Twitter’s Former Top Execs All Sue Elon Over Missing Severance

Legal Issues

from the play-stupid-games,-win-stupid-prizes dept

It might not be the smartest idea to have Walter Isaacson trailing you and taking notes on your everyday moves when one of those moves is trying to breach the contract the top execs of the social media company you just overpaid for on a whim.

In his book on Musk, Isaacson talked about how Elon and his lawyer, Alex Spiro, worked together to plan a scheme to close the deal early and to fire the top execs at Twitter in the false belief that if they somehow fired them earlier they could claim it was for cause and avoid having to pay tens of millions of dollars in severance that was in their contracts.

The closing of the Twitter deal had been scheduled for that Friday. An orderly transition had been scripted for the opening of the stock market that morning. The money would transfer, the stock would be delisted, and Musk would be in control. That would permit Agrawal and his top Twitter deputies to collect severance and have their stock options vest.

But Musk decided that he did not want that. On the afternoon before the scheduled close he methodically planned a jiu-jitsu maneuver: He would force a fast close that night. If his lawyers and bankers timed everything right, he could fire Agrawal and other top Twitter executives “for cause” before their stock options could vest.

“There’s a 200-million differential in the cookie jar between closing tonight and doing it tomorrow morning,” he told me late Thursday afternoon in the war room as the plan unfolded.

At 4:12 p.m. Pacific time, once they had confirmation that the money had transferred, Musk pulled the trigger to close the deal. At precisely that moment, his assistant delivered letters of dismissal to Agrawal and his top three officers. Six minutes later, Musk’s top security officer came down to the second-floor conference room to say that all had been “exited” from the building and their access to email cut off.

The instant email cutoff was part of the plan. Agrawal had his letter of resignation, citing the change of control, ready to send. But when his Twitter email was cut off, it took him a few minutes to get the document into a Gmail message. By that point, he had already been fired by Musk.

“He tried to resign,” Musk said.

“But we beat him,” his gunslinging lawyer Alex Spiro replied

Turns out that’s maybe not a good thing to admit publicly?

Agrawal and three other top Twitter execs who were fired in that same move have now sued Elon for failing to pay their severance. And they’re using the Isaacson book as evidence. It’s useful as evidence of the intent here, but the underlying issue seems pretty undeniable that, based on their contracts, Musk couldn’t avoid paying these execs their severance. Musk just seems to think he could. But it appears the details show otherwise.

Kudos to the lawyer who wrote this rather cutting paragraph:

In fact, Musk and Spiro had not beaten anyone at anything. If anyone around Musk had been willing to tell him the truth, he would have learned that his scheme to deny Plaintiffs their contractual severance payments was a pointless effort that would not withstand legal scrutiny. ERISA protects Plaintiffs’ severance benefits. Under Twitter’s severance plans, if an eligible executive is terminated without cause following a change in control, they are entitled to severance benefits. Likewise, if an eligible executive resigns due to a change in their reporting structure, they are entitled to severance benefits. “Cause” under the severance plans is limited to extremely narrow circumstances, such as being convicted of a felony or committing “gross negligence” or “willful misconduct.” “Cause” is not “Board-approved business decisions that Musk dislikes” from the time before he owned the Company.

Now, it’s reasonable to argue that no one deserves as much severance as these packages offered, but that’s a wholly separate issue. The fact is these execs had their contracts. And Musk appears to have violated them, falsely thinking that if he fired them on Thursday evening instead of Friday morning (and claimed it was “for cause”) he wouldn’t have to pay.

But that’s not what the contracts appear to say. And, it’s not as if Musk had a good explanation of the “cause” part of “for cause.”

Because Musk decided he didn’t want to pay Plaintiffs’ severance benefits, he simply fired them without reason, then made up fake cause and appointed employees of his various companies to uphold his decision. He claimed in his termination letters that each Plaintiff committed “gross negligence” and “willful misconduct” without citing a single fact in support of this claim. Musk’s employees then spent a year trying to come up with facts to support his preordained conclusion, to no avail. Nonetheless, 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. This is the Musk playbook: to keep the money he owes other people, and force them to sue him. Even in defeat, Musk can impose delay, hassle, and expense on others less able to afford it.

In fact, the complaint details how the “cause” changed over time. Initially, Musk claimed they were fired for cause for “failure to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested [their] cooperation.” However, later on, when the former execs sought to have an administrator review their claims for severance, a Twitter employee denied them for a different reason:

Chapman also made the brief and conclusory claim that Plaintiffs committed gross negligence and willful misconduct by paying retention bonuses to Twitter employees, and made the brief and conclusory claim that Agrawal, Segal, and Gadde committed gross negligence due to the Company’s alleged corporate waste. Chapman’s denial letters made no attempt to address Musk’s claim in the termination letters that some of the Plaintiffs had failed to cooperate with an investigation within the meaning of subsection (g).

The former execs were then able to appeal the rejection of their claim, but (hilariously) it apparently went to a board made up of Tesla and SpaceX employees (what? why? how is that…?)

Plaintiffs directed their appeal to the committee, which purportedly was created by Musk and consists of Chapman, now identified as working for SpaceX, Brian Bjelde, another SpaceX employee, and Dhruv Batura, a former long-term Tesla employee now identified as working for X Corp.

Sounds very legit.

Unsurprisingly, this committee rejected the appeal. Hence the lawsuit. The complaint also notes that everything Musk complains about regarding retention bonuses and fees paid to law firms to help Twitter complete the purchase were approved by the board… the same board that was able to sell the company for $44 billion (a sound financial decision for them) only to watch Musk set fire to the valuation, as the lawsuit notes:

Plaintiffs’ management of the Company made Twitter extremely valuable, such that it was worth $44 billion. In contrast, under Musk’s leadership since the acquisition, Twitter’s value has fallen precipitously. Musk admitted in March 2023 that Twitter’s value had fallen to about $20 billion. And by the end of May 2023, Fidelity, which owns an equity stake in Twitter, had lowered its valuation of the Company to $15 billion, approximately a third of the Company’s prior value when Plaintiffs held their leadership positions at the Company. By the end of 2023, Fidelity lowered its valuation of the Company even further, to about $12.5 billion, approximately 28% of the Company’s prior value.

That’s just twisting the knife to remind Musk how terrible he’s been at managing the company.

There are a few other tidbits, including that Musk tried to get Vijaya Gadde fired months before he owned the company (as we’ve explained, contrary to the narrative, Gadde was one of the main reasons why Twitter took such a strong free speech stance.) Many idiots have claimed otherwise, but they have no idea what they’re talking about. And, as we’ve seen happen all too often, Elon believed the idiots over the facts and demanded Gadde be fired:

As early as April 2022, shortly after signing the Merger Agreement, but before he owned the company, Musk wanted Agrawal to terminate Gadde. On or about April 27, 2022, Musk, Agrawal, and former Twitter CEO Jack Dorsey joined a FaceTime call. Agrawal’s intention for the call was to discuss Musk’s vision for Twitter, and how they could align so that Agrawal could lead with an awareness of that vision over the next few months prior to the closing, while shareholder and regulatory approval was pending. Musk had no such intention. Within minutes of the start of the call, Musk directed Agrawal to terminate Gadde immediately. When Agrawal refused, Musk gave him a day to comply, telling him to text Musk confirmation of her firing.

Agrawal said that he would take what Musk had asked under consideration, but as CEO, he made his own decisions. Musk became aggressive and angrily repeated his orders. When Agrawal refused to fire Gadde, Musk told him that “we can’t work together” as a result.

This adds some interesting color to what was known before. During the lawsuit with Musk trying to get out of buying Twitter, it was known that Musk and Agrawal spoke in April, and that they’d had some sort of disagreement (this came out in the released text messages between Jack Dorsey and Musk). But it wasn’t clear why Musk was so annoyed by Agrawal. The implications, in the past, that there were differences of vision or technical plans for the company. But now we know it’s because Musk, in true Elon fashion, demanded someone he had no authority over fire someone based on a bunch of nonsense he fell for online. And Agrawal refused to do so.

The complaint also notes that the “committee” of Elon employees who reviewed the claim for severance refused to turn over the documents they supposedly reviewed to make the decision. In some cases, they claimed the documents were confidential, even though some of them were made public by Twitter itself when it sued Wachtell, the law firm that helped Twitter force Musk to complete the acquisition.

Incredibly, Defendants withheld from this production as confidential several documents that X Corp. publicly disclosed as exhibits to the Complaint it filed on July 5, 2023 in X Corp. v. Wachtell.

Not a good look, but fitting with Musk’s standard operating procedure of the rules not mattering for him.

Anyway, this is a strong case, and there’s a decent likelihood that Musk and Spiro’s “sneaky” plan to outwit these four execs from their promised severance is going to lead to him still having to pay the severance… and having to pay lawyers to defend this lawsuit.

Filed Under: alex spiro, elon musk, ned segal, parag agrawal, sean edgett, severance, vijaya gadde, walter isaacson
Companies: twitter, x