What Is Delaware’s Courtroom of Chancery and Its Position in Elon Musk’s Twitter Deal?

Twitter sued Elon Musk on Tuesday over his effort to terminate a $44 billion acquisition deal. Now the authorized battle is headed for a courtroom in Delaware, the place a 230-year-old court docket that may be a prime venue for company battles will hear the case.

The court docket is named Delaware’s Courtroom of Chancery. Right here’s what to learn about it.

What’s the Delaware Courtroom of Chancery?

Created in 1792, the Delaware Courtroom of Chancery is considered one of three courts established by the State Structure, alongside the Supreme and Superior Courts. It is named a court docket of fairness, moderately 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 circumstances the place the regulation is just not express about outcomes and the place one occasion is searching for a selected motion past financial damages, mentioned Charles Elson, founding director of the John L. Weinberg Middle for Company Governance on the College of Delaware. Twitter’s go well with towards Mr. Musk, for instance, is pushing for the acquisition to be accomplished, and the court docket might require that by way of an injunction, he mentioned.

“It’s situational,” Mr. Elson mentioned. “You will have a broad company statute, which Delaware has, and you permit the remaining as much as the judges.”

Chancery courts usually hear circumstances 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 Courtroom has one chancellor, who’s the chief choose, and 6 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.

Why would the Chancery Courtroom hear a Twitter case?

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

Because of this, Delaware’s Courtroom of Chancery has heard many sorts of company circumstances through the years, build up experience on this space. Many corporations need circumstances heard by the court docket due to that data, which additionally makes the arc of authorized disputes there extra predictable.

“If you wish to have your online business disputes resolved by consultants, you’ll typically favor Delaware,” mentioned Joseph Grundfest, a professor of company governance at Stanford Regulation College. “You would possibly be capable to idiot some judges someplace, however you’re much less seemingly to have the ability to idiot these judges as a result of they see these items on a regular basis.”

The chancery court docket is intimately conversant in disputes involving mergers and acquisitions. Over the past 20 years, it has dominated in disputes corresponding 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 & Firm sued one another over an acquisition in 2020.

What occurs as soon as a case lands in Chancery Courtroom?

Circumstances within the Courtroom of Chancery usually observe the identical course of, much like most civil courts in different states. Either side could file a movement for abstract judgment, which suggests 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 choose determines the info primarily based on proof supplied by way of information and testimonies, then guidelines on the decision.

The chancellor, Kathaleen McCormick, appoints herself or one of many 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 prior to now — she or he can’t preside. Circumstances are then determined by the presiding choose and never a jury, although the choose can name an advisory jury to assist seek the advice of. The choose’s choice might be appealed to the State Supreme Courtroom, whose choice is closing.

Have Mr. Musk and Twitter had circumstances heard in Chancery Courtroom?

Sure.

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 forestall the deal from going ahead, a case that landed in Delaware’s Courtroom of Chancery. The shareholders accused Mr. Musk of pushing Tesla’s board to successfully bail out the struggling SolarCity, which the billionaire’s cousins had based. The court docket dominated in Mr. Musk’s favor in April, a call that has been appealed to the state’s Supreme Courtroom.

Twitter has additionally handled the court docket in a number of circumstances, together with a lawsuit filed in Could by a police pension fund in Orlando, Fla., to delay the cope with Mr. Musk. In 2020, Twitter shareholders additionally sued the corporate in Chancery Courtroom, accusing executives of inflating consumer statistics. The court docket permitted a $38 million settlement final yr.