There's an interesting op-ed in today's NYT by Yair Listokin and Jonathon Zytnick on Elon Musk's effort to wriggle out of the deal with Twitter.
They opine:
Forcing a party to keep a contractual promise — what lawyers call “specific performance” — is a rarely invoked remedy in merger cases, and rightly so.
I keep seeing this claim, but I am not aware of any empirical data to back up or refute the claim. What we need is an empiricist who would count cases in which specific performance was sought and how often it was granted. We would also need to find out how often an order of specific performance was enforced versus resulting in a settlement. Of course, that empiricist would need a M&A specialist to do the law part. (Ahem.)
Is this the same "'Stephen Bainbridge [who] disdains the trend' towards empirical legal scholarship"? Well, yes. But remember, what I really object to is "(1) pseudo-social science being done by legal academics untrained in the relevant discipline, (2) hiring people to teach law with because they ran enough linear regressions to get to the point of being ABD in some social science but not to the point of actually being able to get hired in their home discipline, and/or (3) hiring people who are really good at their home social discipline but have mediocre legal credentials/skills."
Anyway, back to Listokin and Zytnick:
... holding both parties to their bargain — especially one of this economic magnitude — can also generate value for Twitter, as opposed to monetary damages. By ordering Mr. Musk to fulfill the terms of the contract, the court can create stability and certainty for future entrants into merger contracts — while giving the parties to this agreement room to negotiate their way out if both no longer want to go through with the deal.
Precisely. Delaware courts have long recognized that their state's brand requires them to provide certainty and predictability, so that transaction planners can plan deals with a high degree of confidence that their intended outcome will be enforced. I find it utterly implausible that a Delaware court would not enforce this deal.
Having said that, however, I also believe that rational parties would reach a mutually agreeable solution. (Note that my proposed empirical project would look at settlement outcomes.) Query whether Elon Musk falls within that set.
In any case, Listokin and Zytnick go on to lay out three additional reasons why they think a Delaware court would grant specific performance in this instance. I'm not sure fair use would allow me to quote their arguments in full, so I'll content myself by suggesting you go read the article. Suffice it to say, they offer a good counterpoint to Heaton and Henderson's article.
But then Listokin and Zytnick suggest that:
Mr. Musk also might ignore the court’s order, raising even more fundamental questions about whether courts can be counted upon to enforce the law.
I keep seeing this argument. The idea that Delaware would allow its brand to be tarnished by a scofflaw who openly mocked the state courts strikes me as ludicrous. The Delaware Chancery Court is a court of equity that "has broad power to fashion an equitable remedy." Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1391 (Del. 1995). In addition, where a party's conduct amounts to "a failure to obey the Court in a meaningful way,” the court will use civil contempt to "to coerce compliance with the order being violated." Aveta Inc. v. Bengoa, 986 A.2d 1166, 1181 (Del. Ch. 2009).
Listokin and Zytnick get the point:
If Mr. Musk, who is the C.E.O. of Tesla and Space X, also Delaware companies, ignores the will of the state’s courts, there will be consequences for that, too. And corporations have long chosen Delaware’s courts for their disputes precisely because political considerations — such as whom one might prefer to be in control of Twitter and its outsize influence — are not seen as influencing their corporate-law judgments.
In sum, go read the whole thing.
