The judge handling the lawsuit against Musk is from Delaware. One of the few judges who has ever ordered a reluctant buyer to close a US corporate merger is the chancellor of the court, who has a no-nonsense reputation.
The $550 million purchase of DecoPac Holding Inc, which makes cake decorating products, was ordered to be closed by an affiliate of private equity firm KKR.
There is a specific performance clause in the purchase contract that is similar to the one that is being used in the attempt to force Musk to complete his purchase. "Chalking up a victory for deal certainty, this post- trial decision resolves all issues in favor of the seller and orders the buyers to close on the purchase agreement," stated the ruling by the judge.
The buyers lost their appetite for the deal after government entities issued stay-at- home orders around the country. The buyers called their litigation counsel because they didn't want to use reasonable best efforts to get a definitive credit agreement. The reforecast of DecoPac's projected sales was made without input from the management.
Less than a month after the ruling, the deal was completed.
The lawsuit was filed a few days after Musk sent a letter saying that he was going to end their merger. The company's lawsuit said that it negotiated for itself a robust right to demand specific performance of the agreement's terms that included the right to compel defendants to close the deal.
AdvertisementThe merger deal says that if the company meets its obligations, it will be entitled to specific performance or other equitable remedy.
The deal is backed by debt and equity commitments and has no financing contingency, according to the complaint. After stock market declines, Musk tried to get out of the deal, but he believes that he is free to change his mind and destroy the company.
While Musk claims that the merger deal was broken by not providing all the data he requested, the company said it provided enough data and that Musk had conjured an alternative reality. The lawsuit said that Musk's demand for data was too late because he made his purchase offer without asking for the data.
The chancellor of the Delaware Court of Chancery has been McCormick. She was nominated by the governor.
She already has a track record of not putting up with some of the worst behavior that we see in these areas when people want to get out of deals. She is a tough judge.
The cases in the Delaware Court of Chancery are decided by the presiding judge and not a jury. The judge's decision can be appealed to the State Supreme Court.
The trial will start on September 19th. The Delaware Court of Chancery has the power to send someone to jail if it rules that Musk must complete the merger.
Financial seizure is one of the possibilities, as the two companies are incorporated in the same state. Michael Hanrahan, a corporate litigator who practices in the Delaware Court of Chancery, told NPR that there may be means of compelling Musk.
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