Column: Twitter shareholder wants $3 million fee for (mostly) dismissed Musk merger case

By Alison Frankel

March 23 (Reuters) - (The opinions expressed here are those of the author, a columnist for Reuters.) In all of 2022, the most riveting case on my beat was Twitter Inc’s lawsuit in Delaware Chancery Court to force Elon Musk to complete his deal to acquire the company for $54.20 per share. The judge who presided over the fast-and-furious litigation, Chancellor Kathaleen McCormick, described it as “epic,” likening the case to the Clash of the Titans in Greek mythology.

A parallel suit against Musk, filed by a single Twitter shareholder two weeks after the company's case, was comparatively unheralded. No huge surprise there.

Luigi Crispo, like Twitter, sought to compel Musk to close the deal he had agreed to. But he had no power to do so, according to McCormick. On Oct. 11, McCormick dismissed most of Crespo’s case, leaving alive only a possible claim for post-merger damages if shareholders ended up with less than Musk had promised.

That didn't happen, of course. Days before McCormick issued the dismissal decision in the shareholder case, Musk agreed to pay shareholders what he had promised. Twitter’s case to achieve that end was stayed on Oct. 6 and voluntarily dismissed on Nov. 15.

Crispo’s lawyers are now arguing that they deserve some of the credit for Musk’s capitulation. Specifically, they contend in a mootness fee petition filed this week in Chancery Court that they are entitled to $3 million because their suit goaded Musk to pay the full deal price.

That’s right: $3 million in fees, even though Crispo’s lawyers at Scott + Scott and Prickett, Jones & Elliott admittedly took a backseat to Twitter’s lawyers and, by McCormick’s analysis, had no viable claim to force Musk to complete the deal.

Even the lone claim left alive in the chancellor’s dismissal decision -- a possible case for post-merger damages as third-party beneficiaries of the Twitter sale to Musk -- was on shaky ground: McCormick called for supplemental briefing on whether shareholders or Twitter owned the right to sue over any lost premium. It’s possible that if the litigation had not been mooted by Musk’s commitment to pay full price for Twitter, the chancellor would have tossed that claim as well.

I asked Crispo counsel Michael Hanrahan of Prickett Jones and Max Huffman of Scott + Scott if there is Delaware precedent for a fee award in such circumstances. Hanrahan said the shareholder firms had no comment beyond their filings. Musk defense counsel Andrew Rossman of Quinn Emanuel Urquhart & Sullivan also declined to comment.

To be fair, the fee petition acknowledges that Crispo’s shareholder case was not the primary reason for Musk’s decision to consummate the deal on the terms he had agreed to. But Crispo’s lawyers argued that the shareholder suit was a bulwark against any reduction in the deal price.

Twitter’s board, they said, had a motive to accept a haircut on Musk’s original offer because he had brought counterclaims against the company. But with Crispo lurking in the background, ready and able to represent shareholders with potential damages claims against Musk -- and breach of duty claims against Twitter’s board if it accepted a lower price -- both sides had a reason to execute the deal on its original terms, according to the fee petition.

Delaware has previously approved fee awards to shareholder lawyers in “shared credit” cases, the petition said. Those cases, based on my reading of the citations in the Crispo petition, usually arise from efforts by the shareholders of a target company to force an acquirer to boost its offer.

One notable example of a shared credit fee is the 1980 case that set guidelines for fee awards in Chancery Court, Sugarland Industries, Inc. v. United States National Bank of Galveston. Shareholder lawyers in the Sugarland case received fees for litigating a derivative suit that ultimately forced the company to reopen its sale process, boosting the price shareholders received.

Crispo's petition in the Twitter case does not delve deeply into the details of previous shared-credit fee awards, perhaps because none seems to have involved precisely analogous circumstances, in which the company itself took the lead in specific performance litigation that shareholders were deemed to have no right to pursue.

The petition also challenged that conclusion. To be awarded mootness fees, shareholder lawyers must show that their asserted claims had merit when they were filed. Crispo's lawyers said they are expecting Twitter (now under Musk's control) to contend that McCormick's dismissal decision shows that the shareholder suit was baseless from the beginning and therefore doesn't merit fees. So they devoted a lot of space to the contention that Crispo's damages claims, in particular, were both strong and ripe, despite the chancellor's holding that Crispo's only possible recourse was post-merger claims.

Moreover, Scott + Scott and Prickett Jones argued, McCormick's decision should carry no weight.

Their petition noted the “considerable time and effort” that McCormick devoted to the opinion but argued that it was all beside the point because the case was moot when she issued the decision. Musk had already agreed to pay full price and McCormick had ordered a stay in Twitter’s specific performance case.

There was no longer a live controversy when McCormick’s dismissal decision came down, shareholders argued, so the opinion was merely advisory and should have been vacated. At best, they suggested, the ruling was just a preliminary determination of the merits of Crispo’s allegations – and because it was not a final judgment cannot be considered the last word.

Scott + Scott and Prickett Jones are essentially asking McCormick to hold that the Clash of the Titans was decided, in part, by the threat that a badly wounded minor character would emerge as a hero from the background of the battle. If they succeed in that, they will have earned their $3 million. (Reporting By Alison Frankel, editing by Leigh Jones)