Musk’s New Motion to Toss Twitter Investor Suit Doubted by Judge

A San Francisco federal judge at a Friday hearing appeared skeptical that Elon Musk can fully defeat an investor lawsuit claiming he fueled uncertainty about whether he would buy Twitter Inc. to drive down the stock price.

Musk’s attorneys argued that market investors were aware his flip-flopping position on purchasing the social media company in 2022 was an empty threat because they knew he was legally bound to purchase the company, which Musk has since renamed X.

The billionaire tech mogul offered to buy Twitter in April for $44 billion before announcing three weeks later he would pull out of the deal, citing concerns about the number of spam bots on the site. After a lengthy court battle in Delaware, he agreed to purchase the company in October.

Investors brought a proposed class action, alleging Musk used the uncertainty to leverage his negotiating position and drive down the stock price. The four lead plaintiffs claimed they lost more than $558,000.

At the hearing in the US District Court for the Northern District of California, Judge Charles R. Breyer said greenlighting Musk’s argument—that investors knew all along that he would have to purchase the company—"seems to be such bad policy.”

“That is so contrary to what we think of as regulation of a fair marketplace that I have a problem with walking down that road,” he said.

Musk’s attorney Jesse Bernstein of Quinn Emanuel Urquhart & Sullivan LLP responded that it would be worse policy if a potential purchaser couldn’t disclose when they have doubts about making the purchase.

“If you are going to withhold that information until the time that you actually terminate the transaction, you are going to see much more disruption” in the markets, Bernstein said.

The market can nonetheless look at the facts and the merger agreement and conclude that Musk was legally bound to move forward with the transaction either way, Bernstein said.

Breyer said he was unaware of any court decision concluding that market investors can accurately predict a legal ruling. “You don’t know of a case that holds that, and I don’t know of a case that hold it either,” he said.

The judge in December 2023 largely denied Musk’s motion to dismiss the class action, but the Tesla Inc. CEO’s attorneys in March filed a new motion to toss the case based on the empty threat argument.

Musk is also facing an investigation from the US Securities and Exchange Commission over his purchase of the platform.

Bottini & Bottini Inc. and Cotchett Pitre & McCarthy LLP represent the plaintiffs.

The case is Pampena v. Musk, N.D. Cal., No. 3:22-cv-05937, 6/21/24.