Elon The Scofflaw? Here’s What Could Happen If Musk Loses And Still Refuses To Buy Twitter

As Twitter’s lawsuit to force Elon Musk to complete his $44 billion purchase of the company heats up, many are speculating what might happen if Musk simply refuses no matter the outcome.

And while he’s given no indication he won’t comply, it’s a fun thought exercise, courtesy of Bloomberg Law.

To review, Musk claims that Twitter has essentially committed fraud by vastly underreporting the number of ‘bots’ or fake users on the platform. Twitter claims it’s under 5%, while Musk claims it could be 10x that amount and filed to pull out of the deal last Friday.

The lawsuit’s venue is Delaware’s Cancery Court, which has no jury, and will thus be decided by a judge – in this case, 42-year-old Chief Judge Kathaleen St. J. McCormick – who was appointed to the bench by Democratic Governor John Carney in 2021.

Judge Kathaleen St. J. McCormick

So, what if McCormick orders Musk to move forward with the purchase and he simply refuses?

For starters, a massive fine – which could include Delaware’s civil contempt laws, according to Boston College law prof Brian Quinn.

“A judge could hold him in contempt and set a daily fine until he complies,” he said, adding “For Musk, that would have to be a rather large number.”

For example, in the same Delaware court, Chancery Judge Andrew Bouchard slapped a $30,000 daily fine on transcription software maker Transperfect Global Inc. when they ignored an order.

The court could also seize Musk’s assets according to Robert Miller, who holds a chair in corporate finance and law at the Iowa College of Law.

Chancery Court “is a court of equity, with broad powers to fashion remedies. Tesla is a Delaware corporation,” Miller said. The court, he said, “would have no problem reaching Musk’s Tesla stock.”

Miller cautioned that “nothing like this has ever happened before,” a scenario in which “someone is ordered by Chancery to close a deal and just ignores that order.” But legal deadbeats aren’t uncommon, he said, “and all states and all courts have procedures whereby the winning litigant can ‘execute’ a judgment by moving against the loser’s assets.” –Bloomberg Law

If Musk refused to pay, it would be considered just like any other debt according to Charles Elson, a retired University of Delaware finance professor and the former head of the school’s Weinberg Center for Corporate Governance, however seizing Musk’s shares could be a “long, tortuous legal road.”

“You’d need to undertake the effort to pierce the corporate veil” because Musk established holding companies for the acquisition.

If the shell companies ignored a court order to pay up, the court could appoint a receive to take them over and “do the deal” says Quinn.

Jail time!?

Created by “stopgenocide” via Deviant Art

According to the report, a judge can send a scofflaw to jail to think it over, under Delaware’s civil contempt procedure.

In 2014 the court issued an arrest warrant for a defendant flouting an order to surrender his passports. But it’s rare for a Chancery judge to send for the sheriff.

“In a contract dispute, they can’t hold a gun to your head,” Elson said. “There’s no such thing as a contract prison.”

Read More: Musk’s About-Face on Twitter Sends Takeover Saga to Delaware

Still, the court could impose a large fine on Musk, or even order his arrest, Miller said. -Bloomberg Law

“There’s no way in the world Delaware is going to lose its franchise as the premier corporate law jurisdiction where contracts are enforced because Elon doesn’t feel like doing it,” said Elson.

And according to the other attorneys consulted for the report, Delaware would need to respond forcefully if Musk refuses to pay.

See, wasn’t that fun?