to ever happen to Elon Musk, but the best thing to happen

to people who love crazy lawsuits.

And now, Elon is suing the lawyers who forced him

to follow through with the sale,

because he thinks that they charged Twitter too much

to beat Elon Musk, because now Elon owns Twitter,

and he's the one that effectively has to pay for it.

You really can't make this up.

But of course, it's more complicated than that.

Now, apparently, Musk is still smarting

from the time that he was forced to honor his deal

to buy Twitter for $44 billion.

So now, he has filed a lawsuit against the law firm

of Wachtell, Lipton, Rosen & Katz,

the law firm which represented Twitter

when the old owners sued Musk

to follow through with the sale.

Wachtell charged Twitter $90 million to facilitate the deal

that eventually led to Musk taking Twitter private.

Now, the old Twitter board paid $84 million

right as the deal closed, literally 10 minutes

before the company turned over to Musk.

And now, Elon would like all of that money back, please.

- Money, please.

- Now to review, this was a sale between a public company

and an individual who intended to take the company private.

Musk offered Twitter a share price of $54.20 per share,

and Twitter's board accepted the deal.

Musk then tried to back out of the deal

for reasons relating to him being a huge idiot.

And essentially, Musk failed to do his due diligence

before making the offer and later realized

that his offer was way too high.

Or maybe it dawned on him that trying to make Twitter

profitable was going to require

a lot more than just posting on Twitter.

So he tried to get out of it.

Now, Wachtell wasn't Twitter's original law firm

for the sale, but when Musk said that the deal was dead

and tried to back out, Twitter turned to this law firm,

which has a reputation as one of the world's top law firms

specializing in mergers and acquisitions.

- I'm into mergers and executions, mostly.

- Wachtell properly sued Musk

in the Delaware Court of Chancery,

and he backed down without even getting a discount

on the original sale price.

Basically, they spanked him.

Now, right before the deal closed,

Twitter paid the law firm $90 million in success fees.

Elon Musk believes that this is unjust enrichment,

and the firm should give most of that back to Twitter,

which he now owns.

And the timeline breaks down like this.

Twitter hired Wachtell on June 21st, 2022.

The law firm sent an engagement letter stating

it would represent Twitter "on an hourly fee basis

in a litigation to compel specific performance

of the Musk Parties' acquisition of Twitter."

This engagement letter doesn't contain

any language about a success fee.

Now, the engagement letter indicates

that Wachtell negotiated an exemption

from Twitter's usual fee arrangement with outside counsel,

which gave Twitter a 15% discount on hourly billing rates.

And in the months of work

after making this arrangement with Twitter,

Wachtell invoiced Twitter for a total of $18 million,

including $15.6 million in hourly fees.

Musk characterizes that as outrageous,

because it was only for a few months of work.

Now, what the complaint leaves out

is that during those few months, Wachtell filed a lawsuit

against Musk that successfully compelled him

to go forward with the sale,

and the lawsuit was filed on July 12th, 2022.

By October 4th, 2022, Musk gave up his fight

to back out of the sale, and he agreed to abide

by the deal's original terms,

and the closing was set for October 28th.

Now, according to the complaint on October 27th,

with "the firm's work on the merger litigation

in the Delaware Chancery Court already concluded,

and without any foreseeable need

for Twitter to utilize its services again,

Wachtell, the law firm, decided to milk the company

for $90 million in success fees."

Musk says, "In other words, Wachtell sought

and obtained a success fee that resulted

in a total fee nearly six times its $15.6 million

in invoiced hourly fees for a few months work

even though, one, it was not called for

by any prior agreement with Twitter,

and two, the litigation in which Wachtell

represented Twitter had been stayed for weeks

in anticipation of dismissal following the closing."

Now, you might be asking why a success fee is even a thing

and why a company would agree to pay

a success fee over hourly billing.

Well, many clients are concerned that outside law firms

run a billable hours by overstaffing cases

with too many lawyers

or generating work that isn't necessary.

And the theory goes that if you align

the financial incentives of the client and the law firm,

the law firm is less likely to do

a bunch of unnecessary work and waste the client's money.

And Bloomberg reports that Wachtell

was "one of the first law firms to link its fees

to the value of successful deals,

rather than linking them to hourly billing rates

like many of its peers."

And in this way, the law firms are acting more like banks,

which tie their fees to a percentage of the deal

when it's completed.

And the exhibits attached to the complaint

include a memo from Wachtell explaining the quote,

"While our fees are not based on the amount involved

in a matter, experience indicates that merger

and acquisition and takeover fees have typically ranged

from 1% or more on matters under $250 million

and 0.1 of 1% or less on matters over 25 billion."

Wachtell argues that the value of its advice

can't be demonstrated by a simple hourly rate.

That's a classic line from lawyers.

Absolutely, always the case.

- I'm like a God in human clothing.

Lightning bolt, shoot from my fingertips.

- But the difference here is that Wachtell

didn't start out the engagement

with a success fee specified.

And Musk's complaint is that it was improper

for Wachtell to switch from an hourly billing arrangement

to a success fee structure on the eve of closing.

Yeah, this is one of those cases

that's gonna be really fun to watch,

because at the end of this case,

at least one of these parties is going to lose.

Now, Musk's first claim is for unjust enrichment.

He claims that the closing day letter agreement

between the board of directors and the law firm

"called for payment of an unconscionable fee

and was an unconscionable agreement."

Musk argues that Twitter's board of directors

were a bunch of losers

who got totally hosed by the law firm.

The complaint describes them as "lame duck fiduciaries"

who "lost their motivation to act

in Twitter's best interest" during the sale.

Though one would argue here the complete opposite,

that the board was in fact extremely motivated

to close the sale at the original price,

which arguably was in the best interest of the shareholders.

But Musk's perspective is that it was clearly not

in Twitter's best interest

to have paid this enormous legal bill,

but that misunderstands what their duties actually were

between signing and closing.

Their legal fiduciary duty was to make sure

that the deal maximize the value for Twitter's shareholders.

That's all they had to do.

And the lame duck fiduciaries executed that responsibility

beautifully by forcing Musk to buy Twitter

at an extremely high share price.

And if they accomplished that, then the shareholders

didn't care what else Twitter did with its money

because it was no longer theirs.

And in fact, because the share price was already set

by Elon Musk, it didn't really matter

how much they paid out to the lawyers

because that wasn't going to change

how much the shareholders ultimately got,

though it really made a big dent

in Elon Musk's pocket when he had to pick up the pieces

of Twitter when he bought it.

And yes, $'90 million is a lot of money,

but were the lawyer's fees

beyond the pale in this particular case?

Well, in contract law, if the terms of a contractor

are unfair or oppressive to one party

in a way that suggests abuse during its formation,

a court can find it unconscionable and refuse to enforce it.

But courts rarely find unconscionability

in a business dispute between two fairly equal parties.

A contract is most likely to be found unconscionable

if both unfair bargaining

and unfair substantive terms are shown.

And generally, courts only void a contract

in unconscionability grounds in extreme cases.

There's one famous case where a loan interest rate was 800%,

or instance where a warranty expires

before a product is even installed.

Basically, things that really shock the conscience.

Not really things like a relatively high bill

for litigation that won billions of dollars,

but your mileage may vary.

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and we don't charge $90 million.

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The link is down below.

And now, back to Elon Musk.

Now, Wachtell is one of the premier

mergers and acquisitions firms,

and its partners make serious bank by charging success fees.

And in the firm's fee arrangement memo,

Wachtell outlined its comparables,

explaining that its success fees generally range

from 67% to 100% of the investment banking fees.

And the memo also says that the fee could be a multiplier

of its hourly billing or a run rate.

And during the first four months,

the lawyers billed $26.6 million,

and the success fee is about 2.5 times that amount,

which was within comps Wachtell gave to Twitter.

And the banks, JP Morgan and Goldman Sachs,

got 133 million with 113 million of that

as a success fee when the buyout closed.

So the $90 million that Musk complains about

was around 68% of the banker's fees,

which is actually on the lower end of comparables,

if you are to believe Wachtell.

But Musk argues that the success fee is too much,

because litigation didn't move forward.

And Wachtell wasn't the law firm involved

in the original negotiation between Musk and Twitter.

And that's an argument,

but it's probably not particularly strong.

To prove his point, Musk states that the work

that the lawyers did wasn't particularly hard,

since it was just a garden variety contract dispute.

"There were no novel or difficult questions of law involved

nor did the litigation require any special skills

beyond that which Twitter could have procured

by paying hourly rates to many other reputable law firms

with the experience litigating

in the Delaware Chancery Court,

including those hired to work alongside Wachtell."

Now, this argument is particularly hilarious,

because Musk is actually admitting

that the legal questions weren't that difficult,