Delaware Chancery Court Chancellor Kathaleen McCormick ruled Wednesday that Musk could add the claims from Zatko, who has alleged “extreme, egregious deficiencies” in Twitter’s security practices and that the company hid information about bots and spam.
But McCormick said Musk could seek “only incremental” information from Twitter on the new claims. And delaying the Oct. 17 trial “would risk further harm to Twitter too great to justify,” she added.
Twitter welcomed the decision Wednesday, days before a critical vote in which shareholders are expected to approve the Musk deal at $54.20 per share.
“We look forward to presenting our case in Court beginning on Oct. 17 and intend to close the transaction on the price and terms agreed upon with Mr. Musk,” Twitter spokesman Brenden Lee said in a statement.
“We are hopeful that winning the motion to amend takes us one step closer to the truth coming out in that courtroom,” Musk attorney Alex Spiro said in a statement.
The Washington Post and CNN first reported last month on the whistleblower complaint. Zatko, a prominent hacker also known as “Mudge,” alleged that Twitter had violated the terms of an 11-year-old settlement with the Federal Trade Commission and had prioritized user growth over reducing spam.
Twitter pushed back, calling Zatko’s allegations “riddled with inaccuracies.”
Musk launched a hostile-takeover attempt this year, and Twitter accepted his offer to pay about $44 billion for the company. But Musk filed to terminate the deal just months later, alleging that Twitter had misled him and his team about the prevalence of bots, or fake or automated accounts, on the site.
Twitter sued him to complete the merger, and the judge largely granted the company’s request for an expedited trial.
In a court hearing Tuesday, Musk’s attorneys said Twitter had stood by Securities and Exchange Commission filings that the whistleblower alleged were inaccurate, and they argued that Zatko’s claims about spam and bots were compelling given his standing at the company. They said they would not have discovered the information independently in the course of due diligence because Twitter made a deliberate effort to hide it. Musk has been criticized for waiving due diligence in striking the deal so quickly, with a take-it-or-leave-it offer that eschewed an extended probe of Twitter’s internal practices or finances.
The judge, however, turned the lawyers’ argument against them — signaling the uphill battle they face as they attempt to show Musk was misled in a way that significantly changes the nature of the deal.
“We’ll never know, right? Because the diligence didn’t happen,” McCormick said Tuesday.
In her decision to allow Musk to amend his counterclaims, McCormick said it is typical to allow amendments in such cases, but she didn’t get into the details of his claims.
“I am reticent to say more concerning the merits of the counterclaims at this posture before they have been fully litigated,” she wrote. “The world will have to wait for the post-trial decision.”
Later on Wednesday, Musk’s side won another — limited — victory, as McCormick granted access to messages from two top Twitter officials over workplace messaging software Slack.
The attorneys had argued Twitter was heavily reliant on Slack in consummating the deal, with multiple channels that hosted discussions about the merger. But Twitter had pushed back against providing messages of general counsel Vijaya Gadde and board member Egon Durban. McCormick granted the Musk’s team’s request for their Slack messages Wednesday following arguments in a hearing Tuesday, although chided them for altering the scope of their request after having previously narrowed it down.
“In this highly expedited case, there is no time for ‘just kiddings,’” she wrote.
In another decision, the judge also granted Twitter’s request for Musk’s side to obtain and hand over phone records. The records concern text messages exchanged and received by Musk and key adviser Jared Birchall, who heads his family office.
Some messages appeared to be missing in the documents Musk’s team had already turned over, according court documents and Tuesday’s hearing. McCormick cited one such exchange where there appeared to be a missing message from Musk, writing: “Assuming that Musk’s response was not telepathic,” she wrote, it would have been expected in the documents.
The phone company records, McCormick wrote, will allow Twitter to determine whether Musk’s side’s contention that he “did not text about Twitter during key periods are accurate.”
Meanwhile, according to court documents posted Wednesday, Musk attorneys are set to depose former Twitter CEO Jack Dorsey on Sept. 12.
Cat Zakrzewski contributed to this report.
Go to Publisher: Technology
Author: Rachel Lerman