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  • - Buying Twitter might be the worst thing

  • to ever happen to Elon Musk, but the best thing to happen

  • to people who love crazy lawsuits.

  • And now, Elon is suing the lawyers who forced him

  • to follow through with the sale,

  • because he thinks that they charged Twitter too much

  • to beat Elon Musk, because now Elon owns Twitter,

  • and he's the one that effectively has to pay for it.

  • You really can't make this up.

  • But of course, it's more complicated than that.

  • Now, apparently, Musk is still smarting

  • from the time that he was forced to honor his deal

  • to buy Twitter for $44 billion.

  • So now, he has filed a lawsuit against the law firm

  • of Wachtell, Lipton, Rosen & Katz,

  • the law firm which represented Twitter

  • when the old owners sued Musk

  • to follow through with the sale.

  • Wachtell charged Twitter $90 million to facilitate the deal

  • that eventually led to Musk taking Twitter private.

  • Now, the old Twitter board paid $84 million

  • right as the deal closed, literally 10 minutes

  • before the company turned over to Musk.

  • And now, Elon would like all of that money back, please.

  • - Money, please.

  • - Now to review, this was a sale between a public company

  • and an individual who intended to take the company private.

  • Musk offered Twitter a share price of $54.20 per share,

  • and Twitter's board accepted the deal.

  • Musk then tried to back out of the deal

  • for reasons relating to him being a huge idiot.

  • And essentially, Musk failed to do his due diligence

  • before making the offer and later realized

  • that his offer was way too high.

  • Or maybe it dawned on him that trying to make Twitter

  • profitable was going to require

  • a lot more than just posting on Twitter.

  • So he tried to get out of it.

  • Now, Wachtell wasn't Twitter's original law firm

  • for the sale, but when Musk said that the deal was dead

  • and tried to back out, Twitter turned to this law firm,

  • which has a reputation as one of the world's top law firms

  • specializing in mergers and acquisitions.

  • - I'm into mergers and executions, mostly.

  • - Wachtell properly sued Musk

  • in the Delaware Court of Chancery,

  • and he backed down without even getting a discount

  • on the original sale price.

  • Basically, they spanked him.

  • Now, right before the deal closed,

  • Twitter paid the law firm $90 million in success fees.

  • Elon Musk believes that this is unjust enrichment,

  • and the firm should give most of that back to Twitter,

  • which he now owns.

  • And the timeline breaks down like this.

  • Twitter hired Wachtell on June 21st, 2022.

  • The law firm sent an engagement letter stating

  • it would represent Twitter "on an hourly fee basis

  • in a litigation to compel specific performance

  • of the Musk Parties' acquisition of Twitter."

  • This engagement letter doesn't contain

  • any language about a success fee.

  • Now, the engagement letter indicates

  • that Wachtell negotiated an exemption

  • from Twitter's usual fee arrangement with outside counsel,

  • which gave Twitter a 15% discount on hourly billing rates.

  • And in the months of work

  • after making this arrangement with Twitter,

  • Wachtell invoiced Twitter for a total of $18 million,

  • including $15.6 million in hourly fees.

  • Musk characterizes that as outrageous,

  • because it was only for a few months of work.

  • Now, what the complaint leaves out

  • is that during those few months, Wachtell filed a lawsuit

  • against Musk that successfully compelled him

  • to go forward with the sale,

  • and the lawsuit was filed on July 12th, 2022.

  • By October 4th, 2022, Musk gave up his fight

  • to back out of the sale, and he agreed to abide

  • by the deal's original terms,

  • and the closing was set for October 28th.

  • Now, according to the complaint on October 27th,

  • with "the firm's work on the merger litigation

  • in the Delaware Chancery Court already concluded,

  • and without any foreseeable need

  • for Twitter to utilize its services again,

  • Wachtell, the law firm, decided to milk the company

  • for $90 million in success fees."

  • Musk says, "In other words, Wachtell sought

  • and obtained a success fee that resulted

  • in a total fee nearly six times its $15.6 million

  • in invoiced hourly fees for a few months work

  • even though, one, it was not called for

  • by any prior agreement with Twitter,

  • and two, the litigation in which Wachtell

  • represented Twitter had been stayed for weeks

  • in anticipation of dismissal following the closing."

  • Now, you might be asking why a success fee is even a thing

  • and why a company would agree to pay

  • a success fee over hourly billing.

  • Well, many clients are concerned that outside law firms

  • run a billable hours by overstaffing cases

  • with too many lawyers

  • or generating work that isn't necessary.

  • And the theory goes that if you align

  • the financial incentives of the client and the law firm,

  • the law firm is less likely to do

  • a bunch of unnecessary work and waste the client's money.

  • And Bloomberg reports that Wachtell

  • was "one of the first law firms to link its fees

  • to the value of successful deals,

  • rather than linking them to hourly billing rates

  • like many of its peers."

  • And in this way, the law firms are acting more like banks,

  • which tie their fees to a percentage of the deal

  • when it's completed.

  • And the exhibits attached to the complaint

  • include a memo from Wachtell explaining the quote,

  • "While our fees are not based on the amount involved

  • in a matter, experience indicates that merger

  • and acquisition and takeover fees have typically ranged

  • from 1% or more on matters under $250 million

  • and 0.1 of 1% or less on matters over 25 billion."

  • Wachtell argues that the value of its advice

  • can't be demonstrated by a simple hourly rate.

  • That's a classic line from lawyers.

  • Absolutely, always the case.

  • - I'm like a God in human clothing.

  • Lightning bolt, shoot from my fingertips.

  • - But the difference here is that Wachtell

  • didn't start out the engagement

  • with a success fee specified.

  • And Musk's complaint is that it was improper

  • for Wachtell to switch from an hourly billing arrangement

  • to a success fee structure on the eve of closing.

  • Yeah, this is one of those cases

  • that's gonna be really fun to watch,

  • because at the end of this case,

  • at least one of these parties is going to lose.

  • Now, Musk's first claim is for unjust enrichment.

  • He claims that the closing day letter agreement

  • between the board of directors and the law firm

  • "called for payment of an unconscionable fee

  • and was an unconscionable agreement."

  • Musk argues that Twitter's board of directors

  • were a bunch of losers

  • who got totally hosed by the law firm.

  • The complaint describes them as "lame duck fiduciaries"

  • who "lost their motivation to act

  • in Twitter's best interest" during the sale.

  • Though one would argue here the complete opposite,

  • that the board was in fact extremely motivated

  • to close the sale at the original price,

  • which arguably was in the best interest of the shareholders.

  • But Musk's perspective is that it was clearly not

  • in Twitter's best interest

  • to have paid this enormous legal bill,

  • but that misunderstands what their duties actually were

  • between signing and closing.

  • Their legal fiduciary duty was to make sure

  • that the deal maximize the value for Twitter's shareholders.

  • That's all they had to do.

  • And the lame duck fiduciaries executed that responsibility

  • beautifully by forcing Musk to buy Twitter

  • at an extremely high share price.

  • And if they accomplished that, then the shareholders

  • didn't care what else Twitter did with its money

  • because it was no longer theirs.

  • And in fact, because the share price was already set

  • by Elon Musk, it didn't really matter

  • how much they paid out to the lawyers

  • because that wasn't going to change

  • how much the shareholders ultimately got,

  • though it really made a big dent

  • in Elon Musk's pocket when he had to pick up the pieces

  • of Twitter when he bought it.

  • And yes, $'90 million is a lot of money,

  • but were the lawyer's fees

  • beyond the pale in this particular case?

  • Well, in contract law, if the terms of a contractor

  • are unfair or oppressive to one party

  • in a way that suggests abuse during its formation,

  • a court can find it unconscionable and refuse to enforce it.

  • But courts rarely find unconscionability

  • in a business dispute between two fairly equal parties.

  • A contract is most likely to be found unconscionable

  • if both unfair bargaining

  • and unfair substantive terms are shown.

  • And generally, courts only void a contract

  • in unconscionability grounds in extreme cases.

  • There's one famous case where a loan interest rate was 800%,

  • or instance where a warranty expires

  • before a product is even installed.

  • Basically, things that really shock the conscience.

  • Not really things like a relatively high bill

  • for litigation that won billions of dollars,

  • but your mileage may vary.

  • Now, speaking of great lawyers,

  • my firm, the Eagle Team is now accepting new clients,

  • and we don't charge $90 million.

  • If you've been in a car crash, data breach,

  • or medical malpractice or just about anything else,

  • we can represent you or help find you

  • the right attorney who can.

  • Just click on the link in the description

  • for a free consultation with my team,

  • because you don't just need a legal team.

  • You need the Eagle team.

  • The link is down below.

  • And now, back to Elon Musk.

  • Now, Wachtell is one of the premier

  • mergers and acquisitions firms,

  • and its partners make serious bank by charging success fees.

  • And in the firm's fee arrangement memo,

  • Wachtell outlined its comparables,

  • explaining that its success fees generally range

  • from 67% to 100% of the investment banking fees.

  • And the memo also says that the fee could be a multiplier

  • of its hourly billing or a run rate.

  • And during the first four months,

  • the lawyers billed $26.6 million,

  • and the success fee is about 2.5 times that amount,

  • which was within comps Wachtell gave to Twitter.

  • And the banks, JP Morgan and Goldman Sachs,

  • got 133 million with 113 million of that

  • as a success fee when the buyout closed.

  • So the $90 million that Musk complains about

  • was around 68% of the banker's fees,

  • which is actually on the lower end of comparables,

  • if you are to believe Wachtell.

  • But Musk argues that the success fee is too much,

  • because litigation didn't move forward.

  • And Wachtell wasn't the law firm involved

  • in the original negotiation between Musk and Twitter.

  • And that's an argument,

  • but it's probably not particularly strong.

  • To prove his point, Musk states that the work

  • that the lawyers did wasn't particularly hard,

  • since it was just a garden variety contract dispute.

  • "There were no novel or difficult questions of law involved

  • nor did the litigation require any special skills

  • beyond that which Twitter could have procured

  • by paying hourly rates to many other reputable law firms

  • with the experience litigating

  • in the Delaware Chancery Court,

  • including those hired to work alongside Wachtell."

  • Now, this argument is particularly hilarious,

  • because Musk is actually admitting

  • that the legal questions weren't that difficult,

  • because he really didn't have any legal basis

  • for backing out of the deal.

  • Basically, that his litigation was frivolous.

  • And if Musk had simply done what he was supposed to do

  • by consummating the deal in the first place,

  • Twitter wouldn't have to pay a success fee at all.

  • And of course, Twitter's board was obviously pleased

  • that Wachtell helped it close the deal

  • at the original price.

  • And if Twitter had renegotiated the deal

  • so that Musk had to pay a lower share price,

  • the shareholders would've lost billions of dollars,

  • far more than the $90 million

  • that they paid in the lawyer fees.

  • And the deal of course closed at $44 billion,

  • which means that the success fee wound up

  • being about 0.2% of that eventual deal.

  • So yeah, it's arguable that the success fee

  • helped Twitter save a lot of money

  • and that the board probably feels pretty good about it.

  • And in fact, success fees are so normal

  • with mergers and acquisitions that Musk's own law firm,

  • Reid Collins & Tsai,

  • the lawyers handling this case for him also charged them.

  • But on the other hand,

  • it's possible that Musk has a reasonable argument here.

  • He argues that the success fee is unconscionable,

  • in part, because the firm's work had already been done.

  • Therefore, there couldn't be an enforceable contract

  • to pay effectively an additional $90 million,

  • because again, the work had already been done.

  • Now, consideration in contracts refers

  • to the benefit that each party receives

  • in exchange for what it gives up for a contract.

  • Gratuitous promises, AKA gifts, are not enforceable.

  • So a promise to let someone borrow your car

  • is not enforceable.

  • But a promise to let someone borrow your car

  • in exchange for $100 absolutely is.

  • And similarly, if you want to modify an existing contract,

  • you need some new consideration, generally speaking,

  • in order for that modification of the contract to stick.

  • Consideration can be big or small,

  • as long as the parties mutually agree

  • to exchange something between themselves.

  • And right now, all the lawyers watching this video

  • are shouting the word peppercorn at the screen,

  • because in law school, you learn that consideration

  • can be something as small

  • and insignificant as an actual peppercorn.

  • Though these days, that is a metaphor for just something

  • that is very small that you're giving up.

  • Now, this could be a good argument for Musk.

  • In the original fee agreement,

  • Twitter agreed to pay the law firm

  • for services that would be billed hourly.

  • And at the last minute,

  • Twitter agreed to pay $90 million for a success fee.

  • And it's possible that this wasn't proper.

  • A fee agreement needs to spell out the services

  • that a lawyer is performing for the client,

  • outline the type of fees that it will charge,

  • and give the client an idea

  • of how much they can expect to pay.

  • And in this case, Musk has a point that Wachtell

  • can't change the original terms

  • of the agreement without consideration.

  • So how might Wachtell defend itself?

  • Well, Joe Patrice over at Above the Law suggested

  • that from Wachtell's point of view,

  • this wasn't changing the terms

  • of the original agreement per se.

  • He suggested the firm might have been

  • "opening new talks on the comprehensive fees

  • involved in both litigating and advising on a deal."

  • And under this theory, Wachtell concluded

  • that its role in litigation was complete, as Musk said,

  • but that they needed a new arrangement

  • to compensate the firm for its role

  • in advising Twitter during closing.

  • And that's definitely a possibility.

  • But so far, we don't know if that's what Wachtell

  • and the old Twitter owners were actually thinking.

  • And we certainly don't know Wachtell's side of the story

  • or the old Twitter board's side of the story.

  • Wachtell could legitimately argue that it had to advise

  • the company on any last minute maneuverings by Musk.

  • And that work, providing advice to Twitter

  • before the deal closed, could constitute consideration.

  • And again, getting $90 million

  • for providing a little bit of advice seems exorbitant,

  • but legally, the consideration can be

  • almost anything of value.

  • And consideration will only be considered inadequate

  • if it's really worthless.

  • But right now, we're only privy to the allegations

  • of the complaints and the exhibits.

  • So it's very likely that there is a lot more relevant

  • communications here than what was attached to the complaint.

  • Though additionally, Elon Musk says

  • that the fee violated the ordinary course covenant

  • that was found in the merger agreement.

  • He suggests that Twitter employees,

  • including the outgoing board of directors,

  • were up to corporate sabotage.

  • The complaint says that "fully aware that nobody

  • with an economic interest

  • in Twitter's financial wellbeing was minding the store,

  • Wachtell arranged to effectively line its pockets

  • with funds from the company cash register,

  • while the keys were being handed over to the Musk Parties."

  • But remember, Twitter had to hire Wachtell,

  • because Elon was trying to get out

  • of the merger agreement in the first place.

  • And Musk complains that right before the deal closed,

  • these stupid people met to approve the fee request

  • despite a Musk directive to halt all payments.

  • "The closing day directive was an unequivocal statement

  • on behalf of Twitter's residual claimants

  • of the corporation's preference to pause

  • outbound payments pending that day's closing

  • so that the company's new owner

  • could have a reasonable opportunity

  • to review such payments."

  • So Musk is arguing that they shouldn't have approved

  • the fee in part because he had no intention

  • of paying the bills that Twitter already owed.

  • But the company didn't have to follow Elon's directive

  • until he actually owned the company and not a moment before.

  • So Twitter paid the fee right before the deal closed,

  • like literally minutes before the deal closed.

  • And Musk thinks that this timing is nefarious,

  • and that they intended to keep the payments secret.

  • And now, it's true that Twitter executives

  • didn't have much incentive to pay the lawyers

  • the lowest fees that they could get away with.

  • But on the other hand,

  • they also weren't sure that the deal would close

  • until the day that it actually did.

  • So if the Twitter executives made too many crazy decisions

  • that cost the company tons of money,

  • they'd be screwing themselves over

  • if Musk decided to litigate instead of closing,

  • because they'd need to run a company

  • that was seriously hampered

  • by all the bad deals that they did.

  • But there's also the fact that Musk has a long history

  • of stiffing people he owes money to.

  • And relying on your personal history

  • of breaking contracts seems like a weak argument.

  • So Musk would've been in a much better spot

  • if he claimed that the $90 million in fees

  • was outside the ordinary course of business

  • and refused to move forward with the sale

  • with that payment in place.

  • But of course, he famously moved forward

  • with the deal and paid $44 billion,

  • and now, proudly owns a company

  • that's worth a fraction of that.

  • So maybe instead of hiring yet more lawyers,

  • Elon should sit back and enjoy

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- Buying Twitter might be the worst thing

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Elon Sues The Lawyers That Forced Him to Buy Twitter(Elon Sues The Lawyers That Forced Him to Buy Twitter)

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    林宜悉 に公開 2023 年 07 月 18 日
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