In a Complaint filed on July 5, 2023, the parent company for Elon Musk, X Corp., goes into great detail alleging that Twitter’s New York-based “Big Law” firm of Wachtell, Lipson, Rosen & Katz breached its fiduciary duty by billing Twitter $90 million. Even though Twitter and Musk had come to an agreement, Twitter’s exiting employees and board “negotiated” a “winner’s” fee for Wachtell amounting to six times what it had already billed in “hourly” fees.

 The Complaint opens with:

Wachtell disregarded both California law and its ethical and fiduciary duties in the final days of its four-month Twitter engagement to improperly solicit an unspecified—but clearly gargantuan—success fee, as part of a $90 million “total” fee that also purported to satisfy Wachtell’s earlier invoices that totaled $17,943,567.49. The $90 million fee collected from Twitter for a few months of work on a single matter represented nearly 10% of Wachtell’s gross revenue in 2022, and over $1 million per Wachtell partner.

You might remember Twitter’s chief legal officer, Vijaya Gadde. She was canned by Musk almost immediately. The Complaint seems to allege that her revenge was to ensure that Twitter’s lawyers walk away with a “gargantuan” payout. Gadde and her underlings agreed to present a completely new, unnecessary “letter agreement” that Wachtell had drafted and sent to Twitter. Although the merger was hours from completion and there was no need or contractual obligation for Twitter to execute a new agreement, Gadde and Twitter’s in-house counsel presented Wachtell’s fee demand to the lame-duck board.

At least one of the board members could see the elephant in the room. In an email, that board member wrote:

O

My

Freaking

God

A not-so-subtle comment repeated in the Complaint that will, no doubt, will be used as an exhibit if the matter goes to trial.

In its opening solicitation letter, Wachtell partner Ben Roth noted that former Delaware Supreme Court Justice Leo Strine was with the firm. Srtine, Roth wrote, “is now with our firm and sits about 25 feet down the hall from me.” Shortly thereafter, Wachtell got the business and sued to enforce the merger. Once engaged, Wachtell’s attorneys “got to work.” According to the Complaint and its lengthy exhibits, some of Wachtell’s partners were billing millions in fees, but not including any mention of what they were billing for. On Page 2 of the Complaint:

Wachtell submitted massive invoices to Twitter that included millions of dollars in hourly billings by Wachtell partners with completely blank time entry descriptions.

But not all the billing entries were blank. Many entities have plenty of detail from dozens of lawyers for various tasks. Other entries had one-word entries. A Wachtell attorney named Alexandra Sadinsky was apparently very busy in August 2022. During just one week, she billed at her hourly rate of $1,175 for a total of 86.5 hours, or $101,637 dollars.  What did Ms Sadinsky do? “Strategy.” That’s it. That is the billing entry repeated seven times. One word.

Within a few months, Wachtell had billed for 15.6 million dollars.

But as it became apparent that the parties would end litigation and the merger would complete, Wachtell was able to “negotiate” a winner’s fee. How much? According to the Complaint and much like the partner entries, that amount was left blank.

The Closing Day Letter Agreement does not even specify the amount of the success fee, let alone any formula or percentage used to arrive at that figure.

August 26 Hourly Invoice and the September 28 Hourly Invoice were approved for payment despite flagrantly improper billing practices. For example, six Wachtell timekeepers— including partners Roth, Brad Wilson, Gregory Pessin, and Joshua Feltman—billed a combined $2,200,893.75 in those two invoices with completely blank time entry descriptions. One Wachtell associate billed approximately $935,000 across the two invoices, with all of her time entry descriptions limited to either “strategy” or “factual analysis” without further elaboration.

As indicated above, between August 5th and August 11th, Ms. Sadinsky billed for 86.5 hours of work. She isn’t a partner, yet bills at $1,175 per hour as an associate. Although the Complaint states her billing totaled $935,000, I reviewed the exhibit, and it adds up to 86.5 hours for $101,637.50 in seven days.

On October 27, 2022, the legacy board met for the last time. Although Twitter’s board, its chief counsel, and key employees had been instructed in writing to discontinue payments, the board approved the Wachtell demand. Payment was approved. In fact, within hours, a final payment was expedited and wired to Wachtell in the amount of $84,294,962.97.

After taking control of Twitter and reviewing internal documents, Twitter’s new owner asked Wachtell to justify the payment. Wachtell responded. In one instance, it sent “a single page from the 99-page September 28 Hourly Invoice” (page 20 of the Complaint). Wachtell was slow-walking the demand.

In response to the slow walk and lack of clarity, Musk’s company, X Corp., sued Wachtell for 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 seems to imply that the Complaint is seeking redress against former Twitter employees like Twitter’s Chief Legal Officer Vijaya Gadde, she is not a named defendant, nor is any former Twitter employee. Only Wachtell has been sued.

Not so ironically, Muck’s company is asking for disgorgement of attorney fees and…attorney fees.