By Lene Powell, J.D.
Stating that Elon Musk’s response to discovery requests has been “suboptimal,” the Delaware Chancery Court granted two discovery requests from Twitter in its lawsuit to compel Musk to complete his acquisition of the company. Specifically, the court required Musk and co-defendants to provide information about co-investors and identify persons with knowledge of or involvement in key issues and events. However, the court declined to rule that Musk had waived objections by engaging in obfuscatory tactics and said it was “premature” to compel discovery of communications relating to government investigations (Twitter, Inc. v. Musk, August 23, 2022, McCormick, K.).
Twitter suit to compel acquisition. Twitter is seeking to compel Musk to go through with an April merger agreement to buy the company for $54.20 per share in cash, for a total of about $44 billion. Musk informed Twitter in July that he was terminating the agreement on various grounds.
In its suit for breach of contract, Twitter alleges that the real reason Musk is seeking to terminate the agreement is a decline in Twitter’s share price following the merger announcement, as well as a decrease in Musk’s own wealth due to a decline in the value of his stake in Tesla, Inc. Twitter seeks specific performance of the merger agreement and other injunctive relief.
Court grants two discovery requests. In ruling on Twitter’s discovery motion, the court appeared to attempt to calm the waters. The court stated that Musk’s discovery response has been “suboptimal” but noted that the defendants have walked back most of their initial objections.
The court agreed with Twitter that the defendants should identify persons with knowledge of or involvement in key issues and events. The defendants had argued the interrogatories were “overbroad” and “disproportionate,” and had limited their response to persons with “unique knowledge.” The court said it was difficult to conclude that an ordinary-course interrogatory listing persons with knowledge was “disproportionate” to the needs of any case, particularly a case concerning a $44 billion merger.
The court also compelled discovery of the defendants’ communications with actual and potential co-investors. The defendants had limited their response to persons who had executed a non-disclosure agreement regarding a potential investment in Twitter. The court found this logic faulty given that Musk himself had committed to a $44 billion transaction without executing an NDA. The court also found it implausible that the request would impose undue burden.
Other requests denied. The court denied three requests for discovery relief.
First, the court found it a bridge too far to find that the defendants had waived objections to discovery. The court said it was willing at this stage to credit the defendants for arriving at more reasonable fallback positions and therefore would not issue that generalized punishment.
Next, the court rejected as premature Twitter’s request to compel the defendants to produce any communications concerning government investigations. The defendants had asserted investigative privilege, arguing that SEC investigations are non-public and confidential.
The court said there is little Delaware authority on investigative privilege and was skeptical of the defendants’ ability to assert it. However, the court said it did not need to reach the issue because the defendants had formally responded that they do not yet know whether they possess responsive materials. Twitter may renew the request if the defendants do assert the investigative privilege, said the court.
Finally, the court denied Twitter’s request to compel the defendants to produce documents promptly on a rolling basis. Although Twitter argued that the defendants were intentionally slow rolling their production, the court accepted the defendants’ representation that they are working diligently and will meet the August 29 deadline for substantial completion.
This is case No. 2022-0613-KSJM.