Court: Twitter Shareholder May not Piggyback on Discovery in Twitter-Musk Delaware Chancery Case

By order issued Wednesday, Magistrate Judge Sallie H. Kim refused to expedite and coordinate discovery in the two actions relating to Elon Musk’s $44 billion buyout of Twitter.

The cases relate to the saga ongoing since April, when Musk announced his intent to purchase the social media platform for $54.20 per share. Since then, the deal has been thrown into chaos amidst allegations from Musk that the company was not being honest about aspects of its business like the robustness of user privacy measures and the quantity of accounts controlled by bots.

Twitter’s stock price subsequently declined, Musk paused the deal, and shareholder lawsuits, like the instant one, streamed in, claiming Musk’s public statements made the company falter unfairly. More recently, an ex-executive came forward as a whistleblower, largely backing up Musk’s allegations.

On July 12, Twitter sued Musk in Delaware Chancery Court, seeking to compel the buyout under the agreed-to conditions. Because of the deal’s soon expiry, that court fast-tracked the Delaware action. In this week’s opinion, the Northern District of California commented that doing so created an “extremely fast-paced [schedule], particularly for a case of its magnitude, with the parties ordered to conclude discovery only two months after filing of the suit and go to trial only three months after filing suit.”

In the present case, in which the operative complaint was filed and served on July 1, the shareholder sued Musk, two companies he controls, and Twitter. The complaint alleged breach of fiduciary duty and unjust enrichment on part of Musk and sought a declaration against all defendants finding that the terms of the deal have been met, alongside “appropriate injunctive relief.”

In late July, the shareholder asked that the parties expedite and coordinate discovery with the Delaware action and that defendants provide all discovery from that action. Twitter and Musk separately opposed, arguing that the plaintiff sought no emergency relief and that the request would be burdensome and distracting.

In this week’s opinion, Judge Kim largely agreed based on the applicable four-factor analysis, including whether, critically, there was a pending motion for a preliminary injunction. “Although Plaintiff claims that he needs the discovery now for a contemplated motion for preliminary injunction, he provides no explanation for what he plans to seek in that motion,” the court pointed out.

Judge Kim also said that the request was broad, and at least in the short term it would be “very burdensome” to the defendants. Separately, the court declined to coordinate discovery given the speed of the Chancery court case and the increased burden that requiring coordination would create.  

The plaintiff is represented by Cotchett, Pitre & McCarthy, LLP and Bottini & Bottini Inc. and Musk by Quinn Emanuel Urquhart & Sullivan LLP and Twitter by Shearman & Sterling LLP.