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Elon Musk’s X Corp. this week sued a law firm Twitter hired last year after Musk tried to break their $44 billion merger deal. Musk’s lawsuit in San Francisco County Superior Court alleges Wachtell, Lipton, Rosen & Katz overcharged Twitter when it raised $90 million — including $84.3 million the same day Musk closed its $44 billion purchase of Twitter completed.
“This equitable relief action stems from an attempt by Wachtell to fundamentally change his fee arrangement as a litigator at the twilight of his representation from Twitter to obtain an improper bonus payment in violation of his fiduciary and ethical obligations to his client claimed the lawsuit filed by X Corp., Twitter’s successor. “Wachtell exploited a corporate client left unprotected by lame duck fiduciaries who had lost their motivation to act in Twitter’s best interests ahead of its impending sale to Elon Musk and its entities, X Holdings I, Inc. and X Holdings II, Inc.”
When Musk tried to back out of his commitment to buy Twitter, the company hired Wachtell in July 2022 to handle the lawsuit that eventually forced Musk to complete the merger. Musk finally honored the merger contract in October when it became clear he was likely to lose the lawsuit.
The deal between Musk and Twitter was closed on October 27. Wachtell allegedly charged Twitter $90 million for several months of work, $84.3 million of which was paid on the day the merger closed. The $90 million fee included previous invoices totaling nearly $18 million, the lawsuit said.
“Wachtell was fully aware that no one with an economic interest in Twitter’s financial well-being was paying attention to the shop and ensured that his pockets were effectively filled with cash from the company’s cash register while the keys were handed over to the Musk parties,” according to Musk’s lawsuit. .
Musk’s Twitter apparently hasn’t paid many bills since then, as the company faces more than 20 lawsuits over allegedly unpaid bills for rent and various services. Twitter is also facing lawsuits from ex-employees over unpaid severance payments and bonuses, and a lawsuit from former CEO Parag Agrawal and other ex-executives over unpaid benefits.
$84.3 million mostly a “success fee”
Most of the $84.3 million paid to Wachtell on Oct. 27 was reportedly a “success fee” for forcing Musk to close the deal. According to Musk’s lawsuit, it is “impossible to determine what portion of the $90 million total consideration owed to Wachtell under the Closing Day Letter Agreement represents the success fee.” Based on other invoices and accrued fees, the success fee would be $61 million or $72 million.
The X Corp. lawsuit details how the payment was allegedly approved and paid before Musk could stop it:
Midway through the last board meeting on Oct. 27, former Twitter general counsel Sean Edgett sent the statement of fees that Twitter’s board met to approve. Upon seeing the size of the fees being submitted for board approval, a former Twitter executive immediately exclaimed in an email response to Edgett:
O
Mine
Damn
God
Despite the initial shock, Twitter’s lame duck board members voted to allow Wachtell’s outrageous and unscrupulous compensation.
Immediately after the approval of the Twitter board, [Chief Legal Officer Vijaya] Gadde signed Wachtell’s letter agreement. Then, to ensure that the eleventh hour payment was made before the Musk parties (the new owners of Twitter) could find out about the huge gift included in that fee, Edgett expedited the transfer on the invoice for the balance ($84,294,962.97) of the $90 million total compensation that Wachtell had submitted to Twitter the day before. Twitter’s $84 million wire transfer to Wachtell was posted just ten minutes before Gadde and Edgett were terminated in closing the merger.
Musk is asking for full $90 million
The lawsuit charges Wachtell with unjust enrichment, breach of fiduciary duty, complicity in breach of fiduciary duty, and violations of California’s Business & Professions Code. We have reached out to Wachtell, Lipton, Rosen & Katz today and will update this article if we get a response.
“Because of his flagrant violations of his professional duties and applicable ethical rules, Wachtell should be required to forfeit his entire $90 million compensation under the Closing Day Letter Agreement and pay back an amount of $90 million,” the lawsuit said.
If the court does not order Wachtell to forfeit the full compensation, Musk argues that he “should be ordered to refund the difference between the $90 million total compensation he received and the reasonable compensation he would have received if he adhered to the billing guidelines agreed upon in the engagement letter dated 21 June.”
Wachtell “originally signed a letter of engagement for an hourly representation,” but “did not obtain a written agreement for compensation related to the results of the underlying case,” Musk’s lawsuit alleges. The last-minute success fee indicates that “Wachtell apparently believed — unlike other law firms bound by ethical and fiduciary obligations — it was free to solicit alms, aid and encourage corporate waste by former Twitter executives in the agony of their fiduciary roles, and walk away with total compensation that has made it $90 million richer,” the lawsuit said.
