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

Other legal observers say such resistance is hard to imagine, even from a notoriously combative figure like Musk. He acknowledged he could lose out in August if he explains why he suddenly sold nearly $7 billion worth of Tesla stock.

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“I take him at his word,” said Ann Lipton, associate law professor at Tulane University. “He wants to win. Maybe he has his own judgment on what the odds are. But he’s also kind of practical about it. He’s putting up some cash so he doesn’t have to dump his Tesla stock if it turns out he’s being ordered to buy the company.”

A decision on a particular performance could force Musk to pay his $33.5 billion personal share of the deal; the price increases to $44 billion with promised funding from lenders like Morgan Stanley.

The Delaware court has the power to enforce its orders and could order a receivership to seize some of Musk’s assets, namely Tesla stock, if he fails to comply, according to Tom Lin, a law professor at Temple University.

The court has taken such steps before, for example in 2013 when it scorned Chinese company ZTS Digital Networks and appointed a receiver with the power to seize its assets. But after coercive sanctions didn’t work, the bankruptcy trustee asked the court five years later to issue bank orders calling for the arrests of two senior executives on their next visit to the United States.

Speculations that Musk could face jail time for failing to comply with a verdict are unrealistic, Berger said. “At least not for the Court of Chancery,” said the former judge. “That’s not how the court works.”

But more importantly, Lin said Musk’s legal advisors will urge him to uphold rulings from a court that routinely hears cases involving Tesla and other Delaware-incorporated companies.

“If you are an executive at a large American company based in Delaware, it is very difficult for you to do business and defy the orders of the Chancery,” Lin said.

Concerns about Musk’s compliance stem from his past behavior when dealing with various branches of government. In a long-running lawsuit with the US Securities and Exchange Commission, he was accused of defying a securities fraud settlement that required his tweets to be approved by a Tesla attorney before publication. 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.

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He’s also taken a combative approach in Delaware Chancery Court, calling an opposing attorney a “bad man” while defending Tesla’s 2016 acquisition of SolarCity against a lawsuit blaming Musk for a deal fraught with conflicts of interest and broken promises became. He and his attorneys have other Delaware cases pending, including one involving his compensation package at Tesla.

“I think we have a fair amount of players who, as stupid as Elon Musk is, constantly rely on the good will of the Delaware courts to do business,” Lipton said.

Musk’s argument for winning his recent Delaware case rests largely on his claim that Twitter misrepresented how it measures the size of “spam bot” accounts, which 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 justice who is presiding over the case, that something has changed since the April merger agreement that the termination of business justified.

The trial begins Oct. 17 and the losing side can appeal to the Delaware Supreme Court, which is expected to act quickly. Musk and Twitter could also settle the case before, during or after the trial, lawyers said.

Delaware’s courts are highly respected in the business community, and any attempt to disregard them would be “shocking and unexpected,” said Paul Regan, an associate professor at Widener University’s Delaware Law School, who has served on Delaware courts since the 1980s practiced. “If there were a crisis like this, I think the reputational damage would lie with Musk alone, not the court.”

AP

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Brian Lowry

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