Twitter and billionaire Elon Musk are gearing up for a legal fight in Delaware's Chancery Court after Musk backed out of a billion deal.

Mahmoud Bennett Social Media Producer

Musk and Twitter will face off at the Delaware Court of Chancery

Jul 18, 2022

Mahmoud Bennett Social Media Producer

By Mahmoud Bennett (Social Media Producer)

Twitter Inc. and Elon Musk are gearing up for a legal fight at a small but powerful Delaware court that specializes in high-stakes business disputes. The social media giant filed a lawsuit to force Musk to make good on his promise to buy the platform. In April, the billionaire businessman pledged to pay $54.20 per share, or roughly $44 billion, to take the company private. Some are asking why the case landed in the second-smallest U.S. state and in what’s known as the Court of Chancery.

Established in 1792, the Court of Chancery is a court of equity rather than law, meaning it typically handles civil cases where a plaintiff is seeking non-monetary damages. Such cases can include disputes over property boundaries and land purchases, guardianship appointments, and estates, trusts and wills. More often than not, they involve business disputes pitting companies against disgruntled shareholders, or parties to failed mergers and acquisitions against one another, according to the AP.

Like many U.S. businesses, Twitter is registered as a company in Delaware. The state is the corporate home to more than 1 million business entities, including more than 60% of Fortune 500 companies according to the State Division of Corporations. Many merger agreements, in fact, specify that any disputes will be heard by a Delaware Chancery Court judge.

Elon Musk is no stranger to this court. Earlier this year, the Tesla CEO emerged victorious in a suit brought by the company’s shareholders. The court has also decided cases involving the likes of Facebook, Goldman Sachs, and McDonald’s.

In Twitter’s latest complaint, it argues that Musk operated in bad faith and is deliberately trying to tank the deal to buy the social media giant because market conditions have deteriorated and the acquisition no longer serves his interests. It’s asking the Delaware Court of Chancery to order Musk and two corporations he established to facilitate his takeover deal to now close the deal.

In a letter, Musk accused Twitter of making “false and misleading representations” about the prevalence of fake accounts on its platform. He said the company has not complied with its obligations to share data and information that he says he needs to evaluate its business.

Twitter lawyers are asking the court to expedite the case. They have proposed a four-day trial starting Sept. 19. Under Delaware law, Musk has 20 days to respond to the lawsuit.

MAHMOUD BENNETT:

AFTER DROPPING HIS $44 BILLION DOLLAR DEAL TO ACQUIRE TWITTER – THE RICHEST MAN IN THE WORLD IS BEING TAKEN TO COURT

BUT NOT JUST ANY COURT – IT’S ALL GOING DOWN AT A CENTURIES OLD VENUE – DELAWARE’S COURT OF CHANCERY

IT’S ONE OF THE THREE COURTS ESTABLISHED IN 1792 UNDER THE STATE’S CONSTITUTION – AND RATHER THAN BILLING ITSELF AS A COURT OF LAW – IT’S KNOWN AS A COURT OF EQUITY

THESE TYPES OF COURTS LOOK AT CASES WHERE THE LAW DOESN’T ALWAYS HAVE THE ANSWER

WHILE OTHER COURTS AWARD COMPENSATION – LIKE MONEY, TO ONE SIDE, AN EQUITY COURT DOES NOT.

EXPERTS SAY THAT’S PART OF WHY THE STATE OF DELAWARE IS ATTRACTIVE TO CORPORATIONS – IN FACT IT’S WHERE TWITTER AND ROUGHLY TWO THIRDS OF FORTUNE 500 COMPANIES ARE INCORPORATED

SO THE COURT HAS BUILT UP EXPERTISE IN THE AREA OF THESE TRICKY DISPUTES. AND BOTH MUSK AND TWITTER HAVE DEALT WITH THE COURT IN PAST SEPARATE CASES OF THEIR OWN.

TWITTER WANTS TO FORCE A SALE OF THE COMPANY ARGUING IN A COMPLAINT THAT MUSK PROMISED TO HONOR A DEAL TO BUY IT

THAT WILL MAKE ITS WAY BEFORE A JUDGE WHO WILL HAVE THE FINAL SAY

UNDER DELAWARE LAW MUSK HAS 20 DAYS TO RESPOND