A Delaware judge on Wednesday denied Elon Musk’s request to delay his trial with Twitter over their $44 billion acquisition deal after a former top executive alleged the company has serious security vulnerabilities.
However, Musk’s team will be allowed to add arguments based on the former executive’s whistleblower disclosure to its case arguing the Tesla CEO should be allowed to walk away from the deal.
The trial is set to run for five days starting October 17. Musk’s attorneys last week moved to push back the trial by about a month and asked the judge for permission to update their counter-claims in light of the disclosure from former Twitter (TWTR) security head Peiter Zatko.
Zatko alleged that Twitter has misled Musk and the public about the prevalence of bots and spam accounts on its platform, an issue that Musk has made central to his argument to end the deal. Musk’s team last week also filed an additional termination letter claiming that Zatko’s allegations — including that Twitter has grave security violations and that it is in violation of a 2011 FTC consent order — provide additional justification for Musk to exit the deal.
Twitter has criticized Zatko and broadly defended itself against the allegations, saying the disclosure paints a “false narrative” of the company and is “riddled with inconsistencies and inaccuracies.” The company’s lawyers have also argued Musk is looking for a pretense to get out of a deal he now views as overvalued.
Delaware Chancery Court Judge Kathaleen McCormick said in her Wednesday decision that “even four weeks’ delay [of the trial] would risk further harm to Twitter too great to justify.”
The decision followed a Tuesday hearing during which lawyers for Twitter and Musk squared off over moving the trial date. Twitter has denied Zatko’s allegations and opposed the delay, arguing that, even if the claims in the whistleblower disclosure were true, they would not constitute a “material adverse effect” that would allow Musk to walk away. The company’s lawyers painted Zatko, who was fired from Twitter in January, as a disgruntled former employee whose disclosure came at a convenient time for Musk.
“Mr. Musk says he has a claim but what he really has is a disgruntled ally,” Twitter lawyer William Savitt said. (Zatko has repeatedly denied any connection to Musk and said his disclosure was unrelated to the acquisition dispute.)
Savitt added that Musk’s motion to delay the trial and update his complaint appear to be part of an ongoing strategy by the billionaire’s team to drag out the proceedings to the continued detriment of the company. In a prior hearing, Savitt argued the continued uncertainty hanging over the company from the outstanding deal and litigation “inflicts harm on Twitter everyday, every hour and every day.” (McCormick previously sided with Twitter in ruling that the trial should be expedited.)
“They’re trying to grind us all down,” Savitt said Tuesday. He later added: “There’s no reason this case can’t get tried on time. … We’ll do whatever it takes to make that happen.”
Musk’s lawyers said they had no knowledge of Zatko’s concerns before they were publicly reported last month, and questioned why Twitter did not previously disclose that its former executive had made claims of fraud in January, prior to Musk’s bid for the company, or that Zatko had filed a whistleblower disclosure.
“We still don’t know when they became aware,” Musk lawyer Alex Spiro said during the hearing. “We still don’t know why they didn’t tell us.”
In her Wednesday ruling granting Musk’s team’s motion to add to their counter-claims based on the whistleblower allegations, McCormick said that she would permit “only incremental discovery relevant to the new allegations … made through targeted document discovery and minimal additional experts and fact witnesses.” The two sides have clashed over the scope and quantity of the discovery materials.
Spiro told CNN Business Wednesday that Musk’s team is “hopeful that winning the motion to amend takes us one step closer to the truth coming out in that courtroom.” In a statement, Twitter said: “We look forward to presenting our case in Court beginning on October 17th and intend to close the transaction on the price and terms agreed upon with Mr. Musk.”
Musk’s lawyers are set to depose Zatko on Friday. Zatko is also expected to testify in a Senate hearing regarding his allegations next week, the same day that Twitter shareholders are set to vote on whether to approve the acquisition deal.