When a typical business lawsuit heads toward trial, the period between the filing and the first court appearance isn’t usually all that exciting: procedural motions, jockeying over dates, lots of delays — just a bunch of eye-glazing, legalistic back-and-forth that would never make it into an episode of Law & Order. In the background, lawyers for the parties are usually feeling each other out about settling the whole thing before the opening arguments in front of the judge.
And then there’s Twitter v. Musk.
What makes this suit such a spectacle is how much it’s inverted everything you’d expect in a lawsuit, especially one where the defendant’s personal fortune is on the line and the odds of him winning keep slimming. On Tuesday, the Delaware Chancery Court held an omnibus hearing that lasted about three and a half hours to go over a bunch of discovery motions, exactly the kind of thing you’d expect to be dull and arduous. But by the end of it, Twitter was asking the court for a formal censure of Elon Musk for destroying evidence, and had revealed that the Tesla CEO’s own research into the number of spambots on the platform — the crux of his wanting to back out of the $44 billion deal in the first place — had contradicted him. While Chancellor Kathaleen McCormick has yet to issue any major orders stemming from the hearing, it was clearly a disaster for Team Musk, filled with unforced errors and picayune arguments that seemed designed to waste the court’s time.
Here are the major takeaways from the hearing:
We may never know the full story
Elon Musk uses Signal, the encrypted messaging app that can automatically destroy messages. He’s talked about it on Twitter, and evidence has emerged that he used it to communicate about the deal. The problem here is that Twitter knows this not because of evidence that was produced by Musk, but by other people who have either talked about exchanging messages with him during depositions or somehow saved them, like in the case of Marc Andreessen, one of the largest funding partners for the deal.
There’s nothing wrong with using Signal, except if you’re supposed to preserve your communications because, say, you anticipate a giant and costly lawsuit, which, in Musk’s case, is exactly what he should have anticipated going back to at least May 13, a few weeks after the deal was announced. (That’s the date that his own lawyers say he expected to be in litigation). The scope of Musk’s Signal usage — or any other app that may automatically destroy communications — is now a major question. Twitter claims that he had used Signal to communicate with his personal financier, Jared Birchall, about the deal, for instance — potentially after they would have started to talk about getting out of the deal. (Apparently, some sleep-deprived legal associate noticed that some screengrabs of what had been produced show that messages were primed to be deleted). And Team Musk’s response hasn’t exactly been great. Here was a key moment during the hearing:
MUSK: The meat of this is that there actually is no evidence that we’ve destroyed evidence, and that’s the standard that they recite to the court. That is something —
CHANCELLOR MCCORMICK: They point to something that’s been destroyed.
MUSK: Sure, fair enough.
That feels bad. Twitter and Musk started off the hearing by jockeying over a few hundred documents, trying to shift the scope of what can make it into trial by small but important degrees, but by the end of it the social-media company was asking McCormick to censure Musk for destroying evidence, a whole different level of argument. In a previous case of evidence destruction before the Delaware courts, the party that had erased electronic communications was forced to pay the opposing sides’ legal costs. If that were to come down on Musk, that would be a tremendous amount of money, considering the giant legal teams assembled by both sides to deal with the sprawling, expedited nature of this trial. For the world’s richest man, it’s not that it would bankrupt him, but it would be something far worse — an annoyance and another bruise to his ego.
Musk’s data argument is weaker than even known before
On July 8, Musk’s lawyers filed a notice with the Securities and Exchange Commission that would be something of a prelude to this court case, claiming that the number of spambots captured in Twitter’s key metric was “wildly higher” than what it reported to the public. At the time, the argument was out there, but not outside the realm of the plausible. The metric — monetizable daily active users (mDAU) — wasn’t a standard one, and was made up after the hedge fund Elliott Management had muscled its way on the board in order to make the company more profitable. Musk also had access to lots of secret Twitter data. It was still a hard argument to make in order to cancel an acquisition agreement in court, but you could kind of see it making sense. Maybe.
Since then, the argument has crumbled in multiple ways. In August, Twitter revealed that Musk relied on a publicly available website called Botometer — which doesn’t have access to the company’s mDAU formula — to come to the “wildly higher” conclusion. On Tuesday, Twitter went further to reveal that Musk had, in fact, hired data scientists to try to find that the bots number was being manipulated. Not only had they fallen short, Team Musk didn’t even produce all the documents about that research.
It appears that Musk had hired at least five companies to parse through this data in order to make his bots argument. Is it weird that he has not used any of these companies’ findings in his own arguments? Yes — yes, it is. Twitter argues that three of those companies were never even mentioned, and were only discovered in other batches of evidence. Of the two that were known, one could say with only weak confidence that the number of bots in Twitter’s mDAU metric was as high as 11 percent. The other said it was basically in line with Twitter’s projections. That also feels bad.
Musk’s banker did not want to be a part of any of this
Elon Musk has a habit of souring relationships with people named Grimes. In the context of this suit, we’re talking about Michael Grimes, the star banker for Morgan Stanley who’s brought Facebook and Google to the public markets. The bank had committed about $7 billion in funding for the deal, so they have an interest in this deal going through — or, at least, they did, when the cost of doing this deal was a lot lower.
Once Musk tweeted on May 13 that the deal was “on hold” — he was considering using the fear of World War III to back out — things changed. Morgan Stanley’s counsel said Tuesday that the bank “retained counsel because, after Mr. Musk’s tweet purporting to put the deal on pause, Morgan Stanley concluded that there would likely be litigation and didn’t want to have anything to do with that. And so Mr. Grimes testified that, in their professional judgment, it ‘would be not be appropriate for us to be in the middle of that, so we extracted ourselves.’”
In another exchange, it came out that Morgan Stanley has been one of the most forthright sources of information in this trial. Here’s the bank’s counsel again: “We were surprised to learn that it turns out that Morgan Stanley has produced far more documents than anyone else in this litigation, including Musk and including Twitter. It’s produced 10 times the number of documents that Twitter’s investment bank Goldman Sachs produced,” she said. This could mean nothing, of course — parties sometimes bury everyone in paperwork as a legal strategy. But the bank is trying to get out of producing another 250 or so documents it says it doesn’t have to, and the argument is that the bank has already been forthright with the court. Either way, the fact that Morgan Stanley has produced so much in comparison to the bank’s former client has the effect of making Musk look more obstinate.
Look. Banks are in the business of sussing out risk and making money off of it. Musk is so attractive to the world of finance because he is the embodiment of high risk, high reward. So it makes sense that when he wants to do a deal, you find a way to do it, and when he starts to act in ways that would blow up the deal and embroil the bank in litigation, you make yourself scarce. Still — feels bad!
Everyone is tired
Musk kicked this whole legal drama off 138 days ago when he tweeted that the deal was “on hold.” It has been 78 days since Twitter filed its lawsuit. Lawyers from both sides have made innumerable references to the giant workload and long hours that have been required to handle a case this large and complicated on an expedited basis. You can imagine that the attorneys here are tired, not really sleeping all that much, probably not eating as healthy as they should, and are sick of each other. Much of the hearing was about what should and should not be allowed in the case — texts, data, emails, the like. Both sides accused each other of not being totally forthright about what they’ve produced for the court. There was truly a palpable feeling of animosity hanging in the air, and I wasn’t the only one who noticed that.
Lawyers not liking each other is one thing, but when the judge in the case is starting to lose her patience, that feels bad. The impatience in McCormick’s voice was unmistakable. Remember, she has largely been pushing back on Team Musk here, denying motions and reining in demands for information she’s called “absurdly broad.” At one point, she called their conditions for how Twitter could use phone data “inappropriate,” and there is no way I could accurately convey the tone of exasperation about the whole thing.
Nineteen days to go.
This post was updated to include more details about Morgan Stanley’s documents.