In a remarkable legal development, Elon Musk, the visionary entrepreneur, has filed a lawsuit against the distinguished law firm Wachtell, Lipton, Rosen & Katz. The objective of this legal action is to recoup a significant portion of the $90 million fee that Wachtell received from Twitter. This fee was granted to the law firm for successfully countering Musk’s attempt to withdraw from his groundbreaking $44 billion buyout of the social media giant. Let’s delve into the details surrounding this high-profile case.
The legal complaint, initiated by Musk’s X Corp, the parent company of Twitter, was formally filed on Wednesday at the California Superior Court in San Francisco. Musk alleges that Wachtell took advantage of the situation by accepting substantial “success” fees in the final days leading up to the closure of the buyout on October 27, 2022. These fees were distributed among departing Twitter executives who expressed their gratitude for Musk being compelled to proceed with the acquisition. Elon Musk, widely regarded as the world’s wealthiest individual and the driving force behind Tesla Inc (TSLA.O) and SpaceX, considers the $90 million payout to be “unconscionable.” He points out that Wachtell billed less than one-third of that amount for the few months of work it performed on the Delaware lawsuit.
The complaint alleges that Wachtell deliberately exploited the final stages of the buyout process to accumulate significant funds, effectively lining its pockets with resources from the company’s cash register while the keys were being handed over to Musk. Musk seeks to reclaim the “excess” fees charged by Wachtell, which were stipulated in an agreement signed on the day of the closing by one of Wachtell’s partners and Twitter’s chief legal officer, Vijaya Gadde. The complaint also includes a statement from former Twitter director Martha Lane Fox, who expressed her shock upon discovering the amount that the lawyers would be paid. In an email to general counsel Sean Edgett, Fox exclaimed, “O My Freaking God.”
As of now, Wachtell has not provided an immediate response or commented on the lawsuit. It is important to note that Vijaya Gadde, Martha Lane Fox, and Sean Edgett are not directly involved as parties in the litigation. Since Musk’s acquisition of Twitter, the social media giant has found itself entangled in numerous actual or threatened legal disputes. These include multiple lawsuits by landlords, vendors, and consultants who have accused Musk of failing to meet payment obligations. Additionally, Twitter has threatened to file a lawsuit against Mark Zuckerberg’s Meta Platforms (META.O) over the latter’s new Threads app.
Wachtell, Lipton, Rosen & Katz is no stranger to lawsuits brought by billionaires in relation to high-value buyouts. The law firm has a history of engaging in protracted litigation, as evidenced by its involvement in the legal battle with Carl Icahn over his hostile takeover of CVR Energy (CVI.N) in 2012. In a subsequent case, a judge dismissed a malpractice claim brought by Icahn, who found himself obligated to pay higher fees to the banks that assisted in defending CVR against the takeover. These fees exceeded the costs that would have been incurred had the merger failed.
The ongoing case, X Corp v Wachtell, Lipton, Rosen & Katz, is currently being heard at the California Superior Court, County of San Francisco, under the case number CGC-23-607461. The outcome of this lawsuit is expected to have far-reaching consequences, not only for the involved parties but also for future high-profile buyouts and the practices of esteemed law firms like Wachtell.
