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Delaware is back in the spotlight with Twitter’s legal battle

Why is Twitter suing Elon Musk in Delaware? Here's another Chancery Court explainer.

By:
Holly Quinn headshot
Holly Quinn,  @harlequinn823
Jul 11, 2022 4:07pm
The nation's top business court is in Delaware. (Photo by Pexels user Pixabay, used under a Creative Commons license)

There’s a saying in Delaware that the rest of the world remembers we exist every six months.

It’s actually been only a few weeks since a “frozen in time” Burger King from the ’90s was rediscovered at Concord Mall — the kind of quirky, “Delabear“-type viral story that keeps Delaware’s reputation as comfortably inscrutable.

Of course, since the election of President Joe Biden, the state is invoked more regularly than it used to be, if only to allow people to complain about Biden “running off” to Delaware, or the inconvenience of a Joe Jam.

Delaware is in the headlines this week for that other reason people remember we exist periodically: the Delaware Court of Chancery, set off by a tweet from Twitter Chair Bret Taylor.

That was Friday, and Twitter is still bubbling with armchair Delaware Court of Chancery judiciaries, reporters, tech CEOs and legal analysts debating who will come out on top in this billion(s)-dollar battle: Elon Musk or Twitter. The latter has hired law firm Watchell, Lipton Rosen & Katz, whose counsel includes Leo Strine, former chief justice of the Delaware Supreme Court and, before that, Chancellor of the Delaware Court of Chancery.

You probably know the story: Tesla and SpaceX CEO Musk decided to buy Twitter for $44 billion a few months back, to the consternation if the Twitter board. A deal was made, Tesla stocks tanked, and Musk changed his mind. Musk claimed that requests for information on Twitter’s fake accounts and bot activity went unanswered, causing a breach in the agreement. It isn’t known whether Twitter is seeking to close the deal that was on the table, to renegotiate another deal, or make Musk pay a hefty breakup fee.

On Twitter itself, you’ll find everything from flowcharts to memes to deep-dive analysis about it:

So, it’s a broken contract deal on a massive scale. But what does it have to do with Delaware?

This is one of those things that comes up a couple of times a year and is inevitably new information to some every time, like Pete Wentz’s Afro-Jamaican heritage.

It’s not even going to be the first time Musk has made a very public appearance at the Court of Chancery. Almost a year ago to the day, Musk went up against a shareholder plaintiff in Wilmington. In 2017, Mark Zuckerberg famously visited Delaware for a Chancery Court appearance, and spent his day off from court court meeting with members of the University of Delaware Disaster Research Center at Iron Hill Brewery to discuss Facebook’s crisis response tool.

The short answer of why Twitter and Elon Musk are going to duke it out in a Delaware court is because Twitter, like more than 60% of Fortune 500 companies including Tesla and Facebook, is incorporated in Delaware.

The reason why so many companies, big and small, choose to incorporate in Delaware instead of their own state, has to do with Delaware’s corporate laws, some tax breaks and, especially, its Chancery Court.

A Chancery Court is pretty much as old-timey as it sounds, going back to medieval England and inspired by the Roman Equity. Equity law, in this context, is about taking certain framework specifics of a case into account rather than applying general law broadly.

In the case of Delaware, the non-jury Court of Chancery is specifically a court for corporate law cases. Only two other states — Tennessee and Mississippi — still have Chancery Court, neither corporate-focused.

In many ways, Chancery Court became seen as antiquated and too British in the United States. But not in Delaware. Its Chancery Court, though not without flaws, is commonly referred to as the “gold standard of corporate law,” ruling with efficiency using consistent standards. Which is ultimately why so many companies choose to incorporate in Delaware, and why we in Wilmington get to witness when mega moguls are called to court.

Companies: X (formerly Twitter)
Tags: Delaware / Legal / Social media
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