Over Mr. Musk's objections, Chancellor Kathaleen St. Jude McCormick, the chief judge of the Delaware Chancery Court, ordered a five-day trial in October. Chancellor McCormick stated that the case should be resolved quickly, agreeing with Twitter's claim that uncertainty about its future as a public company could harm the company.
"Those concerns are on full display in this case," said Chancellor McCormick. "Typically, the longer a merger transaction is stalled, the greater the cloud of uncertainty cast over the company and the greater the risk of irreparable harm to the sellers."
Twitter argued that the case should be expedited because Mr. Musk's decision to leave the deal earlier this month left shareholders and the company in limbo, citing the prevalence of spam or fake accounts on the platform. Twitter is seeking a remedy known as "specific performance," which means Mr. Musk must complete the deal rather than just monetary damages.
During the hearing, Twitter's lawyers stated that the lawsuit isn't based on the number of spam and fake accounts because the merger agreement made no promises about that metric. According to Twitter's securities filings, the number of fake and spam accounts could be higher than the company's estimates, according to attorney William Savitt.
"This issue, Musk claims, will necessitate such complex discovery," Mr. Savitt said. "It isn't the point of the merger agreement." As a result, it will not be the subject of the case."
Twitter has claimed that Mr. Musk is suffering from buyer's remorse as a result of the drop in share prices since the deal was announced in April, pointing out that Mr. Musk's personal wealth has dropped by more than $100 billion since its peak in November 2021. Twitter's stock has dropped more than 25% since the deal was announced on April 25.
Mr. Musk stated that he needed more time to investigate the issue of spam and fake accounts, which he claims is fundamental to Twitter's value, and that preparing for the trial will be "extremely fact and expert intensive, requiring substantial time for discovery." According to Andrew Rossman, one of Mr. Musk's lawyers, the proportion of fake accounts is important in determining Twitter's key performance metric—monetizable daily active users.
According to Mr. Musk, Twitter's estimate that fewer than 5% of its monetizable daily active users are spam or fake is questionable and likely too low.
"If you read their earnings calls, if you look at the transcript of their analyst day," Mr. Rossman said during the hearing.
Mr. Rossman claims that Twitter is attempting to railroad Mr. Musk into completing the deal while burying the truth about the number of fake and spam accounts. He stated that Mr. Musk, as the company's second-largest shareholder, has a greater economic interest in the company than the entire board, and thus has no interest in stalling to harm the company.
Chancellor McCormick did not say whether the case would require Twitter's disclosures about spam accounts to be verified. She ruled for a quicker trial because Twitter wants to close the deal, and "it is not at all clear that damages could constitute a sufficient remedy if Twitter ultimately proves its case," she said.
Twitter, which filed the lawsuit last week, claims to have a rigorous process for estimating fake accounts and malicious bots.
"There is no reason to go into how many bots there are if a fair reading of the contract said Musk essentially waived that right," said James Cox, a Duke University professor of corporate and securities law.
Mr. Musk has given at least two different reasons for leaving the deal, both of which are related to spam and fake accounts. One claim is that Twitter allegedly misrepresented data in a way that could have a material adverse effect on its business. Delaware law allows companies to cancel mergers if a material adverse effect occurs, but its courts have also strictly defined the conditions for such a result.
Mr. Musk claims his other reason for leaving is that Twitter allegedly withheld information about fake accounts, which would violate the merger agreement's commitments. "The limited information Twitter has provided casts serious doubt on its representations," Mr. Musk's lawyers wrote in a court filing last week.
A lawsuit filed by Mr. Musk against Tesla Inc. is set to go to trial in late October before the same judge.