Giuseppe Pampena v. Elon R.Musk

Background

Twitter entered into an agreement on April 25, 2022, to be acquired by an entity wholly owned by Musk. After the deal was announced, Tesla’s stock declined. Musk then made statements about Twitter’s alleged fake and spam accounts, including a May 13 statement that the deal was temporarily on hold pending information supporting Twitter’s reported percentage of spam or fake accounts, a May 16 statement that such accounts made up at least 20 percent of Twitter’s users, and a May 17 statement that the number could be much higher than 20 percent and that the deal could not proceed without additional proof.

Plaintiffs sued on behalf of people and entities who sold Twitter stock from May 13, 2022, through October 4, 2022. They alleged that Musk violated Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5 by making misstatements that artificially depressed Twitter’s stock price and pressured Twitter to lower the acquisition price.

Earlier Ruling

In December 2023, the court granted Musk’s motion to dismiss in part and denied it in part. It held that Plaintiffs plausibly alleged a Section 10(b) claim based on the May 13 statement, the May 16 statement, and the May 17 statement. It dismissed claims based on other alleged misstatements.

Musk’s Motion for Judgment on the Pleadings

Musk moved for judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure. This type of motion challenges whether the pleadings legally support the claim, assuming the complaint’s factual allegations are true and drawing reasonable inferences for the nonmoving party.

Musk argued that the three statements were not materially misleading to a reasonable investor because of information in the merger agreement. He also argued that Plaintiffs had not adequately alleged loss causation, meaning a causal connection between the alleged misstatements and their economic losses.

The court denied the motion under the law-of-the-case doctrine. That doctrine generally prevents a court from reconsidering an issue that the same court or a higher court already decided in the same case. The court concluded that it had previously considered and rejected Musk’s arguments about the merger agreement and had already determined that Plaintiffs plausibly alleged loss causation. The court noted that Musk did not contend that the earlier decision was clearly erroneous or that an intervening change in the law justified reconsideration.

Discovery Stay

Musk’s motion for judgment on the pleadings had reinstated a discovery stay under the Private Securities Litigation Reform Act. Because the court denied Musk’s motion, the stay was lifted and discovery could proceed. The court therefore denied Plaintiffs’ separate motion to lift the stay as moot.

Disposition

The court denied Musk’s motion for judgment on the pleadings. It lifted the discovery stay and denied Plaintiffs’ motion to lift the stay as moot. This order allowed the surviving securities claims to proceed beyond the pleadings stage; it did not decide whether Musk is ultimately liable.