Elon’s Other Legal Headache

Elon Musk
Photo: Patrick Pleul/Getty
Eriq Gardner
May 16, 2022

On Friday, the will-he-or-won’t-he soap opera that is Elon Musk buying Twitter reached a mid-season cliffhanger. The colorful Tesla chief pointed to a Reuters story and tweeted, “Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users.” Later, he stated that he was “still committed to acquisition,” but proposed sampling a “random” group of 100 users to gauge the extent of the issue. One follower asked him, “You didn’t think about this before offering $44 billion to buy the company?” He responded, “I relied upon the accuracy of Twitter’s public filings.”

That sure sounds like he’s looking for a pretext to back out of the deal or at least try to renegotiate the price. If he’s having regrets, that’s understandable given how the market for tech stocks has been tanking of late, but this quibble over the authenticity of Twitter’s user base is weak sauce. The individual who challenged his seeming lack of due diligence is perfectly right to be skeptical. And the merger agreement leaves him few outs but to fork over the billion-dollar termination fee plus possibly more for breaching the contract. After all, based on case precedent, it’s unlikely that a court would see the inaccurate counting of Twitter’s fake users as constituting the kind of “material adverse effect” on the business that would give Musk proper cause to terminate the deal. Accordingly, he’d be the underdog in any legal fight with Twitter over the non-consummation of the marriage, at least for this particular reason. Plus, he’s now got to worry about Twitter’s board suing him to ensure the deal closes.

Then again, if he can negotiate a separation, maybe now would be a good time to try. Not because of any bot uprising but rather in light of a shocking move by the 5th Circuit Court of Appeals this past Thursday to lift a federal judge’s injunction stopping Texas’ social media law, HB 20. You see, it’s one thing for Musk to claim that he wants to oversee a social media service where “free speech” runs wild; it’s quite another to have the government come in and dictate what content must be featured and meddle in the decision-making process. 

That’s what HB 20 does. It forbids large platforms like Facebook, Twitter, and Reddit from “censoring” on the basis of viewpoint, essentially compelling the dissemination of all sorts of distasteful content including Russian propaganda, neo-Nazi dogma, and video of the Buffalo shooting rampage that killed ten people over the weekend. What’s more, the state’s law looks unfavorably on most kinds of content moderation and makes social media giants jump through all sorts of hoops to prove they’re not meddling, such as forcing them to disclose their algorithms and keep track of any content deprioritization (even innocent acts like downgrading sports content for the user who doesn’t like sports).

When violations of HB 20 occur, any user can sue, and if all that’s not enough, “censorship” based on geography is also illegal—meaning that if a social media platform finds the prospect of justifying every single instance of moderation too burdensome, it might not be possible to simply cut ties with Texas. (As one Stanford law professor asks, “If Texas can do this, can Connecticut make In-N-Out finally open a local franchise?”)

A Texas Lawsuit Tidal Wave

Is this really that bad? Well, think about it this way. Republicans used to frown on must-carry laws, long opposing the “Fairness Doctrine” that requires broadcasters to present differing viewpoints on controversial public issues, on the grounds that it interfered with the free market. (Indeed, when the doctrine was repealed in the Reagan era, the likes of Rush Limbaugh and Fox News soon flourished.) Republicans also formerly talked a big game about tort reform and the need to stop ambulance chasers from overrunning courts with frivolous claims. But these days, many conservatives are mad enough about mighty social media companies banning Donald Trump, plus other suspicious acts of moderation (e.g. Twitter’s decision on the eve of the 2020 election to restrict distribution of a New York Post article about Hunter Biden’s laptop), as to become the party of ambulance chasers, themselves. HB 20 allows Texas attorney general Ken Paxton and millions of citizens to race to the courthouse in an effort to regulate speech. And, as press groups warn, there really is a short distance between this law and making NYTimes.com carry every last user-submitted opinion.

Had anyone randomly sampled 100 law professors specializing in technology and the First Amendment about the fate of HB 20 before this month, the results would have been overwhelming that the Texas law stood absolutely no shot of surviving judicial review. That’s because, as judge after judge has recognized in past controversies, these social media platforms are private entities that are allowed to exercise editorial discretion. Inviting the public to use the service doesn’t transform the platform into some sort of state actor.

But a pair of conservative 5th Circuit judges apparently are siding with Paxton’s arguments that in becoming the “modern day town square,” these social media platforms have become public utilities with common carrier obligations, just like railroads and telephone companies. The federal appellate circuit has yet to lay out its reasoning, but in a brief order on Thursday night, the judges allowed HB 20 to go into effect.

That sent certain quarters of Silicon Valley and the tech law community into a tizzy. “Literally millions of Texans likely have the grounds to file lawsuits starting today,” Santa Clara University law professor Eric Goldman told me. “Unless the law is enjoined again, it wouldn’t surprise me if alleged violations of the law emerge as the number one claim among all claims filed in Texas courts.”

To avoid that, Netchoice—an advocacy group whose membership includes Google, TikTok and Twitter—has filed an emergency petition to the Supreme Court. It’s an extraordinary move that skips the usual practice of waiting for the 5th Circuit opinion and then seeking a rehearing before a fuller panel of judges there. Instead, the tech industry has tasked Kirkland & Ellis partner Paul Clement (a former solicitor general in the George W. Bush administration and currently representing Fox News in many of the big libel cases over the 2020 election) to overturn the 5th Circuit order. The emergency petition (read here) states: “In addition to these First Amendment violations… HB20 will require platforms to incur massive nonrecoverable financial injuries in efforts to attempt compliance with the law’s mandates and to change platforms’ worldwide operations.”

Justice Samuel Alito has given Paxton until Wednesday to respond. A quick decision from the justices may then follow in the days or weeks ahead. It’ll be a significant development on the Supreme Court’s so-called “shadow docket,” the nickname for the emergency rulings made by the justices without full briefing or hearing. Musk has 44 billion reasons to pay attention. Not only is he the incoming owner of Twitter, but he’s also a Texas citizen with his family office and charitable foundation located there.