DealLawyers.com Blog

On Friday, Chancellor McCormick dismissed all claims against Elon Musk and X Corp. in Khalid v. Musk (Del. Ch.; 7/25). Plaintiff, a retail investor, first purchased Twitter stock after Musk said he entered an agreement to acquire the company at $54.20 per share and then sold those shares after Musk said he was terminating the merger agreement. He incurred losses to the tune of $1.88 million and sued, asserting eleven tort, fiduciary, and contractual claims. Defendants moved to dismiss based on lack of personal jurisdiction (Musk) and failure to state a claim (X defendants).

With respect to Musk’s motion to dismiss, the opinion addresses the plaintiff’s argument that Musk transacted business in Delaware by entering into the merger agreement and consented to jurisdiction under its forum selection clause. It notes that “an express consent to jurisdiction satisfies the requirements of due process and typically resolves the statutory analysis,” but a consent to jurisdiction only applies to claims under that agreement, and, with respect to those claims, plaintiff must show he was an intended third-party beneficiary — since he was not a party to the merger agreement. The court dismissed all the contractual claims, applying the reasoning of the Crispo decisions.

With respect to the plaintiff’s common law fraud claims — asserting that he was defrauded by defendants saying they would, then wouldn’t, buy Twitter — Chancellor McCormick says:

Defendants advance many arguments for dismissal. Once again, one suffices. Plaintiff has failed to adequately allege that Musk intended to induce him to buy or sell Twitter stock. There are no allegations that Musk lied when he first announced that he entered into the Merger Agreement, which led Plaintiff to buy Twitter stock. And Plaintiff does not allege that Musk lied when he sent the Termination Letter to induce Plaintiff to sell stock. Under Plaintiff’s theory, Musk sent the Termination Letter to gain leverage to renegotiate the deal price and not with intent to cause Plaintiff to act. This allegation does not support Plaintiff’s fraud claim.

– Meredith Ervine