Twitter v. Musk: Why a $1B Settlement Might Be the Bargain of Musk’s Career
A five-day trial is set for October 17
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Elon Musk wanted to back out of purchasing Twitter in July and rumors swirled about a one-billion-dollar termination fee. It turns out it is not that simple . . . or cheap. Elon might be forced to buy the company for $44 billion.
The reason is because of contract law doctrine called specific performance. Specific performance means a court forces a party to follow through on a contract. Usually this isn’t allowed. California Civil Code 3390, for example, prohibits specific performance in contracts for personal services. You cannot force an artist to paint a picture for you or a contractor to build your house. That’s called slavery. Nor would you want to pay someone to render a service they are not motivated to provide. Imagine what that painting would look like.
Specific performance is also unavailable when the terms of a contract “are not sufficiently certain to make the precise act which is to be done clearly ascertainable.” You cannot make someone do something when you cannot tell what it is they are supposed to do.
A court can order a party to specifically perform when the contract is for the purchase of unique property. Classic cars, a Rembrandt, and precious coins and collectables are all examples. Real estate is a common example – every tract of land is unique in character and irreplaceable. Substituting a different parcel of property or baseball card or sculpture is not fair to the purchaser. Only the item the parties bargained for is enough.
Twitter went out of its way to bargain for specific performance in the purchase agreement. It expects to get what it bargained for. But is the purchase of a company comparable to the purchase of real estate, collectibles and other unique artifacts? Yes, it is. Recently in May 2021, a Delaware court ordered a private equity buyer to specifically perform its purchase of another company. Twitter v. Musk will be heard in the same court system.
Elon’s side of the story is there are far more bots (fake accounts) than Twitter led him on to believe when they signed the agreement. This false statement of fact by Twitter allows him to rescind the contract, he argues. In an effort to prove it, his lawyers have compelled Twitter to hand over massive volumes of information regarding bot accounts and product development. Twitter responded with dozens of subpoenas of their own.
Twitter filed suit in July and requested an expedited trial. A five-day trial is set for October 17. Three months is a really short amount of time to begin a lawsuit and finish a trial. Everyone is under a huge time crunch.
I predict the parties settle. Safe money is always on a settlement. Once all the information is shared and document reviewers filter out the important stuff then it becomes much clearer who has the better case. The parties will talk behind closed doors and reach a proposed settlement for a lower price-per-share. Twitter’s board and shareholders will either confirm or reject. This could postpone trial a bit.
If the trial does go forward, I predict specific performance will not be awarded. Safe money is always against specific performance. The deal terms seem cloudy to me and this is unlike the recent specific performance case in Delaware because Twitter is a public company. I just don’t see it happening and I think the bot data will harm Twitter, but I cannot say for certain. The only thing I can say for certain is the attorneys for each side are the only ones sure to make money on the deal.
