Elon Goes To Delaware — With The Chancery Daily

The Chancery Daily is an independent, daily newsletter that covers the Delaware Court of Chancery, the place where Twitter is trying to force Elon Musk to buy it. As this case winds its way through the court's legal process, an editor from The Chancery Daily joins us to break down where the case stands, whether Musk's arguments are working, how Delaware Chancellor Kathaleen McCormick is approaching the case, and what the likely result is. Give this episode a listen and you'll be able to follow the case with far more context than you'd get through just the headlines. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Alex Kantrowitz?

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• 0:43Alex Kantrowitz?

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• 1:03Speaker 01

  LinkedIn Presents.

• 1:19Alex Kantrowitz?

  Welcome to the Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. And this week, we're going to dive really deep into the case that's happening in Delaware. You might have heard about it. Twitter is suing an entity owned by Elon Musk to try to force the deal. That entity, aka Elon, you know, had agreed to acquire Twitter. They're going to try to force it to close. And we're in this kind of interesting period where that case is going to get going in earnest in October. But in the meantime, there's been a lot of legal posturing and actually a lot of action in the courtroom. That has gotten some coverage, but I don't think that you've heard about it in the amount of depth that you're going to hear about it today. Joining us to break down the case and

• 2:02Alex Kantrowitz?

  what's happening in Delaware is the Chancery Daily. It is a publication that you're going to hear about a little bit more depth as we get into our intro. And the reason why I'm referring it to publication is our guest is going to come on, just as the Chancery Daily unnamed, and we'll get into why that is. I think we can call her Chance. I'm trying to figure out the right way to do this, so bear with us. But anyway, welcome to the show, Chancery Daily.

• 2:30Speaker 02

  Thanks, Alex. It's great to be here. I'm really excited to have an opportunity to speak to the people about this case. You know, the Chancery Daily is a more a daily publication for basically way down in the weeds for lawyers who've been publishing for a decade. It was founded by one of my really close friends and former colleagues at a law firm, were three Penn Law grads and a couple of other folks. And I'm here anonymously, quasi anonymously as Chance today because the way that we operate the publication is really not one of individual identity. We're a team. We speak as a team. We write as a team. We do everything as a

• 3:13Speaker 02

  team. So I really, you know, it's really not about me. It's about the publication and the history that we have developed institutionally in our memory over the last 10 years of literally looking at every document that comes in or out of the Court of Chancery in Delaware. So happy to be here today.

• 3:31Alex Kantrowitz?

  Yeah, great to have you here. I don't think, well, at least given your running analysis on Twitter, I haven't found anyone who's watching the closest, as closely as you and your team. So it's a real thrill to be able to dig into it deeply with you. One more question about, you know, in terms of going as Chance today or the Chancery Daily.

• 3:52Speaker 02

  Sure.

• 3:53Alex Kantrowitz?

  Is the case, my sense is that anything that Elon Musk touches gets like very heated, having tweeted his name once in a while. Is the case that hot and that, has it inflamed such passions that part of the reason to stay anonymous is to sort of avoid some of the personal attacks that anyone who seems to wade into this are getting hit with?

• 4:17Speaker 02

  Yeah, sure. There's an aspect of that, and I've actually tweeted about it, I think, in several different threads, and I'll probably say that too many times today, and I apologize. But I always feel like I've already said everything twice on Twitter, but that's how Twitter works. But I did a thread about just the absolute factionalization of this matter into two camps that really have a difficult time dialoguing with one another. You mentioned in your intro that this program is into nuance, and nuance is kind of one of my life passions. And I find that it's just so dramatically missing. I mean, first of all, you've got social media, Twitter, right, is the one party. Then you've got

• 4:57Speaker 02

  Elon Musk is the counterparty. You can't really imagine two more factionalizing kind of concepts coming together and having the two groups of people. Plus, you also have, and I should just disclose here, that I don't have a position in this case financially. I intentionally refrained from taking a position in Twitter, even though I thought it was a pretty good bet early on in the case, because you can see very clearly what it does to people's thinking to have a financial stake in the matter. You can just see it played out every day on Twitter in the discussions. It's very hard to remain objective or have any kind of neutral position. I'm not saying that there aren't people who manage it, but

• 5:40Speaker 02

  it's very difficult, especially if you're not incredibly conscious of what you're doing.

• 5:44Alex Kantrowitz?

  Right. It's interesting. It's like, I think you hit the nail on the head, right? It's Twitter. It's an extremely nuanced case. And of course, it's going to get a lot of play on Twitter because stuff about Twitter ends up getting discussed on Twitter. But it's just like the exact wrong forum to do it.

• 6:01Speaker 02

  Exactly.

• 6:02Alex Kantrowitz?

  And I think that this is why we have the show, is because we can unpack stuff that... Goes beyond the tweets and the headlines.

• 6:09Speaker 02

  That's right. It's ironic because our publication is literally the most dense, you know, email publication probably in history. We produce more words per day than I don't know of any other newsletter that even comes close. We dive into the absolute itty-bitty kind of detail about these things. And then, you know, about, well, about two months ago, I guess, I decided, hey, do we still have that Twitter account? It turns out we were locked out of our original Twitter account that we used to do some pretty banal, generic kind of posting on. And I thought, well, you know, I'll hop on there, see, see what's going on, see if people want to talk about this. And I mean, it has, in that sense, our visibility to the public has gone from basically zero to a hundred and, you know,

• 6:53Speaker 02

  as fast as the plaid mode or whatever. It's like, it's fast in terms of our, our growth into the scene of the sort of what I would call kind of pop corporate law.

• 7:03Alex Kantrowitz?

  Yeah.

• 7:04Speaker 02

  You know, where we're not talking anymore just to attorneys who are literally litigating these things on a day-to-day basis. We're talking to people that have such a wide range of base knowledge about the law or about finance or about corporate finance. But, you know, you've got, you've got the whole diaspora. You've got, so you're trying to speak to people at their level is something that I've also actually talked a lot about on the meta level, because I think it's so important to have a place, a way to communicate these things to people. There are, our account is proof positive that there's a demand for it. You know, people really want to be engaged in these conversations. And I think that it's so critical to give people

• 7:48Speaker 02

  an actual nuanced way to, to play the game, you know, to talk about these things because they do matter to everyone.

• 7:55Alex Kantrowitz?

  Absolutely. Okay. So in your opening remarks, you said that initially you thought maybe it made sense to take a position on Twitter. Meaning, I think that you think that Twitter was going to close this deal because Elon had signed an agreement saying he was going to buy the company. And typically, when you do that, you buy the company. It's kind of how contracts work.

• 8:15Speaker 02

  Yeah.

• 8:16Alex Kantrowitz?

  But I picked up a little bit on the fact that you said initially. So how's this case going so far? And how's it looking for both parties?

• 8:23Speaker 02

  So I I frankly haven't changed my position on how likely I think this deal is to close. I mean, again, I'll do like a little brief momentary lawyerly kind of caveat situation. This is all very nuanced. This should not be taken as financial advice, et cetera, et cetera, et cetera. I know that there are people who disagree with with me and with my entire team on this. But, you know, we do have a pretty exclusive kind of view on it. And we could absolutely be wrong. We could, you know, this case could come out any number of ways. One of the big things about this case is that a lot of it is happening under seal or it's just happening in the normal course of discovery that we don't get to see as outsiders. And so it's really hard to know for sure.

• 9:06Speaker 02

  Of course, in any legal case, it's impossible to know for sure what's going to happen. But here we're also handicapped by not being able to see the documents yet, by not being able to have a real view into all of the facts on the ground. But that being said, Twitter has a strong case here. And just for the reasons that you articulated, you know, some of the fundamental principles of murders and acquisitions that go back decades or, you know, certainty of contract, a certainty of you signed the deal. You waived the due diligence that you could have had. You you entered into an agreement and that means something in corporate law, in contract law, in law under various domains.

• 9:50Speaker 02

  It it it is meaningful and it needs to be meaningful in order for companies operating to have certainty about things. Because certainty is incredibly valued to corporation, incredibly valuable to corporations. And, you know, if you look at Chancellor McCormick's most recent decision, where she granted specific performance in the Deco-Pac case during the pandemic last year, she said scoring a win for deal certainty.

• 10:17Alex Kantrowitz?

  Right.

• 10:17Speaker 02

  I grant the motion for, you know, the

• 10:19Alex Kantrowitz?

  So let's just break that down. So that was, she used the exact exactly the same provision that in the contract that Twitter has in its favor to force a smaller deal to close not long ago.

• 10:31Speaker 02

  That's correct. So the

• 10:32Alex Kantrowitz?

  Yeah.

• 10:33Speaker 02

  Yeah, it was a deal during the pandemic. There are, you know, it was like, I think. Oh, some, it was a private equity company that was coming in to buy a cake decorating. They they sell cake decorating provisions to supermarkets. Um, and, you know, basically, they had a provision in the contract that said that specific performance was a a remedy uh in the event of uh an attempted breach. And she looked at those facts and she said, the the equitable remedy here is is to specifically perform on this contract. And I mean, that brings me to something that we may want to talk about, which is, you know, the Court of Chancery is a court of equity, not a court of law. And it sounds weird to say it's not a court of law.

• 11:18Alex Kantrowitz?

  Yeah, what does that mean?

• 11:19Speaker 02

  It certainly sounds like, yeah, no, a court of equity is, uh, well, it's a long and storied uh history and I can uh provide people to a link of the official written history of the Court of Chancery, but it in its most basic terms, it means that the court has discretion to fashion a remedy that isn't that is equitable. I'm using all of the terms to define the term, I know, but um it may mean that.

• 11:45Alex Kantrowitz?

  He's just self-aware of that. Okay, go ahead.

• 11:48Speaker 02

  It means that the court isn't bound by a certain limitation on what it can do in addressing a situation that it finds to be unfair. It fairness is the the the golden, the the guiding principle here. And so, you know, equitable i- i- in terms of the legal significance between the distinction of equity and law, obviously, equity does in some sense fall under the category of law, but in this distinction that the law makes between equity and law, it means that the court can actually make people do things or stop people from doing things. Usually in civil litigation, the court can grant money damages when there has been a

• 12:30Speaker 02

  breach of a contract or of some other type of obligation. But here, the court has i- i- i- specific performance is kind of the the ultimate uh view into what equity means. Equity means you can actually enjoin people to do things. You can make injunctions. You can force people to, for instance, trim hedges as one of the cases in the the lower part of the state of Delaware involved a couple of years ago.

• 12:59Alex Kantrowitz?

  Wait, that actually happened? Or they said, you go cut those hedges?

• 13:02Speaker 02

  Oh, yeah, it was, it was a, it was a kind of two legacy families in Delaware fighting. It's a, it's an interesting case, but yes, there you can actually, the court has this, this power that isn't granted to all courts, which is to say, you will do this thing, or you will not do this thing. I mean, a huge portion of the cases that the court of chancery hears right now are actually sort of T R O, temporary restraining order cases. Well, they come in originally as a T R O, uh, for employers that are breaching covenants of, let's say they had an agreement with their employer that they wouldn't go work for someone else. And then they leave and they go work for a competitor. And then they get sued in the court of chancery because they want the court to enjoin the person from working at their new job.

• 13:48Speaker 02

  And that's a big responsibility that the court sees. The court is actually demanding that humans do or do not do things, which is a lot different if you think about it than just saying, yeah, pay up the money. Right? It's much more akin to almost a criminal court where you're actually restraining people's liberty in some way, you can say. Um, so specific performance is kind of like the the optimal case. Imagine what equity means. Equity, specific performance is an equitable remedy in that sense. It's saying, do this thing you said you were going to do.

• 14:21Alex Kantrowitz?

  Right. And that's like, kind of what's at stake here. So you think that, that, you know, because there's that specific performance clause in the contract, you know, basically saying the court can't force this deal to close. Your position is that they're likely to force Elon to buy Twitter. Now, of course, that would be extraordinary. Nothing like that has ever happened before, at least on this scale. And, and, but, but it does make sense that the, the logic makes sense that if you sign a deal with that clause in it, um, then that's sort of, you know, something you have to do and the court is there to enforce it. So that's kind of where I'm, um, you know, would like to jump into this. Is, is there anything Elon can say with his team of extremely high-priced lawyers to say, actually, that doesn't apply?

• 15:05Alex Kantrowitz?

  Um, why is this, i- if that's in the contract, why is this even a case?

• 15:10Speaker 02

  Well, it's a case, I think, at bottom because there's forty four billion dollars at stake and there's there's something that we don't really know what Elon's perspective is on whether or not he wants to do this deal anymore. But presuming that he does not, then there's a lot at stake for him, right?

• 15:25Alex Kantrowitz?

  Well, it seems like he doesn't because he's he's tried to kill it.

• 15:28Speaker 02

  He doesn't, but there's also an argument that he's he's just

• 15:32Alex Kantrowitz?

  Oh, trying to negotiate the price down.

• 15:34Speaker 02

  Yeah, yeah. So, I mean, you know, you can definitely look at it. It's hard to he's a particularly hard person to read in terms of what he's actually, you know, he he's sort of at once very transparent, but in the other sense, obviously, he has a whole

• 15:48Alex Kantrowitz?

  Completely inscrutable.

• 15:49Speaker 02

  Right, exactly. So, you know, it's hard to guess and who knows? But i- if there i- if he doesn't want to do the deal, or if he desperately wants to do the deal at a discount, and who wouldn't at these at these prices, sort of even a small percentage discount is a whole lot of money. Then, you know, he's going to, I mean, some people have characterized it as throwing spaghetti at the wall. I think he's in well within his rights to try to assert any arguable basis for getting out of this contract uh, that he can find, and he is certainly trying to find one. He has, you know, he has sent Twitter three termination letters now on three different bases.

• 16:31Speaker 02

  He has a whole host of arguments in his counterclaims um, that relate to all kinds of things, including Indian government investigations of Twitter and Texas Securities Act claims that that are that seem very tenuous. Um, but, you know, does he have any valid claims? The real the real question can't be answered until we know more about the facts. Look, he has a theory of the case and and to some degree at this stage of the case, even though it's moving fast, that's really all he needs to have. He has a theory that Twitter misrepresented certain things in their ten K.

• 17:14Speaker 02

  They said that those filings were

• 17:17Alex Kantrowitz?

  SEC filing, yeah.

• 17:18Speaker 02

  That's right. He's they said that those file in in the contract specifically. He had to say, I'm only relying on things within the four corners of this document. But one of the things within those four corners of that document were that the S E C filings were accurate. And so he's kind of nibbling away at anything that he can to, you know, parse whatever he can pull out to say that this that that there was fraud, that they were, they were lying, that they were concealing things now. Do we have any public evidence of that? I mean, that's certainly something that people on Twitter uh have a fun time debating. Um, you know, we started with the argument.

• 17:58Speaker 02

  Uh, the reductionist version of the argument was Elon's quote five percent bots theory. Um, which was already, in my opinion, a misrepresentation of what is actually at stake legally, which was this long paragraph in Twitter's S E C filings that the that details how they go about the process of determining what is a bot on Twitter, what is a monetizable daily active user? And then how they subtract all of the the bots and then after they do that from the pool of people who they are going to tell advertisers, hey, these are monetizable daily active users.

• 18:39Speaker 02

  They say, look, our process is what our process is. It's subjective. It's subject to all these caveats. But we come out around five percent or less of our after bot removal pool being actually still bots. And so, you know, he Elon and his team have have done what they have done to certainly in the common understanding that got misrepresented as if there's more than five percent of of accounts on Twitter that are bots, then the deal is off. That is absolutely not the case under the law. No, no matter how you read things.

• 19:13Alex Kantrowitz?

  Right. This is all about monetizable daily active users. Is this the first letter termination letter that they sent? So you mentioned three.

• 19:21Speaker 02

  That was the first.

• 19:21Alex Kantrowitz?

  Number one. And by the way, before we get on to the second one. My, I'm having trouble to understanding, is it the fact that there were bots on Twitter? Or is the fact that Elon's lawyers said that Twitter was not giving them the appropriate information to make the calculation on bots? Because I've heard both of those things being thrown out as a grounds to try to, you know, blow the case up, but.

• 19:46Speaker 02

  That's right.

• 19:47Alex Kantrowitz?

  Which, which is, which is it?

• 19:49Speaker 02

  Right, so there, there are two, there are two aspects to it and you're right to distinguish them. And look, this contract is, I think 68 pages or something, it's, it's incredibly detailed, right? Anyone who tells you, oh, the contract just says this, you have to immediately look at them askance, because the contract says a lot of things and a lot of them interplay in very complex ways. And also, contract law interpretation is its own Wild West of sorts. It, it has a lot of sort of common law principles that may or may not be really useful in Delaware. Some of them will be very common to be, you know, used in Delaware, others will be really kind of esoteric.

• 20:32Speaker 02

  So interpreting the contract is this whole, bowl of wax, bowl of wax, I'm not sure what the expression is, but it's a whole.

• 20:40Alex Kantrowitz?

  It's a waxy problem.

• 20:41Speaker 02

  Yeah, exactly. So, but to your point, there are, there are two separate issues here. There are information rights that Elon says that he has under the contract, which give him the right to information. That Twitter promised to give certain information so that he, for, in his, in his understanding, so that he could determine whether they had been telling the truth in their SEC filings.

• 21:08Speaker 02

  The real problem is, you know, what is the scope of that information? Like, that's, that's, that's sort of a question of fact that has to be.

• 21:18Speaker 02

  A determination of fact that has to be made by someone, uh, probably not just some rando on Twitter. But you know, did they give sufficient information as they agreed to do under the information rights? That is a question. And what is the ramification if they didn't? You know, I'm pretty sure that there's a strong argument that. Let's say they just barely failed to give all the information. Well, all that he's really said that he was asking for information about was to prove whether the SEC filings were accurate, right? That's the only thing he can sort of legitimately fight for. Because he didn't negotiate some broader set of information rights. He negotiated for what he negotiated for. And so then there's like, how do we interpret what he negotiated for?

• 22:03Speaker 02

  So there is an argument to make. I don't think it's a particularly strong one, but that they didn't give him what he needed. Now, if you actually take him at his word, that what he wanted was not a way out of the contract, but actually to determine whether the SEC filings were accurate. Then you've got to look at the SEC filings and say, what are we trying to prove or disprove? Right? We're not trying to prove or disprove some quote unquote 5% bots theory. That is not, that does not exist. What we're trying to prove or disprove the accuracy of is this long paragraph in an SEC filing that says all sorts of things like, we don't know if this process is good or not. This process may be terrible, but here's the process that we use.

• 22:47Speaker 02

  And this is how the result comes out. And this is what we say. Now, how do you disprove something that is so clearly caveated, that is so clearly has all these, you know, like the, the, these nuances in it, right? It's not as simple as him pulling every hundred users on his personal profile and determining whether they're bots. It's not even as simple as him getting every tweet in history and every retweet and comment and reply and DM and everything else, and then making his own determination. It's still not even about that. It's about what did they say and was that true or untrue?

• 23:23Alex Kantrowitz?

  Yep. And this, this first termination argument sounds just a little ridiculous to almost everybody looking on. So why don't we go to the, you know, second and third ones that they tried. And I imagine they involve, you know, the wild card that's come up recently, which is this whistleblower at Twitter.

• 23:46Speaker 02

  Yeah, absolutely. And, you know, look, to be fair, despite or in light of or for the reason for why I don't have a position in Twitter is because I want to be able to look at this case objectively. And I know that that's influenced by so many factors. But this whole way that this whistleblower stuff is coming out, like, it's not optimal.

• 24:08Alex Kantrowitz?

  Yeah. So can you, can you take us sort of at the, you know, from the start, who's the whistleblower? And how does that factor into the case?

• 24:16Speaker 02

  So I think he probably pronounces it Peter, but it might just be Peter Zatko,

• 24:22Speaker 02

  also known as Mudge in the information technology community or the cybersecurity community. Look, he's a, he's a well-respected guy who seems like, in the absence of all of the stuff that has happened over the last six months, you would have looked at him and said, oh, he's like one of the OGs, right? He's like one of the, he's, he seems like he has a lot of street cred. He certainly has a lot of street cred with the people in his industry and the people who sort of think the way that he does about cybersecurity issues.

• 24:55Alex Kantrowitz?

  Right. And he's the former chief information security officer at Twitter.

• 25:00Speaker 02

  He was called head of security.

• 25:02Alex Kantrowitz?

  Right. Yep. Who was fired by Parag Agarwal, the CEO of Twitter in Jan- January. So just a few months before the Musk, Elon Musk appeared in the Twitter narrative.

• 25:15Speaker 02

  I mean, can you imagine this whole thing from Parag's perspective? It's just like, it seems like it's like a Netflix movie waiting to happen, right? He rises up the ranks from engineer to CTO. And then Jack does what Jack does in the middle. And then all of a sudden, he's like CEO. And then what happens, right? All of these things happen at the same time. And it's quite insane to think about what it must have been like as a human being from his perspective. But yeah, so, you know, Mudge raises these issues.

• 25:46Speaker 02

  To the, to his, I mean presumably, I think he's reporting directly to Agarwal at that point or to his, his superior.

• 25:54Alex Kantrowitz?

  Right. And what are the issues that he raised exactly?

• 25:58Speaker 02

  I mean, look, there's various ways to categorize these things, but generally that, you know, Twitter devs work in a production environment, not in like a sandboxed environment. He, that's, there's obviously a risk there. You're, you're working with code that is production code. You're, he think, he, he has a problem with the sort of up to datedness of, of everyone endpoint or Twitter employees' computers, that their latest OS isn't installed. You know, kind of things that you can really see it either way. If you've ever worked with a Sil- Silicon Valley company who moves fast and breaks things, you're probably like, yeah, this is every company in Silicon Valley, right?

• 26:41Speaker 02

  But if you're on the cybersecurity side, you're thinking, oh my God, this is like, these are bad things, right? I think it's hard for laypeople and lawyers especially, and even or arbitrators or anyone who's listening, you know, uh, interested in these things. I think it's hard. If you haven't watched these two kind of groups of people interact before, sort of business folks and tech folks. It, well, IT sort of cybersecurity folks. You might not really get the vibe that's going on here, but the vibe that's going on here is like, for much, I believe that that these things freaked him out. Like, I believe that he looked at this and said, this is absolutely terrible. I also believe that that's sort of just his opinion, man. You know, it's like,

• 27:25Speaker 02

  yes, they hired him to be head of security, but also they have a business plan and a business model and they have to make business decisions, right? The, the board of directors, the officers and directors. They're the ones who run the company. They have to make final decisions about these things. It turned out that he was very antagonistic when they wouldn't take it. They would hear him, they wouldn't take his suggestion. He was just not okay with that. And I look from a personal perspective on his part, I can understand that. Like, it's annoying to be telling your team that the, the business is on fire and nobody's doing anything about it. But the thing is that, especially in Delaware.

• 28:07Speaker 02

  The directors and officers of a company are the ones who get to the board of directors. Run the company, right? They the the the directors and officers are the ones who are the company. It's they. In Delaware, the there's a thing called the business judgment rule. And what it means is that. Courts are not really in a position to question the business judgment of these folks, right? And so all that they really have to prove is that. They made an informed business judgment and that they shared it with the appropriate people. Now, I suppose this is where you get into the question of like. Did they share relevant information with the appropriate people? Um. And that's part of what, you know?

• 28:52Alex Kantrowitz?

  Right. So what is what is the Musk camp alleging when it comes to these much like is this termination letter two and three coming from him? And and and what are those specific arguments? Do they hold any weight?

• 29:04Speaker 02

  So unfortunately, it won't be till the end of this week that we see the actual counterclaims that come out of. These new termination letters, but we do get to see the brief articulation in the termination letters and. That the first one involves simply the fact of of of much existing in that he was a whistleblower and that he had this complaint and. You know, he both wrote a complaint. At to Twitter at the time, right? He spent one hundred and fifty or one hundred and seventy hours or something of his own time after he was. Uh. Terminated. Writing up what he thought were these problems at Twitter. Now, it's notable, I think. To to the look at that actual document and see that.

• 29:44Speaker 02

  It does not mention bots. It does not mention M Dow. It does not mention any of the sort of. Hot button issues that were at the forefront of this case. However.

• 29:56Alex Kantrowitz?

  But it is him saying, yeah, so I'll let you go. I guess he he says that they did violate some of their agreements with the FTC and the SEC and that. Essentially grounds for removal or or termination?

• 30:07Speaker 02

  In his

• 30:07Alex Kantrowitz?

  Because if you're relying on them.

• 30:09Speaker 02

  Right, right. So there's two complaints, just to be clear. There's the thing that he wrote to Twitter, which was this report that he wrote up when he was actually fired. He said it in his termination interview, the words that no chief legal officer ever wants to hear, which is, I think you're doing bad things in this company. And so, of course, the legal team was like, excuse me, what? Uh, what could you put that in writing? Could you tell us all about what you think? Because we, we can't just let you leave your termination interview and walk away with this coming out of your mouth, at your exit interview, right? That would not be responsible. So they ask him to write up what his complaints are. And he does that. Now he turns in that document. That document.

• 30:50Speaker 02

  Yeah, it says that they're in violation of the FTC consent decree. Um, with their information sort of security policies that they are or are not putting in place. And then later, right? So, so then now we find out that in the intervening months, he's alleging that they wrongfully terminated him. And he is either threatening litigation. We don't know the details of exactly what happened. But we do know that at some point Twitter was like, here's seven million dollars.

• 31:19Alex Kantrowitz?

  Okay.

• 31:20Speaker 02

  Can we, can we be good? Right? And so, but then he writes his whistleblower complaint after that.

• 31:27Alex Kantrowitz?

  Hmm.

• 31:27Speaker 02

  I'm pretty sure that's the order of things, right? Because I think he received the payment in, in two, I guess it's kind of tight there, what was actually happening. Um. In any case, he's received, he's negotiating with Twitter for a settlement of his wrongful termination claim. To whatever extent he actually brought that claim, probably just by letter of an attorney or something. And then he's at the same time writing his whistleblower complaint that he's going to file with Congress. And so yeah, you can see this from a lot of different perspectives. You can see it, uh, you know, whistleblower complaints are hard. Uh, to process as an outsider, because in some way whistleblowers always seem like aggrieved, wronged

• 32:09Speaker 02

  employees. And sometimes they legitimately are, but also sometimes they're just legitimately mad at the company for kind of more interpersonal emotional reasons. And it's hard from the outside without all of the information to determine what kind of a case this is.

• 32:28Alex Kantrowitz?

  Okay, and so, so basically, what, what Elon's team is saying is that these out, the fact that he existed, the fact that he made these allegations are grounds to let Elon out of the case, you know, so we have the bot, the bot answer, and then we have all these answers in terms of these reasons, in terms of the, the Twitter breaching its agreement with the FTC and lying to the SEC. Yeah, go ahead.

• 32:54Speaker 02

  Let me clarify on the two grounds for termination then on the second and third letters that Musk sent to Twitter. Second one is, you, you had this thing with Musk and, oh, sorry, with Mudge, and you didn't tell us about it. You didn't disclose it to the right people internally.

• 33:10Alex Kantrowitz?

  That seems material. I mean, it does seem like you'd wanna let the person who's acquiring the company know that the head of security was blowing the whistle on the company.

• 33:21Speaker 02

  It absolutely does. However, you also have, as a sophisticated party entering a $44 billion transaction over a weekend, you have a strong responsibility, especially under the law of Delaware corporate, the sort of body of Delaware corporate law, you have a very high bar for the questions and the information that you demand, right? So, yes, of course, it does, I mean, my first response too was like, huh, seems like a little unfortunate that this is coming out this way now, right? It's not a good look for Twitter. You can't imagine. But at the same time, they are literally being advised by the best legal team on the face of the earth. I don't know, like, they have very

• 34:05Speaker 02

  good lawyers. The idea that their lawyers would have allowed them to do something on the facts that was so egregious if it wasn't for the fact that Musk didn't ask any questions. He just said, I wanna buy this. He basically didn't even say that. He said, look, I'm either gonna buy it, or I'm gonna sell my 9.2% stake and tank your share price, which is it? Like, it doesn't really seem like, um, the Twitter board didn't really have a choice but to accept his offer, and he's the one who made the offer, right? They negotiated a deal. He chose not to ask certain questions, and that counts for a lot in this court.

• 34:49Alex Kantrowitz?

  Yeah, the so let's talk about the chancellor who's hearing the case a little bit in the second half.

• 34:54Speaker 02

  And let me just also the third one real quick. Oh, sorry.

• 34:57Alex Kantrowitz?

  Yeah.

• 34:57Speaker 02

  The third one is just that they made him a payment of 7.75 million dollars. And I believe that the grounds are that Musk alleges that one that was out of the ordinary course of operations and that he wasn't, he did not give his consent. So in the contract, he did negotiate for information and consent rights. And so, but there's always a complicating factor, right? He, we don't know the details of this, but in one of her recent opinions, the chancellor has this, this, this mention, one of those things where she just drops like, you know, a really important fact in the middle of the room, which is Musk has been, apparently, we don't, we don't have the details publicly, but she alleges, which I trust her, that Musk has been withholding consent for everything that Twitter has asked for.

• 35:43Speaker 02

  Basically, you're not allowed to do that. You're not allowed to say, let me have consent rights and then just irrationally or unreasonably withhold consent on everything because you can basically hold the company hostage while you're in court trying to negotiate your way out of the deal. Right? So she did not like the fact that he had been withholding his consent for, for basically normal things that the company wanted to do. And so is it a bad look that they didn't ask him for consent? If they didn't about the 7.75 million, it really matters whether it was a settlement or whether it was a, a rights plan because under the contract, there's, there's a differentiation and they, they have up to a 25 million dollar cap on settlements that they can make without his consent.

• 36:24Speaker 02

  So it's another thorny issue, but that's what the third termination letter is about.

• 36:29Alex Kantrowitz?

  Okay, so um, let's take a break and then when we come back, I want to hear your perspective about,

• 36:37Alex Kantrowitz?

  we're going to, we talked a little bit about the court, but I want to talk a little bit about Chancellor Cormac, who's hearing this case and then um, some how these specific arguments that we've brought up in the first half are actually playing out. And then where we think this, this case is going. We don't know exactly. Maybe we'll, we'll take some guesses. All right. So we'll be back here uh, in a moment with Chance, Chancery Daily here on Big Technology Podcast. Stay tuned. We'll be back right after this. This episode is brought to you by AVPoint. Everyone's racing to roll out AI right now. Co-pilots, chatbots, agents doing real work. But here's the part nobody loves talking about. All that AI runs on your data. And most teams have no single way to see it, secure it, and prove it's under control.

• 37:21Alex Kantrowitz?

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• 38:05Alex Kantrowitz?

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• 38:49Alex Kantrowitz?

  and how to lock it down before a threat reaches their front door. That's ironwell.com/bigtechnology. Learn how to stop online threats before they become real-world attacks. The link's in the show notes.

• 39:08Alex Kantrowitz?

  And we're back here for the second half of Big Technology Podcast, Chancery Daily, which is a great newsletter and Twitter account. You can find the Twitter account. What's the exact handle again? Is it?

• 39:17Speaker 02

  Chancery underscore daily.

• 39:19Alex Kantrowitz?

  Right.

• 39:19Speaker 02

  Because we got locked out of

• 39:20Alex Kantrowitz?

  Yes.

• 39:21Speaker 02

  One and then things escalated rapidly.

• 39:23Alex Kantrowitz?

  Okay, great. So make sure to include the underscore there. So why don't we kick off the second half? Just, I want to hear about how these arguments are playing out in the court, which you've been watching very, very closely. So first of all, tell us about the Chancellor. This is, the Chancery Court has some vice chairs, but then it has the person who's, who runs the thing effectively. And that's who's hearing it, Chancellor McCormick.

• 39:47Speaker 02

  That's right. Chancellor Kathleen St. Jude McCormick. She has been on the court since 2018. She has been Chancellor since 2021, I believe. I think that the KK decision that she put out in 2021, that was the one we mentioned about also granting specific performance, was her last opinion that she put out as Vice Chancellor before she was elevated to Chancellor to replace Chancellor Bouchard. So she's, what can I say about her? Man, she has just, this case has, has been very exciting to me personally, because it has been this incredible opportunity for the world

• 40:27Speaker 02

  to see what we have known at the Chancery Daily for the last decade that we have been doing this. As long as she's been on the court, certainly. And even when she was a practicing attorney, she was one that you would listen to her hearings as a, as a, as a practicing attorney, and you would just be like, wow, man, this woman is amazing, right? She just always nails the heart of the matter, like so thoroughly and so clearly and succinctly. And she has been guiding the court through a period of, of, of big expansion. The court went from five to seven members.

• 41:09Speaker 02

  So there are both Chancellors, the Chancellor, then there are Vice Chancellors, and there are also Masters in Chancery. They handle matters that then need to have the Vice Chancellor or Chancellor to sign off on if the parties file exceptions to them. Anyway, so there are nine members of the court. Broadly speaking, there are seven.

• 41:33Speaker 02

  Chancellor and vice chancellors, there's just only one chancellor, obviously, but Chancellor McCormick is what we know about her. She's a big Notre Dame fan. She supports New Rockney a lot.

• 41:46Alex Kantrowitz?

  She's no nonsense, right? Like, that's the thing. People expected, people expected this court to sort of fold Elon's, you know, this, you know, big multi billionaire. And didn't want to do something in our country. We typically are used to having big multi billionaires who don't want to do things, not have to do them. But it does seem like she is hearing a lot of Elon's arguments and calling them out for being as, you know, some of them as ridiculous as they are, which has been a surprise to me because, you know, I, I, my belief, I'm kind of on the other side of this issue than you. I think that Elon will either get out of it or, you know, settle it for, um, you know, some amount of money, um, that, that might not be too painful for him, might be a little bit painful.

• 42:27Alex Kantrowitz?

  Um, but it does seem like every little game that he's trying to play that you would like, say, okay, maybe he can wiggle out of it now. She's calling him on it. It's kind of like the worst nightmare for the Elon legal team.

• 42:38Speaker 02

  She is the thing that I think is like, she is the, in that sense, the perfect foil. If I don't really like setting up an adversarial battle between the two of them, but if you had to imagine a perfect judicial foil for Elon Musk's kind of shenanigans, if you believe that he engages in such things, then she's kind of the, the, the,

• 43:01Alex Kantrowitz?

  Elon does engage in shenanigans. Everybody agrees on that. Sorry, go ahead.

• 43:04Speaker 02

  That's true. Some people just like it. Some people think it's, some people think it's good, some people think it's bad. We all agree. We all agree on something. Look at that.

• 43:13Speaker 02

  But no, she's, she's, the, the thing about her is that she's quite unassuming. She is, you know, not a really loud, boisterous person. She's very, um, opposite of sort of Elon's presence in, on social media and the way that he, you know, makes product announcements and grand, grand pronouncements about the master plans and this and that. Like she's sort of the other end of the spectrum. She is no nonsense. She is always business. She is incredibly fair. She has just integrity, like, like no one I really, you know, can even compare her to. She's just simply a straightforward, what you see is what you get, what the law says is what you get. We're not going to treat anyone differently in this court and, uh,

• 43:59Speaker 02

  Yeah, I mean, look, she's, she's, she's probably a new experience uh for him in the sense that nothing gets by her, right? You're not going to pull the wool over her eyes. You're not going to confuse her with a bunch of different uh termination letters. You're not going to change your argument so many times that she gets thrown off kilter. Like, this is a thing that does not happen to her. She sees through, she deals every day with the nonsense of litigants who are obsessed with litigating long, crazy, in- intricate, expensive battles over tiny points of minutia, and she sees the big picture and she sees the very little picture. She's incredibly good at seeing the macro and the micro

• 44:42Speaker 02

  in the same moment to really come to the heart of things. And so I don't think that he's really ever come up against an institution that has that going for it.

• 44:52Alex Kantrowitz?

  Can I go out on a limb and say that um effectively what what Elon is trying to say is hold up is that, yes, he didn't do due diligence, but Twitter should have respected, you know, the law when disclosing things to the SEC. And, you know, they, and he's saying they lied, and that therefore he should get out of the case. That seems to be one of the main pillars of his argument.

• 45:15Speaker 02

  Yeah.

• 45:15Alex Kantrowitz?

  How is the chancellor treating the fact that Elon is putting that argument up, given that he did effectively, and you can call me if I'm wrong on this, but effectively he waived his right to due diligence, right? He did this deal over a weekend effectively effectively with a shotgun to Twitter's heads.

• 45:32Speaker 02

  Yeah, I mean, look, she said it in the hearing herself. She said, basically, oh, shucks, it's too bad you guys didn't do due diligence, and we'll never know what you could have found out if you had just tried, right? She laughed, she chuckled, and she said, well, we'll never know what you could have discovered because you didn't do any due diligence. And, look, she has a long and deep background in murders and acquisitions law, obviously being in the position that she's in, but also being in a practice that she was in. She really groks everything about M and A generally. Like, she just, she has the whole historical picture. She knows every reference that every attorney will throw out there offhandedly. She gets all of it, and she incorporates it all into her thinking, and she knows

• 46:15Speaker 02

  that deal certainty is incredib- it is the paramount concern, I would say. I mean, protecting shareholders, the way that you do that is that you make sure that deals That there is deal certainty. Deal certainty is like a huge imperative of what this court wants to provide. Because otherwise, what is the alternative? Someone can come along and throw a grenade into the waters of your company's value and the market price and just throw everything off kilter and then just go, nah, no, thanks. You know, just kidding. She said, this is not, uh, we don't do just kidding. This is in expedited litigation. But she don't do just kidding is in any context as far as she's concerned.

• 46:58Speaker 02

  When you're talking about a forty four billion dollar transaction.

• 47:01Alex Kantrowitz?

  Yeah. Has she shown any willingness to hear any parts of Elon's argument? For one, I think that she's allowing some of this whistleblower testimony. And if you're, if you're on Elon's legal team, um, is there anything that you're reading into what she's saying? And, and, you know, that gives you a sense that you might win?

• 47:20Speaker 02

  I mean, look, she's doing her absolute job and her level best, which is way more than sufficient to make sure that Elon has every opportunity to try his case in this, in this matter, even though it's so expedited. She is allowing these amendments to come in. She is, you know, even though, look, the point would be, okay. Due diligence is where you find these things out about the company. If the company has a whistleblower on, on, on the chain that's about to blow the whistle, you could just ask them, has anyone, you know, filed any complaints? Have they, you could do due diligence to come to these issues. So to, to say now, six months down the road, how far, far we are away from, from that initial, you know,

• 48:06Speaker 02

  deal to say, oh, hey, hey, you know, we just found out about this. And isn't this rude of Twitter not to have told us about this voluntarily when we didn't negotiate for them to have to tell us about it? You know, she's, look, we're going to look very carefully at the terms of these things. And this trial has not happened yet and it is moving incredibly fast. But discovery is still going on behind the scenes, right? There'll be facts that come out at trial that could certainly change my opinion. I mean, they could change anyone's opinion if you're being honest about looking at the case under the law.

• 48:37Alex Kantrowitz?

  Right.

• 48:38Speaker 02

  But on the facts that we have now. Um, is it a bad look about how this, this, uh, Mudge stuff came out? Sure, it doesn't, it's not great, right? You can't, I don't think you can deny that it's not great. However, does it matter under the law is a completely separate question that I don't think people are grappling with. And I don't think that under her view of the law or under the law itself, that, that absence of other facts, there's, there's no reason why it matters because he should have found out about, if, if he, if it's material to him, if it's material to the company, then he should have found out about it before. Now, he would say, you should have disclosed it in your SEC filings if it was material and fair enough if it was material, but then there'll

• 49:21Speaker 02

  be a question of fact about that, a question of law, mixed question of law and fact. Uh, was this material? Are these concerns that Mudge had legitimate? Were they, do they rise to the level of some material adverse effect? Or that's a whole other question under the law, but or should they have been disclosed to the SEC? Was not disclosing them a fraud in the inducement somehow of him signing this contract? Um, I mean, that, that would be a long game Twitter had been playing, you know, since they filed their 2021, uh, SEC filings, what hoping, thinking that Musk might come along and make them an offer based on what they said? I mean, that, that doesn't really, uh, you have to kind of read that history backwards to think about

• 50:05Speaker 02

  that argument. But look, he has, he has colorable claims and that's, um, all, we don't know more than that now, but he, she is giving him every opportunity to argue everything that he has asked to argue thus far.

• 50:19Alex Kantrowitz?

  So that being said, um, you know, if I'm Twitter's lawyers, okay, if it's just bots, all right, maybe I, you know, stick this one out and, you know, I have a judge that seems to be in favor of no nonsense and making sure that, that deals that get signed close. Uh, but now I'm dealing with not only this potentially this bot issue, which may or may not be legit, but also would, would, you know, more credible claims. Let's just put it that way from this, from this whistleblower. Um, and, you know, that's, that stuff can, can go, um, like you mentioned, you know, and, and anyway, once you get to trial.

• 50:57Alex Kantrowitz?

  Most cases that come before the court, if I'm getting my stats correct, close. In fact, the vast majority, sorry, they settle. The vast majority of cases settle. Is there a world where Twitter's lawyers say, if I can, you know, basically say, I want to take this to trial no matter what, because I want the judge to force this to close? Or do they, do you think there's like real temptation because of the uncertainty, which we definitely have uncertainty now, to settle?

• 51:26Speaker 02

  Right, a couple of things on that. So first of all, you're absolutely right that most cases that come before the court settle, right? We don't go to trial on every, thank God. We don't go to trial on, for our, my sanity. We don't go to trial on every matter, not even close. However, you have to remember that this deal is in a unique posture. Most cases that are filed, the lawsuit comes after the thing happens, right? Here, we're preemptively trying to, in this case, force something to happen.

• 51:58Speaker 02

  So this isn't like necessarily on all fours with, with the vast majority of cases that we see. And this ties into the, the way that, that Twitter is, in my opinion, unlikely to be really contemplating a settlement. I mean, there's all kinds of opinions on this. But you have to remember that there's legal liability at this point to Twitter's board of directors if they would try to engage in a settlement. Because their share, especially after tomorrow's vote, after tomorrow's vote, sorry, after yesterday's vote.

• 52:32Alex Kantrowitz?

  Yeah, we're recording this, you know, ahead of.

• 52:35Speaker 02

  Right.

• 52:36Alex Kantrowitz?

  Ahead of the vote.

• 52:37Speaker 02

  Well, presuming that the vote, that, that we passed the mark, which everyone is expecting that it, that it did, you know, then we're going to be in a situation where the board doesn't really have the, could they settle the case? I, I think so. It's such a rare situation where we're involved as a court in this phase of, of things that it's, it's, it's kind of, it's, it's slightly novel in a lot of ways, or it's at least fairly uncommon. So.

• 53:08Speaker 02

  The board is bound by its obligation to get the highest, well, to maximize shareholder value. Arguably, that means, in a merger context, getting the highest price for those shares. So they don't really have, like, this unlimited authority to just decide that, well, in my estimation, the, you know, fifty dollars a share would be a good cut against Musk and we can just settle this now. Like, can they settle? Yes, but there are all kinds of litigation considerations, follow-on litigation considerations that come up when they start thinking about settling. Plus, after the shareholder votes happen, then you've got to think about, you have to write a new proxy, you have to hold another vote, how do you, there's so many complexities

• 53:51Speaker 02

  that an SEC expert could talk us through, but it's not as simple as, like, does it seem like, you know, a good deal at this point to just take the money and run or whatever? It's already gotten a lot more complex. So my, in my perspective, the way that Twitter is litigating this case is, look, they didn't even ask for any additional remedies in the complaint, they just said, "specific performance." They just said, "make this deal happen." Look, he, he made an offer that was so far above market at the time. What else are you gonna do, right? How can you legitimately say, how can you back off the gas pedal on pushing this deal

• 54:31Speaker 02

  forward when it was, I mean, it was, it was what it was, it was, in some senses, a generous offer.

• 54:38Alex Kantrowitz?

  Yeah.

• 54:39Speaker 02

  And so it's like, you know, they don't have, they can't just say, "yes, we can settle," and then have no repercussions for that. There are real ramifications for them, if not in actual liability in the future, but for just the headache of having to deal with an endless, an endless set of shareholder lawsuits if they would decide to settle on terms that were anything less than fifty-four twenty per share.

• 55:02Alex Kantrowitz?

  Right, but also, I mean, what if they lose? Like, they're in some deep trouble if they lose this one, don't you think?

• 55:11Speaker 02

  Well, yeah, what if they lose? The thing is that if they lose in the merits, like if there's actually been some massive fraud going on at Twitter and it was all just like this whole thing has been some elaborate ploy to get this offer to entice Musk to buy, to to make him sign a deal that was so seller friendly that he didn't get he they didn't have to tell him these things that were actually material. If all of those facts would align, then I mean, yeah, the company is going to be in trouble, no matter who owns it. Um, and but but but at this point, um, there's no evidence that that any of that is at all clear enough. And there's certainly no like vibe from the the the lawyers on Twitter's side

• 55:55Speaker 02

  that they're doing anything other than going at this all the way to the finish line. And I, you know, I think the law is in their favor. Like I say, the bar for what a sophisticated actor should do when entering into a contract that is this friendly to the seller and this sort of disadvantageous to the buyer. Look, he's he's like her quintessential billionaire, right? I found a Twitter opinion that she wrote in January compelling Twitter to produce some anonymous users data. And she actually cited Elon Musk as as evidence for the fact that Twitter is a a an influential platform. She said, you know, when billionaires like Elon Musk tweet, the market responds.

• 56:36Speaker 02

  Like she sees him as almost the quintessential kind of like who has the most responsibility to enter into deals consciously, carefully, with incredible diligence, with just like this, who else but him has the responsibility to go to the ends of the earth to determine whether or not they want to enter into a contract for a forty four billion dollar purchase?

• 56:58Alex Kantrowitz?

  Right?

• 56:58Speaker 02

  If not him, then who? So, uh, he's not, he's not, he's not even close to the bar that that should have been set for him to to participate in this transaction responsibly.

• 57:11Alex Kantrowitz?

  Yeah, okay, so you that given all this, your your thought is we're gonna see this go to the end and we're probably gonna see Twitter win?

• 57:18Speaker 02

  I mean, from a very personal level, I I hate to think through that because it's like, oh, my God, that means we're actually gonna go to trial in a month.

• 57:25Alex Kantrowitz?

  Uh huh.

• 57:26Speaker 02

  And and it is rare for a case like this to just fall for, like, this case has been unusual in every respect. It has put such an insane burden on the court. It has, you know, i- i- i- it has been unusual in every respect. But I, if I think about it logically, I just, I don't see an off-ramp, uh, at this point.

• 57:47Alex Kantrowitz?

  What does trial look like?

• 57:50Speaker 02

  Oh, it's five days. It's a, it's a non-jury trial. The, one of the things about being a court of equity and not a court of law is that the, all trials in the court of chancery are non-jury trials, which has significant advantages, uh, in a lot of ways, especially for incredibly complex matters. Um, the judges are very specialized in their knowledge of of corporate law and of the way that corporations work and the expectations of parties under mergers and acquisition agreements. Um, so it's five days. She has said she was, at least in the initial hearings, fairly clear that she really didn't think that more than five days was merited. We do

• 58:31Speaker 02

  have this, this issue now where we've got additional claims that are coming in with the whistleblower, so we're yet to see whether she has any appetite for giving another day potentially to that. Um, I doubt it, but, um, it's possible that if, if things really flesh out with this this termination agreement payments and all of that, if there's, if there's factual sort of, they need to put witnesses on to talk about all of that and whether it was within the ordinary course, then maybe, but it's likely five days. October seventeenth to twenty-second. Um, it's mainly just witness after witness on the stand. Um. It's not a law and order kind of trial, really. Huh.

• 59:14Speaker 02

  Um, it's, you know, a judge who already uh knows what's what's at stake. They know what the issues are. They know, you know, they're i- in the historical past of this court, there are examples of uh former Chancellor Strine actually interrogating witnesses himself. Um, you know, it's different than than what you might think of if you only know a a normal or a Hollywood jury trial. It's certainly different than that. It's um, it's basically just putting facts into evidence through witnesses. And so you'll see Elon Musk, well, we won't, I mean, there will not be video of this trial, uh, as far as anyone can tell. There will be

• 59:55Speaker 02

  likely an audio feed, um, hope fingers crossed for public access. Um, there will be media people there. It will be a circus at the courthouse. There will be a reporter from every single tiny publication on earth. Um, you know, the Solar City trial was a bit of a circus uh atmosphere. I mean, this is a small court that is generally so staid in its kind of manner and it's very um, quiet and, you know, it's more like a library than a a boisterous kind of party vibe there. So when these big trials happen, uh, they certainly have to to accommodate and and they do, and they will have like a media overflow room where all the media people can be and, um.

• 1:00:41Speaker 02

  Yeah, I, there's already people talking about reserving their places in line with apparently there are services in New York City that people are looking at bringing to Wilmington to have people sit in line as the courthouse to get in. Right. Um, so I don't know how circuity it's going to get, but I also know that the Chancellor and all of the the court stuff, they they uh brook no nonsense in terms of like, uh, you know, shenanigans. So. Right. It'll be interesting. Uh, there'll be a, a court, uh, it's called like a sketch artist, uh, that was for the Solar City matter. Um, there'll be a sketch artist there to draw more pictures of Elon.

• 1:01:21Alex Kantrowitz?

  All these people. There's this one old Tom Brady drawing in a courtroom that everyone always puts up whenever he loses. By the way, sorry, uh, just here, just speaking, speaking through this stuff. It, it is interesting because, um, it, it seems like this is going to be a, a trial, you know, on the merits of the case, um, with a no nonsense chancellor. Uh, but it also like, it's clear to everybody involved that Elon is just fishing for reasons to try to get out of this thing. So I guess this is like the, my, my last question on this stuff. Cause I know we're at time, but, um, how, how much does the fact that, that like Elon is transparently fishing, you know, for any excuse to get out of this deal going to play into the judgment here?

• 1:02:04Speaker 02

  Hmm. There's actually a couple of decisions recently that we reported out of one of the Delaware Superior Court and one out of the Court of Chancery where the, Vice Chancellor Laster from the Court of Chancery decision was specifically talking about, you know, shenanigans in, uh, the course of litigation. And in the Superior Court, they were talking about these shifting grounds of, uh, of, of, of arguments and just, I guess needless to say, it's not something that, that, that sets a good tone for the, character of your star witness, right? The Vice Chancellor Laster specifically said that basically, whatever the, the, the party's litigation counsel does in the, in the course of litigating the case,

• 1:02:47Speaker 02

  he, he, he thinks it's completely fair to reflect that back upon their client. So if the counsel is constantly shifting their, their positions, then when that client gets on the stand in trial and, tries to make a good faith argument about something, and he's basically like, look, I attribute litigation counsel's actions to their client. That's what lawyers do, right? They represent their clients. So. If you play shenanigans during the pendency of the trial, it's going to have an impact on how I hear the witness at trial and what kind of credibility I grant to what they say. And so I think it in various ways, it actually has some like, it has legal import

• 1:03:27Speaker 02

  in actually some sort of theories of of contract interpretation, the fact that he has these shifting grounds of termination. You know, like I say, he has an argument, but they didn't tell me. I just found out, you know, which is again, okay, normally fair, but you could, did you ask, you know, did you query about this when you had your forty four billion dollars not uh on the dotted line yet? Right. You know, so I don't think that, I don't think it's going to play well. I don't, I think you already see in she's put out what like ten, almost nine or ten decisions in this case, in every single one, I think without exception, uh at least let's say seventy percent of them, there is this an explicit

• 1:04:12Speaker 02

  kind of uh sometimes gentle, sometimes not so gentle reprimand about how this case is being litigated by Musk. And that's just not something you ever want to be in the position of on your side of the case, right? You do not want the judge calling you out in opinion saying, this is suboptimal, this is something no sane person would ever ask for. This is, you know, you, these kinds, this kind of language is not, she isn't just sort of always sassy on, right? She is very clearly sending a message to counsel like, cut it out, right? Don't play these games because it's going to be detrimental to your client. And whether they stop playing those games and whether those games continue into trial is going to have a real impact, I think,

• 1:04:57Speaker 02

  on how she views Musk's testimony. Now, whether or not Musk's testimony is actually relevant to legal issues in the case is sort of another question because it just might not be that relevant, what he thinks about the deal. It's more what does the contract say and how do we interpret that in in the facts uh of other witnesses? My Mudge's testimony could potentially matter. Um but Musk's testimony, like, it doesn't really matter that he wants out the deal really bad or that you don't feel like doing this anymore, or that none of that stuff is like really legally relevant. So. You could definitely say it's been not great in terms of like the will. How is she viewing the way that the case is being litigated for him?

• 1:05:42Speaker 02

  But also, does that end up mattering? I mean, it really is gonna depend on what the facts show at trial. And and I think that no matter what, you know, as much as the Delaware Court of Chancery relies on parties to have integrity and to operate in good faith, and as much as they admonish them to do so on a regular basis. In the end, it's always the facts and the law that matter. It's not, she's not going to decide this case based on some emotional whim or based on some dislike or like of Musk. She is going to decide this case, I am 100% certain, on the facts and the law. And so, you know, we'll see what those are.

• 1:06:22Alex Kantrowitz?

  Yeah, do I have time for one more?

• 1:06:23Speaker 02

  Sure.

• 1:06:25Alex Kantrowitz?

  The other thing that people talk about in this case is that, you know, she could rule in favor of Twitter and Elon can say, no, I'm not doing it. Obviously, you've heard that one. What do you think about that? And also, you know, what's the potential for appeal here? Like, what are the sort of like, nah, uh, uh, options that Elon has once she says you have to do this?

• 1:06:47Speaker 02

  Yeah, good question. So, um, in terms of, you know, there was a former chancellor and actually former vice chancellor and former Supreme Court Justice of Delaware, on the Delaware Court, that went on CNBC, I think, or somewhere early on and said, like, you know, this court is not going to want to rule on specific performance against Musk because courts are very concerned about, you know, enforcing their judgments and that the enforceability of their judgments is paramount to their authority. And so, it would be too risky, basically, was the sort of takeaway that people took from the interview, which I think is slightly reductionist. But let's just say that's the takeaway, that the court might be scared, in some sense, to rule on specific performance against Musk because they would be concerned about whether or not he would comply.

• 1:07:33Alex Kantrowitz?

  Yeah, that was Carolyn Burger.

• 1:07:35Speaker 02

  Yeah, yeah, that's right. I'm here to tell you that I respect former Justice Berger deeply, and she was a pioneer in many ways on both courses she served on. I think she was. Speaking from a different era, or I I don't know, but but I I don't I don't personally see it that way. I think that um. Chancellor McCormick is going to have no reservations about the enforceability of her judgment. They can, if Musk uh. Refuses to comply with an order of the court, he will be held in contempt. If he is held in contempt, he can be. Physically put in jail. I mean, you know, this is like, these are not things that ever happen, really, but they are things that can happen.

• 1:08:19Speaker 02

  And if you're going to flaunt the flout the judgment of the court on a forty four billion dollar deal, you are going to face consequences. Look, his. Uh, companies are incorporated in Delaware, his stock holdings are in Delaware, those could be by various mechanisms. Taken forcibly if necessary. He certainly has enough Tesla stock to cover this purchase price. Um. I don't think that this is a factor in her judgment in any way. I think that. She knows that there are mechanisms by which she can enforce her judgments, and I don't, I've never seen any evidence from her. That her concern at this point would be to sort of uh cower in the face of a billionaire. That is just not at all the vibe that I get from her.

• 1:09:05Alex Kantrowitz?

  Right, and as we wrap, oh, sorry, go ahead.

• 1:09:07Speaker 02

  On on on appeal, there's a lot of questions on appeal and what the timeline is and, you know, it's. It's a huge question and it's it's unprecedented in many ways, just being one of them, like how long would the appeal take? Look, the my big takeaway on appeal is that. Chancellor McCormick made very clear in her last opinion, or one of the five last opinions, that that even four weeks delay in this case. Is too great of a risk of irreparable harm to Twitter. That's a big statement for a judge to make. Four weeks is not that long of a time in like human. Time, right? In normal human, even in normal litigation time, four weeks is. Not an unseemly amount of delay for something. If she feels, and I think she's right to feel, like at the whims of Elon Musk and his.

• 1:09:51Speaker 02

  Uh, serendipitous, serendipitous behavior, kind of his kind of whimsical nature, right? You can do a lot of damage being that kind of whimsy online if you're a billionaire. And so I think that the fact that she thinks that four weeks delay is too great of a risk of irreparable harm to justify to laying a trial. I, I would be shocked if she had not communicated with the Supreme Court about the, the, the timeline for this appeal, because she made very clear in the motion to expedite that she was basing her timeline around having the appeal concluded by the outside financing date. So people that think that this is going to roll into twenty twenty-three June, July, I don't, I don't see that happening.

• 1:10:35Speaker 02

  I think that, look, the Supreme Court has a lot of laborious processes and procedures, and it's not used to operating on a super expedited basis. But when there are cases about things that matter on that kind of a timeline, they get them done. When there are voting cases or government issue, they can get it done, right? And so I believe that she, I mean, I have no reason factually to believe this, other than just logically, she was very clear about the reason she was setting the timeline as it was, was because she felt that that gave everything a, a substantial likelihood of being wrapped up within the outside financing date, which is in April. So to me, this does not go beyond there. She has worked it out. She is incredibly responsible. She has sorted out the timeline such that it will work that way.

• 1:11:20Speaker 02

  I think it did happen sooner, honestly, on appeal, especially if it's just going to be a, a slip opinion affirmance and then maybe an opinion to follow. I don't think we're going to be, we're, I don't see any way in which, and a lot of experienced other Delaware practitioners agree with me, no way this goes into the middle of next year.

• 1:11:39Alex Kantrowitz?

  Okay. Well, look, if, if it does get enforced, then at least people can say that there's some, so one court in the U.S. that seems to be, you know. Who cares about what's written down on on paper and enforcing the rules? Okay, as as we wrap, if you know, people are following this case, which they look for. You know, if there's anything that like, you know, you can, if there there are certain things that you see that you can sort of handicap it at home. I don't know, maybe that's unfair to ask, but let's wrap it up.

• 1:12:05Speaker 02

  Yeah, I know. It's interesting because what's what's going to be really interesting about this next phase. So we're just like technically, if if this were like a normal case, we we do have a case schedule and we sort of arguably wrapped up regular discovery last week or so, but we know that it's actually still ongoing because we see these disputes arising. We know that there's actually that we know that probably Elon hasn't been deposed yet. There's a lot of people speculating about Elon's deposition being a sort of, you know, in in standard corporate litigation. There's a a sort of like, the CEO doesn't really feel like sitting down for a deposition for a lot of reasons, including liability reasons. And so a lot of times cases will settle oh, just before the CEO has to be deposed.

• 1:12:49Speaker 02

  I don't see that applying here in part because I think Elon truly believes that he isn't obligated to buy Twitter. If that's his if that's his position, then I could think he kind of just believes it. I don't think he's scared of a deposition. I don't think he's really scared of very much. I think he's you know, kind of got this like, I don't know, bring it on kind of vibe if if that's if that if he's pushing this thing forward. I I don't see his deposition being a catalyst in that sense. However, if he sits for his deposition and he says things off the cuff that are incredibly damaging. I think, you know, he has to be facing pressure from his attorneys to just close the deal. Just do the just figure out the financing. Just do the deal at fifty four twenty.

• 1:13:34Speaker 02

  Don't worry about pre-imposed judgment interest. Don't worry about the ire of this court. Don't worry about the cost of a trial. Just agree to close the deal on its terms. Now, whether or not anyone can convince him to do anything that he doesn't want to do is an entirely separate question, but

• 1:13:52Speaker 02

  so you'll probably hear about the deposition, although we don't really get to know as the the general public like when it happens or when it's happening, or we don't have a lot of visibility into that specifically unless a particular dispute arises around it. But if it's anything like the rest of this case, we're entering expert discovery phase, which is where they hire experts to say. To make, to render conclusions about factual matters and make arguments based on their expert, expertise. I suppose we'll have expert, competing experts on endow calculations or on SEC filing, truthfulness, or on, you know, whistleblower issues, cybersecurity risks, things like that. We don't know who these experts are yet or what they'll be opining on,

• 1:14:36Speaker 02

  but we're probably likely to see a lot of motions right before trial about, uh, they're called motions eliminate to, to, to, they don't really do them in this court as much as in federal court because the judge can just kind of, the judge is the arbiter of fact and law here. So he or she can just kind of like ignore things that aren't relevant, right? It's not the same as when you're sitting in front of a jury and you have to be careful what you say in front of the jury because the jury isn't as adept at like leaving that information out. But we might see some motions to disqualify an expert on the basis of a conflict or something like that. You know, there's, if we see a motion to disqualify counsel, that would be huge. I think the, the window has passed for that. It seemed at some point like

• 1:15:18Speaker 02

  potentially, uh, Musk was setting up a motion to disqualify Wachtel, which would be an absolutely

• 1:15:26Alex Kantrowitz?

  That's the law firm representing Twitter. Yeah.

• 1:15:29Speaker 02

  Yeah, that would be, I mean, no argument there. That would be a big frigging deal if that happens. Um, but I, I don't think for many reasons that it's going to, but, um, there's a motion that she's got under advisement on privilege waiver of Musk's Tesla and SpaceX emails. I think that's going to be an interesting opinion whether she, uh, waves, finds privilege waived on those emails, which I actually think under the, the law in Delaware, she's likely to because he communicated with his lawyers on a matter that had nothing to do with SpaceX or Tesla on his SpaceX and Tesla email platforms. And, you know,

• 1:16:09Speaker 02

  for normal humans, since the board of directors and the directors and officers run the company, uh, you don't just get to say like, I'm Elon Musk. I have special privileges around here. That's not like a normal way of doing business as a Delaware corporation. Not, not saying that's not how it's done at SpaceX or at Tesla, but. You know, she's, I don't think she's going to be persuaded necessarily by the idea that Elon Musk is God internally. And so therefore he isn't in a different position than someone else would be using their work email to communicate. You're basically waiving privilege. You're, you don't, your employer can read your emails. I mean, sorry to, but like that's how it is working for the man, right?

• 1:16:49Alex Kantrowitz?

  Yeah.

• 1:16:50Speaker 02

  Um, so that'll be an interesting one. Not, we don't know if there's anything actually interesting in the underlying emails, but it's never a great, uh, thing for a party to have their emails with counsel, uh, have, uh, privilege waived on them and have them be produced. So that could be,

• 1:17:06Alex Kantrowitz?

  Right.

• 1:17:06Speaker 02

  Could be nothing. It could be something interesting.

• 1:17:09Alex Kantrowitz?

  Okay. Chancery Daily, Chance. Uh, thank you for coming on.

• 1:17:14Speaker 02

  Great to talk to you.

• 1:17:14Alex Kantrowitz?

  Um, this was great. Thank you for bringing the appropriate nuance to a case with many different, uh, wrinkles. I feel like we could go on for, for three hours on this.

• 1:17:22Speaker 02

  We could, for sure.

• 1:17:23Alex Kantrowitz?

  Uh, but, but this has been so great. Uh, before we sign off, can you just let folks know like where they can find you again on Twitter? And, um, I know it's a pricey subscription, but if people find themselves interested in subscribing, where, where do you do that?

• 1:17:37Speaker 02

  Yeah, absolutely. So, I mean, it, like I say, we normally, you know, provide our services to litigators in the court of Chancery and other Delaware courts. So we have a particular model for our product. We're actually looking at now with all this interest in providing other lower cost products to people who are more just like lay interested in these kinds of issues, or even other lawyers in other fields who aren't necessarily corporate law focused, but who want a kind of, uh, view into this. So just, our, the best, best place to follow us for all of that is on our Twitter, um, twitter.com, Chancery underscore daily. And, uh, link in bio for all of the various ways you can subscribe or communicate with us.

• 1:18:17Speaker 02

  You can email us at twitter at chancerydaily.com. Um, and we'd love to hear from you. We get amazing. I mean, I just have to say the community that has developed around this account is,

• 1:18:29Alex Kantrowitz?

  Mm-hmm.

• 1:18:29Speaker 02

  Like, it's priceless. It's pretty amazing. Yeah. It's like just these great people of all different, you know, people have very conflicting views on things. And I really encourage people to come with a nuanced perspective. And, uh, I'm glad to be here with you to, to help share that mission.

• 1:18:47Alex Kantrowitz?

  Yeah, yeah. Um, I'm really glad we made it happen. Thanks again for coming on. I was really hoping we'd be able to get it done this weekend.

• 1:18:53Speaker 02

  Absolutely.

• 1:18:54Alex Kantrowitz?

  Perfect timing. So thanks again. All right, everybody. Well, that will do it for us here this week. Thanks again to Chancery Daily for coming on. Thank you, Nick Guatini, for editing the audio. Thank you, LinkedIn, for having me as part of your podcast network. Thanks again to all of you, the listeners, for being here, coming back week after week to listen to Tech Insiders, Outside Agitators, and, you know, very well-written folks like Chancery Day like we had today. I feel like, you know, for conversations like this, you're, there's really tough to find places where there's as much nuance as you have here. So, thanks again for listening and to our guests. We'll be back next week with a new episode. We have Brandon Silverman. He's a really interesting guy. He sold his company CrowdTangle to Facebook, which provided really needed transparency as

• 1:19:39Alex Kantrowitz?

  to what was moving on the platform. And the rest is history. You know, you can no longer really access CrowdTangle. Brandon will tell the full story. And now he's advocating for more transparency inside social media companies. So stay tuned for that. All right, that will do it for us here. And so we want to say thanks again for listening. Stay tuned, subscribe, and rate, and we'll see you next time on the Big Technology Podcast.

• 1:20:11Speaker 03

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