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Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.

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Speaker 2: I made it clear I did not agree with the

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Speaker 2: idea of saying the election was stolen and putting out

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Speaker 2: this stuff, which I told the President was both.

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Speaker 1: And.

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Speaker 2: You know, I didn't want to be a part of it,

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Speaker 2: and that's one of the reasons that went into me

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Speaker 2: deciding to leave when I did.

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Speaker 1: Former Attorney General William Barr is just one of a

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Speaker 1: number of lawyers from the Justice Department, the White House,

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Speaker 1: and his own campaign who advised Donald Trump that the

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Speaker 1: twenty twenty election was not fraudulent. But the former president

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Speaker 1: rejected that advice and looked for outside lawyers who would

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Speaker 1: tell him what he wanted to hear, like John Eastman,

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Speaker 1: Sidney Powell, and Rudy Giuliani. Trump and his attorneys like

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Speaker 1: John Laurow have repeatedly said publicly that they're going to

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Speaker 1: use the advice of those outside lawyers as a defense

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Speaker 1: at his trial on charges of a tempting to overturn

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Speaker 1: the election.

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Speaker 3: Mister Trump had the advice of counsel mister Eastman, who

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Speaker 3: was one of the most respected constitutional scholars in the

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Speaker 3: United States, giving him advice and guidance.

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Speaker 1: But the Trump defense team hasn't told the trial judge

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Speaker 1: whether they're going to use that blame the lawyer's strategy.

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Speaker 1: So now special Counsel Jack Smith is telling Trump in

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Speaker 1: non legal terms to put up or shut up. Joining

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Speaker 1: me is Barbara McQuaid, a professor at the University of

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Speaker 1: Michigan Law School and the former US Attorney for the

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Speaker 1: Eastern District of Michigan. She's written a column for MSNBC

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Speaker 1: on the consequences of Trump using this defense. Jack Smith,

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Speaker 1: as you write in your column, is asking former President

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Speaker 1: Donald Trump to put his money where his mouth is,

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Speaker 1: or at least to put his documents there. Tell us

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Speaker 1: what it's about.

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Speaker 4: Well, Donald Trump has very publicly hinted that his defense

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Speaker 4: in the case is going to be advice of counsel.

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Speaker 4: That he relied on lawyers like Johnny Smith and others

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Speaker 4: to tell him what he could do to challenge the

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Speaker 4: election results, and therefore he acted in me faith and

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Speaker 4: that makes it impossible for the prosecution to prove his guilt.

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Speaker 4: That's fine if he wants to rely on that, but

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Speaker 4: you know, first he has to show he had a

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Speaker 4: legitimate attorney client privilege with the people he's talking with.

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Speaker 4: So far, twenty five different people have asserted attorney client

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Speaker 4: privilege in the case. So that is not a foregone

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Speaker 4: conclusion that he will be able to establish that he

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Speaker 4: had that relationship without twenty five of them that he

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Speaker 4: relied on their advice in good faith. And if he

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Speaker 4: wants to use this defense, he must waive the attorney

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Speaker 4: client privilege and turn over all of the documents memorializing

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Speaker 4: any conversation he had that he relied on, as well

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Speaker 4: as anything that might tend to negate that defense. And

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Speaker 4: so he gets to make a choice. Does he want

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Speaker 4: to preserve his attorney client privilege, that's fine, but if

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Speaker 4: he does, and he can't use this advice of counsel defense.

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Speaker 4: And on the contrary, if he wants to use the

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Speaker 4: advice of council defense, then he can't continue to safeguard

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Speaker 4: the attorney client privilege of these documents. And so the

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Speaker 4: court has given a discovery cut off date of December,

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Speaker 4: and Special Council Jacksmith is said, that's the time.

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Speaker 5: Which is it?

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Speaker 4: Are you going to use this defense or are you

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Speaker 4: going to turn over all of the material you previously

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Speaker 4: has said is privileged?

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Speaker 1: Is the Special Council contending that Trump can't use this

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Speaker 1: defense doesn't meet the qualifications to use it.

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Speaker 4: He says, we are not making that argument yet, but

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Speaker 4: I will. I'm not waving that argument. I can test

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Speaker 4: his ability to use it. But if he uses it

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Speaker 4: and the court says he can use it, then he

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Speaker 4: must turn over all of those privileged materials, materials to

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Speaker 4: which he's claiming privilege. He can't have it both ways,

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Speaker 4: and so he's got to at some point make a

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Speaker 4: decision about whether he's going to use this defense. At

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Speaker 4: that point, I imagine Jack Smith will contest it. But

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Speaker 4: if the defense is allowed to be used, then that

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Speaker 4: means he can't continue to safeguard these materials under the

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Speaker 4: guise of attorney clant privilege.

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Speaker 1: Is the Special Council estimating that this is, you know,

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Speaker 1: ten documents twenty hundreds? I mean, is it a vast

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Speaker 1: volume of documents?

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Speaker 4: Perhaps no one really knows. It could be zero, and

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Speaker 4: maybe that there's nothing. But there are twenty five people

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Speaker 4: who declined to testify or produce documents when subpoena to

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Speaker 4: do so by asserting attorney client privilege, And so I

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Speaker 4: think the time has come to litigate that to find

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Speaker 4: out whether any of them really has an attorney clant privilege.

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Speaker 4: And if he's going to say I relied on the

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Speaker 4: advice of my attorneys, well let's see it. What was

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Speaker 4: the advice. We need to see it, We need to

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Speaker 4: hear it so that prosecutors can rebut that defense.

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Speaker 1: I know in the Sam Bankman Freed trial, the judge

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Speaker 1: there ruled that the defense couldn't refer to advice of

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Speaker 1: counsel in the opening statements, that it would cause too

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Speaker 1: much confusion for the jury, and that if they wanted

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Speaker 1: to raise it later on and introduce evidence about it,

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Speaker 1: they would have to consult him. So does the judge

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Speaker 1: make the decision as to whether or not Trump can

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Speaker 1: use the affirmative defense of adviceive counsel.

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Speaker 4: Yes, it's sort of a threshold affirmative defense. And so

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Speaker 4: if he can show that he's got a basis for it,

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Speaker 4: he'd have to reveal this privileged material and then the

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Speaker 4: parties would argue it and litigate it, and the judge

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Speaker 4: would decide whether he gets to tell the jury about this. Now,

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Speaker 4: the jury might still say I don't think it was

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Speaker 4: reasonable when you got this advice. No one would have

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Speaker 4: relied on this advice as any legitimate thing. But before

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Speaker 4: it even gets to the jury, the judge has to

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Speaker 4: make that geekeeper decision about whether it's going to come in,

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Speaker 4: and that is based on whether it meets kind of

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Speaker 4: the legal definition that it was privileged, that a privileged

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Speaker 4: relationship was developed, and that Donald Trump relied on it

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Speaker 4: in good faith. You have to make a prima facie

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Speaker 4: showing you know some evidence to suggests that this is

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Speaker 4: true before it'll go to the jury. And the concern

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Speaker 4: is if it is not a legitimate defense, then you

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Speaker 4: don't want to confuse the jury by letting them hear

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Speaker 4: about it without the judge first making that gatekeeper's call.

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Speaker 1: As you mentioned in your column, Trump rejected the advice

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Speaker 1: of White House lawyers, Justice Department lawyers, campaign lawyers in

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Speaker 1: favor of these outside council, three of whom have been

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Speaker 1: indicted with him in Georgia. Can he just pick and

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Speaker 1: choose which attorney's advice he wants to follow?

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Speaker 4: Well, the question for a jury if he gets past

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Speaker 4: that threshold stage would be to decide whether his reliance

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Speaker 4: on the adviceive council was reasonable. And so I think

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Speaker 4: this would be evidence that cuts against a finding that

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Speaker 4: it was reasonable. I think William Barr has said this,

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Speaker 4: as has Mark Short, who was councul to Mike Pence

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Speaker 4: to say, the Justice Department, the White House, his campaign

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Speaker 4: lawyers all said you cannot do this, and he went

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Speaker 4: looking for another opinion that would satisfy him that he

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Speaker 4: still had a route to victory. And it was, you know,

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Speaker 4: sort of a kakamemild theory that he looked for until

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Speaker 4: he found the one that he liked. And so I

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Speaker 4: think the prosecutors would argue that to the extent he

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Speaker 4: relied on that advice, it was not in good faith.

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Speaker 1: From reading the papers, it seemed as if the prosecution

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Speaker 1: was saying that whether or not Trump has to give

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Speaker 1: this information up before the trial date is not addressed

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Speaker 1: in the federal Rules of Criminal Procedures, so it'll be

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Speaker 1: up to the judge to decide yes.

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Speaker 4: So there's nothing that really answers this question either way.

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Speaker 4: This is not a defense that gets raised with enough regularity.

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Speaker 4: I imagine that there's a specific rule on it. So,

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Speaker 4: for example, the rules of Criminal Procedure do say you

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Speaker 4: must give advanced notice for an alibi defense or an

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Speaker 4: insanity defense or a public authority defense, and that's because

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Speaker 4: it takes some time for the prosecution to sort of

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Speaker 4: run down those defenses to make sure they've got evidence

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Speaker 4: to rebuff them. If you just allow the defense to

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Speaker 4: assert it in the middle of a trial, it could

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Speaker 4: encourage people to raise it without in a real basis,

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Speaker 4: and the government would lack the ability to investigate to

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Speaker 4: try to disprove those defenses. For adviceive counsel, the rules

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Speaker 4: are really silent on whether there needs to be advanced

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Speaker 4: notice or not. But what Jack Smith is arguing is

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Speaker 4: this is very much like those kinds of defenses, like

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Speaker 4: an alibi defense or an insanity defense, where if you

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Speaker 4: spring it the middle of trial, it's going to be

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Speaker 4: very difficult for us to investigate this in a way

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Speaker 4: that is thorough and accurate, and so he should be

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Speaker 4: forced to show his hand before trial. They suggest December

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Speaker 4: on this discovery cutoff date, so that if he's going

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Speaker 4: to use this defense, they are going to get all

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Speaker 4: of that allegedly privileged material, and if it gets dumped

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Speaker 4: on them in the middle of trial, it would either

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Speaker 4: cause serious delay or an inability to review it all

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Speaker 4: at that stage.

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Speaker 1: This is a really tough decision for the defense, isn't it,

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Speaker 1: because you have all this material that they have to

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Speaker 1: turn over or we assume all this material. But then

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Speaker 1: on the other side, you have a defense that might

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Speaker 1: not work and the judge might not even allow yes.

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Speaker 4: And I think that's you know, this is some of

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Speaker 4: the strategies that occurs pre trial in cases that are

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Speaker 4: usually kind of outside of public view but are really

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Speaker 4: interesting questions that lawyers have to decide. Practically, I imagine

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Speaker 4: one of the things you'd want to look at is

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Speaker 4: what is the material, how much is there, and how

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Speaker 4: damaging is it to the defense. But this really has been,

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Speaker 4: at least in the court of public opinion, the defense

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Speaker 4: raised most frequently. That Donald Trump genuinely believed he could

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Speaker 4: do this because he has lawyers telling him he could,

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Speaker 4: and so it seems that he almost has to go

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Speaker 4: with that defense. And if he's going to, he needs

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Speaker 4: to turn over these documents. Now, I suppose he could

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Speaker 4: change tech and decide that's not his strategy after all,

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Speaker 4: and he's got some other defense he's going to use,

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Speaker 4: or you know, he's not going to raise an affirmative

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Speaker 4: defense at all and put the government to its proofs.

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Speaker 4: But he can't have it both ways. And that's the

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Speaker 4: point that Jacksmith is making it his please.

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Speaker 1: Sometimes he changes strategies in mid sentencels, I don't know, Barbara,

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Speaker 1: I want to turn a moment to the trial judge

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Speaker 1: Tanya Chuk and imposing a partial gag order on Trump,

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Speaker 1: barring him from making public statements targeting prosecutors, court staff,

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Speaker 1: potential witnesses and their testimony. Trump's lawyers say they're going

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Speaker 1: to appeal this partial gag order. Do you think it

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Speaker 1: will survive an appeal?

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Speaker 3: Yes, I do.

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Speaker 4: I mean a judge has an obligation to ensure that

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Speaker 4: judicial proceedings are protected from prejudicial outside interferences. And you

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Speaker 4: know this is not a speculative motion at this point.

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Speaker 4: In their motion papers, the Special Council's Office were able

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Speaker 4: to cite very specific things that Donald Trump has said

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Speaker 4: about Jack Smith, calling him deranged, and his prosecutors calling

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Speaker 4: them thugs, about the judge calling her you know a

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Speaker 4: number of names, about a radical Obama hack and a

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Speaker 4: bias trumpeting judge, and a number of things. And so

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Speaker 4: they say several reasons, and one is to avoid tainting

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Speaker 4: the jury pool, who is going to be reading this,

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Speaker 4: to make sure that they don't have or ordained opinions

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Speaker 4: about the case, to protect witnesses from harassment and threats

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Speaker 4: which could have a chilling effect on their testimony, and

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Speaker 4: also to protect the safety of everybody involved in the case,

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Speaker 4: the judge, the prosecutors, the witnesses, the jurors, and so

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Speaker 4: for that reason, a limited order I think is appropriate. Now,

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Speaker 4: she did, as you say, limit this to publicly targeting witnesses,

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Speaker 4: special counsel of staff, court personnel, their famili's witnesses. She

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Speaker 4: did say that he can say whatever he wants about

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Speaker 4: the Biden administration. He can say whatever he wants about

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Speaker 4: the Department of Justice. He can even talk about the

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Speaker 4: case and the charges themselves. He can talk about Washington, DC,

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Speaker 4: but he can't talk specifically about the individuals involved in

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Speaker 4: the case. Now, she hasn't issued a written order just yet,

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Speaker 4: and the devil is in the details, but she definitely

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Speaker 4: expressed her intent, which was to avoid direct attacks on

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Speaker 4: the individuals involved in the case.

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Speaker 1: So we can't expect that Trump will necessarily comply with

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Speaker 1: this order. He hasn't complied with a lot of other orders,

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Speaker 1: although I think he is in compliance on the New

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Speaker 1: York Judge's partial gag order in the New York Attorney

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Speaker 1: General's case against him, And people say, well, if he

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Speaker 1: doesn't comply, she can always put him in jail. But

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Speaker 1: is there any conceivable scenario where she would jail him.

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Speaker 4: I think only as an absolute last resort. But it's

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Speaker 4: going to be tricky for her because I think she

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Speaker 4: almost had an obligation to enter this order in light

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Speaker 4: of her responsibility to protect the proceedings. But then what

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Speaker 4: do you do if he pushes it, and you know

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Speaker 4: he's a disruptor, that's what he likes to do. She

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Speaker 4: said she wasn't going to state what the sanctions are,

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Speaker 4: and so she sees any violations, she's going to assume

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Speaker 4: good faith and compliance. I imagine that most often when

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Speaker 4: you see violations of court orders, you get what's known

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Speaker 4: as progressive discipline. So the first time there's a violation,

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Speaker 4: I imagine she'd bring him in and give him a warning,

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Speaker 4: and then if there's another one, she could impose a fine.

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Speaker 4: But at some point, if he keeps doing it, the

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Speaker 4: ultimate card she has to play is to jail him,

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Speaker 4: and I can't imagine she would do that unless she

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Speaker 4: reaches the complete end of her rope. But if anybody's

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Speaker 4: going to push her there, it's Donald Trump.

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Speaker 1: He does seem to know how to push people's buttons.

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Speaker 1: Thanks so much for coming on the show, Barbara, it's

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Speaker 1: your first time and I hope you'll come back again.

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Speaker 1: That's Professor Barbara McQuaid of the University of Michigan Law School.

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Speaker 1: Coming up next, the many legal battles of Elon Musk.

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Speaker 1: This is Bloomberg for forty four billion dollars. Elon Musk

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Speaker 1: got Twitter and a host of legal problems. They range

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Speaker 1: from investigations by the SEC and the FTC to disputes

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Speaker 1: over law firm billing and firing employees. Joining me to

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Speaker 1: sort it all out is business law expert Eric Tally,

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Speaker 1: a professor at Columbia Law School. So I just thought

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Speaker 1: we'd take these one by one. Sure, j CC is

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Speaker 1: investigating where the Musk violated security laws in buying Twitter

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Speaker 1: shares ahead of his purchase of the platform.

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Speaker 5: So there is a long standing rule that if you

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Speaker 5: are interested in buying up a company, you can go

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Speaker 5: for it. But if you start buying up stock of

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Speaker 5: that company with an intent to take it over or

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Speaker 5: create some other big sort of a change. You have

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Speaker 5: to alert people what you were up to at the time.

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Speaker 5: It was within ten days of crossing over a specific

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Speaker 5: five percent threshold. By the way, in the last week,

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Speaker 5: that ten day period has been reduced to five, but

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Speaker 5: it was ten when Elon Musk was beginning his purchases

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Speaker 5: of shares now back in April twenty twenty two. He

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Speaker 5: eventually made one of these disclosures saying I own nine

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Speaker 5: point two percent of Twitter, and I'm thinking about buying

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Speaker 5: out the company. But there was not a lot of

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Speaker 5: clarity on what the path by which he got to

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Speaker 5: nine point two and in particular, did he cross the

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Speaker 5: five percent threshold well before you know what he said,

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Speaker 5: the ten day clock was when it started ticking. So

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Speaker 5: if he did cross five percent and then delayed in filing,

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Speaker 5: he'd be in violation of that federal rule that requires disclosure.

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Speaker 5: So part of what this is all about is to

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Speaker 5: try to figure out whether Musk was, you know, basically

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Speaker 5: sneaking up in his purchases in a way that's not

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Speaker 5: allowed by federal securities law.

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Speaker 1: Musk has set for depositions half day depositions twice, but

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Speaker 1: yet the sec wants him to testify again, trying to

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Speaker 1: force mem to testify. Shouldn't this be something that they

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Speaker 1: could find an answer to after two depositions, It doesn't

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Speaker 1: seem that complicated.

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Speaker 5: Yeah, you'd like to think so, but I'd certainly have

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Speaker 5: seen certain depositions that get very, very complicated, in no

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Speaker 5: small part due to the fact that some of it

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Speaker 5: is you know, kind of performative acrobatics by the attorneys

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Speaker 5: as well, you know, fighting over whether or this is

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Speaker 5: a you know, domain that's proper to be discussed, trying

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Speaker 5: to you know, sort of fight back against various types

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Speaker 5: of documents that are being put forward. And then in addition,

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Speaker 5: you know, when someone is buying up stock, when you

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Speaker 5: and I buy up stock, you know, doing we probably

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Speaker 5: just like, you know, contact our broker and buy it

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Speaker 5: in our name. But that's not the only way that

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Speaker 5: you can buy stock. You can have various affiliate structures

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Speaker 5: that purchase stock. You can have groups that are coordinating

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Speaker 5: with you to purchase stock at the same time. And

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Speaker 5: so my guess is, and you know, we none of

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Speaker 5: us have been inside those depositions, but my guess is

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Speaker 5: that's one of the things they're trying to determine is

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Speaker 5: is you know, how about these other purchases by these

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Speaker 5: other entities that seem linked to you? How linked are

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Speaker 5: they to you? And so forth? And so Musk has

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Speaker 5: sat for two depositions evidently who was supposed to show

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Speaker 5: up for a third and then it didn't show. So,

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Speaker 5: you know, my guess is that it's sort of a

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Speaker 5: combination of trying to get into the technical nitty gritty

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Speaker 5: of all the different sort of buying entities that might

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Speaker 5: be buying a stock, as well as you know what,

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Speaker 5: no doubt has to be a fair amount of buyer

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Speaker 5: works going back and forth between the Commission's attorneys and

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Speaker 5: mister Musk's attorneys.

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Speaker 1: What kind of penalty would there be if they found

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Speaker 1: out that he did violate this.

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Speaker 5: Well, the SEC has a bunch of different potential penalties

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Speaker 5: available to them, some of them are quite severe. My

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Speaker 5: guess is that this one wouldn't be hugely severe, but

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Speaker 5: it could involve some sort of a monetary penalty. You know,

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Speaker 5: in extreme cases, you could be precluded from being an

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Speaker 5: officer and director of a company. But this would probably

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Speaker 5: be more in the category of a technical violation that

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Speaker 5: wouldn't give rise to that sort of extreme penalty sort

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Speaker 5: of extent that there is something. My guess is it'll

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Speaker 5: be some sort of a monetary fine. But you know,

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Speaker 5: the issue about you know, sort of tripping up these

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Speaker 5: triggers is increasingly important, and so you know, in some

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Speaker 5: ways this may be partially an action against mister Musk,

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Speaker 5: but it might also be kind of a warning shot

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Speaker 5: across the bow of other future would be acquirers, including

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Speaker 5: maybe mister Musk himself for some other company, about the

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Speaker 5: importance of making sure that you stick to the rules

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Speaker 5: of the road when you start buying up stock. And

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Speaker 5: so this may be in part also, you know, a

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Speaker 5: larger act of messaging by the SEC to the entire

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Speaker 5: public that they're going to take these rules seriously, particularly

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Speaker 5: you know, as the deadline changed from a ten day

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Speaker 5: period that you could delay to only five.

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Speaker 1: Now we go from the SEC to the FTC. There

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Speaker 1: seemed to be a couple of things going on before

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Speaker 1: Musk bought Twitter. Twitter had agreed to pay one hundred

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Speaker 1: and fifty million dollars to resolve allegations it mishandled user data.

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Speaker 1: Is he trying to get out of that?

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Speaker 2: Now?

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Speaker 5: Well, this is an interesting sort of an issue that

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Speaker 5: had already cropped up during the period of time when

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Speaker 5: Elon Musk was trying to get out of buying Twitter. So,

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Speaker 5: you know, more than a decade before Musk, Twitter, the company,

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Speaker 5: you know, basically was getting scrutinized by the FTC for

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Speaker 5: various types of cybersecurity lapses, and they entered into this

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Speaker 5: consent decree that really basically said that the FTC was

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Speaker 5: going to be able to monitor them on an ongoing

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Speaker 5: basis for whether they have fixed the problem. One of

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Speaker 5: the interesting things about, you know, the decision to buy

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Speaker 5: Twitter and then the decision not to buy Twitter and

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Speaker 5: to try to get out of the deal, is that

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Speaker 5: mister Musk, throughout the entire summer of twenty twenty two,

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Speaker 5: was looking for any possible reason to be able to

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Speaker 5: walk away from the deal. And so it was a

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Speaker 5: high risk strategy, and you know, I guess he thought

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Speaker 5: it was a high reward. But one of these strategies

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Speaker 5: that he was undertaking was to say, oh, cybersecurity issues

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Speaker 5: are a mess at Twitter. I had no idea notwithstanding

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Speaker 5: the existence of the consent decree, and I'm going to

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Speaker 5: actually further amplify, you know, how bad I think these

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Speaker 5: cybersecurity issues are and I don't know if you remember,

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Speaker 5: but for this report by Peter z ATCO or Mudge,

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Speaker 5: I guess was his non to plume talking about, you know,

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Speaker 5: all the terrible cybersecurity issues at Twitter. You know, Musk

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Speaker 5: was effectively trying to use that as an excuse or

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Speaker 5: a pretext to walk away from the deal. But then

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Speaker 5: once he had to close on the deal because the

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Speaker 5: prospects did not look good that he was going to win.

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Speaker 5: In his attempts to walk away from it, it's sort

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Speaker 5: of a if you break it, you buy it, And

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Speaker 5: it's sort of as though he had spent the summer

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Speaker 5: piling additional attention onto security lapse issues, but then ended up,

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Speaker 5: when the smoke cleared, being the owner of Twitter and

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Speaker 5: therefore the owner of all of those potential consequences. And that's,

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Speaker 5: you know, in some ways what has come home to

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Speaker 5: roost right now. Maybe that was always going to happen,

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Speaker 5: but it's almost certain that the attention that mister Musk

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Speaker 5: himself was trying to put on Twitter's supposed or alleged

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Speaker 5: cybersecurity problems, you know, ended up attracting even more attention

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Speaker 5: to it. So the sec has sort of come back

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Speaker 5: in this process, and now you Musk has somewhat predictably

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Speaker 5: switched sides and said, there's absolutely no security problem at Twitter.

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Speaker 5: This is a locked type organization and this is just

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Speaker 5: an attempt by the government to harass Twitter. You know,

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Speaker 5: maybe or maybe not, but the fact of the matter

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Speaker 5: is he was taking exactly the opposite view before he

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Speaker 5: took over Twitter and then proceeded to lay off a

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Speaker 5: bunch of individuals, including in the cybersecurity Department. So that's

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Speaker 5: a difficult argument to do the flip turn on he's

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Speaker 5: trying to do so. It's not surprising that he's trying

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Speaker 5: to do so, but it becomes kind of a complex

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Speaker 5: argument to try to pull off.

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Speaker 1: Maybe we'll learn more at hearing that schedule for November sixteenth.

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Speaker 1: So now we move to what's now. X so X

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Speaker 1: has sued Walktel Lipton, Rosen and Katz, the law firm

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Speaker 1: that was brought on to represent Twitter after Musk tried

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Speaker 1: to walk back that deal, and he's suing them over

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Speaker 1: there stunning ninety million in legal fees. But what are

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Speaker 1: the grounds for not paying them?

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Speaker 5: Yeah, I think he's doing them for being an effective

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Speaker 5: law firm. Maybe kind of that's fine the front of it,

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Speaker 5: here's the deal. Firms like walked out, they gen'er really

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Speaker 5: don't work on a contingency basis. That is not really

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Speaker 5: the standard model for the white shoe New York law firm.

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Speaker 5: They work on an hourly basis, and usually what happens

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Speaker 5: is their clients are willing to sort of, you know,

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Speaker 5: put forward those sorts of hourly fees. I think this

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Speaker 5: was a weird situation because even though a lot of

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Speaker 5: people thought, you know, this merger agreement that mister Musk

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Speaker 5: has gotten into with Twitter, it's pretty favorable to closing

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Speaker 5: the deal, it's pretty you know, favorable to Twitter's you know,

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Speaker 5: refusal to let him walk away, and you know, walked

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Speaker 5: out Lipton was representing Twitter. But even as you know,

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Speaker 5: a lot of including myself, a lot of sort of

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Speaker 5: legal experts in this field, were thinking, yes, this is

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Speaker 5: going to be a really hard case for mister Musk

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Speaker 5: to win, the general public out there of the zeitgeist

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Speaker 5: around the deal was anything but crystal clear. And during

438
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Speaker 5: the summer, you know, for this deal that was supposed

439
00:23:03,920 --> 00:23:06,720
Speaker 5: to close fifty four dollars and twenty cents per share

440
00:23:06,760 --> 00:23:09,119
Speaker 5: for Twitter shares. You could go out and buy Twitter

441
00:23:09,160 --> 00:23:11,360
Speaker 5: shares for thirty six dollars a share at thirty eight

442
00:23:11,400 --> 00:23:13,959
Speaker 5: dollars a share, which you know, in some ways reflects

443
00:23:14,040 --> 00:23:16,200
Speaker 5: what a lot of people out there in the markets

444
00:23:16,240 --> 00:23:18,320
Speaker 5: were thinking. He's going to find a way. He's going

445
00:23:18,400 --> 00:23:21,520
Speaker 5: to work out some way to either intimidate the judge,

446
00:23:22,000 --> 00:23:24,239
Speaker 5: walk away from the deal, and tie this thing up

447
00:23:24,280 --> 00:23:28,919
Speaker 5: in litigation forever, exhaust the Twitter board, and essentially be

448
00:23:29,000 --> 00:23:31,960
Speaker 5: able to walk away for a minimal amount of money.

449
00:23:32,320 --> 00:23:35,959
Speaker 1: Coming up, I'll continue this conversation with Eric Tally and

450
00:23:36,000 --> 00:23:40,800
Speaker 1: you'll answer the question, is Elon Musk too litigious? I'm

451
00:23:40,880 --> 00:23:43,359
Speaker 1: Jim Grass. So when you're listening to Bloomberg, I've been

452
00:23:43,400 --> 00:23:46,639
Speaker 1: talking to Professor Eric Tally of Columbia Law School about

453
00:23:46,640 --> 00:23:51,360
Speaker 1: the legal troubles that followed Elon Musk's purchase of Twitter. So, Eric,

454
00:23:51,400 --> 00:23:55,280
Speaker 1: before the break, we were discussing Elon Musk's suing Walktail

455
00:23:55,320 --> 00:23:59,480
Speaker 1: over their ninety million dollars legal fee for representing Twitter,

456
00:23:59,720 --> 00:24:02,760
Speaker 1: which by the way, has already been paid. Walk Tail

457
00:24:02,840 --> 00:24:05,800
Speaker 1: said in court filings it never agreed to limit the

458
00:24:05,880 --> 00:24:07,879
Speaker 1: firm's fees to hourly rates.

459
00:24:08,520 --> 00:24:11,360
Speaker 5: Now we don't know exactly what went on in the

460
00:24:11,400 --> 00:24:15,840
Speaker 5: negotiations between Walktel and Twitter, but it's not a crazy

461
00:24:15,880 --> 00:24:19,359
Speaker 5: presumption to think that they were basically trying to convince

462
00:24:19,359 --> 00:24:21,560
Speaker 5: the Twitter board, Look, this is a pretty strong case.

463
00:24:21,920 --> 00:24:24,119
Speaker 5: We think it's a really strong case. We're willing to

464
00:24:24,160 --> 00:24:25,800
Speaker 5: find it all the way to the finish line and

465
00:24:25,960 --> 00:24:28,359
Speaker 5: tell you what I mean, if you're really worried about it,

466
00:24:28,480 --> 00:24:30,520
Speaker 5: why don't you just pay us a little bit less

467
00:24:30,520 --> 00:24:33,040
Speaker 5: in terms of the hourly fee and give us, you know,

468
00:24:33,040 --> 00:24:35,240
Speaker 5: a success fee. If we end up closing this thing,

469
00:24:35,440 --> 00:24:37,520
Speaker 5: you're going to pay more for it. The Twitter board

470
00:24:37,600 --> 00:24:40,679
Speaker 5: agreed to do that, and indeed the deal ends up

471
00:24:40,680 --> 00:24:44,480
Speaker 5: closing at exactly fifty four dollars and twenty cents. Now,

472
00:24:44,520 --> 00:24:49,159
Speaker 5: that ended up giving rise to a substantial payment to

473
00:24:49,280 --> 00:24:52,520
Speaker 5: walk Tell you know, ninety million dollars. And that's what

474
00:24:52,680 --> 00:24:55,320
Speaker 5: you know, Twitter and X and mister Musker now trying

475
00:24:55,800 --> 00:24:58,760
Speaker 5: to challenge saying, you know, no law firm gets paid

476
00:24:58,920 --> 00:25:02,560
Speaker 5: ninety million dollars to fight a lawsuit, and that's not

477
00:25:02,800 --> 00:25:07,520
Speaker 5: entirely true. Really, Yeah, so it turns out that one

478
00:25:07,880 --> 00:25:10,639
Speaker 5: version of law firms does get paid that kind of

479
00:25:10,640 --> 00:25:13,200
Speaker 5: money when when we're dealing with large, you know, billion

480
00:25:13,200 --> 00:25:17,280
Speaker 5: to multi billion dollar awards, and that's plaintiff side attorney

481
00:25:17,320 --> 00:25:20,879
Speaker 5: who take cases on a contingency basis as the norm.

482
00:25:21,240 --> 00:25:25,719
Speaker 5: And so courts have definitely had all sorts of experience

483
00:25:25,840 --> 00:25:28,320
Speaker 5: or are of saying, okay, when a plaintiff side attorney

484
00:25:28,520 --> 00:25:31,520
Speaker 5: takes a case on a contingency fee, they're bearing a

485
00:25:31,520 --> 00:25:33,359
Speaker 5: lot of risk. And when they bear a lot of

486
00:25:33,440 --> 00:25:35,879
Speaker 5: risk and things go well for them, that's going to

487
00:25:35,920 --> 00:25:38,320
Speaker 5: give rise to something that looks like, you know, a

488
00:25:38,359 --> 00:25:42,119
Speaker 5: really large award, particularly if you view that and judge

489
00:25:42,119 --> 00:25:44,720
Speaker 5: it against you know, what's the usual hourly rate for

490
00:25:44,760 --> 00:25:47,760
Speaker 5: an attorney. And the reason is that it's kind of

491
00:25:47,840 --> 00:25:50,240
Speaker 5: like a lottery ticket that paid off, right. You know,

492
00:25:50,320 --> 00:25:53,400
Speaker 5: for every lottery ticket that pays off, they have nine losers, right.

493
00:25:53,440 --> 00:25:56,520
Speaker 5: And so the idea is that when you take a

494
00:25:56,600 --> 00:26:00,600
Speaker 5: case on a contingency basis, it's almost an immediate signal

495
00:26:00,640 --> 00:26:03,600
Speaker 5: that this is a risky case. It seems clear from

496
00:26:03,680 --> 00:26:06,119
Speaker 5: the stock prices at the time that at least people

497
00:26:06,119 --> 00:26:08,200
Speaker 5: out in the market thought this was a risky case.

498
00:26:08,640 --> 00:26:10,639
Speaker 5: On the other hand, a lot of legal experts were thinking,

499
00:26:11,040 --> 00:26:13,119
Speaker 5: this is not that risky of the case. So the

500
00:26:13,200 --> 00:26:15,800
Speaker 5: pressure was great on the Twitter board, and you know,

501
00:26:16,080 --> 00:26:18,199
Speaker 5: it may well be the case that they kind of

502
00:26:18,240 --> 00:26:21,520
Speaker 5: wanted that extra assurance from walked out that this is

503
00:26:21,680 --> 00:26:24,040
Speaker 5: something that you're going to be able to close on

504
00:26:24,160 --> 00:26:25,679
Speaker 5: the agreed terms.

505
00:26:26,000 --> 00:26:28,520
Speaker 1: How does a judge or in this case, an arbitrator

506
00:26:29,119 --> 00:26:30,119
Speaker 1: determine the fee?

507
00:26:30,680 --> 00:26:32,720
Speaker 5: You know, one of the things that happens when judges,

508
00:26:33,000 --> 00:26:35,960
Speaker 5: you know, are asked to sign off on, say a

509
00:26:35,960 --> 00:26:39,280
Speaker 5: big class action award in which tens of millions or

510
00:26:39,280 --> 00:26:41,240
Speaker 5: one hundreds of millions even are being paid to the

511
00:26:41,240 --> 00:26:43,840
Speaker 5: planning of attorneys, is they'll say, well, what kind of

512
00:26:43,840 --> 00:26:47,520
Speaker 5: a value did you create for the beneficiaries that you

513
00:26:47,600 --> 00:26:50,639
Speaker 5: were basically representing? So in this case, I guess the

514
00:26:50,720 --> 00:26:52,960
Speaker 5: question is what kind of value did you create for

515
00:26:53,119 --> 00:26:56,840
Speaker 5: the Twitter shareholders who you know ended up selling at

516
00:26:56,880 --> 00:27:00,639
Speaker 5: fifty four dollars and twenty cents per share. Tell's claim

517
00:27:00,680 --> 00:27:03,040
Speaker 5: on this is, look, if this deal was going to close,

518
00:27:03,080 --> 00:27:05,639
Speaker 5: and if you base your assessment on what the securities

519
00:27:05,680 --> 00:27:08,160
Speaker 5: market prices were at the time, you know, we made

520
00:27:08,280 --> 00:27:12,400
Speaker 5: tens of billions of dollars for shareholders by sticking to

521
00:27:12,520 --> 00:27:16,640
Speaker 5: this litigation strategy and having a compensation structure that kind

522
00:27:16,640 --> 00:27:20,280
Speaker 5: of bonded us to do that, and so from Walktel's perspective,

523
00:27:20,760 --> 00:27:23,800
Speaker 5: they created you know, more value for you know, for

524
00:27:23,880 --> 00:27:27,800
Speaker 5: Twitter shareholders in the history of all you know, legal representations.

525
00:27:27,880 --> 00:27:31,119
Speaker 5: I should hope, Yeah, that's a little bit of a

526
00:27:31,200 --> 00:27:33,600
Speaker 5: rhetorical for us, But that's kind of the aim that

527
00:27:33,640 --> 00:27:35,359
Speaker 5: they're taking. And this is going to be an interesting

528
00:27:35,440 --> 00:27:38,440
Speaker 5: argument because you know, I do think that one argument

529
00:27:38,480 --> 00:27:42,639
Speaker 5: that potentially X and Twitter have in their favor is,

530
00:27:42,880 --> 00:27:45,440
Speaker 5: you know, the question of, well, was there a difference

531
00:27:45,480 --> 00:27:48,639
Speaker 5: between the public zeitgeist and the public markets we're thinking

532
00:27:49,200 --> 00:27:51,359
Speaker 5: and what sort of a little bit more of a

533
00:27:51,400 --> 00:27:54,720
Speaker 5: clear eyes legal analysis would ask as to what were

534
00:27:54,720 --> 00:27:58,639
Speaker 5: the likelyhoods of success in this case? And if, in fact,

535
00:27:58,920 --> 00:28:02,480
Speaker 5: a clear eyed legally this suggests, yeah, this wasn't really

536
00:28:02,480 --> 00:28:04,560
Speaker 5: a lottery ticket, or this is a lottery ticket that

537
00:28:04,640 --> 00:28:07,280
Speaker 5: was going to pay off with one hundred percent probability,

538
00:28:07,840 --> 00:28:10,119
Speaker 5: then ninety million dollars looks like a lot of money

539
00:28:10,160 --> 00:28:12,439
Speaker 5: to be paying for a lottery ticket that you know

540
00:28:12,600 --> 00:28:15,080
Speaker 5: is going to pay off anyway. And so that's going

541
00:28:15,119 --> 00:28:18,040
Speaker 5: to be the interesting feut here because well, I think

542
00:28:18,200 --> 00:28:21,879
Speaker 5: most experienced lawyers, law professors, sort of legal informed people

543
00:28:22,280 --> 00:28:24,680
Speaker 5: were kind of scratching their heads on could Musk really

544
00:28:24,720 --> 00:28:27,439
Speaker 5: walk away from this deal that certainly didn't work its

545
00:28:27,480 --> 00:28:29,520
Speaker 5: way into the market. And the people that sort of

546
00:28:29,640 --> 00:28:32,879
Speaker 5: arbitrage and buy and sell stock, they had definitely not

547
00:28:33,080 --> 00:28:36,480
Speaker 5: internalized this idea that this was one hundred percent, you know,

548
00:28:36,560 --> 00:28:40,200
Speaker 5: payoff lottery ticket. By my best estimate, the price that

549
00:28:40,240 --> 00:28:43,320
Speaker 5: Twitter stock was trading at during the litigation was kind

550
00:28:43,360 --> 00:28:45,240
Speaker 5: of like betting that it was about a forty five

551
00:28:45,280 --> 00:28:48,840
Speaker 5: to fifty percent likelihood of a payoff. So I think

552
00:28:48,840 --> 00:28:50,680
Speaker 5: this is going to be a super interesting thing just

553
00:28:50,760 --> 00:28:54,440
Speaker 5: because the market arbitrage ores were just on a different

554
00:28:54,520 --> 00:28:57,960
Speaker 5: page than the legal experts. Usually they're on the same page.

555
00:28:57,960 --> 00:29:00,239
Speaker 5: But this was a kind of a dramatic and in

556
00:29:00,280 --> 00:29:05,760
Speaker 5: some ways memorable failure of market arbitragures to fully understand

557
00:29:06,120 --> 00:29:07,560
Speaker 5: the nature of the legal claims.

558
00:29:08,360 --> 00:29:12,200
Speaker 1: So the National Labor Relations Board has filed a formal

559
00:29:12,560 --> 00:29:17,240
Speaker 1: complaint accusing X of violating federal labor law by firing

560
00:29:17,240 --> 00:29:21,840
Speaker 1: an employee in retaliation for her Internet posts which challenged

561
00:29:21,880 --> 00:29:25,080
Speaker 1: the company's return to office policy. Is it unusual for

562
00:29:25,120 --> 00:29:27,400
Speaker 1: the NLRB to get involved in this.

563
00:29:28,040 --> 00:29:31,560
Speaker 5: It can be that the NLRBO routinely gets involved in

564
00:29:31,600 --> 00:29:35,760
Speaker 5: situations involving retaliatory terminations of employees, but they are almost

565
00:29:35,800 --> 00:29:39,120
Speaker 5: always more along the rank and file employee level. In

566
00:29:39,160 --> 00:29:42,040
Speaker 5: a lot of these cases involving Twitter, the folks that

567
00:29:42,120 --> 00:29:45,400
Speaker 5: were basically panned at their pink slips ranged from I

568
00:29:45,440 --> 00:29:48,000
Speaker 5: guess some rank and file folks, to mid level management

569
00:29:48,040 --> 00:29:50,520
Speaker 5: to even upper level management. So it's a little bit

570
00:29:50,520 --> 00:29:54,440
Speaker 5: more peculiar that the NLRB would be getting involved on

571
00:29:54,520 --> 00:29:58,240
Speaker 5: behalf of sort of upper level and mid level managers,

572
00:29:58,240 --> 00:30:02,120
Speaker 5: but there's nothing that's inconsistent with their regulatory mandate in

573
00:30:02,200 --> 00:30:04,400
Speaker 5: doing that. And this is one of many cases that

574
00:30:04,440 --> 00:30:07,280
Speaker 5: in this particular case, the employee you know, was basically

575
00:30:07,360 --> 00:30:10,680
Speaker 5: getting on social media and sending the message to some

576
00:30:10,800 --> 00:30:13,240
Speaker 5: of her coworkers that, look, your rights are going to

577
00:30:13,240 --> 00:30:16,680
Speaker 5: be far greater if you get fired than if you resign.

578
00:30:16,840 --> 00:30:21,000
Speaker 5: And that's true, that's absolutely true. That can be frustrating

579
00:30:21,040 --> 00:30:23,360
Speaker 5: because if people would just resign on their own accord,

580
00:30:23,720 --> 00:30:25,560
Speaker 5: that's going to really limit how much you're going to

581
00:30:25,640 --> 00:30:27,680
Speaker 5: have to owe them if you now fire them. And

582
00:30:27,720 --> 00:30:30,600
Speaker 5: they have various types of protections in their contracts, either

583
00:30:30,720 --> 00:30:34,080
Speaker 5: protections that are explicitly written into them or are implicitly

584
00:30:34,120 --> 00:30:36,520
Speaker 5: part of them as part of federal labor laws, then

585
00:30:36,520 --> 00:30:38,920
Speaker 5: it can get more expensive and certainly give rise to

586
00:30:38,960 --> 00:30:42,120
Speaker 5: more litigation. And so that's going to be another interesting thing,

587
00:30:42,160 --> 00:30:45,000
Speaker 5: not just with this case, but with several dozen others

588
00:30:45,040 --> 00:30:47,480
Speaker 5: that are at various stages of dispute.

589
00:30:47,640 --> 00:30:50,880
Speaker 1: Even before he became president, Donald Trump was known for

590
00:30:51,040 --> 00:30:56,960
Speaker 1: being very litigious in business. Is Elon Musk similarly litigious?

591
00:30:57,840 --> 00:31:00,800
Speaker 5: Well, he definitely has shown an ability to say I'm

592
00:31:00,840 --> 00:31:02,920
Speaker 5: going to hold out and try to fight in court,

593
00:31:03,000 --> 00:31:07,120
Speaker 5: and he's been in the courthouse in many disputes over

594
00:31:07,160 --> 00:31:09,560
Speaker 5: the last year. And his track record isn't that bad.

595
00:31:09,680 --> 00:31:12,080
Speaker 5: Most people would say that the closing of the Twitter

596
00:31:12,200 --> 00:31:16,040
Speaker 5: purchase basically reflected a loss. It wasn't, you know, an

597
00:31:16,080 --> 00:31:18,480
Speaker 5: opinion that went against him. But I think everyone expected

598
00:31:18,480 --> 00:31:20,240
Speaker 5: that that's what's going to happen, and that's why they

599
00:31:20,280 --> 00:31:23,680
Speaker 5: just closed the deal. But you know, in other situations,

600
00:31:23,720 --> 00:31:27,920
Speaker 5: say involving his compensation, involving you know, his tweet about

601
00:31:28,000 --> 00:31:31,920
Speaker 5: you know, taking private decisions for Tesla, he's actually succeeded.

602
00:31:32,080 --> 00:31:34,840
Speaker 5: So I think that he has definitely put himself in

603
00:31:34,880 --> 00:31:37,880
Speaker 5: the realm of someone who is willing to fight, and

604
00:31:38,040 --> 00:31:40,680
Speaker 5: the question is is he too willing to fight even

605
00:31:40,720 --> 00:31:43,280
Speaker 5: to the point where he's throwing good money after bad

606
00:31:43,720 --> 00:31:44,920
Speaker 5: You know, I think a lot of people sort of

607
00:31:44,920 --> 00:31:48,120
Speaker 5: think that Twitter acquisition, you know, particularly if this ninety

608
00:31:48,360 --> 00:31:52,000
Speaker 5: million dollar payment to walkdown is upheld, certainly is one

609
00:31:52,000 --> 00:31:53,840
Speaker 5: of the things that you would put in the category

610
00:31:53,960 --> 00:31:57,440
Speaker 5: of it's possible to be too pugnacious and too litigious

611
00:31:57,480 --> 00:32:01,720
Speaker 5: and then having to pay much more just for your

612
00:32:02,080 --> 00:32:04,680
Speaker 5: attempts to fight then would have been worth it on

613
00:32:04,760 --> 00:32:06,880
Speaker 5: any sensible basis. But you know, I think it is

614
00:32:06,920 --> 00:32:10,840
Speaker 5: a fair assessment of him to conclude that where many

615
00:32:11,080 --> 00:32:15,960
Speaker 5: other types of CEOs and entrepreneurs and large market capitalists

616
00:32:16,000 --> 00:32:18,600
Speaker 5: would tend to have a slightly risk averse a view

617
00:32:18,680 --> 00:32:21,800
Speaker 5: about getting dragged into litigation, he's not quite as risk

618
00:32:21,800 --> 00:32:24,240
Speaker 5: averse and maybe even a little bit of risk preferring.

619
00:32:24,720 --> 00:32:27,920
Speaker 1: He certainly has the legal cases to prove that. Thanks

620
00:32:27,920 --> 00:32:31,320
Speaker 1: so much, Eric, As always, that's Eric Tally, a professor,

621
00:32:31,400 --> 00:32:33,960
Speaker 1: Columbia Law School. And that's it for this edition of

622
00:32:33,960 --> 00:32:36,640
Speaker 1: the Bloomberg Law Show. Remember you can always get the

623
00:32:36,680 --> 00:32:39,920
Speaker 1: latest legal news on our Bloomberg Law Podcast. You can

624
00:32:39,960 --> 00:32:44,160
Speaker 1: find them on Apple Podcasts, Spotify, and at www dot

625
00:32:44,200 --> 00:32:48,360
Speaker 1: bloomberg dot com, slash podcast, Slash Law, and remember to

626
00:32:48,400 --> 00:32:51,480
Speaker 1: tune into The Bloomberg Law Show every weeknight at ten

627
00:32:51,520 --> 00:32:55,280
Speaker 1: pm Wall Street Time. I'm June Grosso and you're listening

628
00:32:55,400 --> 00:32:56,040
Speaker 1: to Bloomberg