A Hearing in Oakland On Musk's Motion to Enjoin OpenAI's Conversion

The hearing on Elon Musk’s motion to preliminarily enjoin OpenAI’s sale of assets to a public benefit corporation was supposed to take place last month.  But Marc Toberoff represents Elon Musk and his house in LA burned to the ground, along with so many others last month. So the Judge postponed the hearing until yesterday.   

The Judge began by expressing condolences for all the victims in southern California, including Toberoff.  But after that she brought some high heat of her own. When Toberoff said the case would likely be ready for trial by June 2026, – assuming some or all the causes of action survive an anticipated motion to dismiss – Judge Gonzalez Rodgers asked rather incredulously how many antitrust cases Toberoff has tried. “This will be my first,” he replied, before retreating from his time estimates faster than the fires raged through southern California last month.  He seemed rather like a deer caught in the headlights at first, but he girded his loins as the hearing progressed and ended with an expression of indignation at what he characterized as a clear abuse of tax exempt status and charitable contributions. 

After the scheduling matters were ironed out – even Toberoff conceded that a trial in 2027 was more likely – the Judge emphasized that preliminary injunctions are extraordinary and extremely rare.  She must have made that point at least three times, candidly admitting that so far the answer is "no."  She seemed thoroughly versed on the pleadings and she pointedly referred to Toberoff’s argument of irreparable injury as a “stretch” more than once.  “This is a case of one billionaire vs. another billionaire,” as if to assert that that nothing is irreparable for people with that kind of money.  She even noted that “Musk is running the government right now.”  Good thing I listened in by Zoom with a muted microphone.  I might have been removed from the courtroom had I been there for laughing so loud.

I am not much on antitrust so the most I can intelligently say is that the Judge seemingly dismissed the allegation that Altman threatened to cut off OpenAI suitors if they simultaneously invested in competitors.  She noted that xAI, Musk’s own artificial intelligence company, has raised over $11 billion.  Some of that came from OpenAI investors around the time of the alleged anticompetitive threat.  If Altman made a “fund no competitor’s edict” it sure isn’t working, she noted.  Toberoff replied that Altman hasn’t denied issuing the edict and that he and Microsoft are alter egos, somehow.  Microsoft is “complicit” in the restraint of trade as if it issued the edict itself, he said.  Altman’s counsel – a tall blond with high cheekbones and a smooth unbothered style – said that Altman has, in fact, denied the allegation in an interview with DealBook. The only evidence is second hand hearsay reported in the Wall Street Journal. “Then have Mr. Altman sign an affidavit,” the judge instructed abruptly.  “Now let’s move on.”  I swear it was better than Law & Order.

As the hearing moved from antitrust to self-dealing and private benefit, the Judge heard that OpenAI – the joint venture presumably – has an estimated value of $340 billion going into its next funding round.  The judge and the litigants seemed to conflate OpenAI (c)(3) with the joint venture.  The judge even expressed astonishment that a tax-exempt charity can actually be worth that much.  Harvard has an endowment of $51 billion and a market cap – if it were a for profit engaged in public  or private  offerings – much more than that, I imagine. 

Only a small portion of OpenAI’s profit, whatever it may be, is actually going to charity, Toberoff scoffed as if to prove irreparable self-dealing and private benefit. At this point, the Judge inextricably diverted from the primary issue to scold Toberoff about piercing the corporate veil.  She said his complaint almost concedes that Musk and his company, xAI, are “alter egos” and that Musk seemed vulnerable to a veil piercing cause of action.  Musk is the plaintiff, don’t forget so the issue seemed irrelevant.  I’ve told my students that although piercing the corporate veil is often tested on bar exams, it is not often asserted successfully in real life; not as often as law school casebooks would have us believe, anyway.  Its like the insanity defense in criminal law.  Elegant but hardly ever effective in the real world.  But here it was, raised in the Judge’s surprising off topic lecture as if to prove me wrong.

After a short bathroom break, the parties moved on to standing.  Toberoff seemed on stronger ground.  The parties agreed that charitable trust settlors with no reversionary interest in their donations lack standing. Nor was Musk an director, officer, or member.  But Section 5142(a) grants standing to donors who put conditions on the use of their donation, Toberoff responded.  Musk, the argument continued, donated money to OpenAI -- $45 million to be exact -- on the condition that it be used for public benefit not private gain.  “Where is the contract containing that condition?” asked the Judge.  Toberoff replied that it was contained in a series of emails.  “You mean to tell me that Musk gave up $45 million and didn’t even bother to get something close to a written contract?  We might not even be here if he had done that,” she said, shaking her head once again. Microsoft's counsel asserted rather convincingly, in my judgement, that Musk failed to adequately allege demand futility.  "The plaintiff wants to pretend that independent directors of substance aren't there."  The judge noted that Toberoff's proposed order would "have me effectively running" OpenAI.  

The hearing ended with an expression of indignation that OpenAI had bamboozled everybody by pretending to be charitable,  soliciting and receiving large amounts of tax subsidized donations and enjoying tax free inside build-up just to line the pockets of private investors. “The whole thing stinks and something needs to be done about it” said Toberoff. 

I am not sure there was much more than indignation on Musk's side, at least insofar as justification for a preliminary injunction.  Earlier in the hearing, the Judge noted that some but certainly not all the causes of action will survive a motion to dismiss.  The billionaires will take the stand, state their cases and we’ll just see what the jury thinks.

darryll k. jones