Elon is altering the deal

Elon Musk changes X terms to steer lawsuits to his favorite Texas court

X terms specify Northern District, where Judge Reed O’Connor is a Tesla investor.

Jon Brodkin – Oct 18, 2024 1:04 pm | 289

Tesla CEO Elon Musk speaks at Tesla's "Cyber Rodeo" on April 7, 2022, in Austin, Texas. Credit: Getty Images | AFP/Suzanne Cordeiro

Elon Musk’s X updated its terms of service to steer user lawsuits to US District Court for the Northern District of Texas, the same court where a judge who bought Tesla stock is overseeing an X lawsuit against the nonprofit Media Matters for America.

The new terms that apply to users of the X social network say that all disputes related to the terms “will be brought exclusively in the US District Court for the Northern District of Texas or state courts located in Tarrant County, Texas, United States, and you consent to personal jurisdiction in those forums and waive any objection as to inconvenient forum.”

X recently moved its headquarters from San Francisco to Texas, but the new headquarters are not in the Northern District or Tarrant County. X’s headquarters are in Bastrop, the county seat of Bastrop County, which is served by US District Court for the Western District of Texas.

The new terms take effect on November 15. They will replace terms that said all “disputes related to these Terms or the Services will be brought solely in the federal or state courts located in San Francisco County, California.”

Terms requiring users to sue in specific courts are usually enforceable, Vanderbilt Law School Professor Brian Fitzpatrick told Ars today. “There might be an argument that there was no consent to the new terms, but if you have to click on something at some point acknowledging you read the new terms, consent will probably be found,” he told us in an email.

A user attempting to sue X in a different state or district probably wouldn’t get very far. “If a suit was filed in the wrong court, it would be dismissed (if filed in state court) or transferred (if filed in federal court),” Fitzpatrick said.

Musk’s favorite court district

A Reuters article notes that the Western District “has far fewer Republican-appointed judges than the Northern District.” Bastrop is a small city about 30 miles from Austin.

“It is common for companies to include venue clauses in their terms of service directing what forum would hear any disputes filed against them. But the choice of the Northern District of Texas stands out because X is not even located in the district,” the Reuters article said.

X has filed multiple lawsuits in the Northern District of Texas. The case against Media Matters for America is being heard by US District Judge Reed O’Connor, who bought Tesla stock valued at between $15,001 and $50,000 in 2022. X sued Media Matters over its research on ads being placed next to pro-Nazi content on X.

O’Connor refused to recuse himself from the X case, despite Media Matters arguing that “ownership of Tesla stock would be disqualifying” for a judge because “an investment in Tesla is, in large part, a bet on Musk’s reputation and management choices.” O’Connor, a George W. Bush appointee, later rejected Media Matters’ argument that his court lacked jurisdiction over the dispute.

New financial disclosures show that O’Connor still owned Tesla stock as of early 2024, NPR reported on Wednesday. Filings show “that O’Connor bought and sold Tesla stock [in 2023], with his position in Tesla still totaling up to $50,000,” and that he “has not bought or sold Tesla stock in the first few months of 2024,” NPR wrote.

Professor questions ethics of forum clause

O’Connor was also initially assigned to Musk’s lawsuit alleging that advertisers targeted X with an illegal boycott. But O’Connor recused himself from the advertiser case because he invested in Unilever, one of the defendants. X has since reached an agreement with Unilever and removed the company from the list of defendants.

X’s new terms don’t guarantee that cases will end up before O’Connor. “The only place in the Northern District where you’re guaranteed to draw O’Connor is Wichita Falls. Elsewhere in the district, you could draw other judges,” Georgetown Law Professor Steve Vladeck wrote.

For any of the federal districts in Texas, appeals would go to the conservative-leaning US Court of Appeals for the 5th Circuit.

Vladeck questioned the ethics of X’s terms in comments quoted by NPR. “For X to say we want all of our litigation to go into a forum that may have no connection to where we’re located, to where plaintiffs are located, runs headlong into the federal system’s preference for convenience,” Vladeck was quoted as saying. “Are we going to allow companies to override that principle of convenience in the name of trying to stack the deck in their favor whenever they have the power to get you to agree to terms of service?”

Legal precedents help X

Fitzpatrick said that legal precedents support the enforceability of X’s terms. He pointed to Carnival Cruise Lines, Inc. v. Shute, in which the Supreme Court ruled that a non-negotiated forum-selection clause requiring disputes to be handled in Florida was valid.

The Supreme Court’s 1991 ruling said the clauses “are subject to judicial scrutiny for fundamental fairness.” That means companies can’t select certain venues to discourage people from pursuing legitimate claims and can’t obtain consent to terms through fraud or overreaching. Parties bound by such terms must also be given sufficient notice of the forum clause.

Fitzpatrick said that “courts have upheld particular districts” named in forum-selection clauses and that business-to-business “contracts often say you have to sue in New York City.”

Fitzpatrick said users could argue that terms are unconscionable, but he described this as a longshot. “If the forum has no connection to either party and there is no other good faith reason for picking the forum, there might be an argument the terms are unconscionable; the Court in Shute left open that possibility,” he said. “Likewise, if you are poor and the dispute small, there might be an argument that it is unconscionable to make you travel to Texas to sue. But… my understanding is that unconscionability is still a very disfavored doctrine.”

Media Matters’ argument that the Northern District of Texas lacked jurisdiction was rejected even before X moved its headquarters. Media Matters argued that Texas is an improper forum for the dispute because “X is organized under Nevada law and maintains its principal place of business in San Francisco, California, where its own terms of service require users of its platform to litigate any disputes.”

O’Connor ruled that his court has jurisdiction because Media Matters articles “targeted” Texas-based companies that advertised on X, even though those companies were not parties to the lawsuit.

Jon Brodkin Senior IT Reporter

Jon is a Senior IT Reporter for Ars Technica. He covers the telecom industry, Federal Communications Commission rulemakings, broadband consumer affairs, court cases, and government regulation of the tech industry.

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