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The Delaware Court of Chancery is Twitter's chosen venue for suing Elon Musk : NPR

A centuries-old court in Delaware will decide if Elon Musk has to buy Twitter

The Court of Chancery courthouse in Georgetown, Del. Twitter has filed suit against billionaire Elon Musk in the court of equity, which was created in 1792.

Antony-22 via Wikimedia Commons

"The battle over Twitter's future is moving into a courtroom — not in California, where it is headquartered, but in Delaware, where the social media company was incorporated in 2007.

On Tuesday, Twitter sued billionaire Elon Musk in the Delaware Court of Chancery, a hub of high-profile corporate litigation that is more than two centuries old, descended from the the High Court of Chancery in Great Britain. 

In a 62-page lawsuit, the company asked the court to order the world's richest man to complete a $44 billion takeover deal he has been trying to back out of.

Musk is no stranger to the Delaware Court of Chancery. Last year, the Tesla CEO prevailed in a suit brought by the company's shareholders. The court also has decided cases involving the likes of Facebook, Goldman Sachs, and McDonald's. 

What is the Delaware Court of Chancery? 

Many public companies, including roughly two-thirds of the Fortune 500, are incorporated in Delaware, and while the state's corporate-friendly tax system is a big reason why, so is its Court of Chancery, which has jurisdiction over corporate law. 

Established in 1792, the court says it deals with "corporate matters, trusts, estates, and other fiduciary matters, disputes involving the purchase and sale of land, questions of title to real estate, and commercial and contractual matters in general." 

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How is it different from other courts?

The Delaware Court of Chancery is more specialized than most courts in the U.S. While other courts consider cases in which one party is seeking monetary damages from another, the Court of Chancery does not. 

Instead, it is a "court of equity." What does that mean, exactly? David Margules, a Wilmington-based partner with the law firm Ballard Spahr, explains: 

"You are asking the court to enter an order that requires someone to do something, or prohibits someone from doing something."

Which is what Twitter is doing in this case. 

Elon Musk is hoping to walk away from a $44 billion deal to buy Twitter.

Dimitrios Kambouris/Getty Images

In its lawsuit, it is asking the Delaware Court of Chancery to order the defendants — Musk and two corporations he established to facilitate his takeover deal — to close the deal.

Experts say companies may prefer courts of equity because they know the judges understand the ins and outs of corporate law. They become intimately familiar with case law, and they can handle cases in a sophisticated, efficient manner. In other courts, judges tend to be pulled in many different directions.

Who sits on the court?

There are seven judges: one chancellor and six vice chancellors. Picked by the governor, they tend to be longtime members of the Delaware State Bar Association who have spent their careers doing corporate litigation.

"The judges are generally experienced practitioners who cut their bones in private practice doing complex cases, and they work extraordinarily hard," Margules says. 

Notably, in the Delaware Court of Chancery, there are no jury trials. The judges hold enormous power.

Parag Agrawal, CEO of Twitter, at the Allen & Company Sun Valley Conference.

Kevin Dietsch/Getty Images

How is this likely to play out?

Under Delaware law, Musk has 20 days to respond to the lawsuit, but to Twitter, time is of the essence. In a separate filing, it asked for an expedited timetable, saying any delay would harm the company and its shareholders. 

Twitter wants Musk's lawyers to respond to the lawsuit by July 18, and the company proposed a four-day trial with a Sept. 19 start date.

"There is going to be a very tight timeframe, and the judge will be inclined to set a hearing on the merits very, very quickly," says Margules.

In their initial agreement, Musk and Twitter agreed to the sale by Oct. 24. 

The Delaware Court of Chancery has a reputation for being efficient. Judges often dispense with opening statements, preferring instead to go straight to the evidence.

At issue is Twitter's request that the court compel Musk to complete the agreed-upon deal. If a judge decides not to do that, it's likely he or she would weigh in on whether Musk should pay a $1 billion breakup fee agreed upon in the deal. 

Margules says the chancellor or vice chancellor overseeing the case will want to make sure there is ample time for an appeal to the Delaware Supreme Court, if necessary.

What if Elon Musk refuses to comply with a court order?

The Delaware Court of Chancery can hold someone in contempt of court, and it has the power to send someone to jail, experts say. 

But Michael Hanrahan, a partner with the law firm Prickett, Jones & Elliott, who has been a member of the Delaware Bar for more than 40 years, suggests there is another way the court could hold Musk to account if he fails to comply with a decision that doesn't go his way. 

"Elon Musk owns a lot of stock in Delaware corporations, which may be subject to seizure in Delaware," he says, noting Tesla and SpaceX are both incorporated in the state. "So, there may be means of compelling him."

NPR's Bobby Allyn contributed to this report."

The Delaware Court of Chancery is Twitter's chosen venue for suing Elon Musk : NPR

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How Elon Musk Left Twitter Worse Off Than He Found It - The New York Times

How Elon Musk Damaged Twitter and Left It Worse Off

"Mr. Musk swooped in and exposed Twitter’s lack of business and financial prospects. After criticizing the company’s weaknesses, he now wants to back out of buying it.

The billionaire SpaceX owner and Tesla chief executive Elon Musk.
Mike Blake/Reuters

SAN FRANCISCO — For years, Twitter was a runner-up social media company. It never grew to the size and scale of a Facebook or an Instagram. It simply muddled along.

Then, Elon Musk, a power user of the service, stormed in. He offered $44 billion to buy Twitter and declared that the company could perform far better if he were in charge. He disparaged Twitter’s executives, ridiculed its content policies, complained about the product and confused its more than 7,000 employees with his pronouncements. As Mr. Musk revealed the company’s lack of business and financial prospects, Twitter’s stock plunged more than 30 percent.

Now, as Mr. Musk, a billionaire, tries to back out of the blockbuster deal, he is inexorably leaving Twitter worse off than it was when he said he would buy it. With each needling tweet and public taunt, Mr. Musk has eroded trust in the social media company, walloped employee morale, spooked potential advertisers, emphasized its financial difficulties and spread misinformation about how Twitter operates.

“His engagement with Twitter took a severe toll on the company,” said Jason Goldman, a member of Twitter’s founding team who has also served on its board of directors. “Employees, advertisers and the market at large cannot have conviction in a company whose path is unknowable and which will now go to court to complete a transaction with a bad-faith actor.”

The precarious situation underscores why Twitter is set to sue Mr. Musk as soon as this week to force a completion of the deal. The court battle is likely to be protracted and immense, involving months of expensive litigation and high-stakes negotiations by elite lawyers. A resolution is far from certain — Twitter might win, but, if it loses, Mr. Musk could walk away by paying a breakup fee. Or the two sides could renegotiate or settle.

On Monday, the damage that Mr. Musk, 51, has inflicted was evident. Twitter’s stock plunged more than 11 percent to one of its lowest points since 2020 as investors anticipated the coming legal battle. Since Twitter accepted Mr. Musk’s acquisition offer, on April 25, its stock has lost over a third of its value as investors have grown increasingly skeptical that the deal would get done on the agreed terms. (In contrast, the tech-heavy Nasdaq index was down about 12.5 percent in the same period.)

Twitter declined to comment on Monday. In a letter to Mr. Musk’s lawyers on Sunday, the company’s lawyers said that his move to terminate the deal was “invalid and wrongful” and that Mr. Musk “knowingly, intentionally, willfully and materially breached” his agreement to buy the firm. Twitter would continue to provide information to Mr. Musk and to work to close the transaction, the letter added.

Mr. Musk did not return requests for comment. On Sunday, the billionaire, who has cited the number of fake accounts on Twitter’s platform as the reason that he cannot buy the company, tweeted a picture of himself laughing at the situation.

Of all the wreckage Mr. Musk is leaving at Twitter, the most prominent may be how brutally he exposed the company’s waning financial and business prospects. Twitter has operated at a loss for seven of the nine years it has been a public company. During deliberations over Mr. Musk’s offer, the company received no serious interest from other suitors, people with knowledge of the situation have said. Twitter’s board determined that Mr. Musk’s offer of $54.20 a share was the best it could obtain, suggesting it saw no way to reach that price on its own.

“The board’s lack of conviction in the company’s long-term future will linger over employees, partners and shareholders regardless of the outcome with Elon,” Mr. Goldman said.

In recent months, Twitter’s business has deteriorated. Parag Agrawal, Twitter’s chief executive, said in a memo to employees in May that the company had not lived up to its business and financial goals. To address the issues, he pushed out the heads of product and revenue, instituted a hiring slowdown and began an effort to attract new users and diversify into e-commerce. In April, the company stopped providing a forward-looking financial outlook to investors, pending the acquisition.

That trajectory is unlikely to change as uncertainty over the deal discomfits advertisers, the main source of Twitter’s revenue.

“Twitter will have trouble in the near future reassuring skittish advertisers and their users that they’re going to be stable,” said Angelo Carusone, the president of the watchdog group Media Matters for America.

In what was an implicit dig at Twitter’s top executives, Mr. Musk said he could have done way better with the company. In a presentation to investors in May, he said he planned to quintuple the company’s revenue to $26.4 billion by 2028 and to reach 931 million users that same year, up from 217 million at the end of last year.

On Monday, Twitter’s stock plunged more than 11 percent to one of its lowest points since 2020.
Brendan Mcdermid/Reuters

Mr. Musk emphasized Twitter’s rudderless financial direction in a letter filed to the Securities and Exchange Commission on Friday. The company’s “declining business prospects and financial outlook” had given him pause, his lawyers wrote, especially considering Twitter’s recent “financial performance and revised outlook” on the fiscal year ahead.

Mr. Musk, who has more than 100 million followers on Twitter, has also jackhammered the product, saying it is not as attractive as other apps. He has repeatedly claimed, without evidence, that Twitter is overrun with more inauthentic accounts than it has disclosed; such accounts can be automated to pump out toxic or false content. (The company has said fewer than 5 percent of the accounts on its platform are fake.)

His barbs about fake accounts have weakened trust in Twitter, just as the company prepares to moderate heated political discussions about an upcoming election in Brazil and the midterm elections this fall in the United States, misinformation experts said.

In another criticism of Twitter and the way it supervises content, Mr. Musk vowed to unwind the company’s moderation policies in the name of free speech. In May, he said he would “reverse the permanent ban” of former President Donald J. Trump from Twitter, allowing Mr. Trump back on the social network. That riled up right-wing users, who have long accused the company of censoring them, and renewed questions about how Twitter should handle debates over the limits of free speech.

Inside the company, employee morale has been battered, leading to infighting and attrition, according to six current and former employees.

Some of those who remain said they were relieved that Mr. Musk seemed to have decided against owning the company. Others shared nihilistic memes on the company’s Slack or openly criticized Twitter’s board and executives for entertaining Mr. Musk’s offer in the first place, according to internal messages viewed by The New York Times. The mood among executives was one of grim determination, two people with knowledge of their thinking said.

Evan Williams, a founder of Twitter, tweeted on Friday that he wished for an end to Mr. Musk’s antics.

“If I was still on the board, I’d be asking if we can just let this whole ugly episode blow over,” Mr. Williams posted in response to the announcement that Twitter intended to sue Mr. Musk and force the deal forward. “Hopefully that’s the plan and this is ceremony.”

Manu Cornet, a Twitter employee, illustrated the mood with a cartoon that showed a shattered company that had been bumped off a shelf by Mr. Musk’s careless elbow. His caption: “You break it, you buy it!”

Ryan Mac and Isabella Simonetti contributed reporting."

How Elon Musk Left Twitter Worse Off Than He Found It - The New York Times

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