In a Complaint filed on July 5, 2023, X Corp., the parent company of Elon Musk, accuses Twitter’s New York-based law firm, Wachtell, Lipson, Rosen & Katz, of breaching its fiduciary duty by overbilling Twitter.
The Complaint alleges that Wachtell sought an exorbitant success fee of $90 million, six times more than its previous hourly fees, despite an existing agreement between Twitter and Musk. The $90 million fee represented nearly 10% of Wachtell’s gross revenue in 2022 and over $1 million per Wachtell partner.
The Complaint suggests that Twitter’s former chief legal officer, Vijaya Gadde, who Musk dismissed, played a role in ensuring Wachtell received a substantial payout. Gadde and other Twitter employees presented a new “letter agreement” drafted by Wachtell, even though there was no need or contractual obligation for such an agreement. This fee demand was presented to the outgoing board.
One board member expressed their surprise and frustration in an email, which may serve as evidence if the matter goes to trial. The email reads: “O My Freaking God.”
In an opening solicitation letter, Wachtell partner Ben Roth mentioned that former Delaware Supreme Court Justice Leo Strine was now part of the firm. Shortly after, Wachtell secured the business and sued to enforce the merger. The Complaint alleges that Wachtell’s partners billed millions in fees without specifying the nature of the services provided.
While some billing entries lacked detail, others had brief descriptions. For instance, Wachtell attorney Alexandra Sadinsky billed over $100,000 for 86.5 hours of work, with the description stating “strategy” repeated seven times.
Over a few months, Wachtell billed $15.6 million. As it became apparent that litigation would end and the merger would proceed, Wachtell “negotiated” a success fee, the amount of which remains unspecified in the Closing Day Letter Agreement.
Despite questionable billing practices, invoices from August 26 and September 28 were approved for payment. Several Wachtell timekeepers, including partners Roth, Brad Wilson, Gregory Pessin, and Joshua Feltman, billed a combined $2,200,893.75 without describing the services rendered. A Wachtell associate billed approximately $935,000 across the two invoices, with entries limited to “strategy” or “factual analysis.”
Regarding Sadinsky’s billing, the Complaint states that she billed for 86.5 hours in seven days, totaling $101,637.50, not the reported $935,000.
On October 27, 2022, the legacy board met for the last time and approved Wachtell’s demand for payment, despite written instructions to discontinue payments. An expedited payment of $84,294,962.97 was wired to Wachtell within hours.
After assuming control of Twitter, X Corp. reviewed internal documents and requested an explanation for the payment. Wachtell responded by sending a single page from the September 28 Hourly Invoice, attempting to delay and obfuscate the demand.
X Corp. has filed a lawsuit against Wachtell due to their slow response and lack of clarity. X Corp. is alleging several charges, including Unjust Enrichment, Breach of Fiduciary Duty, Aiding and Abetting a Breach of Fiduciary Duty, and Violation of Business and Professions Code sec 17200. Although the third cause of action appears to implicate former Twitter employees like Vijaya Gadde, they are not named defendants in the lawsuit. Only Wachtell is being sued.
Ironically, Musk’s company is seeking disgorgement of attorney fees and additional attorney fees in the lawsuit.
