A legal battle raging over Elon Musk’s attempt to scuttle his $44 billion deal to buy Twitter is expected to end up in a Delaware courtroom. That’s where the 230-year-old court, a hotbed of corporate battles, could hear the case if Twitter sues Mr. Musk to force the deal to end, as it will this week.
The court is known as the Delaware Court of Chancery. Here’s what you need to know about it.
What is the Delaware Court of Chancery?
Created in 1792, the Delaware Court of Chancery is one of three courts created by the state constitution, along with the supreme and supreme courts. It is known as a fair trial rather than a court because it allows for more flexible decisions than what the law formally provides.
Courts are empowered to make decisions in cases where the law is not clear about the consequences and where one party seeks a specific action beyond monetary damages, said Charles Elson, John L. Founding Director of the Weinberg Center for Corporate Governance at the University. Delaware. If Twitter sued Mr. Musk, for example, it could force the acquisition to end, and a court could require it by injunction, he said.
“It’s situational,” Mr. Elson said. “You have the broad corporate statute that Delaware has, and you leave the rest to the judges.”
Courts of Chancery often hear cases involving wills, adoptions, divorces, and guardianships. Delaware, Mississippi, and Tennessee are the only states that have distinct chancery courts that arose out of the English judicial tradition.
The Court of Chancery in Delaware has one chancellor who is the chief judge and six vice chancellors. The governor nominates the chancellor and vice chancellors, who must be confirmed by the state senate for 12-year terms. The Delaware Chancery Courthouses are in Wilmington, Dover, and Georgetown.
Why is the Court of Chancery hearing the Twitter case?
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 the Fortune 500 companies, according to the state Division of Corporations.
As a result, the Delaware Chancery Court has heard many types of corporate cases over the years, creating expertise in this area. Because of this knowledge, many companies want cases heard by the courts, which also makes the arc of legal disputes there more predictable.
“If you want to have your business disputes resolved by experts, you generally prefer Delaware,” said Joseph Grundfest, a professor of corporate governance at Stanford Law School. “You might be able to fool some judges somewhere, but you’re unlikely to fool those judges because they see these things all the time.”
The Court of Chancery is familiar with mergers and acquisitions disputes. Over the past two decades, he has settled disputes, such as when a dissident shareholder fought the merger of computer companies HP and Compaq in 2002; When the chemical company Hexion filed to terminate its merger with another chemical company, Huntsman, in 2008; And when luxury companies LVMH Moët Hennessy Louis Vuitton and Tiffany & Company sued each other over a 2020 acquisition.
What happens after the case goes to Chancery Court?
Most cases in the Court of Chancery generally follow the same process as most civil courts in other states. Either side can file a motion for summary judgment, which means they ask the court to rule on all or part of the case without going to trial. If the case goes to trial, the judge establishes the facts through records and testimony, then makes a decision.
The chancellor, Kathleen McCormick, appoints herself or one of the six vice-chancellors to chair the case. If the Chancellor has a conflict of interest – for example, having worked for Mr Musk or Twitter in the past – he cannot chair. Cases are then decided by the presiding judge, not by the jury, although the judge may call an advisory jury to consult. The judge’s decision may be appealed to the state supreme court, whose decision is final.
Have Mr. Musk and Twitter had their cases heard in the Court of Chancery?
Yes, at least for Mr. Musk.
In 2016, Mr. Musk’s car company, Tesla, announced the $2.6 billion acquisition of solar energy company SolarCity. Tesla shareholders sued to block the deal from moving forward, a case that ended up in Delaware’s Chancery Court. Tesla shareholders have accused Mr. Musk of pushing Tesla’s board to effectively bail out struggling SolarCity, which the billionaire founded. The court ruled in favor of Mr. Musk in April.
Twitter did not immediately respond to a question about whether the case was pending in Delaware’s Chancery Court.