that,” Badawi said.

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