Imagine: Elon Musk, recognized for his enjoyment of defying authority, is ordered to transfer forward together with his $44 billion buy of Twitter Inc — and refuses.
It’s an uncommon situation, however one during which the court docket would have instruments to implement its orders. It may slap an epic fantastic on Musk, appoint receivers to get the deal achieved and even allow the seizure of his property. Twitter sued Musk on Tuesday to power him to consummate the acquisition after he pulled out.
Musk doesn’t shrink from a combat. He has tangled with everybody from the US Securities and Exchange Commission over his provocative tweets, to a British cave knowledgeable in a defamation case, to Donald Trump. In Delaware Chancery Court final summer time within the SolarCity trial, the Tesla Inc. chief govt officer overtly mocked the lawyer analyzing him, saying he had “nice respect for the court docket” however not for the lawyer, a “unhealthy human being.”
Musk’s respect for that very court docket could now be examined, if it imposes a treatment to the Twitter mess that the world’s richest particular person doesn’t like.
“We’ve by no means had a state of affairs like that in Delaware that I can recall,” stated Larry Hamermesh, a University of Pennsylvania regulation professor who focuses on Delaware company regulation disputes. “It could be fairly excessive.”
Musk’s legal professionals didn’t reply to emails looking for touch upon the case.
A Whopping Fine
Lawyers for Twitter, of San Francisco, stated of their lawsuit that they’ll want solely 4 days in court docket to present that Musk must be pressured to honor his settlement and pay $54.20 a share for the social media firm.
If they prevail and the court docket enters a judgment holding Musk liable, it may invoke Delaware’s civil contempt legal guidelines if he didn’t pay up, stated Brian Quinn, a Boston College regulation professor who teaches about mergers-and-acquisitions regulation.
“A decide may maintain him in contempt and set a every day fantastic till he complies,” Quinn stated. “For Musk, that might have to be a relatively giant quantity.”
Musk’s web value is $217.1 billion, in accordance to the Bloomberg Billionaires Index.
That’s what former Chancery decide Andre Bouchard did in a case involving the court-ordered sale of transcription software program maker Transperfect Global Inc. When Transperfect officers ignored an order, Bouchard imposed a $30,000 every day fantastic, and the corporate rapidly complied. The Delaware Supreme Court later upheld the decide’s contempt powers in opposition to Transperfect however threw out sanctions in opposition to its proprietor.
Seizing Assets, Appointing Receiver
The court docket may let Twitter go after Musk’s property, stated Robert Miller, who holds a chair in company finance and regulation on the Iowa College of Law.
Chancery Court “is a court docket of fairness, with broad powers to vogue cures. Tesla is a Delaware company,” Miller stated. The court docket, he stated, “would haven’t any downside reaching Musk’s Tesla inventory.”
Miller cautioned that “nothing like this has ever occurred earlier than,” a situation during which “somebody is ordered by Chancery to shut a deal and just ignores that order.” But legal deadbeats aren’t unusual, he stated, “and all states and all courts have procedures whereby the profitable litigant can ‘execute’ a judgment by shifting in opposition to the loser’s property.”
A court docket judgment Musk refused to pay would change into like another debt, stated Charles Elson, a retired University of Delaware finance professor and the previous head of the college’s Weinberg Center for Corporate Governance. But seizing Tesla shares to gather that debt might be an extended, tortuous legal street, he stated.
“You’d want to undertake the trouble to pierce the company veil” over the deal, as a result of Musk established holding firms for the aim of the acquisition, Elson stated.
If the shell firms ignored Chancery’s judgment, the court docket may appoint a receiver to take them over and “do the deal,” Quinn stated. The firms would then contact the lenders for the financing and grapple with Musk — suing him for the sum, if needed.
A Stint in Jail
Under Delaware’s civil contempt process, a decide can ship a scofflaw to jail to suppose it over. In 2014 the court docket issued an arrest warrant for a defendant flouting an order to give up his passports. But it’s uncommon for a Chancery decide to ship for the sheriff.
“In a contract dispute, they’ll’t maintain a gun to your head,” Elson stated. “There’s no such factor as a contract jail.”
Still, the court docket may impose a big fantastic on Musk, and even order his arrest, Miller stated. “There’s no method on the earth Delaware is going to lose its franchise because the premier company regulation jurisdiction the place contracts are enforced as a result of Elon doesn’t really feel like doing it,” he stated.
Quinn agrees the court docket would have to reply forcefully. Delaware’s company statutes and its chancery court docket assist convey firms to the state whose incorporation charges make up as a lot as a fourth of its annual $5 billion finances, by some estimates.
“That state lives and dies on its company legal guidelines,” Quinn stated, and doesn’t desire a fame as one “the place you’ll be able to thumb your nostril at a decide.”