Musk Falsely Claimed ex-Twitter Executives Were Fired for Cause, Alleges Complaint

After buying Twitter, now called X, Elon Musk falsely asserted that certain company executives were being terminated “for cause,” but it was a “sham” designed to deprive them of their severance benefits, alleged a fraud complaint Monday (docket 4:24-cv-01304) in U.S. District Court for Northern California in Oakland.

The suit also names Lindsay Chapman, director-human resources at Musk’s SpaceX, "who purports to be the administrator" of the X severance plans; Brian Bjelde, a vice president-human resources at SpaceX; and Dhruv Batura, an X employee, who previously worked at Tesla. The three "purport to be members" of the "Twitter Severance Administration Committee," the complaint said.

Plaintiffs Parag Agrawal, former Twitter CEO; Ned Segal, former chief financial officer; Vijaya Gadde, ex-chief legal officer; and Sean Edgett, former general counsel of Twitter, all California residents, “appropriately and vigorously represented the interests of Twitter’s public shareholders throughout Musk’s wrongful attempt to renege” on the deal to buy Twitter in 2023, said the complaint.

Musk has a “special ire” toward the four plaintiffs, said the complaint, citing comments he made to his official biographer, Walter Isaacson, as he was closing the Twitter acquisition, saying he would “'hunt every single one of’” Twitter’s executives and directors 'till they day they die.’” An orderly transition had been scripted for the opening of the stock market: The money would transfer, the stock would be delisted and Musk would be in control, permitting Agrawal and “his top Twitter deputies to collect severance and have their stock options vest,” said Isaacson's account.

Musk decided to “force a fast close” instead, firing Agrawal and the other Twitter executives “for cause” before their stock options could vest, saving himself $200 million, the complaint said. Agrawal had his resignation letter, citing the change of control, but his Twitter email was cut off, and it took him a few minutes to put the document into Gmail. In that time, Musk fired him before his stock options could vest, the complaint said.

Musk’s scheme to deny the plaintiffs their contractual severance payments “was a pointless effort that would not withstand legal scrutiny,” said the complaint, citing the Employee Retirement Income Security Act (ERISA). Under Twitter’s severance plans, eligible executives terminated without cause following a change in control are entitled to severance benefits, said the complaint. Also, executives who resign due to a change in their reporting structure are entitled to severance benefits, it said. “Cause,” it said, is limited to ”extremely narrow circumstances, such as being convicted of a felony or committing ‘gross negligence’ or 'willful misconduct,'” not “'Board-approved business decisions that Musk dislikes’ from the time before he owned the Company,” it said.

Because Musk didn’t want to pay the plaintiffs’ severance benefits, he “fired them without reason, then made up fake cause and appointed employees of his various companies to uphold his decision,” the complaint said. The termination letters claimed without supporting facts that each plaintiff committed “gross negligence” and “willful misconduct,” it said. Musk and the other 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 it’s worth,” it said.

The defendants have attempted to justify the gross negligence and willful misconduct assertions against the plaintiffs for “carrying out the directives of Twitter’s Board” by paying “success fees” to law firms that represented Twitter in closing Musk’s acquisition, the complaint said. Success fees are “common following a successful takeover defense,” said the complaint, but the defendants take the position that “these particular payments were wrongful because Musk objects to them.” Other “manufactured assertions of 'cause’ involve employee retention bonuses, purported corporate waste, and severance plan participants,” it said. The defendants also argue that the payment decisions aren’t entitled to the benefits of the business judgment rule, “which protects discretionary decisions from precisely this sort of post hoc attack,” it said.

All decisions that the defendants now challenge were approved and directed by the Twitter board at a time when it, not Musk, oversaw the company, said the complaint. “Defendants have issued claims denials that overlook these obvious problems and ignore that the terminations were pretextual,” it said. Musk first made the decision to deny benefits and then brought in “employees of his family office and his other companies to act out the ERISA administrative process,” it said.

Though Twitter severance plans provide for deference to “discretionary decisions of a properly-appointed and properly-functioning plan administrator, no deference is due here,” the complaint said, saying in this case, the court reviews the benefits denials “de novo.” Those benefits denials can't withstand de novo or even deferential review; therefore, the court should order the payment of plaintiffs’ ERISA benefits claims and award attorneys’ fees and interest, it said.

Plaintiffs assert violations of ERISA and request orders requiring defendants to pay benefits as designated in the severance plans; an award of equitable relief, including front pay or an equitable surcharge; a penalty of $110 per day for each plaintiff from Dec. 29, 2022, to the day the defendants provide the plaintiffs with all documents required under ERISA, plus pre- and post-judgment interest and attorneys’ fees and costs.