Twitter Case Goes Before A Judge Whose Past Ruling Suggests A Loss For Elon Musk

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Wasting no time, the judge handling Twitter Inc (NYSE:TWTR)’s lawsuit against Tesla Inc (NASDAQ:TSLA) and SpaceX CEO Elon Musk has set the first hearing in the case for July 19. Based on her reputation and track record, things don’t look good for Musk, who is trying to get out of his $44 billion offer to buy Twitter.

The social network is trying to force him to make good on the contract he signed to complete the purchase.

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Who Is The Judge In Twitter's Case Against Musk?

According to Reuters, Kathaleen McCormick was the first woman to become the chief judge or chancellor of the Court of Chancery, a position she began last year. On Wednesday, the court assigned her Twitter's lawsuit against Musk, which is sure to be one of the most high-profile legal showdowns in years.

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A law professor at University of California, Berkeley described McCormick as "a serious, no-nonsense judge." While Musk tends to be brash, loud and volatile, she is soft-spoken, amiable and approachable. However, despite those adjectives, McCormick is also known for standing her ground, pushing for integrity in litigants and for them to remain respectful of each other.

At the hearing on July 19, she will consider Twitter's request to expedite the case and schedule a four-day trial on the matter for September.

A Rare Decision

Reuters called attention to a critical decision McCormick made in another case with similarities to Twitter's lawsuit. In a rare move last year, she ordered an affiliate of private equity firm Kohlberg & Co. to complete its $550 million acquisition of cake decorating product maker DecoPac Holding.

Kohlberg had argued that it didn't have to complete the transaction it had agreed to because of a lack of financing. The private equity firm had argued that DecoPac violated their merger agreement, giving it the right to walk away from the offer it had made. Kohlberg also argued that DecoPac failed to maintain regular operations.

Similarly, Musk had argued that Twitter was in breach of content, contending that the company had significantly understated the number of fake or spam accounts on its platform. Twitter has long maintained a claim that less than 5% of the accounts on its platform are fake or spam accounts, while the Tesla chief alleges a far larger percentage.

According to The Verge, Musk waived due diligence when he made the offer. That move alone could be enough to shift the ruling in favor of Twitter because if Musk had done any due diligence, he probably would have discovered the issue with the spam accounts.

Other Rulings That Could Relate To Twitter's Lawsuit

However, there are some differences between the two cases. For example, Musk's $44 billion offer is far larger than that deal was, and it involves a publicly traded company in Twitter. Additionally, if he purchases Twitter, it could have serious implications for his own publicly traded company, Tesla, which is the source of a significant chunk of Musk's wealth.

Reuters noted that McCormick had sided with shareholders in other cases that had shareholders sparring with management. Last year, she prevented The Williams Cos. from adopting a "poison pill" to prevent a takeover, ruling that it breached the board's fiduciary duty to shareholders.

Hindenburg Bets Against Musk

More recently, McCormick ruled that Carvana shareholders could sue the company's board for a direct stock offering for select investors when the share price plunged in the early days of the pandemic.

It seems some investors have already placed bets on who will win the lawsuit. According to Reuters, well-known short-seller Nate Anderson through his firm Hindenburg Research has bought shares of Twitter, which effectively amounts to a short of Elon Musk.

Through Hindenburg, Anderson has accurately predicted a lot of situations. For example, Hindenburg famously alleged fraud at Nikola and Lordstown Motors, leading the Securities and Exchange Commission to begin investigating in both cases.