court appearances

Elon Musk Stares Into the Void

Photo-Illustration: Intelligencer; Photo: Carina Johansen/NTB/AFP

Do you think that Elon Musk thinks about his own mortality? The world’s richest man will die someday, and even if he and his Silicon Valley cohort are able to download their brains onto computers or live for a time off the blood of the young, they will, one day, stop breathing and decompose into the earth. [Ed note: Not if they’re on MARS!] I have little insight into Musk’s personal thoughts on these things. He’s expressed concern about the long-term health of the planet, and the human population, but these are kind of abstract ideas about life — not the real, primal fear of permanent blackness or the judgment of an afterlife. But whatever Musk’s thoughts are on how time ravages us all, he’s seeing its evidence play out before his eyes in the Delaware Chancery Court.

If you must know, things aren’t going well for Musk this week — at least not in his quest to un-buy Twitter. First, Musk’s text messages were briefly put on display during a hearing in court. These showed that he was privately casting around for reasons to get out of the deal — this time with worries about Vladimir Putin — only about two weeks after he’d signed an agreement to buy the company for $44 billion. When he did eventually file a counterclaim against Twitter’s demand that he honor their purchase agreement, he said the reason he wants out is because there are more spambots than the company lets on. And now, the star argument in what was an otherwise sprawling and dramatic three-hour hearing was a third argument by Musk to rid himself of this infernal social media company. His contention: that he has been defrauded.

Key here was the whistleblower lawsuit that Twitter’s former head of security had filed with federal agencies and congressional investigators, saying that the company’s systems aren’t quite what they seem and that he was booted after informing the board of this. (Twitter denies the allegations.) With this whistleblower information in hand, Musk wanted to tear up the proceedings from the ground up and get a one-month extension.

On Wednesday, Chancellor Kathaleen McCormick made decisions on a number of related requests — and even though Musk won a crucial motion, he ended up in more of a losing position than if the court had ruled against him across the board.

First, the win. Musk now gets to file an amended complaint, which allows him to incorporate the allegations in the whistleblower complaint into his argument that he shouldn’t be forced to buy Twitter. This new argument goes something like this: Twitter knew that its company’s security wasn’t as good as it could be, that it wasn’t in compliance with an agreement it made with the Federal Trade Commission, that it had various not-great practices of not paying vendors and employing Indian spies, and it knew that because its former security head had told them, as he alleges in the whistleblower suit. Listening in on the hearing, this was clearly Musk’s strongest argument, and one where Twitter’s defense was the weakest. It seemed like Twitter’s lawyers weren’t really engaging with the argument as to why he couldn’t update the complaint; their response was that it was a ploy to either run out the clock or get an extension.

But this win comes in a damning context. That’s because Musk lost something very important here, and that’s the luxury of time. Yes, he has the chance to update his complaint and go through untold amounts of data and documentation to support it, but the month-long extension that he was hoping to get has vanished, giving him — or, rather, his team of lawyers — the task of trying and winning a whole new corporate lawsuit that might normally take a few years in just over six weeks.

Time is the theme here, and in just about every way, he lost. I spoke with Andrew Jennings, a law professor at Brooklyn Law School, who also points out another lost time advantage for Musk: a reason to appeal. “Musk’s being given an opportunity to press those new claims, and so he won’t be able to make an appeal issue of not being allowed to raise them,” he told me. Basically, if the court had rejected his reasons behind amending the complaint, he could have just started all over again. Yes, Musk has more room to claim that he should get out of the deal, but it is a significant burden for him and his legal team to make that case. With six weeks to do it, Musk might need the largest legal team in the world running 24/7 to even try to get this right.

What this ruling also starts to carve out here is the possibility that Musk will face diminishing returns if he loses and tries to bring this to another court. Essentially, McCormick has ruled that time is not a neutral factor here, and that the longer this goes on, the more it harms Twitter and benefits Musk. “I am convinced that even four weeks’ delay would risk further harm to Twitter too great to justify,” McCormick ruled, adding that “the longer the delay until trial, the greater the risk of irreparable harm to Twitter.” The risk factor of time is, of course, central to business. It’s why loans have interest rates and why upfront payments often come with discounts. For Twitter, these risks are already real, with the company apparently losing employees and being forced to divert resources to dealing with the litigation that would otherwise go toward running the company. This reasoning is also bad for Musk, should he lose and try to take it to another court. The reality is that this can’t go on forever. At some point, someone will lose, and the other side will only be left with decreasingly plausible ways to try to get what they want.

And the reasons will be decreasingly plausible because, as the chancellor seems to be indicating, this whole thing could have been solved by taking the time to do due diligence. There was a telling moment yesterday when Chancellor McCormick interrupted one of Musk’s lawyers when he was talking about Twitter allegedly hiding allegations of fraud from Musk: “We’ll never know, right? Because the diligence didn’t happen.” McCormick said this with a bit of a laugh, with a little bit of irony in her voice. I don’t want to read too much into this remark, but in the context of the losses — or the Pyrrhic victory that may be Musk’s win on the amended complaint — this seems to point in one direction: that Musk had a shot, he blew it, and he can’t get another chance to do it over. The cruel reality of time moving forward.

One last thing. A lot was made this week about one of the few new revelations made from Twitter’s side: that Musk had texted with his banker, Michael Grimes of Morgan Stanley, that he was concerned that Putin could start “World War III” and was trying to slow down the deal. How he could slow it down is beyond me — he’d already signed the merger agreement about two weeks before. Regardless. My white-hot first take on this yesterday was that Twitter’s lawyer admitting that there’s so far very little gathered in discovery on Musk’s discussions about the deal was probably the more important revelation, and the text itself is too confusing and perhaps more flashy than substantive. Ann Lipton, the Tulane University law professor who’s been covering the hell out of the trial on Twitter, has a drastically different take.

Essentially, Musk might have tripped over himself in his search for a way out. Just by looking for ways to exit the deal, he could be breaching the contract, which would forfeit his right to terminate the deal. As a single piece of evidence, I still don’t know if this is something that wins the day. But Musk has so much more to prove than Twitter does at this point, so it’s not entirely clear if that matters.

Why Elon Musk Isn’t Getting More Time to Prep for Court