This is Bloomberg Law with June Brusso from Bloomberg Radio. Elon Musk has been trying to get rid of his Twitter sitter for years, even though he agreed to have a lawyer preapprove his Tesla tweets as part of a settlement with the SEC in twenty eighteen, although it's unclear exactly who is watching over his social media posts and how much watching they're actually doing. In an interview on sixty Minutes at the time, the billionaire didn't seem too
concerned about getting that supervision. The only tweets that would have to be say, reviewed, would be if a tweet had a probability of causing improvement in.
The stock and that's it.
Yeah, I mean, otherwise it's hello. First Amendment, like creatio, speech is fundamental. Freedom of speech is a fundamental constitutional right. But that argument did not convince the courts to throw out his Twitter sitter agreement, and this week the Supreme Court refused to let his legal battle go any further, turning down Musk's appeal without any comment. Joining me is business law expert Eric Tally, a professor at Columbia Law School.
Elon Musk has battled the SEC over his social media posts since he tweeted in August twenty eighteen he had funding secured to take Tesla private.
Well, this was yet another example of mister Musk's penchant for firing things up onto Twitter or x, you know, sort of at the spur of the moment. And yeah, this was an example. Back in twenty eighteen, mister Musk dropped the tweets that basically said funding secured for you know, buying out Twitter at four hundred twenty dollars a share. And you know that number of the four to twenty name is a very popular one for mister Musks used
to be all over the place of him. Well, people took seriously this idea that funding was secured, and if you looked into the backstory, the funding sources were not nearly as secure as he signaled that they were at the time. So that ended up eliciting two different legal actions won by the SEC. And then there was also a class action lawsuit, and he won the class action lawsuit, but the SEC moved first and said that was misleading.
You didn't have the funding secured. We are going to push our own regulatory action against you, and the matter quickly settled, and it probably settled in part because the SEC has a lot of heft when it comes to sanctions. They can basically force someone not to be an officer and director of a company for many, many years if
they chose to do so. So, the terms of the settlement that mister Musk reached with the SEC included some monetary fines that he had to pay, which was tens of millions of dollars but kind of pocket change for him. And in addition, he had to step down as chairman of the board to keep his board position and CEO position. But then the final thing is that he needed a
Twitter babysitter. He needed to consult with a lawyer before he put things up on Twitter, so the lawyer could sort of sound the alarm bells if what he was about to do had a bearing on things like, oh, I don't know, securities, fraud. And so that's effectively what he had agreed to do in this settlement. And you know, he is a guy that tends not to like being, you know, overseen by lawyers or anyone else. And you know, within a couple of years grew quite tired of the
fact that he couldn't just post whenever he wanted. He combined that then with you know, all kinds of negative comments about the SEC. Generally. This action clearly left a very bad taste in his mouth, and continued to put things on Twitter that you know, were even sort of vulgar insults of the SEC. And at some point decided he was going to try to get out of the settlement.
So he had petitioned lower courts to let him out of this Twitter babysitter settlement provision, saying that it violated his First Amendment rights, there was a prior restraint on what he was allowed to say in the public forum. The courts that heard it below they were having nothing to do with it. It said, look, this is a settlement that you entered into. This is in fact a restriction that every other executive at TESLA has. They can't post anything they want. They have to have it cleared
with in house counsel. And that's the same thing with you right now. So no, you made your bed and you're going to sleep in.
And one of those lower courts was the Second Circuit Court of Appeals here in Manhattan. It said that if Trump had wanted to preserve his right to tweet without any oversight. He could have litigated it or negotiated a different agreement.
Yeah, the second circuit basically treated this like almost any other settlement, which is, you know, it is a contract that you end up reaching with a governmental regulator or a governmental enforcer that says they will call off the dog if you agree to various types of measures that you are with your eyes wide open, agreeing to do. Sometimes these are prophylactic measures to try to keep you
out of harm's way. Sometimes they're paying regulatory fees. Sometimes their behavioral promises, And this one was essentially, you know, kind of in many ways, all three of them, but the behavioral part of it was, you know, he said, okay, I am willing to have you know, sort of an overseer approved or a chaperone approve my tweeting activity. There didn't seem to be any sense that he was unaware
of this as a part of the settlement. In fact, his lawyers and evidently he is himself had significant input in bargaining for it. And so the second circut said, look, that's what these sorts of settlement agreements are is that you voluntarily agree to give away a particular freedom that you might otherwise have in return for having a government drop the rest of the charges and not speak the sanctions that they might have sought. You got the ladder, right,
do you agree to the settlement term? And the sec kind of closed the case and didn't try to go after you for more to try to exclude you from being an officer or a director of any public company for the next five years. And now one of the things that you were giving up, you want to mullig it, you want to take it back, And that's just not the way these things work. And when you think about it, the fact of the matter is that settlements only work
from both sides perspective of any legal proceeding. If both sides say, yeah, what the other side is promising up is credible. If at some point one of the sides or both of the sides end up being kind of like Lucy with the football saying, oh, I promise Charlie Brown, I'm not going to pull it away. There's nothing that keeps them from doing it, then you kind of almost lost the institution of settlement.
Was it surprising at all that the Supreme Court turned this down?
So this was not you know, my sense it was not a particularly hard decision for the Second Circuit to make, and my sense is the Supreme Court, notwithstanding if i'd they seem to disagree about everything these days, they also seemed largely to agree with the way that this matter was handled below. Mister Musk had you know, basically made his bed, maybe bade his cyber truck bed, and now he was going to sleep in it. They don't issue opinions usually, and that was not the case here either.
But it clearly did not command enough attention of fitting justice for them to want to get involved in this determination. And on some level that actually is probably good for settlement generally, right, even for Elon Musk settling things in
the future. You know, the fact that settlement promises are credible matters, and you know, for him to win in this case was going to pretty much require him to say, there are certain types of speech restrictions that we should not even allow anyone to agree to, such as this Twitter babysitter at speech restriction. But the problem is this
is the form of commercial speech. The type of oversight was really a procedural type of oversight, and so you know, I don't think anyone thought this amount to an especially strong case. I guess when you've got a little bit extra cash floating around, I guess you could take a flyer on something, and that's probably what he did here.
He certainly has that extra cash floating around. Let's talk now about the Twitter sitter. There have been some instances where you wonder where the Twitter sitter is. For example, in twenty twenty one, he posted a Twitter poll asking whether he should sell ten percent of his stock, and the SEC sent out subpoenas to him and Tesla. He had a Twitter sitter then, supposedly, I mean, does he really have a Twitter sitter?
Well, this has been a big issue that the SEC has continued to try to ask him about. One of the problems that the SEC can't seem to get him show up for his depositions, so they've had a really hard time dealing with him. I think he's been borderline sort of contemptuous of the SEC, at least in some moments. I think he's calmed down a little bit more recently.
But yeah, so a house lawyer or security lawyer would look at that type of a tweet and say, yeah, that's a potential problem to be basically sending out cooy signals of a significant transaction that would likely be a market moving transaction. People are going to rely on that, and when they do, that can have an effect of manipulating the market or causing people to incorrectly rely on
something that you didn't actually mean. And so that's the type of communication that you know, a reasonable investor out there might start relying on this as a statement of his intent in a way that's going to materially move
the market. Those are a lot of the ingredients of another Securities brought problem, and so I think it caused a lot of people that were casual observers and then the not so casual observers at the SEC to say, is this Twitter sitter asleep on the job or is he basically locked himself in his room and the Twitter sitter can't get in and he's just tweeting the way And you know, I don't know sure soon, but you know, one could safely surmise that that's at least not a
long shot story that he's been tweeting on the fly as well.
Let's alto talk. He's still involved in the SEC's investigation of his acquisition of Twitter now X.
There are some complaints that sort of came around actually from early on processes in his potential acquisition of Twitter that then became an acquisition of Twitter. Remember, he was tweeting early on in this process about you know, tender
offers and his other forms of intent. The question of when he actually became someone who's interested in taking over the company, which would require a different type of federal filings, that did he violate federal law in terms of what kinds of filings he was supposed to make at any given time. These are things that can hang around for a long period of time, you know. Ultimately, my sense is that those are going to be irritating. But the fact of the matter is he did end up closing
this deal with Twitter. He ended up sort of pulling it off on pretty much precise of the terms that he was starting to advertise early on. And so my sense is there's still there's still some give to play out in this in this particular scenario, but that's probably not going to be the type of outcome that's going to place any seriously material restrictions on him of the type of you have to have a Twitter babysitter and
you know, that's still a real thing. And so my sense is that's probably the thing that has really stuck
in mister Musk's craws. Yeah, maybe in part because I think he has long viewed himself, as many others have viewed him, as an iconoclast who has kind of gotten where he's gotten because he's, you know, sort of defied the common wisdom and has been willing to make bold positions and bold statements, and so you know, some people think that's his secret sauce and pinning a babysitter on him for his Twitter post is antithetical to the very formula that he created.
What's the betting line on what Tesla's shareholders will do about his fifty six billion dollar payout and the reincorporation in Texas.
Yeah, time is the enemy of all and it may end up being the enemy of Elon Musk.
Here.
So the company now has basically made a proposal to its stockholders for the upcoming shareholder meeting for them to vote on two proposals. One is to reincorporate from Delaware into Texas, and the second is to have the stockholders vote yet again to approve mister Musk's twenty eighteen compensation package, which has since been invalidated by the Delaware Chancery Court. These are clearly related to one another. He was not talking seriously about moving to Texas until he had his
compensation package invalidated. The question of whether the stockholders actually are going to be allowed to do it all over again the first process was defective is actually kind of
an open question in law. Mister Musk and his team have taken a relatively aggressive legal position in essentially saying that a fairly obscure statute in Delaware allows them to have them all again on the stockholder vote, and they're going to just do it again, and if they could do it again, then that would give him more protection, and that the case needs to be reversed on that. On that ground, it's a long shot of a claim,
but that's how they've sort of set it up. The reincorporation to Texas maybe a little bit less of a
long shot of the claim. But you know, most of the people who you know, know and practice corporate law find it to be a bit of a head scratch to have a company of this size migrates to Texas out of what is essentially you know, kind of a temper tantrum because the fact of the matter is, Delaware has long ruled the roost of incorporation, and that's in part because the law is so well developed and the
judges are actually relatively predictable. And one could make an argument that you know, most of these cases, you can probably quipple with bits and pieces of some of these opinions, but that predictability has kind of been playing a role here as well. And you know, I think that is in some ways kind of the headline story. The backstory here on both of these things, I think is that you know, these are definitely turbulent waters that Tesla now
finds itself in. It is not the same as what was going on in twenty eighteen when the company was just doing gangbusters and growing like crazy. This is clearly a point of contraction of the company. You know, the problems with the cyber truck that have that have come out of made a lot of stockholders feel a little
bit queasy about Tesla. You know, mister Musk has kind of continued with episodically, you know, brilliant and then a little bit crazy sounding tweets, and so I do you wonder to what extent the current stockholder base at Tesla is willing to you know, sort of blindly follow mister Musk, or is now going to be more inclined to kick
the tires. And if it's the latter, then it may be a close call as to whether either of these things gets over the hump in terms of getting stockholder approval at the upcoming meeting.
And how does the average stockholder react to Elon Musk wanting his full pay package when he's laying off more than ten percent of the people at Tesla.
They are in a very tight situation. I mean, he's basically letting go entire teams inside Tesla, you know, including most recently I guess you know everyone who's running the Tesla supercharger network, right, which has been seen as one
of the key sources of value inside Tesla. But he is clearly cinching down the belts of every mid level manager inside that company is a way to improve margins, and you know, possibly as a way to deliver on his representations that you know, electric vehicle prices aren't going to plummet. So this is a company that has got far less sort of fat to play around with than
it did, you know, even two years ago. And you know, that's kind kind of why one of the things you might start to worry a little bit about is, hey, you know, we kind of got this gift from this Delaware chance Re Court judge. It is really upset mister musk. But you know, hey, fifty billion dollars is fifty billion dollars that do we want to vote to hand that back over to him? Maybe if he can deliver, But what's the current track record on his ability to deliver?
And I think that that is going to be, you know, possibly something that makes this this shareholder vote, you know a little bit more of a nail binder than I think people would have expected even six months ago.
Always a pleasure, Eric and always illuminating best Professor Eric Talley of Columbia Law School, turning out of other legal news. Republicans stated attorneys general are piling on to challenge the Biden administration's new Title nine rules that expand protections to LGBTQ plus students and add new safeguards for victims of
sexual assault. The number has now grown to fifteen states suing over what they say is an illegal rewriting of the landmark nineteen seventy two law Title nine forbids discrimination based on sex and education. Under the new rules, it will also protect against discrimination based on sexual orientation or gender identity, and will reverse some trump eraror changes to Title nine. Joining me is Rick Rosay, a professor at
Cuny Law School. What's the general intention of the Biden administration in issuing these new Title nine rules.
The administration is attempting to meet many of the schools f way in terms of the issues that they have raised, but also to include among the protected categories new areas that have not been covered in the past. So, for instance, and this of course is already controversial, the new rules are going to include as sex discrimination, suture orientation, and gender identity. And in addition to that, it clarifies that pregnancy related protections and the inclusion of lactation issues are
also now protected through Title nine. So certainly that would greatly impact in the post secondary schools, but even in some of the high schools. The other area that I think is very interesting is the area of decision making and investigation that in the past there was a lot of controversy around the lack of due process in the twenty twenty the Trump administration made the hearing very much almost like criminal court, but certainly very different from the
Obama regulations. But now there's a lot of flexibility.
What seems to be one of the most controversial parts of this is the new recognition that Title nine protects LGBTQ students. Explain that how it's expanding, Well.
First of all, as you know, Title nine prohibits discrimination because of person's sex, So sex is now expanded to include a person's gender identity, and you know, sex based stereotypes. But certainly LGBTQ, and so a trans student can raise that they are being treated differently because maybe their pronouns are not being used that might be a cause of action under this, or that they're being denied access to
their preferred bathroom. So that is greatly expanded now. Certainly some of these federal courts have already expanded that and through some litigation holding a violation of the Constitution when public institutions denied those rights.
Many Republican control states in the last few years have adopted laws restricting the rights of transgender children, including banning gender affirming medical care for minors and ban them from using facilities that align with their gender identity. So right now, with this update to the rules, schools can no longer prohibit transgender students from going into the bathroom that aligns with their gender identity.
Yes, I believe that's the intent of the Department of Educations or for the Civil Rights and these regulations.
The Supreme Court declined to consider whether transgender students have a legal right to use school bathrooms that match their gender identity. Does that have any implications for these new rules?
Not really. I mean, the Supreme Court might decide to take another case in the future. But there are certainly lower courts of appeals which have upheld the rights of transgender students to use the bathrooms. There are certainly a lot of lower courts, the federal district courts that have gone the other way upholding the school denial. So this is an issue that will be contentious and will be probably before the Supreme Court sometime in the future.
The administration had originally intended to include a policy forbidding schools from enacting outright bans on transgender athletes, but that provision was put on hold. Do you think it's on hold for political reasons? With the election coming up and Republicans rallying around bans on transgender athletes in girls' sports.
I certainly don't know for sure, but I would think that it's not for political reasons. I think they probably made it determination that they were not certain that they would be able to prevail under the law, But I have no reason to say that's even the reason that they did not include it At this point.
The Department of Education said in a statement that it was applying the reasoning of the Supreme Court's ruling in the Bostock case, which found that Title seven bars workplace discrimination based on sexual orientation. Do you think that the Department of Education is on solid ground because this expands it from workplace to the schools.
Yes, absolutely. I mean, that was a closely decided case, and of course Judge Gorsuch was a member of the majority of that case, and that's really important going forward.
But I think, first of all, Title six was part of the nineteen sixty four Civil Rights Act, which also included Title seven, and I think that Bostic decision has been utilized in a number of different areas now and has a firm foundation in the war and analysis of that law to allow these Department of Education included in Title nine because a lot of the sexual harassment principles came out of Title seven originally.
You mentioned this. Part of this rule is reversing Trump era changes to Title nine that required schools to host live hearings and allowed those accused of sexual misconduct to cross examine students in this live hearing. So how does it change that?
Okay, so this is very interesting because it does change it, but it still allows some of the Trump era provisions to go into effect. So it gives much more flexibility to the schools, particularly the larger schools, to choose how they're going to do it. So, if a live hearing is being held and the school allows for fuss examination in other reevans procedures within the universities, they can allow full force examines as it might be in a civil
or criminal trial. On the other hand, it doesn't require it as the Trump administration of Regulations required. It allows schools to be flexible and to determine their own process.
Coming up next, an expansion of the definition of sexual harassment. You're listening to Bloomberg. Republican states are piling on to challenge the Biden administration's new Title nine rules, which expand protections to LGBTQ plus students and add new safeguards for victims of sexual assault. I've been talking to Professor Rick Rosaying of the Qunity School of Law. Rick before the break, we were talking about the policy changes over house schools
and colleges handle complaints of sexual assault. The hearings they have allow schools.
To be flexible and to determine their own process. So it allows schools to hold a hearing where the decision maker or the hearing officer will do the questioning, and question would have to be put to the hearing officer, and the hearing officer would decide whether to put that to the complainant, to the person who complained that the sex discrimination of sexual rations of sexual assault, and so it would be in a way a barrier direct cross
examination where the accused or the accused lawyer under the Trumpet guidelines would be able to directly question the complainant. Now, that could still occur if the university has such a proceeding, but it will allow universities to have a hybrid. It will also allow universities to allow the investigator to also be the decision maker and allow the investigator splash decision maker to actually do the coross examination herself.
There is also a wider definition of sexual harassment.
And most of that comes from Title seven. A sexual harassment is going to include clearly what we call quid pro quo harassment, which is someone with power over either an employee or a student who requires some type of sexual favors. It could be if you don't sleep with me, you're not going to get an a in the course, or you're not going to get the promotion as an employee. That clearly is going to be unlawful under these set
of regulations. And then, of course the hostile work environment, which is conduct which is of a sexual nature, but it may not be actually requiring sex, but it can be demeaning and unwanted.
I know you want to give some more detail about the rules affecting pregnancy.
I want to make it very clear that under Title nine now it makes it unlawful sex discrimination to discriminate against somebody based on pregnancy and related medical condition, and that includes determination of a pregnancy. So that's going to be very controversial. That means abortion, and as you know, many states have outlawed abortion now and this is also true with respect that there are two new laws in the last year and a half, the Pregnancy Workers Fairness
Act and the so called pumpback. About a year ago, the Pregnancy Worker's Fairness Act was enacted and it requires players to make reasonable accommodations to people who are pregnant if they can't form the job, but they could be given some type of an accommodation that would be required.
So that was one law. And then there was an older law which goes back to the Obama era, which had to do with require ring employers to provide clean spaces and spaces with electricity for people to be able to lactate at the workplace so they can be able to continue breastfeeding. And that now is going to be
included in the Title nine regulation. So all of this is coming together both in the workplace and in the school place, and of course the school place is also a workplace for certain employees.
At this point, they are about fifteen Republican led states challenging these new Title nine rules in several different lawsuits. What can you tell us about the basic complaints in those lawsuits?
They're going after a number of the provisions, but primarily they're going after the expansion into the gender identity the LGBTQ area. That's their primary concern. I think they're also trying to bring back a full cross examination requirement, but I think they're focused is on the lgbt two area now, just mentioning that to bring this up to date. In terms of the Pregnancy Work of Fairness Act, those regulations were just denounced and there are I think nineteen Attorney
generals who were challenging that also well. The complaint with respect to the Pregnancy Workers Fairness to Act relates to the United States Equal Law Deployment Opportunity and Commission. They're saying they do not have the authority and the jurisdiction to expand into that area. The Pregnancy Work of fair Act is also involving the US Department of Labor.
The state superintendents from two of the states that sued, Florida and South Carolina, joined other state leaders last week in directing their local school districts to disregard the new Title nine rule. In response, the Education Department said that they have to comply with the final regulations in order to receive federal funds. Who wins in this. I mean, if there are lawsuits, is a judge likely to put the rules on hold, you know, issue a preliminary injunction.
Well, they're two different avenues. One is that the attorney generals have gone into federal court and so a federal judge will make a determination. The other process where the Department of Education has fled to those schools your in violation a Title nine. That's first an administrative process. Will They'll make an administrative determination that your in violation of these rules. We're going to withhold the fund, and then
that will be challenged in federal court. So eventually a federal judge and then the courts of appeals and possibly the Supreme Court will make a final determination.
Is it going to be a long time before these rules are solidly in place?
Let's put it this way. A lot of universities have already announced and have apployed these by the administration for these new rules, for giving them more flexibility, but also for focusing on equity for all of their students, because many of the universities recognize that this is a very positive change. So there's going to be depending on the geographic location, the state maybe even the city or town.
It's going to be very different. And so yes, we're going to go through a period of challenge and decision making by the court.
So I mean this reflects this sort of political back and forth as presidential administrations repeatedly rewrite the rules around you know, campus sexual misconduct, where Obama had some rules, then Trump came in and changed the rules, and now Biden came in and changed the rules. I mean, it must be frustrating to schools and you know, to students to have this continual back and forth.
Yes, it is very frustrating. This is part of our federal state system. However, I'm optimistic because I think at some point, as our population ages out, if you look at the pole, younger people are much more supportive of the LGBTQ community, even among evangelical communities, and so I think culturally, eventually the people will say, hey, enough of this, and we want equity for all people and people should be treated with respect and kindness.
Well, that would be lovely. Who can disagree with that? Going back to the hearings for a moment, what's the standard in these cases?
Well, I mean this is maybe getting a little bit
down into the weeds. But interestingly, there's going to be some differences with respect to the standard for determining whether somebody has in violation of title, whether somebody has committed an act of sex discrimination or sexual harassment, because these regulations will allow two different standards, with those schools and particular universities that may apply what's called a clear and consensing evidence standard, which is somewhere between what we call
a preponderance of evidence and of course the criminal standard, which is beyond a reasonable doubt. But it's a higher standard than the usual civil standard, which is the preponderance of evidence. And what that means is it's just slightly more than fifty percent, or if you think about the scales of justice, all you need to do is tip it slightly in the direction of one party and then
you have a decision. These new regulations allow for the universities and the schools to make the decision which standard they will apply, and so they're going to be different standards in different universities and different states, and that's somewhat unusual. It really is.
Thanks so much. Rick. That's Professor Rick Rossaine of the QUNI School of Law. These new rules won't go into effect until August and they were proposed nearly two years ago. With the public comment period that drew two hundred and forty thousand responses. That's a record for the Department of Education. And that's it for this edition of The Bloomberg Law Show. Remember you can always get the latest legal news on
our Bloomberg Law Podcast. You can find them on Apple Podcasts, Spotify, and at www dot bloomberg dot com, slash podcast Slash Law, and remember to tune into The Bloomberg Law Show every weeknight at ten pm Wall Street Time. I'm June Grosso and you're listening to Bloomberg