from the transparency-is-the-key-to-trust dept
All sorts of interesting things can happen in the process of a lawsuit. What’s going on here may seem complex, but stick with it, as it’s worth following…
You may recall that back in April, it was revealed (first in a court filing, and later in an announcement to partners) that Twitter had been merged into a new company, X Corp., a subsidiary of X Holdings Corp. At first, many people assumed that this was the same entities that were used in the original purchase agreement for Twitter, but those were actually different entities (X Holdings I and X Holdings II) which are not X Holdings Corp.
And while there has been plenty of talk about the equity holders in Twitter post-Elon, that doesn’t mean the same people were also the equity holders in X Holdings or X Corp. Indeed, there had been talk months ago that Elon was seeking additional investors in Twitter.
Anyway, that takes us to the lawsuit Anoke v. Twitter. This is related to some of the many laid off Twitter employees who have filed arbitration claims against the company for breach of contract (usually over severance payments). The lawyers for a group of such employees filed a case in California Superior Court, seeking to compel Twitter (or whichever company is on the hook) to actually pay for the arbitration claims made by the former employees. It turns out that among the many bills Twitter has been refusing to pay include the required fees to arbitrators to handle the many, many arbitration claims made by ex-employees.
Twitter’s lawyers at Morgan, Lewis removed the case from California state court to federal court. The lawyers for the laid off employees, represented locally in California by Ethan Jacobs (as well as Akiva Cohen in New York) pointed out that the local rules in California’s Northern District (where Twitter removed the case to) requires full disclosure of everyone who owns a piece of the company. Per local rule 3-15:
The Certification must also disclose any persons, associations of persons, firms, partnerships, corporations (including, but not limited to, parent corporations), or any other entities, other than the parties themselves, known by the party to have either: (i) a financial interest of any kind in the subject matter in controversy or in a party to the proceeding; or (ii) any other kind of interest that could be substantially affected by the outcome of the proceeding.
In the filing, Jacobs noted that X Corp. and X Holdings Corp. did not do that:
The Disclosure explains that Respondents Twitter, Inc. and X Holdings I, Inc. no longer exist and that Respondent X Corp. is wholly owned by X Holdings Corp. (Jacobs Decl. Ex. A). But it does not disclose who owns Respondent X Holdings Corp., stating instead that “there is no … interest (other than the named parties) to report.” (Id.).
As the filing points out this kinda matters a lot:
Someone owns Respondent X Holdings Corp. And because X Holdings Corp. is a party, Local Rule 3-15 therefore requires it to disclose their identities. Petitioners respectfully submit that the Court should order Respondents to comply with their disclosure obligations. As in Stewart, “[a]ll that is sought here is to require [Respondents] to comply with the same Rules with which every litigant that appears in the Northern District of California has to comply.”
Twitter/X/whatever hit back by calling the demand “the latest in a series of frivolous filings” and claiming that it was “irrelevant and harassing.” And, to some extent, I actually think they have a point. In general, whenever I’ve seen this disclosure rule used, it only involves revealing those who hold a significant (generally 10% or greater) share of the company.
However, last Tuesday, Judge Susan Illston sided with the employees and ordered X Holdings to reveal all of its owners.
Plaintiffs have filed an administrative motion seeking an order directing defendants to supplement their corporate disclosure statement. The Court has reviewed the briefing and concludes that because X Holdings Corporation is a privately owned corporation, Civil Local Rule 3-15 requires defendants to disclose who owns X Holdings Corporation because that person or persons have a “financial interest of any kind in the subject matter in controversy.”
She gave them until Friday to do so, leading to a hasty filing that reveals 95 entities (individuals or organizations) that hold equity in X Holdings. Though every single name is redacted. With it, the lawyers filed a motion to file under seal to keep the names secret. As Chancery Daily points out, normally one would first seek a stipulation to file something under seal, but it looks like in the rush, the company did not do so.
The lawyers for the employees have until tomorrow (Tuesday) to respond to the motion to seal, and then the judge can basically rule at any time whether or not the names need to be revealed or can remain sealed. So… at some point we might found out what 95 people or other entities own a piece of X Corp., which owns Twitter. Or we might not. But as of right now we know the number of equity holders is 95.
Update: Today the employees’ lawyer have filed a response to the motion to seal, noting that Twitter hasn’t even shared a copy with the plaintiffs’ lawyers meaning that they’re really trying to file it “in camera” (judge only) rather than under seal (where both sides get to see it, but with strict limits on who they can share it with).
Although Respondents present their June 9, 2023 Administrative Motion To File Under
Seal, D.I. 36 (“the Motion”) to the Court as a motion to seal, they fail to inform the Court that
they have refused to provide Petitioners’ counsel with a copy of the document, and are thus
actually seeking in camera review. Respondents refused to respond to Petitioners’ requests to
provide either the document or any justification for their conduct for nearly 36 hours.
Declaration of Akiva M. Cohen (“Cohen Dec.”) ¶¶ 2-3, Ex. 1. When they finally responded late
Sunday night, their response was to demand that Petitioners’ counsel have the meet and confer
this Court’s rules required them to hold before making the Motion and explain, by the start of
business Monday, why Respondents need to provide Petitioners’ counsel with a document
Respondents already served on the Court
They also point out how ridiculous it is to cover up every name, including Elon Musk’s as there’s no secret there:
Respondents, not Petitioners, elected to proceed in this Court. Despite selecting this
forum, the Motion repeatedly fails to abide by its rules. It does not provide the stipulation or
declaration explaining why a stipulation could not be obtained as required by L.R. 7-11. And
given Respondents’ failure to provide Petitioners with notice of this Motion, much less meetand-confer, they have not fulfilled L.R. 79-5.a’s requirement to explore all reasonable
alternatives. Respondents’ failures here are particularly glaring, given the rule’s requirement that
they redact only “the truly sensitive information.” Id. Multiple investors have publicly stated that
they have an ownership interest in X Holdings. See Cohen Dec. at Ex. 2. Yet the document seeks
to seal the identity of every person with an ownership interest – including, apparently, Elon
Musk himself. The failure to abide by local rules is sufficient reason to deny a motion. Tri-Valley
CAREs v. U.S. Dep’t of Energy, 671 F.3d 1113, 1131 (9th Cir. 2012). The Motion should be
denied on these grounds alone.
Filed Under: arbitration, elon musk, equity holders, ownership, transparency
Companies: twitter, x corp., x holdings