Most court cases settle. This is a very inconvenient fact for lovers of courtroom drama and lawyers alike, who often have to prepare for trials that get scuttled at the last minute — sometimes on the eve of trial, sometimes even after the trial has begun. But for most litigants, and particularly for corporations and rich people, settlements are attractive because they eliminate uncertainty, downside risk, and the potential for embarrassment. This was a lesson I learned early in my days as a corporate lawyer, working on cases not dissimilar from Elon Musk’s fight with Twitter.
For that reason, the news yesterday that Musk is looking to avoid going to trial in a couple of weeks against Twitter was not exactly shocking from a legal perspective. In a letter to Twitter, Musk’s lawyers announced that he intends “to proceed to closing” the deal to buy Twitter that he signed back in April on the terms that he originally agreed to, provided that the court agrees to stay the case and adjourn the trial as needed to complete the deal.
Assuming that Musk is serious, the exit strategy looks a lot like the acquisition strategy: Give Twitter’s board and shareholders no choice but to go along. To buy Twitter, Musk proposed a huge premium over the price of the company’s stock at the time — a markup that he judged, correctly, would be irresistible to the company’s board and shareholders. The precise mechanics of Musk’s latest proposal remain unclear at the time of this writing, but he appears to be suggesting that he will simply comply with the terms of the original deal, which, if true, could effectively moot Twitter’s lawsuit and Musk’s countersuit and result in the dismissal of the competing complaints — whether that is accomplished by some sort of agreement of the parties, a stipulation, or court order.
Call it a settlement or call it surrender, but it’s not a trial. If Musk can pull it off — and he should be able to do it without much difficulty, assuming that he is finally willing to part with the money that he agreed to pay — he will wind up owning Twitter at long last, and he can get to work rooting out all those pesky bots and putting Donald Trump back on the platform.
But why surrender now? With less than two weeks to go, the timing is less odd than it might seem. It mostly has to do with the collapse of Musk’s legal strategy.
From the start, Musk’s legal position has been weak, but it has deteriorated further as the case has proceeded. His central (and perhaps pretextual) rationale for trying to get out of the deal was that Twitter had been lying to regulators and the public about the number of bots on the platform, but that argument was not good to begin with and it has been getting worse over time as evidence from pretrial discovery has come into public view. The judge on the case also knows what she is doing and has maintained an impressive degree of control over the parties and the litigation, mostly by not indulging Musk’s “absurdly broad” discovery requests and his efforts to delay the case.
Meanwhile, Musk and his lawyers seemed to have a fairly straightforward defense strategy: Make the litigation as messy, unwieldy, and protracted as possible by creating the appearance of as many factual disputes about Twitter’s bots and core business practices as they could come up with. The effort included amending Musk’s countersuit a month ago to include allegations from former Twitter employee turned whistleblower Peiter “Mudge” Zatko, who, over the summer, provided the latest evidence that Twitter is a terribly run company but little to shore up Musk’s underlying claim about the company intentionally lying about the volume of bots on the platform. Musk needed a “material adverse effect” on the company to get out of the deal — ideally, at least as a legal matter, something that would decimate the company’s business prospects — and at times he seemed intent on creating one himself instead of litigating the actual legal case he and his lawyers created.
This flailing also seemed like a settlement strategy with two components: (1) to increase Musk’s relatively low odds of success at trial, even modestly, and (2) to increase the business and reputational costs to Twitter that a trial loss for the company would entail. This was not exactly a recipe for a victory on the merits, but it might have prompted Twitter to settle the case at a lower sale price to head off a trial.
The challenge for this strategy was that ideally both things needed to happen. If, however, you’re not improving your litigation prospects — and Musk’s have seemed to diminish with every passing day — then you’re mostly just trashing the company that you’re going to be stuck owning anyway after you lose. A trial in which Musk’s lawyers try to make Twitter look like an all-around business and operational disaster — which it may very well be; it just weirdly happens not to matter much in this particular legal context — could just make things worse for Musk in the end.
Given where we are on the calendar, it is not surprising that the parties might reach some sort of out-of-court resolution. Discovery is essentially complete, embarrassing text messages and all, so the lawyers on both sides pretty much know what the evidence will be at trial, and they are better positioned than they would have been even a month ago to objectively assess their odds of success and the accompanying business and legal risks. Musk is also on deck for a multiday deposition — never an enjoyable experience but one that, in this case, could generate more unflattering revelations about his conduct and all-around antics.
This is to say nothing of the remaining time and public spectacle of an actual trial. Corporate executives generally do not care about the time or well-being of their lawyers — for lawyers billing by the hour, time is literally money — but no one likes having to take time out of their own days preparing with lawyers, traveling to and from court themselves, and being cross-examined by hostile opposing counsel. It can be unpleasant and ego-bruising, and if the trial is being covered by major media outlets, the reputational risks of a poor performance can be meaningful. It is also possible — very likely, in fact — that there would be far more damaging revelations at a trial to both sides than those that have emerged in court papers as a result of pretrial discovery disputes before the judge.
For months, Musk has been on track to lose this case. In the process, he has also simultaneously been devaluing the company he’s likely to be saddled with — one whose prospects and potential he seems to legitimately believe in despite the last few months of legal wrangling. Now is a good time to call it quits and staunch the bleeding.