What Is Delaware’s Court of Chancery and Its Role in Elon Musk’s Twitter Deal?

A brewing authorized battle over Elon Musk’s effort to terminate a $44 billion deal to purchase Twitter will almost certainly land in a courtroom in Delaware. That’s the place a 230-year-old court docket that may be a prime venue for company battles might hear a case, ought to Twitter sue Mr. Musk to power a completion of the deal, as it’s anticipated to do that week.

The court docket is named Delaware’s Court of Chancery. Here’s what to find out about it.

Created in 1792, the Delaware Court of Chancery is one of three courts established by the State Constitution, alongside the Supreme and Superior Courts. It is named a court docket of fairness, fairly than a court docket of regulation, as a result of it permits for extra versatile resolutions than the regulation formally supplies.

The court docket’s purview is to make selections in instances the place the regulation isn’t express about outcomes and the place one occasion is in search of a particular motion past financial damages, mentioned Charles Elson, founding director of the John L. Weinberg Center for Corporate Governance on the University of Delaware. If Twitter sues Mr. Musk, for instance, it may push for the acquisition to be accomplished and the court docket may require that by an injunction, he mentioned.

“It’s situational,” Mr. Elson mentioned. “You have a broad corporate statute, which Delaware has, and you leave the rest up to the judges.”

Chancery courts typically hear instances associated to wills, adoptions, divorces and guardianship. Delaware, Mississippi and Tennessee are the one states with distinct chancery courts, which descend from English judicial custom.

In Delaware, the Chancery Court has one chancellor, who’s the chief decide, and six vice chancellors. The governor nominates the chancellor and vice chancellors, who have to be confirmed by the State Senate to serve phrases of 12 years. Delaware’s chancery courthouses are in Wilmington, Dover and Georgetown.

Like many U.S. companies, Twitter is registered as an organization in Dover, Del. More than 1.8 million companies are integrated in the state, together with greater than two thirds of Fortune 500 corporations, in line with the State Division of Corporations.

As a outcome, Delaware’s Court of Chancery has heard many varieties of company instances through the years, increase experience in this space. Many corporations need instances heard by the court docket as a result of of that information, which additionally makes the arc of authorized disputes there extra predictable.

“If you want to have your business disputes resolved by experts, you will generally prefer Delaware,” mentioned Joseph Grundfest, a professor of company governance at Stanford Law School. “You might be able to fool some judges somewhere, but you’re less likely to be able to fool these judges because they see this stuff all the time.”

The chancery court docket is intimately accustomed to disputes involving mergers and acquisitions. Over the final twenty years, it has dominated in disputes similar to when a dissident shareholder fought a merger of the pc corporations HP and Compaq in 2002; when the chemical firm Hexion sued to finish its merger with one other chemical firm, Huntsman, in 2008; and when the luxurious corporations LVMH Moët Hennessy Louis Vuitton and Tiffany & Company sued one another over an acquisition in 2020.

Most instances in the Court of Chancery sometimes comply with the identical course of, just like most civil courts in different states. Both sides might file a movement for abstract judgment, which implies they ask the court docket to rule on all or components of the case with out going to trial. If the case goes to trial, the decide determines the information based mostly on proof offered by data and testimonies, then guidelines on the decision.

The chancellor, Kathaleen McCormick, appoints herself or one of the six vice chancellors to preside over the case. If a chancellor has a battle of curiosity — for instance, having labored for Mr. Musk or Twitter in the previous — she or he can’t preside. Cases are then determined by the presiding decide and not a jury, although the decide can name an advisory jury to assist seek the advice of. The decide’s resolution could be appealed to the State Supreme Court, whose resolution is ultimate.

Yes, not less than for Mr. Musk.

In 2016, Mr. Musk’s auto firm, Tesla, introduced a $2.6 billion acquisition of the photo voltaic panel power firm SolarCity. Tesla shareholders sued to stop the deal from going ahead, a case that landed in Delaware’s Court of Chancery. Tesla shareholders accused Mr. Musk of pushing Tesla’s board to successfully bail out the struggling SolarCity, which the billionaire had based. The court docket dominated in Mr. Musk’s favor in April.

Twitter didn’t instantly reply to a query about whether or not it has had instances heard in Delaware’s Court of Chancery.


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