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Elon Musk has filed a lawsuit against the law firm Wachtell, Lipton, Rosen & Katz in an attempt to recover a portion of the $90mn fee paid by Twitter. The majority of this fee was transferred just before Musk acquired the social media company.
Wachtell Lipton, a prestigious Wall Street firm, assisted Twitter’s board in finalizing the $44bn deal after Musk initially tried to back out last year.
The Musk-owned entity, X Corp, alleged in a complaint filed in a California state court that Wachtell Lipton had tried to “fundamentally alter its fee arrangement as litigation counsel” in order to receive an “improper bonus payment” that violated its fiduciary and ethical obligations to its client.
The $90mn amount was agreed upon and most of it was wired to Wachtell Lipton hours before Musk’s purchase of Twitter at $54.20 per share was finalized on October 27. Musk’s filing mentioned that the amount included “an enormous but unspecified success fee”. According to the complaint, the $90mn accounted for 10% of Wachtell Lipton’s gross revenue in 2022.
The complaint alleged that Wachtell Lipton took advantage of a corporate client that was vulnerable due to board members who were no longer motivated to act in Twitter’s best interest.
Twitter and Wachtell Lipton have chosen not to comment on the lawsuit.
Musk agreed to buy Twitter in April 2022 but later attempted to cancel the deal as tech stocks cooled. He accused the platform in July of misleading investors and regulators regarding fake accounts and cybersecurity. Twitter, represented by Wachtell Lipton’s prominent litigation department, sued Musk to enforce the completion of the deal, which sparked a legal battle and discovery process.
Wachtell Lipton pitched its Delaware corporate law practice to the Twitter board in June 2022, just as Musk began expressing doubts about the deal publicly. The firm highlighted its association with Leo Strine, the former chief justice of the Delaware Supreme Court who joined Wachtell Lipton after his retirement in 2020, according to an email mentioned in the complaint.
Just weeks before the scheduled Delaware court hearing, Musk announced that he would proceed with the Twitter acquisition at the agreed price if Twitter dropped its legal action.
In the complaint, X Corp’s lawyers claimed that during the initial months of Wachtell Lipton’s involvement, the firm submitted invoices to Twitter that included “millions of dollars in hourly billings by Wachtell partners with completely blank time entry descriptions”.
The $90mn total surprised Twitter board member Martha Lane Fox, who messaged the company’s general counsel with the exclamation “O My Freaking God”, according to the filing.
Despite Musk’s earlier demand for Twitter to suspend payments to third parties, all board members approved the fee. In addition to seeking restitution, Musk accused Wachtell Lipton of breaching its fiduciary duty to the Twitter board and assisting in a breach of fiduciary duty by the outgoing directors of the social media group in approving the law firm’s fee.
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