A recent Law 360 story by Jack Karp, “Wachtell Wins Bid to Arbitrate X’s $90M Fee Dispute”, reports that a California state judge granted Wachtell Lipton Rosen & Katz's request to send to arbitration a dispute with X Corp. over $90 million in legal fees tied to the fight over Elon Musk's purchase of Twitter. The master retention agreement between Wachtell and X, formerly called Twitter, clearly delegates all disputes over arbitrability issues to an arbitrator, Superior Court Judge Richard B. Ulmer said in minutes issued after a brief remote hearing at which neither party appeared for Wachtell's motion to compel arbitration.
"The master retention agreement only carves out actions 'enforcing claims for injunctive or equitable relief.' It did not carve out any other issue or circumscribe the scope of the parties' broad delegation clause," the judge said in adopting the tentative order. X sued the firm in July, accusing Wachtell of exploiting "lame duck fiduciaries" as it "ran up the tab" and earned a $90 million fee helping the company defeat Musk's effort to back out of a $44 billion deal to acquire the company.
The firm ultimately helped Twitter obtain an expedited trial that put pressure on Musk before he finally agreed to close the deal on its original terms. Wachtell moved to compel arbitration of X's claims in September. The arbitration clause in question delegates jurisdiction over what kinds of claims can be arbitrated to the arbitrator in two places, and uses language derived from a Ninth Circuit decision on the topic, undercutting X's claims that the issue was left unclear by the contract, Wachtell argued.
X pushed back in early October, arguing that it is seeking only equitable relief since it wants the court to void its closing-day letter agreement and any associated excess fee payment in addition to restitution or disgorgement of the fees charged by Wachtell. X also sought attorney fees and pre- and post-judgment interest.
"Once this court has set aside the closing day letter agreement, X Corp. will recover its payment to Wachtell, less Wachtell's 'reasonable fee.' What is 'reasonable' under the circumstances will necessarily encompass various considerations and equitable principles," it said. That means the "sole method" for X to win relief in the case requires the "application of equitable principles" to determine Wachtell's reasonable compensation, it said.
But Wachtell countered that the rescission X is seeking is "an action in equity" only when the recovery sought by the plaintiff through rescission involves something other than the money paid by the plaintiff. "Here, every dollar of the final fee that X Corp. seeks to recover from Wachtell Lipton is a dollar that Twitter paid. That is restitutionary disgorgement — which is legal relief," the firm said in its Oct. 10 motion to compel arbitration.