By Editor-July 9th, 2023.
Attorneys for X-Corp, the holding company owned by Elon Musk filed a lawsuit this week against the law firm that represented Twitter when Musk was trying to take the company private last year, claiming the firm’s legal bill amounted to daylight robbery.
The lawsuit says Wachtell, Lipton, Rosen, and Katz, which was Twitter’s firm prior to Musk’s acquisition, racked up a $90 million “last minute” legal bill.
Wachtell Lipton Rosen & Katz, among the most profitable firms in the US, exploited a brief, vulnerable period just as Musk was closing the $44 billion deal, according to a complaint filed in San Francisco state court by Musk’s X Corp., now the parent of Twitter.
Twitter had agreed to pay Wachtell lawyers on an hourly basis to enforce Musk’s agreement to buy the company when he tried to back out, but the firm violated its ethical duties as well as California law in the final days of its four-month representation when it solicited “gargantuan” bonus fees, according to the complaint.
The world’s richest person, who also runs Tesla Inc and SpaceX, called the $90 million payout ‘unconscionable,’ given that Wachtell had billed less than one-third that sum for its few months of work on the Delaware lawsuit.
‘Fully aware that nobody with an economic interest in Twitter’s financial well-being was minding the store, Wachtell arranged to effectively line its pockets with funds from the company cash register while the keys were being handed over to the Musk Parties,’ Musk’s lawsuit said.
Musk wants to recoup ‘excess’ fees that Wachtell charged under an agreement signed on the day of closing by one of its partners and Twitter’s chief legal officer Vijaya Gadde.
The complaint also quoted former Twitter director Martha Lane Fox who, upon learning how much lawyers would be paid, emailed general counsel Sean Edgett: ‘O My Freaking God.’
The massive last-minute fee which was allegedly wired to Wachtell in the closing minutes before the merger shows ‘Wachtell apparently believed that it—unlike other law firms bound by ethical and fiduciary obligations—was free to solicit a handout, aid and abet corporate waste by former Twitter executives in the death throes of their fiduciary roles, and walk away with a total fee that made it $90 million richer,’ the lawsuit states.
Twitter’s $84 million wire to Wachtell is said to have been posted a mere ten minutes before Gadde and Edgett were terminated upon the closing of the merger.
The lawsuit is something of a role reversal for Musk, who is a defendant in numerous suits alleging that Twitter under his leadership allowed millions in unpaid expenses to pile up from former employees, vendors and landlords while purportedly trying to keep the company financially solvent.
Representatives of Wachtell, including William Savitt, who played a lead role in last year’s Delaware Chancery Court fight, didn’t immediately respond to a request for comment.
Twitter’s legal battle with Musk engaged dozens of lawyers on both sides for months, some charging upwards of $1,000 an hour — leading Columbia University law professor John Coffee to speculate that total legal fees could have exceeded $1 billion if the case had gone to trial.
X Corp. claims that by arranging to bill Twitter its hourly rates instead of taking the case on a contingency basis, Wachtell “undertook absolutely no risk in obtaining its mammoth success fee.” Moreover, the company’s agreement with the law firm “does not even specify the amount of the success fee, let alone any formula or percentage used to arrive at that figure,” according to the complaint.
The suit also faults “lame duck” executives at the social media platform went on a legal “spending spree” before Musk took control.
“Fully aware that nobody with an economic interest in Twitter’s financial well-being was minding the store, Wachtell arranged to effectively line its pockets with funds from the company cash register while the keys were being handed over to the Musk Parties,” according to the complaint.
The case is X Corp. v. Wachtell, Lipton, Rosen & Katz, CGC-23-607461, California Superior Court (San Francisco).
Sources: Fortune, CNBC, Daily Mail.