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COMPLAINT <I> for Severance Benefits, Equitable Relief, and Statutory Penalties (ERISA)</I> against All Defendants ( Filing fee $ 405, receipt number ACANDC-19182154.). Filed by Vijaya Gadde, Parag Agrawal, Sean Edgett, Ned Segal. (Attachments: # (1) Exhibit A, # (2) Exhibit B, # (3) Civil Cover Sheet)(Anderson, David) (Filed on 3/4/2024): Case 3:24-cv-01304 Document 1 Filed 03/04/24 Page 1 of 39
David L. Anderson (SBN 149604) dlanderson@sidley.com Sheila A.G. Armbrust (SBN 265998) sarmbrust@sidley.com Nicole M. Ryan (SBN 175980) nicole.ryan@sidley.com Sarah E. Gallo (SBN 335544) sgallo@sidley.com Chaddy Georges (SBN 335546) cgeorges@sidley.com SIDLEY AUSTIN LLP 555 California Street, Suite 2000 San Francisco, CA 94104 Telephone: (415) 772-1200
Mark B. Blocker (pro hac vice forthcoming) mblocker@sidley.com SIDLEY AUSTIN LLP One South Dearborn Chicago, IL 60603 Telephone: (312) 853-7000
Attorneys for Plaintiffs Parag Agrawal, Ned Segal, Vijaya Gadde, and Sean Edgett
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO/OAKLAND DIVISION
Case No. 24-cv-01304
PARAG AGRAWAL, NED SEGAL, VIJAYA GADDE, and SEAN EDGETT,
COMPLAINT FOR SEVERANCE
BENEFITS, EQUITABLE RELIEF, AND STATUTORY PENALTIES (ERISA)
Plaintiffs, vs.
ELON MUSK; X CORP., f/k/a TWITTER, INC.; TWITTER, INC. CHANGE OF CONTROL AND INVOLUNTARY TERMINATION PROTECTION POLICY; TWITTER, INC. CHANGE OF CONTROL SEVERANCE AND INVOLUNTARY TERMINATION PROTECTION POLICY; LINDSAY CHAPMAN; BRIAN BJELDE; AND DHRUV BATURA, Defendants.
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INTRODUCTION
1.
After Defendant Elon Musk definitively agreed to buy Twitter, Inc. for $44 billion,
the stock market declined, and Musk tried to back out of the deal, despite having no legal or
contractual justification to do so. Twitter sued Musk to enforce the deal, and over months of
intensive litigation, each of Muskâs baseless excuses was stripped away. On the eve of trial, Musk
capitulated, and the deal closed at its original price.
2.
Defeated, but still determined to avoid his obligations, Musk then tried to recover
some of what he paid by repeatedly refusing to honor other clear contractual commitments. Under
Muskâs control, Twitter has become a scofflaw, stiffing employees, landlords, vendors, and
others. Musk doesnât pay his bills, believes the rules donât apply to him, and uses his wealth and
power to run roughshod over anyone who disagrees with him.
3.
Musk has a special ire toward Plaintiffs Parag Agrawal, Ned Segal, Vijaya Gadde,
and Sean Edgett. As the former Chief Executive Officer, Chief Financial Officer, Chief Legal
Officer, and General Counsel, respectively, of Twitter, they appropriately and vigorously
represented the interests of Twitterâs public shareholders throughout Muskâs wrongful attempt to
renege on the deal. For their efforts, Musk vowed a lifetime of revenge.
4.
As he was closing the acquisition, Musk told his official biographer, Walter
Isaacson, that he would âhunt every single one ofâ Twitterâs executives and directors âtill the day
they die.â1 These statements were not the mere rantings of a self-centered billionaire surrounded
by enablers unwilling to confront him with the legal consequences of his own choices. Musk
bragged to Isaacson specifically how he planned to cheat Twitterâs executives out of their
severance benefits in order to save himself $200 million. Isaacson described the scene as follows:
The closing of the Twitter deal had been scheduled for that Friday. An orderly transition had been scripted for the opening of the stock market that morning. The money would transfer, the stock would be delisted, and Musk would be in control. That would permit Agrawal and his top Twitter deputies to collect severance and have their stock options vest.
But Musk decided that he did not want that. . . . He would force a fast close that night. If his lawyers and bankers timed everything right, he
Walter Isaacson, Elon Musk 493 (Simon & Schuster, 2023) (quoting Musk).
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could fire Agrawal and other top Twitter executives âfor causeâ before their stock options could vest. . . .
âThereâs a 200-million differential in the cookie jar between closing tonight and doing it tomorrow morning,â he told me late Thursday afternoon in the war room as the plan unfolded.
At 4:12 p.m. Pacific time, once they had confirmation that the money had transferred, Musk pulled the trigger to close the deal. At precisely that moment, his assistant delivered letters of dismissal to Agrawal and his top three officers. Six minutes later, Muskâs top security officer came down to the second-floor conference room to say that all had been âexitedâ from the building and their access to email cut off.
The instant email cutoff was part of the plan. Agrawal had his letter of resignation, citing the change of control, ready to send. But when his Twitter email was cut off, it took him a few minutes to get the document into a Gmail message. By that point, he had already been fired by Musk.
âHe tried to resign,â Musk said.
âBut we beat him,â his gunslinging lawyer Alex Spiro replied.2
5.
In fact, Musk and Spiro had not beaten anyone at anything. If anyone around Musk
had been willing to tell him the truth, he would have learned that his scheme to deny Plaintiffs
their contractual severance payments was a pointless effort that would not withstand legal
scrutiny. ERISA protects Plaintiffsâ severance benefits. Under Twitterâs severance plans, if an
eligible executive is terminated without cause following a change in control, they are entitled to
severance benefits. Likewise, if an eligible executive resigns due to a change in their reporting
structure, they are entitled to severance benefits. âCauseâ under the severance plans is limited to
extremely narrow circumstances, such as being convicted of a felony or committing âgross
negligenceâ or âwillful misconduct.â âCauseâ is not âBoard-approved business decisions that
Musk dislikesâ from the time before he owned the Company.
6.
Severance plans are an important feature of modern corporate governance, aligning
the economic interests of executives and shareholders in the face of a corporate takeover,
especially one as contentious as Muskâs acquisition of Twitter. Severance plans encourage
Walter Isaacson, The Real Story of Muskâs Twitter Takeover, Wall St. J. (Aug. 31, 2023), https://www.wsj.com/tech/elon-musk-x-twitter-takeover-5f553fa (quoting Musk and Spiro); accord Elon Musk 512-13.
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everyone to work toward getting the deal done. For example, without severance plans, executives
could have a financial incentive to oppose an acquisition even when that acquisition is in the best
interests of shareholders. Executives could also have a professional incentive to leave the
company before the closing, which could jeopardize the companyâs ability to close the transaction
and the public shareholdersâ ability to get the control premium provided by the acquisition.
Executivesâ severance benefits are designed to be legally resilient, as they must be, because
severance payments are necessarily made by the acquired entity only after it passes into the hands
of its acquiror. If executives could not count on getting their contractual severance, they would
have no incentive to stay through the acquisition to run the business, oversee the acquisition
process, and make sure the shareholders get paid.
7.
Because Musk decided he didnât want to pay Plaintiffsâ severance benefits, he
simply fired them without reason, then made up fake cause and appointed employees of his
various companies to uphold his decision. He claimed in his termination letters that each Plaintiff
committed âgross negligenceâ and âwillful misconductâ without citing a single fact in support of
this claim. Muskâs employees then spent a year trying to come up with facts to support his pre-
ordained conclusion, to no avail. Nonetheless, Defendants have persisted in their benefits denials
over the past year, wrongfully withholding documents, needlessly prolonging any decisions, and
generally playing out the ERISA administrative process for all itâs worth. This is the Musk
playbook: to keep the money he owes other people, and force them to sue him. Even in defeat,
Musk can impose delay, hassle, and expense on others less able to afford it. Muskâs conduct gives
rise to claims for wrongful denial of benefits under ERISA Section 502(a)(1)(B); unlawful
discharge to interfere with rights to benefits under ERISA Section 510; and failure to timely
provide required materials under ERISA Section 502(c).
8.
Defendants have used the ERISA administrative process to advance the justification
that Plaintiffs engaged in âgross negligenceâ and âwillful misconductâ by carrying out the
directives of Twitterâs Board, primarily by paying Board-approved success fees to the law firms
that represented Twitter in negotiating, litigating, and closing the acquisition in the face of Muskâs
stubborn and unjustified resistance. Although success fees are common following a successful COMPLAINT
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takeover defense, Defendants take the position that these particular payments were wrongful
because Musk objects to them. Defendants also take the position that the payment decisions are
not entitled to the benefits of the business judgment rule, which protects discretionary decisions
from precisely this sort of post hoc attack. Defendants have no explanation for why Twitterâs
executives can be denied their ERISA benefits because Twitterâs Board both authorized the
attorneysâ fees payments and directed the Company to make the payments. The same is true for
Defendantsâ other manufactured assertions of âcauseâ regarding employee retention bonuses,
purported corporate waste, and severance plan participants. All the decisions that Defendants now
challenge were approved and directed by Twitterâs Board at a time when the Board, not Musk,
oversaw the Company. Defendants have issued claims denials that overlook these obvious
problems and ignore that the terminations were pretextual.
9.
This is not an ERISA case where a professional administrator, fulfilling its
obligations as a plan fiduciary, made objective benefits decisions according to a recognized
framework. In this instance, Musk first made the decision to deny all benefits, and only thereafter
brought in employees of his family office and his other companies to act out the ERISA
administrative process. Although the Twitter severance plans provide for deference to the
discretionary decisions of a properly-appointed and properly-functioning plan administrator, no
deference is due here. In this case, the Court reviews the benefits denials de novo. Because those
benefits denials cannot withstand de novo or even deferential review, the Court should order the
payment of Plaintiffsâ ERISA benefits claims and award attorneysâ fees and interest.
PARTIES
10.
Plaintiff Parag Agrawal is a resident of California. Agrawal worked at Twitter from
2011 until 2022. Agrawal was Twitterâs Chief Executive Officer from November 29, 2021 until
October 27, 2022, having taken over that role from Jack Dorsey, one of Twitterâs founders. At all
relevant times, Agrawal was a participant, as defined by ERISA Section 3(7), 29 U.S.C.
§ 1002(7), in the Twitter, Inc. Change of Control and Involuntary Termination Protection Policy,
as amended and restated effective August 8, 2014 (the â2014 Planâ).3
A copy of the 2014 Plan is attached hereto as Exhibit A.
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11.
Plaintiff Ned Segal is a resident of California. Segal was Twitterâs Chief Financial
Officer from August 25, 2017 until October 27, 2022. At all relevant times, Segal was a
participant, as defined by ERISA Section 3(7), 29 U.S.C. § 1002(7), in the 2014 Plan.
12.
Plaintiff Vijaya Gadde is a resident of California. Gadde is a lawyer, and worked at
Twitter from 2011 until October 27, 2022. She was General Counsel from August 2013 until her
promotion to Chief Legal Officer in February 2018. At all relevant times, Gadde was a
participant, as defined by ERISA Section 3(7), 29 U.S.C. § 1002(7), in the 2014 Plan.
13.
Plaintiff Sean Edgett is a resident of California. Edgett is a lawyer who worked in
Twitterâs legal department from 2012 until October 27, 2022. From February 2018 until his
termination, Edgett was Twitterâs General Counsel. At all relevant times, Edgett was a
participant, as defined by ERISA Section 3(7), 29 U.S.C. § 1002(7), in the Twitter, Inc. Change of
Control Severance and Involuntary Termination Protection Policy, as amended and restated,
effective February 22, 2017 (the â2017 Planâ).4 14.
Defendant Elon Musk is the Chairman, Sole Director, Chief Technology Officer,
and controlling shareholder of X Corp., the entity into which he merged Twitter. At times relevant
to this Complaint, Musk also was and/or is the CEO of X Corp. and the Administrator5 of the
Plans.
15.
Defendant X Corp. is a Nevada corporation with its headquarters in San Francisco,
California and is the successor in interest to Twitter, Inc., a Delaware corporation that was
headquartered in San Francisco, California.6 X Corp. succeeded to all of Twitterâs obligations
upon the October 27, 2022 closing of the merger transaction, including Twitterâs obligations
under the Plans. X Corp. is the Plan Sponsor and funding source of the Plans. 16.
Upon Muskâs acquisition of Twitter, there was and continues to be such unity of
interest and ownership between Twitter and Musk that there is no longer a separate corporate
status among Musk, Twitter, and Twitterâs successor X Corp. Musk controls Twitterâs decision-
A copy of the 2017 Plan is attached hereto as Exhibit B. The 2014 Plan and the 2017 Plan are hereafter collectively referred to as the âPlansâ unless context dictates otherwise. Unless otherwise stated, discussed, or defined herein, all capitalized terms have the meaning ascribed to them in the Plans.
X Corp. and Twitter, Inc. are hereafter referred to as âTwitter,â âX Corp.,â or the âCompany.â COMPLAINT
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making and operations and disregards corporate formalities in conducting Twitterâs operations
subject to his personal whims or based on polls conducted from his personal Twitter account.
17.
Musk often employs and relies on Excession, LLC (âExcessionâ), his personal
family office, and Excession employees to conduct X Corp. business. Musk also relies on other
personal friends, family members, and longtime business associates and investors to provide
services to Twitter. On information and belief, Musk brought in multiple family members to work
at Twitter.
18.
Musk has commingled assets of his other companies with Twitter. On information
and belief, Musk has allowed Twitterâs assets to be used by his other companies, including Tesla
and xAI. Additionally, Musk regularly uses employees of his other companies to conduct Twitter
business and has granted them access to Twitterâs systems and records. For instance, as the
Delaware Court of Chancery recently found, Musk enlisted approximately fifty Tesla engineers to
provide services to Twitter immediately following the acquisition, none of whom were hired,
retained, or paid by Twitter for services they provided to Twitter. xAI employees also reportedly
have been working out of Twitterâs headquarters.
19.
20.
It would be inequitable and unjust to prevent Plaintiffs from recovering benefits and
other remedies from Musk, who is personally responsible for and will individually benefit from
the acts of X Corp.
21.
Defendants Twitter, Inc. Change of Control and Involuntary Termination Protection
Policy, as amended and restated effective August 8, 2014 (the 2014 Plan), and Twitter, Inc.
Change of Control Severance and Involuntary Termination Protection Policy, as amended and
restated, effective February 22, 2017 (the 2017 Plan) were, at all relevant times, employee welfare
benefit plans within the meaning of ERISA Section 3(1), 29 U.S.C. § 1002(1).
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22.
Defendant Lindsay Chapman is a Senior Director of Human Resources at SpaceX, a
company controlled by Musk. Chapman purports to be the Administrator of the Plans and a
member of the Twitter Severance Administration Committee (the âcommitteeâ), which purported
to decide the administrative appeals that Plaintiffs submitted. Defendants Brian Bjelde, a Vice
President of Human Resources at SpaceX, and Dhruv Batura, an employee now identified as
working for X Corp. who previously worked at Tesla for nearly a decade, also purport to be
members of the committee.
JURISDICTION
23.
Plaintiffs bring this action for benefits, equitable relief, and penalties pursuant to the
Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001-1461 (ERISA). This
Court has subject matter jurisdiction over Plaintiffsâ claims pursuant to 29 U.S.C. § 1132(e)(1)
and 28 U.S.C. § 1331.
VENUE
24.
Venue is proper in the Northern District of California pursuant to 29 U.S.C.
§ 1132(e)(2).
DIVISIONAL ASSIGNMENT
25.
This action is subject to assignment to the San Francisco or Oakland division
because a substantial part of the events giving rise to the claims occurred in San Francisco
County.
GENERAL FACTS AND ALLEGATIONS
I.
THE PLANS
A.
Twitterâs Severance Plans
26.
To maintain continuity of leadership, and to align the economic incentives of
executives and shareholders, public companies provide their executives with comprehensive,
competitive pay packages that almost always include severance benefits if the executive is
terminated, or suffers a significant change in their duties or reporting structure, in the event of a
change in control.
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27.
A large portion of an executiveâs compensation is typically provided in the form of
restricted stock units that vest over time. In the normal course, these stock awards only have value
if the executive remains at the company until they vest. When a change of control occurs, the new
owners of the company often decide to replace the companyâs prior management. Accordingly,
most public companies provide their executives with severance benefits that include the value of
these unvested stock awards, as well as their salary and other benefits for a defined period of time,
if they are terminated or constructively terminated following a change in control.
28.
Long before Muskâs acquisition, Twitter, like many public companies, adopted
severance plans that were intended to provide precisely this sort of protection to its senior
executives to ensure that their interests were aligned with those of the Companyâs shareholders. In
the case of a contentious situation such as Twitterâs sale to Musk, this alignment is especially
important to ensure that the most senior leaders of the Company support and oversee the involved
and uncertain acquisition process, while continuing to run the Companyâs business throughout
this period. This maximizes the likelihood that all closing conditions will be satisfied so the deal
goes through and the public shareholders get paid, while also helping the Company continue as a
successful stand-alone business in case the deal ultimately does not close.
29.
Twitterâs severance plans provided its senior executives with severance benefits
equal to one yearâs salary plus unvested stock awards valued at the acquisition price in the event
their employment was negatively affected by a change in control.
30.
These provisions were well known and disclosed to Twitterâs public shareholders â
and Musk â before the acquisition. Indeed, Twitterâs proxy statement identified the specific
amounts that would become payable by Twitter to its executive officers if they were involuntarily
terminated (including if they left on their own for good reason) following the acquisition.
Twitterâs public shareholders voted overwhelmingly to approve these change-of-control
provisions and payments.
31.
The severance plans were not intended to be used by new management to deprive
outgoing executives of their promised compensation. Instead, they were designed to ensure that
the executivesâ interests were aligned with the shareholdersâ best interests, by incentivizing the COMPLAINT
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executives to remain at the Company and ensure the success of the business and the acquisition,
even when it was clear that they were not part of Muskâs plans for post-acquisition Twitter.
32.
Twitter adopted two severance plans that are relevant here: one that covered the
Companyâs most senior officers (the 2014 Plan) and another that covered other key executives
(the 2017 Plan).
B.
33.
The 2014 Plan (Plaintiffs Agrawal, Segal, and Gadde) Twitter adopted the 2014 Plan âto provide certain protections to a select group of
key Twitter employees if their employment is negatively affected by a change on control of
Twitter.â Ex. A at 1. The Plan states that it is governed by ERISA.
34.
The 2014 Plan provides that a participant is entitled to benefits if three conditions
are satisfied: (1) they are an Eligible Employee, (2) their employment ended during the Change of
Control Period, and (3) their employment ended as a result of an Involuntary Termination. If a
participant meets these conditions, the 2014 Plan declares that their employment ended through a
âCOC Qualified Termination,â and they are eligible to receive âthe applicable Equity Vesting,
Cash Severance and COBRA Benefit described herein and specified on [their] Participation
Agreement.â Id.
35.
The 2014 Plan provides that an Involuntary Termination can occur in either of two
ways: (1) the employer terminates the employee without Cause; or (2) the employee has âGood
Reasonâ to terminate their employment due to one of several conditions occurring, such as no
longer reporting directly to the board of directors or chief executive officer of a publicly traded
company.
36.
Agrawal, Segal, and Gadde meet all conditions for protection under the 2014 Plan,
but as explained below, Twitter has created a frivolous dispute about whether their terminations
were Involuntary Terminations.
C.
The 2017 Plan (Plaintiff Edgett)
37.
The 2017 Plan provides protections to additional senior employees âif their
employment is negatively affected by a change on control of Twitter.â Ex. B at 1. It likewise is
âdesigned to be an âemployee welfare benefit plan,â as defined in Section 3(1) of ERISA.â Id.
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38.
Like the 2014 Plan, the 2017 Plan provides that a participant is entitled to benefits if
three conditions are satisfied: (1) they are an Eligible Employee, (2) their employment ended
during the Change of Control Period, and (3) their employment ended as a result of an
Involuntary Termination. If a participant meets these conditions, the 2017 Plan declares that their
employment ended through a âCOC Qualified Termination,â and they are eligible to receive âthe
applicable Equity Vesting, Cash Severance and COBRA Benefit described herein and specified
on [their] Participation Agreement.â Id. The definitions of these terms are the same as in the 2014
Plan.
39.
Edgett is a participant in the 2017 Plan and meets all conditions for protection under
the 2017 Plan. However, as explained below, Twitter created a frivolous dispute about whether
his termination was an Involuntary Termination.
D.
Exhaustion of Administrative Remedies
40.
Both Plans provide that, before a participant can file a lawsuit, they must first
follow the Plansâ administrative claim process. All Plaintiffs exhausted their administrative
remedies under the Plans, although, as explained below, Musk deprived Plaintiffs of any
meaningful review in the administrative process.
41.
The administrative process generally requires two steps. First, a participant is
required to submit a claim for benefits. In response, the Plan Administrator is supposed to
determine in a neutral fashion whether the claim is approved or denied. Second, if the claim is
denied, participants are permitted to submit an appeal, although the Plans do not say who is to
rule on those appeals. If the appeal is denied, then a participant can file a lawsuit.
42.
All Plaintiffs followed this administrative process, had their initial claims denied,
and then had their appeals denied. To understand why their claims (including their appeals) were
wrongfully denied, it is helpful to understand Muskâs October 2022 acquisition of Twitter,
because the purported bases for denying the claims are mainly related to the acquisition.
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II.
MUSKâS ACQUISITION OF TWITTER
A.
Muskâs Agreement to Purchase Twitter
43.
Starting on January 31, 2022, Musk began purchasing Twitter stock. By March 14,
2022, he had secretly accumulated a substantial position â about 5% of the Companyâs
outstanding shares. This 5% threshold is significant, because the Securities Exchange Act of 1934
requires purchasers of more than 5% of a public companyâs stock to file a public report disclosing
their ownership amount and whether their investment is âactiveâ or âpassive.â Apparently
concluding that mandatory disclosure obligations do not apply to him, Musk did not file the
required report. Instead Musk kept buying Twitter stock without revealing his ownership stake or
intentions. On April 4, 2022, when Musk finally disclosed that he held 9.2% of Twitterâs stock,
Twitterâs share price rose 27%. According to published reports, Musk saved himself more than
$140 million by wrongfully delaying his mandatory disclosure. Moreover, when he did file his
mandatory disclosure, he concealed his true intentions. Musk falsely claimed that he was a
âpassiveâ investor even as he was negotiating for a seat on Twitterâs Board of Directors.
44.
On April 5, 2022, Musk initially accepted an offer to join Twitterâs Board. On April
9, 2022, the day his appointment to the Board was to become effective, Musk notified the
Company that he would not be joining the Board but instead would be making an offer to acquire
the Company.
45.
On April 13, 2022, Musk offered to purchase Twitter at a price of $54.20 per share,
a 38% premium over the stockâs closing price on the day before his investment in Twitter was
disclosed.
46.
On April 14, 2022, the Board established a Transactions Committee of the Twitter
Board, known as the Transactions Committee, composed of three highly qualified independent
directors, â[t]o assist the Twitter Board in its evaluation and negotiation of Muskâs acquisition
proposal and consideration of other strategic alternatives and to provide additional feedback and
guidance to members of Twitter management.â The full Board appointed the Chair of the Board,
the Chair of the Audit Committee, and the Chair of the Nominating and Corporate Governance
Committee as the members of the Transactions Committee.
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47.
In April 2022, the Board approved the retention of the law firms Wilson Sonsini
Goodrich & Rosati P.C. (âWilson Sonsiniâ) and Simpson Thacher & Bartlett LLP (âSimpson
Thacherâ) to represent Twitter and the Board in the transaction. The Board authorized the
executive officers of the Company to
as any other professional fees incurred by the Company in connection with the negotiation,
execution, and performance of the Merger Agreement and related matters.
48.
of those firmsâ expenses and fees, as well
On April 25, 2022, Twitter, Musk, and Muskâs wholly-owned entities X Holdings I,
Inc. and X Holdings II, Inc. entered into the Merger Agreement. Musk, through X Holdings I, Inc.
and X Holdings II, Inc., agreed to buy Twitter for $54.20 per share in cash, for a total of $44
billion, with no financing contingencies and no due diligence conditions, and with Musk bearing
the risk of any downturn in the market.
B.
After Multiple Attempts to Back Out of the Deal, Musk Was Forced to Purchase Twitter Through the Efforts of Twitterâs Board, Officers, and Outside Counsel.
49.
Shortly after the ink was dry on the Merger Agreement, the stock market began to
decline and Musk changed his mind about buying Twitter. For the next five months, Musk tried
everything he could to create an excuse to back out of the deal.
50.
On May 13, 2022, to the surprise of Twitterâs leadership and shareholders, Musk
tweeted that the deal was âtemporarily on hold pending details supporting calculation that
spam/fake accounts do indeed represent less than 5% of users.â Muskâs business manager and
lawyer âdesperately urged him to walk back the declaration,â telling him that it was âlegally
perilous for him to be announcing his desireâ to âwriggle out of the deal.â7 But in the weeks that
followed, Musk and his team began to manufacture a false narrative about Twitterâs site integrity,
and specifically the number of âspam botsâ on the platform. Then, on June 6, 2022, Musk,
through his lawyer Mike Ringler of Skadden, Arps, Slate, Meagher & Flom LLP (âSkaddenâ),
sent a letter to Gadde stating that Musk had the âright not to consummateâ his acquisition of
Twitter and a âright to terminate the Merger Agreement.â
Elon Musk 464.
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51.
When it became apparent that Musk was trying to renege on the deal, Twitter
recognized that it might need to file a lawsuit to enforce the deal and protect its shareholdersâ best
interests. Twitter searched for and interviewed law firms. In June 2022, after interviewing several
prominent law firms, the Company retained Wachtell Lipton Rosen & Katz (âWachtellâ), one of
the nationâs most skilled firms in corporate deal litigation.
When Wachtell was retained, Twitter and
Wachtell contemplated that Wachtellâs fees would ultimately depend on the success that Wachtell
achieved. It was impossible to know up front whether there would even need to be litigation, or
how involved or successful the litigation would be. Thus, Twitter and Wachtell agreed that
Twitter would consider a success fee payment to Wachtell if it achieved a favorable result for the
Company, with the fact and amount of any fee to be determined at the conclusion of the dispute.
52.
On July 8, 2022, Musk delivered a notice to Twitter improperly purporting to
terminate the Merger Agreement. Within days of that notice, Twitter filed a lawsuit against Musk
in the Delaware Court of Chancery seeking to force him to proceed with the deal (the âMerger
Litigationâ).
53.
Musk was represented in the Merger Litigation by several law firms, including
Skadden and Quinn Emanuel Urquhart & Sullivan, LLP (âQuinn Emanuelâ).
54.
The Merger Litigation, which was described in one academic article as the âtrial of
the centuryâ because of the enormous stakes and the prominent people involved, was litigated on
an expedited basis and was extremely hard fought, fast paced, time consuming, and all
encompassing. In the 126 days between the filing of the initial complaint and the caseâs dismissal,
there were 1,569 docket entries, 101 attorneys made formal appearances, 190 subpoenas were
issued, at least 47 depositions were taken, and the parties made at least 22 motions. Muskâs legal
team asserted myriad, ever-evolving factual and legal reasons for voiding the deal. They served
exceptionally broad discovery requests, seeking to require Twitter to produce âtrillions upon
trillions of data points reflecting all of the data Twitter might possibly store for each of the
approximately 200 million accounts included in its mDAU [monetizable daily active users] count
COMPLAINT
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every day for nearly three years.â8 The court held that Muskâs data requests were so âabsurdly
broadâ that âno one in their right mindâ could even undertake to quantify the burden of
responding.9
55.
The Company ultimately prevailed entirely. After several months of intensive,
round-the-clock litigation, just days before the trial date, and on the eve of Muskâs deposition,
Musk capitulated: he agreed to close the deal on its original terms, without any reduction in the
purchase price.
56.
The merger transaction closed on October 27, 2022. Twitter received 100% of the
relief sought in the Merger Litigation, requiring Musk to purchase the Company at the originally
agreed purchase price of $44 billion. In other words, the litigation was a complete success for
Twitter and its public shareholders.
57.
Closing the deal on the original terms of the Merger Agreement was a remarkable
result for the Companyâs shareholders. This is particularly true given that the most common
outcome by far in deals challenged by litigation is that the transaction is either terminated or
completed at a reduced price. Even Twitterâs stockholders did not expect the deal to close at the
$54.20 price, as reflected by Twitterâs much lower stock price during the summer and fall of
2022. The collective economic benefit to Twitter shareholders of closing the deal at $54.20 per
share was at least $11.4 billion â calculated as the difference between $54.20 and the price of
Twitter shares on April 1, 2024, the last full trading day before Muskâs disclosure that he had
purchased more than a 9% stake in the Company.
58.
Musk admits that he closed the deal only because he was legally obligated to do so
and his lawyers told him that they would lose at trial. On April 11, 2023, Musk gave an interview
to BBC reporter James Clayton on Twitter Spaces. In the interview, Musk stated that he
surrendered in the litigation and went forward with the Merger Agreement because his lawyers
advised him that a court would eventually order him to close. Muskâs biographer similarly writes
Letter Decision Resolving Defs.â Second Discovery Motion at 2-3, Twitter v. Musk, Case No. 2022-0613-KSJM, Dkt. 632 (Del. Ch. Aug. 25, 2022).
Id.
COMPLAINT
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that Muskâs âlawyers finally convinced him at the end of September that he would lose the case if
they took it to trial.â10
III.
MUSKâS MANUFACTURED TERMINATIONS OF PLAINTIFFS
59.
In the days leading up to the closing, Musk was aware that Plaintiffs and several
other executives would be entitled to payments under the two Plans totaling around $200 million.
Musk had no intention of paying those amounts because he was furious that Twitterâs Board and
executives had defeated him and forced him to close the deal.
60.
As a result, Musk talked with his lawyer, Alex Spiro of Quinn Emanuel, about how
to avoid making the payments owed under the Plans. He hatched a plan to accelerate the closing,
manufacture fake âcauseâ for Plaintiffsâ terminations, cut off Plaintiffsâ email access, and send
Plaintiffs termination letters before they could resign and claim their benefits.
61.
Musk then put this plan into action. On October 27, 2022, at approximately 3:50
p.m. Pacific Time, Gadde released her signature on the certificate of merger to complete the
transaction. Minutes later, at about 4:00 p.m. Pacific Time and before the merger became
effective, Plaintiffs each received emails containing termination letters signed by Musk on behalf
of Twitter, sent by an employee of Muskâs family office from her Excession email account.
Edgett, who was present at Twitter headquarters at the time of closing, was also informed of his
termination by Muskâs security team, who had been instructed to escort him off the premises.
62.
In the termination letters, Musk falsely asserted that Plaintiffs were being
terminated âfor cause,â which he believed would allow him to deprive Plaintiffs of receiving
benefits under the Plans.
63.
Plaintiffsâ termination letters specifically mentioned the Plans and made clear that
the purpose of the letters was to deprive Plaintiffs of their severance benefits. Each Plaintiff
received a letter claiming that they were being terminated for âcauseâ under subsection (e) in the
Plans: âgross negligence or willful misconduct in the performance of [their] duties.â The letters to
Agrawal, Gadde, and Edgett also claimed that they were being terminated for âcauseâ under
subsection (g): âfailure to cooperate in good faith with a governmental or internal investigation of
Elon Musk 493.
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the Company or its directors, officers or employees, if the Company has requested [their]
cooperation.â The letters did not identify any facts purportedly supporting a finding under either
subsection (e) or (g). Indeed, the letters provided no factual basis for Plaintiffsâ terminations at all.
Musk planned to manufacture cause later, but believed it was important to act before Plaintiffs
had a chance to resign.
64.
Musk was wrong about timing, but right that Plaintiffs Agrawal, Segal, and Gadde
could resign and still receive benefits under the Plans as a result of the change in control. The
Plans contained standard âGood Reasonâ provisions that allowed Plaintiffs to treat certain
conditions as a constructive termination that triggered a right to benefits. One of those conditions
occurred because Twitter became a privately-held company, and thus Agrawal no longer reported
to the board of directors of a publicly traded entity, and Segal and Gadde no longer reported to the
CEO of a publicly traded entity.
65.
Therefore, on the day of closing, Agrawal, Segal, and Gadde sent letters to the
Company indicating that their employment circumstances constituted Good Reason within the
meaning of the 2014 Plan (the âGood Reason lettersâ). The fact that Musk purported to fire them
for cause before their letters arrived has no bearing on the reality that Good Reason existed.
Twitter had 30 days from the date of their Good Reason letters to cure the circumstances
identified in the Good Reason letters, but did not do so.
IV.
PLAINTIFFS SUBMIT CLAIMS FOR BENEFITS
66.
On November 29, 2022, each Plaintiff submitted a Claim to the âAdministratorâ of
the Plans requesting payment of the benefits to which they are entitled under the Plans, pursuant
to the Plansâ Claims Procedure.
67.
The Claims demonstrated that each Plaintiff is entitled to benefits because they
satisfy the conditions of the applicable Plan: (1) they are an Eligible Employee; (2) their
employment ended during the Change of Control Period; and (3) their employment ended as a
result of an Involuntary Termination.
68.
Plaintiffs were not able to respond to any claim of âcauseâ for their terminations
because their termination letters set forth no factual basis supporting the assertion that there was COMPLAINT
Page 18
cause under subsection (e) (âgross negligence or willful misconductâ) or subsection (g) (âfailure
to cooperate in good faith with a governmental or internal investigationâ). As a result, Plaintiffs
represented that they knew of no basis for a finding of gross negligence or willful misconduct or
failure to cooperate with any investigation. As the Claims noted, the Companyâs assertion of
cause without any factual basis was a transparent attempt to prevent Plaintiffs from attaining the
benefits to which they are entitled under the Plans, in violation of Section 510 of ERISA, 29
U.S.C. § 1140.
69.
Agrawal, Segal, and Gaddeâs Claims also explained that they incurred an
Involuntary Termination under the 2014 Plan for the additional reason that their employment
circumstances constituted Good Reason within the meaning of the Plan. The Company had 30
days from the date of their Good Reason letters to cure the circumstances identified in those
letters, but did not do so. If the Company had not already terminated Plaintiffs, the Plan would
have required them to submit subsequent resignation letters. In light of their terminations, they
were not holding any positions with the Company from which they could resign. Nevertheless, to
the extent a formal resignation letter was requested, Plaintiffs represented that their Claims served
as resignation letters. Thus, for this additional reason, Agrawal, Segal, and Gadde incurred an
Involuntary Termination within the meaning of the 2014 Plan.
V.
THE DENIALS OF PLAINTIFFSâ CLAIMS
70.
The Plans require that the Plan Administrator decide whether to approve Plaintiffsâ
Claims within 90 days, unless âspecial circumstances require an extension of time (up to 90
days).â Exs. A & B at 6. The Plans further require that if a claim is denied, the claimant must be
provided âa written notice explaining the specific reasons for the denial and referring to the
provisions of the Policy on which the denial is based.â Id.
71.
On February 16, 2023, almost 90 days after Plaintiffs submitted their Claims,
Plaintiffs received a letter from Lindsay Chapman, who identified herself as working for Twitterâs
Human Resources Department. Chapmanâs letter stated that she had been appointed as the
Administrator of the Plans and that she was granting herself a 90-day extension of time to respond
to the Claims.
COMPLAINT
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72.
On May 26, 2023, six months after Plaintiffs submitted their Claims, Chapman sent
letters to each Plaintiff denying their Claims. Chapman acknowledged that Plaintiffs were Eligible
Employees whose employment ended during the Change of Control Period. However, she
concluded that Plaintiffs did not incur Involuntary Terminations because there was âcauseâ for
their terminations, although not for any reason that Musk provided in the termination letters.
73.
The sole basis for Chapmanâs âcauseâ finding was that Plaintiffs purportedly
committed âgross negligence and willful misconductâ within the meaning of subsection (e),
primarily because Twitter paid success fees to
for their work in negotiating, litigating, and closing the acquisition. Chapman also made the brief
and conclusory claim that Plaintiffs committed gross negligence and willful misconduct by paying
retention bonuses to Twitter employees, and made the brief and conclusory claim that Agrawal,
Segal, and Gadde committed gross negligence due to the Companyâs alleged corporate waste.
Chapmanâs denial letters made no attempt to address Muskâs claim in the termination letters that
some of the Plaintiffs had failed to cooperate with an investigation within the meaning of
subsection (g).
VI.
PLAINTIFFS SUBMIT THEIR ADMINISTRATIVE APPEAL.
74.
On September 15, 2023, Chapman emailed Plaintiffs stating that a committee,
called the Twitter Severance Administration Committee, had been appointed to hear Plaintiffsâ
appeals and directing Plaintiffs to submit any appeal to that committee. Later that day, Plaintiffs
timely appealed Chapmanâs rulings pursuant to the Plansâ Appeal Procedure.11 Pursuant to
Chapmanâs instructions, Plaintiffs directed their appeal to the committee, which purportedly was
created by Musk and consists of Chapman, now identified as working for SpaceX, Brian Bjelde,
another SpaceX employee, and Dhruv Batura, a former long-term Tesla employee now identified
as working for X Corp.
Defendants extended Plaintiffsâ appeal deadline to September 18, 2023 due to the Companyâs delay in producing documents reviewed and relied upon in evaluating the Claims.
COMPLAINT
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75.
Because Muskâs termination letters had not provided any details about the factual
basis for the claimed âcauseâ that existed, the appeal was the first time that Plaintiffs were able to
present evidence to respond to Defendantsâ newly-invented basis for cause.
76.
Plaintiffs submitted a seventy-four page appeal and extensive evidence, including
their declarations, other percipient witness declarations and letters, including from members of the
Board and Transactions Committee, deposition testimony, documents, and an expert report by a
distinguished corporate governance expert, showing that Plaintiffs did not commit gross
negligence or willful misconduct and therefore are entitled to benefits under the Plans. Among
other things, Plaintiffs showed that Chapman ignored the corporate governance principles that
applied to Plaintiffsâ conduct as officers and executives of Twitter. They showed that the
Companyâs claimed reasons for terminating Plaintiffs are pretextual and insupportable, and that
the Company cannot rely on these pretextual reasons to withhold Plaintiffsâ severance benefits.
They also showed that, even on her own terms, Chapmanâs decisions cannot be upheld.
77.
Among other things, Plaintiffs demonstrated that the facts on which Chapman relied
do not support a claim of wrongdoing by Plaintiffs in connection with the payment of attorneysâ
fees to the law firms, and submitted additional evidence that not only refuted her conclusion but
that showed that her decision was arbitrary and capricious. The process for determining these fees
was set by the Board, the ultimate fee amounts were decided by the Board, and the Board directed
Plaintiffs to pay these fees.
78.
Plaintiffs presented evidence showing that the Company followed a careful and
robust process to ensure an appropriate decision as to the law firmsâ fees.
Plaintiffs
contributed to the process by expressing their own views about the fees and by confirming that the
payments were made as directed by the Board. Plaintiffs met repeatedly with the Transactions
Committee members about the fees, conducted and shared their due diligence about the fees, and
provided fee information to the full Board.
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79.
On the morning of October 27, 2022, the Companyâs full Board met.
One of the directors noted that it was the largest stockholder value creation by a legal team that he had ever seen.
The full Board deliberated and decided to approve the fees.
80.
Thus, Plaintiffs were not
only authorized to make the payments, they were required to do so to comply with their fiduciary
duties to the Company. This alone refutes any claim that Plaintiffsâ actions constitute gross
negligence or willful misconduct.
81.
If Musk felt that the attorneysâ
fees payments, or any other payments, were improper, his remedy was to seek to terminate the
deal â not to withhold executivesâ severance payments after the deal closed. Musk did not do this
because he knew he would lose.
82.
Musk chose to buy Twitter. He proposed and signed a Merger Agreement that did
not give him the right to withdraw from the deal based on market conditions deteriorating, new
learnings or theories about the Company after signing, disagreements with the Companyâs
business decisions, or simply changing his mind. The Merger Agreement both allowed and
required Twitter to use commercially reasonable efforts to operate âin the ordinary course of
businessâ until the acquisition closed.
83.
Twitterâs Board and officers had full authority to run the Company pre-closing,
subject only to the covenants in the Merger Agreement. Musk had no authority or remedy outside
the confines of the Merger Agreement. If Musk thought that the covenants in the Merger COMPLAINT
Page 22
Agreement were violated, which they were not, his remedy was to refuse to complete the
transaction. Instead, he chose to close the deal and thus represented that all closing conditions
were met or waived.
84.
Musk repeatedly tried to tell Twitter what to do before the closing, including asking
Plaintiffs not to make payments to third parties in the days before the closing. However, Musk did
not own the Company and had no right to control its operations or payments. The Board rightly
decided what payments and other decisions to make, consistent with the terms of the Merger
Agreement, based on the best interests of the Company and its shareholders, not Muskâs whims,
and Plaintiffs fully complied with the Boardâs directives.
85.
As just one example of the deficiencies in Chapmanâs position, Chapman
mischaracterized an email from a Board member to falsely claim that Plaintiffs âkept the Board in
the dark on the legal fee issues.â In connection with their appeal, Plaintiffs submitted a sworn
declaration from that Board member which affirmed that the Board was kept fully apprised of the
attorneysâ fees discussions and approved those fees.
86.
Plaintiffs also showed that the facts Chapman pointed to did not support a claim of
wrongdoing in connection with the payment of employee retention bonuses, and submitted
additional evidence refuting the claim. The retention bonuses were consistent with past practice,
necessary to retain key employees during the turbulent and uncertain merger period, made under
Twitterâs preexisting policies approved by the Boardâs Compensation Committee, and permitted
under the Merger Agreement. Indeed, Plaintiffs sought legal advice from the Companyâs outside
counsel to ensure that the bonuses complied with the Merger Agreement.
87.
Although Musk both created retention risk and opposed any effort to address it, the
incumbent Board and officers had authority to award normal course retention bonuses, consistent
with past practice, and did so. Indeed, the Merger Agreement required the Company to operate âin
the ordinary course of businessâ and to âpreserve substantially intact the material components of
its current business operation.â Preserving the material components of the âcurrent business
organizationâ necessarily required retaining key Twitter employees.
COMPLAINT
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88.
Plaintiffs also showed that the other facts Chapman cited did not support a claim
that Plaintiffs committed gross negligence by causing corporate waste, and submitted additional
evidence refuting the claim. Plaintiffs showed that the challenged expenditures were carried out
pursuant to, and consistent with, the Boardâs strategy and budgetary plan, and are precisely the
types of judgmental decisions protected by the business judgment rule. Plaintiffs also presented
evidence showing that at all times through the closing, Plaintiffs acted as responsible stewards of
Twitterâs resources. While the Board directly determined the fees for
, Plaintiffs undertook to manage other expenses with other vendors, saving the Company
and in May 2022, Agrawal informed Twitter employees that the Company was pausing most
hiring and further reducing operating expenses. Plaintiffs continued to focus on conserving costs
throughout the litigation period, within the bounds of the Merger Agreement.
89.
In short, there is no support for Defendantsâ manufactured, post hoc claim of gross
negligence and willful misconduct set forth in the claims denials. At all times, Plaintiffs acted in
good faith, and with due care, in what they believed to be Twitterâs and its stockholdersâ best
interests, under the directives and approvals of the Board.
90.
Plaintiffsâ management of the Company made Twitter extremely valuable, such that
it was worth $44 billion. In contrast, under Muskâs leadership since the acquisition, Twitterâs
value has fallen precipitously. Musk admitted in March 2023 that Twitterâs value had fallen to
about $20 billion. And by the end of May 2023, Fidelity, which owns an equity stake in Twitter,
had lowered its valuation of the Company to $15 billion, approximately a third of the Companyâs
prior value when Plaintiffs held their leadership positions at the Company. By the end of 2023,
Fidelity lowered its valuation of the Company even further, to about $12.5 billion, approximately
28% of the Companyâs prior value.
COMPLAINT
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91.
The Board and officers fully complied with the Merger Agreement and acted in the
best interests of Twitter and its shareholders. Musk cannot second-guess the judgment of a fully
independent and operational board that approved and directed the actions that he now claims are
the basis for âcauseâ to avoid paying Plaintiffs their contractual severance benefits.
VII.
THE DENIAL OF PLAINTIFFSâ ADMINISTRATIVE APPEALS
92.
The Plans require that any appeals of claims denials be ruled on within 60 days,
unless âspecial circumstancesâ require an extension of time (up to 60 days). Exs. A & B at 6. 93.
Predictably, on November 13, 2023, Plaintiffs received a letter from Chapman, on
behalf of the committee, stating that the committee had granted itself a 60-day extension of time to rule on the appeal.
94.
On January 12, 2024, four months after Plaintiffs submitted their appeal, Chapman
sent Plaintiffsâ counsel a letter from the committee stating that the committee had decided to deny
the appeal.
95.
Unable to refute Plaintiffsâ showing that Chapmanâs benefits denials were
erroneous, the committee ignored much of Plaintiffsâ evidence, switched tacks yet again, and
purported to rely on new, but equally insufficient, bases and materials to find cause for Plaintiffsâ
terminations, in violation of ERISA and the Plans. For instance, the committee purported to deny
the appeal on an entirely new and incorrect basis which Plaintiffs never had the chance to address
â that Plaintiffs purportedly committed gross negligence and wrongful misconduct because they
âdid not stop other executives from urging the Compensation Committee [of the Twitter Board] to
add new participants to the Planâ in May 2022. Once again, Defendants wrongly sought to
second-guess and hold Plaintiffs liable for the discretionary determinations of Twitterâs Board.
96.
Defendants also presented a new declaration from Musk, in which
COMPLAINT
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97.
In addition, Defendants presented a new report from a purported legal services
98.
Defendantsâ ever-changing theories of cause reflect the weakness of their position.
expert
They also show that, far from acting as a neutral arbiter, Defendantsâ objective throughout has been to try to find reasons to deny Plaintiffs their rightful severance payments. 99.
With the denial of their appeal, Plaintiffs have fully exhausted any and all
administrative remedies under the Plans.
100. In attempting to obtain payment of the benefits due to them under the Plans,
Plaintiffs have been required to incur, and will continue to incur, attorneysâ fees and costs which
they are entitled to recover.
VIII. DEFENDANTS TERMINATED PLAINTIFFS AND MANUFACTURED
CAUSE FOR THE PURPOSE OF INTERFERING WITH THEIR ERISA
RIGHTS.
101. Defendantsâ purported termination of Plaintiffs âfor causeâ was a sham designed to deprive Plaintiffs of their severance benefits.
A.
Musk Admitted that He Terminated Plaintiffs for the Purpose of Interfering with Their Right to Benefits Under the ERISA Plans.
102. Muskâs own words show that he made up cause and terminated Plaintiffs to avoid
paying them the benefits they are owed under the Plans. As quoted above, Musk admitted his plan
to his biographer Isaacson as it was happening. Musk orchestrated the closing and termination
plan as a pretext to cut off Plaintiffsâ severance, exact vengeance, and save himself money. He
terminated Plaintiffs and manufactured cause for the specific purpose of interfering with their
right to benefits under the Plans.
COMPLAINT
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B.
Musk Denied Plaintiffs Their Contractually-Entitled Benefits as Retaliation for the Company Enforcing the Merger Agreement.
103. Musk was angry that, after multiple attempts to back out of the Twitter acquisition,
Twitter had sued him and was forcing him to go through with the deal. He took his anger out on
anyone involved with the Merger Litigation.
104. In September 2022, Musk had his lawyers repeatedly threaten Twitterâs Board.
105.
106.
107. Although Muskâs anger was directed broadly at the group that successfully
represented Twitter on behalf of its public shareholders, Musk found an immediate outlet for this
anger by wrongfully withholding Plaintiffsâ severance payments as the acquisition closed.
108.
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C.
Musk Wanted Plaintiffs Fired Long Before They Paid the Law Firmsâ Fees in October 2022, Confirming that the Boardâs Decision to Authorize Payment of Those Fees Was Not the Reason for Their Termination.
109. Musk wanted Plaintiffs fired long before the Board authorized payment of the law
firmsâ fees in October 2022, showing that Defendantsâ manufactured, post hoc rationale is not the
true reason for their termination.
110. As early as April 2022, shortly after signing the Merger Agreement, but before he
owned the company, Musk wanted Agrawal to terminate Gadde. On or about April 27, 2022,
Musk, Agrawal, and former Twitter CEO Jack Dorsey joined a FaceTime call. Agrawalâs
intention for the call was to discuss Muskâs vision for Twitter, and how they could align so that
Agrawal could lead with an awareness of that vision over the next few months prior to the
closing, while shareholder and regulatory approval was pending. Musk had no such intention.
Within minutes of the start of the call, Musk directed Agrawal to terminate Gadde immediately.
When Agrawal refused, Musk gave him a day to comply, telling him to text Musk confirmation of
her firing.
111. Agrawal said that he would take what Musk had asked under consideration, but as
CEO, he made his own decisions. Musk became aggressive and angrily repeated his orders. When
Agrawal refused to fire Gadde, Musk told him that âwe canât work togetherâ as a result.
112. Following the call, Musk texted Dorsey about his frustration over Agrawalâs refusal
to fire Gadde. Dorsey wrote, âat least it became clear that you canât work together [with
Agrawal]. That was clarifying.â Musk agreed, responding âYeah.â
113. On April 27, 2022, Musk also tweeted a meme about Twitterâs alleged left-wing bias featuring Gaddeâs face.
114. Muskâs attempt to have Gadde fired months before the closing not only
demonstrates his pretextual reason for denying benefits, but was also illegal âgun jumpingâ under
Section 7A of the Clayton Act, 15 U.S.C. § 18a.
115. Musk failed to provide any cause-related reason for his request that Agrawal
terminate Gadde, but Musk had a history of publicly criticizing her. As Chief Legal Officer,
Gadde led the Trust and Safety team, which made several content moderation decisions, approved COMPLAINT
Page 28
by the CEO, with which Musk publicly disagreed, including the removal of former President
Donald Trump and the refusal to take down the @ElonJet Twitter account, which tracked the
movements of Muskâs private plane using publicly available information.
116.
117. On April 4, 2022, Musk filed a Schedule 13G (a form that can be used only by
passive investors who have no intent to influence a company), in which he publicly disclosed for
the first time his ownership stake in Twitter. That same day, the SEC sent Musk a letter
questioning both his failure to make an earlier disclosure of his holdings and his filing of a
Schedule 13G rather than a Schedule 13D. The next day, Musk filed a Schedule 13D.
In May 2022, the SEC publicly confirmed it was investigating Musk,
.
118. On information and belief, Musk was so angry about a prior SEC investigation into
his conduct that he tried to get his companyâs outside counsel, Cooley, to fire one of its attorneys
solely because that attorney previously worked on an SEC investigation into Muskâs conduct. On
information and belief, when Cooley refused, Musk fired Cooley. Here, Musk took out his anger
COMPLAINT
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by trying to get Gadde fired in late April 2022, and then by pretextually terminating Gadde and
the other Plaintiffs in October 2022 and refusing to pay their severance.
119. Musk simply disagreed with the business judgments Plaintiffs and the Board made
about how to run Twitter. He spoke openly about his disagreement with their decisions and intent
to terminate Plaintiffs. He had completely different plans for how to run the Company after the
acquisition. He was angry that Plaintiffs and the Board made him go through with the deal and did
not acquiesce to his demands for a lower price, and he desperately wanted to avoid his obligation
to pay Plaintiffsâ severance benefits. These reasons, which do not constitute Cause, are the real
reasons he fired them, not Defendantsâ manufactured post hoc rationale.
D.
The Circumstances of Plaintiffsâ Terminations Further Show that Defendantsâ Post Hoc Justifications Are Not the Reason Plaintiffs Were Fired.
120. The details of Plaintiffsâ terminations also belie that any cause existed and show that Defendants manufactured claims of cause in order to deny Plaintiffs severance.
121. Musk terminated Plaintiffs on October 27, 2022, effective immediately upon the
closing, before he could have seen the documents that Defendants now claim demonstrate
Plaintiffsâ gross negligence and willful misconduct.
122. Moreover, Musk provided no factual basis for his terminations of Plaintiffs in their
October 27, 2022 termination letters â because he had none. Musk knew the amounts of the
attorneysâ fees payments before the closing, but never mentioned the fees in his termination
letters, showing that he only later decided to use that as a purported justification for the
terminations.
123. The fact that the termination letters even mention the Plans only underscores that
Muskâs intention was to deprive Plaintiffs of their severance benefits. There was no reason for
those letters to mention the Plans. If there had been a valid factual basis for cause, it would have
been explained in the letters, and without reference to the Plans. Because the termination letters
were specifically intended to deprive Plaintiffs of their severance benefits, the letters invoke the
Plans without explaining any basis for cause.
COMPLAINT
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124. Defendantsâ post hoc, manufactured approach to Plaintiffsâ purported âfor causeâ
terminations is also apparent in the discrepancy between Plaintiffsâ termination letters and the
denials of their benefits claims. The termination letters to Agrawal, Gadde, and Edgett all
reference their purported failure to cooperate with an investigation as a basis for their termination
(under subsection (g) of the Plans), yet no such grounds were ever advanced at any point during
the administrative claim process. This omission shows that Musk made allegations first and only
later searched for a basis to support those excuses for non-payment.
125. Moreover, in a separate lawsuit relating to Wachtellâs fees, X Corp. stated that it
only learned of Plaintiffsâ alleged wrongdoing after an investigation conducted âfollowing the
closing of the merger.â12 Thus, at the time Musk purportedly terminated Plaintiffs âfor cause,â he
admittedly had no cause. He did not know the facts that he now claims constitute cause â further
confirming that all of his purported reasons for cause were a mere pretext to deprive Plaintiffs of
their severance.
126. The timing of Defendantsâ response to each of Plaintiffsâ Claims further reinforces
this point. Plaintiffsâ claim letters were just three pages long. Even though the Plans gave the
Administrator 90 days to rule on those claims, Defendants claimed that there were exceptional
circumstances that required an additional 90 days to address. But even after spending six months
investigating Plaintiffsâ conduct in an attempt to find a basis to claim wrongdoing, all Defendants
could come up with was the meritless claim that Plaintiffs committed gross negligence and willful
misconduct by paying attorneysâ fees that the Board expressly approved and directed be paid, the
lionâs share of which was necessitated only by Muskâs improper refusal to close a transaction to
which he was contractually bound.
E.
127. Muskâs refusal to pay Plaintiffs their benefits is part of a larger pattern of refusing
Muskâs Denial of Plaintiffsâ Benefits Is Part of a Pattern of Refusing to Pay Severance and Other Compensation to Eligible Employees.
to pay Twitterâs former employees the benefits and other compensation they are due.
X Corp. v. Wachtell, No. CGC-23-607461, Complaint ¶ 768, Dkt. 1 (Cal. Super. Ct., S.F. Cty., July 5, 2023).
COMPLAINT
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128. On information and belief, none of Twitterâs former executives have received
severance or other benefits following Muskâs acquisition of the Company. Ten former Twitter
executives, including Plaintiffs, have submitted claims for benefits under the Plans, which have
all been denied, all on the grounds that the executives purportedly were terminated for cause and
therefore ineligible for benefits.
129. This pattern and practice of Defendants refusing to pay benefits to the Companyâs
former executives is further evidence that Defendants are manufacturing cause after the fact
simply to avoid paying Plaintiffs what they are owed.
130. There are also thousands of non-executive former employees whom Musk
terminated and is now refusing to pay severance and other benefits. They have sued in droves.
The Company and Musk are facing numerous lawsuits and arbitrations brought by former
employees that stem from the Companyâs refusal to pay money owed in the aftermath of Muskâs
acquisition.
F.
Muskâs Refusal to Pay Plaintiffs Their Severance Benefits Is Part of a Pattern and Practice of Refusing to Pay His Bills.
131. Muskâs refusal to pay Plaintiffs is part of a larger pattern and practice of failing to
comply with his payment obligations. His repeated failure to pay those to whom he owes money
is well-documented and has been on full public display since his acquisition of Twitter.
132. The Company has faced a staggering number of lawsuits from its vendors and
service providers across a range of industries, all seeking money they are owed for bills that Musk
refuses to pay. These include lawsuits from software vendors, landlords, consultants, and office
custodial workers, among many other groups. Consistent with the cavalier attitude he has
demonstrated towards his financial obligations, Muskâs attitude in response to these mounting
lawsuits has reportedly been to âlet them sue.â
133. In addition, the Company refused or delayed payment for Plaintiffsâ attorneysâ fees
incurred in connection with government investigations, congressional testimony, and private
lawsuits arising from their work at Twitter â despite being obligated to pay these fees under the
Companyâs bylaws, indemnification agreements, and Delaware law. Only after Plaintiffs filed suit COMPLAINT
Page 32
in Delaware Chancery Court did X Corp. pay some of Plaintiffsâ attorneysâ fees. And only after
the Court granted Plaintiffsâ motion for summary judgment and ordered X Corp. to pay the fees
did X Corp. pay the rest of the fees.
134. Muskâs reputation for not paying his bills is so widespread that there was a website
dedicated to tracking his non-payments since taking over Twitter:
https://www.plainsite.org/tags/twitter-vendor-nonpayment/. Notably, Twitter suspended the
Twitter accounts of PlainSite and its founder, Aaron Greenspan, on June 13, 2023.
135. It is no surprise, then, that when faced with the obligation to pay Plaintiffs the amounts owed to them under the Plans, Musk has done what he is known to do: simply refuse to
pay.
IX.
DEFENDANTSâ FAILURE TO PRODUCE DOCUMENTS AND OTHER
ATTEMPTS TO DEPRIVE PLAINTIFFS OF A FULL AND FAIR
OPPORTUNITY TO PRESENT THEIR CLAIMS
136. From the beginning, Defendants X Corp., Musk, Chapman, Bjelde, and Batura have
withheld documents and taken other actions designed to inhibit Plaintiffsâ presentation of their
claims. Defendants have sought at every opportunity to deprive Plaintiffs of a full and fair
opportunity to present their claims by seeking to block their efforts to obtain information
supporting those claims. As a result, Defendants have administered the Plansâ claim procedures in
a way that unduly inhibits and hampers the initiation or processing of a claim for benefits.
137. For instance, Defendants did not even produce the specific documents they
identified as having reviewed in the course of making their benefits determinations. Defendants
delayed producing all these documents, and entirely refused to produce some of the documents.
138. On May 26, 2023, Chapman issued a claim denial letter for each Plaintiff, denying
each Plaintiffâs Claim for benefits under the Plans. Each letter attaches an âAppendix Aâ that lists
the documents purportedly reviewed in making the claim determination.
139. On May 30, 2023, Plaintiffs sent a letter requesting copies of all of those documents
and other materials to which they are entitled under 29 C.F.R. § 2560.503-1(h)(2)(iii) and 29
C.F.R. § 2560.503-1(m)(8).
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140. After several requests, on June 12, 2023, Plaintiffsâ counsel reached out by phone to
Defendantsâ counsel, who advised for the first time that no documents would be produced
because Defendants claimed some were confidential. Defendants then insisted that Plaintiffs enter
into a confidentiality agreement before they would produce any documents they deemed
confidential.
141. On June 22, 2023, Defendants made a partial production of non-confidential documents listed in Appendix A to the claims denial letters.
142. Incredibly, Defendants withheld from this production as confidential several
documents that X Corp. publicly disclosed as exhibits to the Complaint it filed on July 5, 2023 in
X Corp. v. Wachtell.
143. On July 20, 2023, Defendants purported to complete their production of the documents listed in Appendix A to the claims denial letters.
144. However, Defendants did not produce all the documents listed in Appendix A and
still have not produced all the documents listed in Appendix A. Chapman improperly refused to
produce some of the Appendix A documents, and redacted nearly the entirety of others, claiming
that they are privileged, even though Plaintiffs were the authors or recipients of those documents
and Chapman specifically considered and relied on them for her denials of Plaintiffsâ Claims.
145. As a particularly egregious example, Chapman withheld in its entirety one of the
documents that she quotes from, and specifically points to, in the claims denial letters as
purported support for her denial of Plaintiffsâ Claims â an October 23, 2022 email from Agrawal
146. Moreover, Chapman failed to produce the
spreadsheet despite Plaintiffsâ specific
request for that document and Chapmanâs representation that it had been produced. Chapman
produced
spreadsheet, misrepresenting that it was produced. Plaintiffs were only able to obtain the
document from a former Board member, whose sworn declaration attaching the spreadsheet
Plaintiffs submitted in connection with their appeal.
but withheld the attached
COMPLAINT
Page 34
147. On June 28, 2023, Plaintiffsâ counsel sent an email to Defendantsâ counsel
requesting documents that were not produced but are relevant to Plaintiffsâ claims under 29
C.F.R. § 2560.503-1(m)(8). Because the basis for the denial of Plaintiffsâ claims relates to fees
that Twitter paid to various law firms, Plaintiffs requested documents related to the negotiation
and payment of attorneysâ fees to the law firms involved in Muskâs acquisition of Twitter,
including the firmsâ invoices and several specific documents that Plaintiffs remember receiving or
writing while employed by Twitter that refute Chapmanâs conclusions that they committed gross
negligence or willful misconduct. As an alternative, Plaintiffs proposed that Defendants allow
those firms to provide Plaintiffs with documents and correspondence relating to the negotiation or
payment of the attorneysâ fees.
148. On July 21, 2023, Defendantsâ counsel responded to Plaintiffsâ May 30, 2023 and
June 28, 2023 requests for materials required by 29 C.F.R. § 2560.503-1(m)(8). Defendants took
the unsupportable position that Appendix A is inclusive of all documents relevant to Plaintiffsâ
claims. Defendants also refused to produce the law firmsâ invoices and other specific documents
that Plaintiffs requested related to the negotiation and payment of attorneysâ fees and refused to
allow the firms involved to provide them to Plaintiffs, thereby depriving Plaintiffs of additional
factual support for their claims.
149. On January 12, 2024, the committee issued its letter denying Plaintiffsâ appeal. The
committeeâs letter includes an âAppendix B,â listing documents purportedly reviewed in deciding
the appeal. Defendants failed to provide these documents to Plaintiffs with the denial letter.
150. On January 16, 2024, Plaintiffs made a written request for the documents in Appendix B and any other documents required under 29 C.F.R. § 2560.503-1.
151. On January 24, 2024, Defendants made a partial production of documents listed in
Appendix B. In this partial production, Defendants again improperly designated as confidential
multiple documents that were publicly filed in X Corp. v. Wachtell or Twitter v. Musk.
152. On February 7, 2024, Defendants made another partial production of the Appendix
B documents. Defendants wrongfully withheld and refused to produce two of the documents
listed on Appendix B, memoranda prepared by outside counsel for the committee regarding 33 COMPLAINT
Page 35
factual and legal issues related to Plaintiffsâ appeal, on the purported basis of attorney-client
privilege. Because these memoranda were provided to the committee to assist it in its benefits
determination, they are subject to the fiduciary exception and therefore are not privileged.
153. Defendantsâ repeated withholding of documents violates 29 C.F.R. § 2560.503-1,
which requires that claimants be provided, upon request, all documents relevant to their claim for
benefits, including documents ârelied upon in making the benefit determinationâ and documents
âsubmitted, considered, or generated in the course of making the benefit determination.â
154. Defendantsâ withholding of such documents also renders their claims procedures inadequate and unfair under 29 C.F.R. § 2560.503-1(h)(2)(iii).
155. Defendants have taken other actions to prevent Plaintiffs from securing additional factual support for their claims,
156. Moreover, by virtue of their dual roles in evaluating and funding claims, Defendants
are biased and operated under a conflict of interest in adjudicating Plaintiffsâ claims for benefits.
This conflict was exacerbated by the fact that Musk appointed employees of his companies who
are beholden to him to evaluate the claims.
FIRST CAUSE OF ACTION
Claim for Benefits Pursuant to ERISA Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B) by Plaintiff Parag Agrawal Against All Defendants
157. Plaintiffs repeat and reallege each and every allegation contained above as if fully
set forth herein.
158. ERISA Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), permits a plan participant
to bring a civil action to recover benefits due to him under the terms of a plan, to enforce his
rights under the terms of a plan, and/or to clarify his rights to future benefits under the terms of a
plan.
159. Plaintiff Agrawal is entitled to severance benefits under the 2014 Plan, in the
amount of $57,361,399.80. This amount is equal to one-yearâs salary of $1,000,000 plus 327,847 34 COMPLAINT
Page 36
Restricted Stock Units (âRSUsâ), 470,354 Performance Share Units (âPSUsâ), and 241,508
Granted Special Performance-Based Value Creation Awards (âVCAsâ), all valued at the
acquisition price of $54.20 per share, and $9,172 in COBRA health insurance premiums.
160. By denying Plaintiffâs claims for benefits under the 2014 Plan, and by related acts
and omissions, Defendants have violated, and continue to violate, the terms of the Plan and
Plaintiffâs rights thereunder.
SECOND CAUSE OF ACTION
Claim for Benefits Pursuant to ERISA Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B) by Plaintiff Ned Segal Against All Defendants
161. Plaintiffs repeat and reallege each and every allegation contained above as if fully
set forth herein.
162. ERISA Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), permits a plan participant
to bring a civil action to recover benefits due to him under the terms of a plan, to enforce his
rights under the terms of a plan, and/or to clarify his rights to future benefits under the terms of a
plan.
163. Plaintiff Segal is entitled to severance benefits under the 2014 Plan, in the amount
of $44,468,148. This amount is equal to one-yearâs salary of $600,000 plus 310,069 RSUs,
257,213 PSUs, and 241,508 VCAs, all valued at the acquisition price of $54.20 per share, and
$31,730 in COBRA health insurance premiums.
164. By denying Plaintiffâs claims for benefits under the 2014 Plan, and by related acts
and omissions, Defendants have violated, and continue to violate, the terms of the Plan and
Plaintiffâs rights thereunder.
THIRD CAUSE OF ACTION
Claim for Benefits Pursuant to ERISA Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B) by Plaintiff Vijaya Gadde Against All Defendants
165. Plaintiffs repeat and reallege each and every allegation contained above as if fully set forth herein.
35 COMPLAINT
Page 37
166. ERISA Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), permits a plan participant
to bring a civil action to recover benefits due to her under the terms of a plan, to enforce her rights
under the terms of a plan, and/or to clarify her rights to future benefits under the terms of a plan.
167. Plaintiff Gadde is entitled to severance benefits under the 2014 Plan, in the amount
of $20,012,782.80. This amount is equal to one yearâs salary of $600,000 plus 50% of 269,354
RSUs, 50% of 204,306 PSUs, and 50% of 241,508 VCAs, all valued at the acquisition price of
$54.20 per share, and $31,730 in COBRA health insurance premiums.
168. By denying Plaintiffâs claims for benefits under the 2014 Plan, and by related acts and omissions, Defendants have violated, and continue to violate, the terms of the Plan and Plaintiffâs rights thereunder.
FOURTH CAUSE OF ACTION
Claim for Benefits Pursuant to ERISA Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B) by Plaintiff Sean Edgett Against All Defendants
169. Plaintiffs repeat and reallege each and every allegation contained above as if fully
set forth herein.
170. ERISA Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), permits a plan participant
to bring a civil action to recover benefits due to him under the terms of a plan, to enforce his
rights under the terms of a plan, and/or to clarify his rights to future benefits under the terms of a
plan.
171. Plaintiff Edgett is entitled to severance benefits under the 2017 Plan, in the amount
of $6,765,356.68. This amount is equal to one-yearâs salary of $510,000 plus 50% of 230,032
RSUs, valued at the acquisition price of $54.20 per share, and $21,489.48 in COBRA health
insurance premiums.
172. By denying Plaintiffâs claims for benefits under the 2017 Plan, and by related acts
and omissions, Defendants have violated, and continue to violate, the terms of the Plan and
Plaintiffâs rights thereunder.
36 COMPLAINT
Page 38
FIFTH CAUSE OF ACTION
Unlawful Discharge to Interfere with Right to Benefits Pursuant to ERISA Section 510, 29 U.S.C. § 1140 by All Plaintiffs Against Defendants Elon Musk and X Corp.
173. Plaintiffs repeat and reallege each and every allegation contained above as if fully set forth herein.
174. ERISA Section 510, 29 U.S.C. § 1140, makes it âunlawful for any person to
discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary
. . . for the purpose of interfering with the attainment of any right to which such participant may
become entitled under the plan.â
175. Defendants Musk and X Corp. discharged Plaintiffs and falsely claimed that the
termination was for âcauseâ for the specific purpose of interfering with their attainment of
severance benefits under the Plans, in violation of ERISA Section 510, 29 U.S.C. § 1140.
176. Plaintiffs are entitled to appropriate equitable relief to remedy Defendantsâ violation of Section 510.
SIXTH CAUSE OF ACTION
Failure to Timely Provide Required Materials Pursuant to ERISA Section 502(c), 29 U.S.C. § 1132(c) by All Plaintiffs Against Defendants Elon Musk and Lindsay Chapman
177. Plaintiffs repeat and reallege each and every allegation contained above as if fully set forth herein.
178. On November 29, 2022, Plaintiffs made a written request for documents under Section 104(b)(4) of ERISA, 29 U.S.C. § 1024(b)(4).
179. ERISA Section 502(c), 29 U.S.C. § 1132(c), requires a Plan Administrator to
provide, within 30 days, all documents required under ERISA to be maintained and provided to
participants. Thus, Defendants had until December 29, 2022 to respond.
180. Defendants did not comply with Plaintiffsâ Section 104(b) request within 30 days as
required by Section 502. Defendants responded to that request on April 11, 2023 and, even then,
did not provide a complete response. Defendants produced additional documents later, and still
have not produced certain documents.
37 COMPLAINT
Page 39
181. In addition, Defendants did not comply with Plaintiffsâ requests for the documents required by 29 C.F.R. § 2560.503-1(m)(8) within 30 days as required by Section 502.
182. By failing to timely provide Plaintiffs with a copy of all documents required to be
maintained and provided to participants, Defendants violated ERISA Section 502(c), 29 U.S.C. §
1132(c).
183. Thus, each Plaintiff is entitled to a penalty of $110 per day, running from the 30th day following their written request for such materials, until the materials are provided.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray that the Court grant the following relief: A.
Declare that Defendants have violated the terms of the Plans by failing to pay Plaintiffs benefits in accordance with the terms of the Plans;
B.
Order Defendants to pay benefits to Plaintiffs pursuant to the terms of the Plans;
C.
Award equitable relief to Plaintiffs, including front pay and/or equitable surcharge;
D.
Order Defendants to pay each Plaintiff a penalty of $110 per day from December
29, 2022 to the day that Defendants provide Plaintiffs with all documents required
to be provided under ERISA Sections 104(b) and 502(c)(1), 29 U.S.C. §§ 1024(b),
1132(c)(1), and 29 C.F.R. § 2560.503-1(m)(8);
E.
Award Plaintiffs pre-judgment and post-judgment interest;
F.
Award Plaintiffsâ reasonable attorneysâ fees and costs of suit incurred herein pursuant to ERISA Section 502(g), 29 U.S.C. § 1132(g); and
G.
Provide such other relief as the Court deems just and proper.
Date: March 4, 2024
SIDLEY AUSTIN LLP
By: /s/ David L. Anderson David L. Anderson Attorneys for Plaintiffs Parag Agrawal, Ned Segal, Vijaya Gadde, and Sean Edgett
38 COMPLAINT
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