What is the Delaware Court of Chancery and its role in Elon Musk’s Twitter deal?

A brewing legal battle over Elon Musk’s efforts to end a $44 billion deal to buy Twitter will most likely land in a Delaware courtroom. This is where a 230-year-old court that is a prime venue for corporate battles could hear a case, if Twitter sues Mr. Musk to force the deal through, as it is expected to do this week .

The court is known as the Delaware Court of Chancery. Here’s what to know about it.

Established 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 known as a court of equity rather than a court of law, as it allows for more flexible resolutions than the law formally provides.

The court’s jurisdiction is to make decisions in cases where the law is not explicit about the outcome and where a party seeks specific action beyond monetary damages, said Charles Elson, founding director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. If Twitter sues Mr. Musk, for example, it could push for the acquisition to be completed and the court could require it through an injunction, he said.

“It’s situational,” Mr. Elson said. “You have broad corporate status, like Delaware, and leave the rest to the judges.”

Chancery courts often hear cases related to wills, adoptions, divorces and guardianship. Delaware, Mississippi, and Tennessee are the only states with separate chancery courts, derived from the English judicial tradition.

In Delaware, the Chancery Court has a Chancellor, who is the Chief Justice, and six Vice Chancellors. The governor appoints the chancellor and vice chancellors, who must be confirmed by the state senate for a 12-year term. Delaware Chancery courthouses are in Wilmington, Dover, and Georgetown.

Like many American businesses, Twitter is registered as a company in Dover, Del. More than 1.8 million businesses are incorporated in the state, including more than two-thirds of Fortune 500 companies, according to the State Division of Corporations.

As a result, the Delaware Court of Chancery has heard many types of corporate cases over the years, developing expertise in this area. Many companies want cases to be heard in court because of this knowledge, which also makes the arc of legal disputes more predictable.

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

The Chancery Court is intimately familiar with litigation related to mergers and acquisitions. Over the past two decades, he has adjudicated disputes such as when a dissident shareholder fought a merger of computer companies HP and Compaq in 2002; when chemical company Hexion sued to end its merger with another chemical company, Huntsman, in 2008; and when luxury companies LVMH Moët Hennessy Louis Vuitton and Tiffany & Company sued for an acquisition in 2020.

Most cases in the Court of Chancery generally follow the same process, similar to most civil courts in other states. Both parties can file a motion for summary judgment, which means they ask the court to decide all or part of the case without going to trial. If the case goes to trial, the judge determines the facts based on the evidence provided by records and testimony, and then rules on the resolution.

Chancellor Kathaleen McCormick appoints herself or one of six vice-chancellors to preside over the matter. If a Chancellor has a conflict of interest – for example, having worked for Mr Musk or Twitter in the past – he cannot preside. Cases are then decided by the presiding judge and not by a jury, although the judge may call an advisory jury to assist in the consultation. The judge’s decision may be appealed to the State Supreme Court, whose decision is final.

Yes, at least for Mr. Musk.

In 2016, Mr. Musk’s auto company, Tesla, announced a $2.6 billion acquisition of solar energy company SolarCity. Tesla shareholders filed a lawsuit to prevent the deal from going forward, a case that landed in the Delaware Court of Chancery. Tesla shareholders have accused Mr Musk of pushing Tesla’s board to effectively bail out the struggling SolarCity, which the billionaire founded. The court ruled in favor of Mr. Musk in April.

Twitter did not immediately respond to questions about whether any cases had been heard by the Delaware Court of Chancery.

About Jessica J. Bass

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