October 2022 in Brief: Business Litigation & Dispute Resolution

Business Litigation

Delaware Court of Chancery Stays Trial in Twitter, Inc. v. Musk, Transaction Closes

By Francis G.X. Pileggi, Esquire

Every major news publication has reported over the last few months about the lawsuit involving Twitter, Inc. and Elon Musk, and the claims that each made against the other regarding the offer to purchase Twitter and the defenses previously presented to completing the transaction. At the beginning of October, Musk announced that he would close on the transaction to purchase Twitter at the original price. He then requested that the Court of Chancery stay the trial that was scheduled to begin on October 17, 2022. Twitter, Inc. opposed the motion to stay on the basis that there was no assurance that the transaction would close “fast enough.” The Court of Chancery rejected that opposition, and on October 6, 2022, in a letter decision, the court granted the motion to stay the litigation until 5:00 p.m. on October 28, 2022, “to permit the parties to close on the transaction.” However, the court cautioned that if the transaction did not close by 5:00 p.m. on October 28, 2022, “the parties are instructed to contact [Chancellor Kathaleen St. Jude McCormick] by email that evening to obtain November 2022 trial dates.”

Depending on when you are reading this short blurb about this matter, there are many permutations on what could happen if the transaction for Musk to purchase Twitter does not close by that deadline. Although many press reports suggest that the transaction will close by that deadline, if it is not closed until a few days after that deadline, as a practical matter, the trial will not begin before early November, so there might be a few days of flexibility. Nonetheless, the parties should expect that if it is not closed by the deadline, that the court will schedule a trial in November.

Based on public information, the court already has other trials scheduled in November, but the Court of Chancery is famous for finding time in its busy schedule to hold trials on an expedited basis even in major multi-billion dollar disputes such as this one.

Many pundits have predicted what the outcome of the trial would be if it took place, but most of those pundits do not have access to the evidence that has been exchanged in discovery, some of which is confidential and not disclosed to the public. My prediction is that the case will not be tried and that the transaction will close on or shortly after the deadline provided. Regardless, the procedural history of the expedited litigation, which was scheduled for trial only a few months after the complaint was filed in this multi-billion-dollar contract dispute, is an example of how common it is for highly of complex disputes to be given a prompt trial on the merits in the Delaware Court of Chancery.

Update: Following the submission of this month-in-brief, Twitter announced that Musk’s acquisition of the company closed on Thursday, October 27, 2022.

* Francis G.X. Pileggi, Esquire, is a managing partner of the Delaware office of Lewis Brisbois Bisgaard & Smith, LLP. His email address is [email protected]. He comments on key corporate and commercial decisions as well as legal ethics topics at www.DelawareLitigation.com.

Dispute Resolution

Upon Remand from the United States Supreme Court, the Eleventh Circuit Affirms Non-Signatories May Invoke International Arbitration

By Leslie Ann Berkoff, Partner at Moritt Hock & Hamroff LLP, Chair of Dispute Resolution Department

Over two years ago, in June of 2020, the United States Supreme Court determined in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, No. 18-1048, WL 2814297 (June 1, 2020), that in certain circumstances, even nonsignatories to an agreement could compel arbitration of international disputes. In issuing this decision, the Court reversed the Eleventh Circuit and remanded the case for further proceedings. The Eleventh Circuit recently issued a decision based upon that remanded case.

Basic Facts and Procedural History

In 2007, ThyssenKrupp Stainless USA, LLC (“TS”) entered into certain contracts with F.L. Industries, Inc. (“FLI”) that contained clauses requiring all disputes to be resolved through arbitration (collectively, the “Agreements”) and which also provided that FLI, and all of its subcontractors, would be treated as one entity for purposes of applying the terms of the Agreements. Thereafter, FLI entered into subcontract agreements with GE Energy Power Conversion France SAS, Corp. (“GEP”). Outokumpu Stainless USA, LLC (“OS”) acquired ownership of a TS plant and claimed that the equipment manufactured by GEP under the Agreements failed and caused substantial damages to OS. OS then commenced suit against GEP, and GEP moved to compel arbitration under the Agreements. The district court granted GEP’s motion to compel arbitration and dismissed the case, holding that GEP qualified as a “party” under the arbitration clause even though it was not a signatory to the Agreements.

On appeal, however, the Eleventh Circuit concluded that the decision to compel arbitration was inconsistent with the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), which requires that an agreement to arbitrate be “signed by the parties.” The appellate court found that because GEP had not specifically signed the Agreement, and was not a party to the Agreements, it had no right to compel arbitration. The Court rejected the argument that the Agreements specifically stated that FLI and its subcontractors should be treated as one and the same, which would have included GEP. It had also rejected GEP’s contention that OS should be compelled to arbitrate under the doctrine of equitable estoppel because the Agreements contained an arbitration clause.

The Eleventh Circuit held that this doctrine was applicable in cases concerning domestic arbitration under Chapter 1 of the FAA, which does not expressly restrict arbitration to the specific parties to an agreement, but it found that in cases concerning international arbitration, which are governed by Chapter 2 of the FAA, the doctrine was not applicable because the New York Convention (as applied to international arbitration agreements) imposes such a restriction.

Earlier Supreme Court Decision

Upon review, the U.S. Supreme Court reversed the Eleventh Circuit in a unanimous decision and held that the New York Convention did not conflict with the doctrine of equitable estoppel and was actually silent on the question of whether nonsignatories could enforce an arbitration agreement. The Court also recognized that courts of numerous contracting states to the New York Convention permit nonsignatories to compel arbitration under their domestic laws. The Court then remanded to the Eleventh Circuit for further rulings.

Recent Remand Decision

In the case of Outokumpu Stainless USA, LLC, v. Coverteam SAS (aka GE Energy Power Conversion France SAS, Corp.), No. 17-10944 (11th Cir. July 8, 2022), on remand, the Eleventh Circuit found in favor of GEP, holding that although GEP was not a signatory to the Agreements, because it was a defined party, it was covered by the governing arbitration clause. The Circuit determined it did not need to address the question of equitable estoppel.

However, in his concurring opinion, Judge Tjoflat addressed the question of equitable estoppel and found that it was appropriate for GEP to compel arbitration. Judge Tjoflat held that federal common law should be applied to this question in order to promote uniform enforcement of international arbitration agreements under the Convention. Judge Tjoflat further found that a signatory to a written agreement containing an arbitration clause must be bound by the terms of the agreement in asserting its claims against the nonsignatory under this doctrine.