by Noah Feldman
Elon Musk’s lawyers have filed two lawsuits on behalf of X (formerly Twitter) in a federal district court in Texas. As of 2023, the judge in that district, Reed O’Connor, owned between $15,000 and $50,000 of stock in Tesla.
This week, reports emerged that O’Connor would recuse himself from one of the cases involving X — which is wholly owned by Musk, who is also the controlling shareholder in Tesla.
The judge made the right call (after sustaining some heavy criticism). He gave no reason, however, for his decision, and there is more than one possible explanation. He should now also recuse himself in the second case — and whether he does so may clarify his reasoning.
The Code of Judicial Conduct says judges may not preside over cases that would affect a company in which they own shares. Because X and Tesla are legally separate entities, O’Connor perhaps initially believed that this rule did not apply here.
But there is another, broader rule in the same judicial ethics code. That rule says that a judge “shall disqualify himself” if his “impartiality might reasonably be questioned.” The basic idea is that a judge should recuse himself if a reasonable person in possession of the relevant facts would believe that the judge has reason for bias. And there is good reason to think that this rule covers O’Connor.
Because Musk is so closely identified with both X and Tesla, Tesla share prices are arguably affected by the performance of X. To be clear, I am not claiming the value of the two companies are demonstrably related. Rather, the appropriate measure is whether someone could reasonably think that Tesla’s business is affected by the vicissitudes of Musk’s X adventure.
And it seems clear that a reasonable person could think so. My Bloomberg Opinion colleague Matt Levine, my guru on matters corporate, has pointed out that Musk shifts employees, resources and money between the companies. Levine notes Musk also apparently demanded that Nvidia ship chips destined for Tesla to X instead.
And Bloomberg Opinion’s Liam Denning has explained that Musk’s X-related behavior (such as giving fawning two-hour interviews to Donald Trump) may be discouraging left-leaning Tesla buyers who don’t want to give Musk their business. That’s enough to create a perception that Musk’s different business endeavors are closely interrelated, such that the success of one could impact the success of another.
Return now to the rule in the ethics code. If a reasonable person who knows this relevant information would think that O’Connor might be biased, then his recusal from both cases is mandated. It’s a judgment call, as indeed this provision is always a judgment call. My judgment is that the possibility of bias exists. The chance that O’Connor might benefit financially if Musk wins his X-related lawsuits was high enough that O’Connor should not be the one ruling on either of those suits.
Cementing this logic is the way in which the X-related cases came to O’Connor’s court. It’s not that X is located in Texas — it isn’t. Nor are the defendants in the case, one of them an NGO called Media Matters and the other a coalition of advertisers.
No, the reason Musk’s lawyers filed in O’Connor’s district is good old-fashioned forum-shopping. That’s the practice where lawyers try to find a court or a judge who is likely to favor their interests.
Forum-shopping is within the letter of the law so long as there is a clear connection between the location of the forum and the case. Musk’s lawyers say that Media Matters communicates to X users in Texas and that X’s Texas business was unjustly affected by the advertising coalition. These allegations are meager, but perhaps less absurd than those used in some other forum-shopping situations.
However, the fact that Musk’s lawyers appear to have sought a way to appear before O’Connor strengthens the case for recusal. Forum-shopping never looks good, but it looks especially bad when a plaintiff has sought out a judge who owns stock in one of his companies. O’Connor has reportedly recused himself from only the case involving the advertising coalition, not the Media Matters lawsuit. He should step down from both.
If O’Connor’s reasoning for recusing himself from the advertising case was that he recognizes the interplay between X and Tesla, then he should logically step down from the second case as well. It is possible, however, that he recused himself not because of his Tesla shares, but because he reportedly also owns shares in Unilever, one of the companies that is a defendant in the advertising case. If that was his reason, he might decide not to step down from the Media Matters case, which would be a sign that he thinks his Tesla ownership is no problem. That would be wrong.
The technicality that he does not own stock in X was just that — a technicality. It is too slim a reed to support the case for staying on. That logic applies equally to both lawsuits.
