District Court Finds Twitter Executives May Alternately Plead an ERISA Claim Against Elon Musk for Breach of Fiduciary Duty and Surcharge for Interference with Plaintiffs’ Rights to Severance Benefits

In Agrawal, et al. v. Elon Musk, et al., No. 24-CV-01304-MMC, 2024 WL 4654442 (N.D. Cal. Nov. 1, 2024), California Northern District Judge Maxine M. Chesney denied Defendants’ 12(b)(6) Motion to Dismiss the Fifth Cause of Action for unlawful discharge for the purpose of interfering with Plaintiffs’ rights to severance benefits pursuant to 29 U.S.C. § 1140, finding that Plaintiffs could alternately plead entitlement to a surcharge for Defendant Musk’s failure to comply with the fiduciary duty to make objective benefits decisions.

Plaintiffs were formerly employed by Twitter as Chief Executive Officer, Chief Financial Officer, Chief Legal Officer, and General Counsel, and were participants in one of two Severance Plans that covered Twitter’s most senior and other key executives. The Plans provided “senior executives with severance benefits equal to one year’s salary plus unvested stock awards valued at the acquisition price in the event their employment [is] negatively affected by a change in control.”

On October 27, 2022, Musk acquired and merged Twitter into “X”, a company for which he was the Chairman, Sole Director and controlling shareholder. Musk also became the Administrator of the Severance Plans. Plaintiffs allege that in the days leading up to the closing of the merger, Musk, who was aware that Plaintiffs would be entitled to payment under the Plans, decided to manufacture fake “cause,” and terminate Plaintiffs before they could resign and claim their benefits. Plaintiffs each submitted a claim for benefits under the Plans which were summarily denied, and those decisions were upheld on appeal. The instant action followed.

Defendants moved to dismiss Plaintiffs’ claim for unlawful discharge arguing that if Plaintiffs are entitled to benefits under the Plans, they would be required to execute Twitter’s “then-standard separation agreement and release of claims,” at which point the unlawful discharge claim would be barred. And in the event Plaintiffs are unable to establish they are entitled to severance benefits; they would be unable to show they had a right under the Plans with which Defendants could have interfered.

The Court agreed that Plaintiffs did not adequately plead entitlement to “reinstatement” or “front pay” for wrongful termination as they did not allege that had they not been terminated by Musk they would have continued to work for “X” after it merged with Twitter. However, the Court found that Plaintiffs sufficiently pleaded entitlement to a “surcharge” to remedy the breach of trust committed by a fiduciary – in this case, Musk. Plaintiffs’ allegations that Musk failed to comply with a fiduciary duty by not making “objective benefits decisions according to a recognized framework” were adequate to maintain the cause of action. Contrary to Defendants’ arguments, the Court found that for purposes of the Motion to Dismiss, accepting the facts pleaded as true, Musk was acting as a fiduciary and not as an employer when he fired Plaintiffs to avoid paying benefits owed under the Plans.

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