By Rodney F. Tonkovic, J.D.
In its response to Elon Musk's petition for certiorari, the SEC argues that Musk's argument fails on its own merits. Musk's argument is based on the unconstitutional-conditions doctrine, but the SEC points out that he forfeited that claim by not making that argument before the district court. Even so, the Court has consistently held that to resolve litigation, parties can choose to waive even fundamental rights. In this case, the SEC says, the settlement was reasonably designed to minimize the likelihood that Musk would violate the securities laws, and further review is not warranted (Musk v. SEC, March 22, 2024).
Tempest in a tweet-up. In October 2018, Elon Musk and Tesla entered into consent judgments with the SEC. Earlier, Musk had tweeted that he had secured sufficient funding to take Tesla private. This tweet, and some similar ones made on the same day, caused Tesla's stock price to jump even though, as the SEC alleged, any such deal was far from certain. Enforcement actions against Musk and Tesla were quickly brought and settled, with Musk, among other concessions, agreeing to comply with procedures designed to reign in his communications about material Tesla business matters.
In 2019, the SEC brought contempt proceedings when Musk made another questionable tweet, and the settlement was revised to specify what is considered material. Musk posted additional tweets concerning his possibly selling part of his Tesla holdings in late 2021, and the SEC served subpoenas on Tesla and Musk; he did not comply and filed a motion to be relieved from the judgment. In 2022, the Southern District of New York rejected Musk’s attempt to back out of the tweet-vetting settlement.
The Second Circuit affirmed in a brief summary order. The panel rejected Musk's argument that changed circumstances made compliance with the consent decree more onerous. There was also no evidence that the SEC used the decree to conduct bad faith, harassing investigations of Musk's protected speech. The panel also pointed out that Musk had voluntarily entered into the consent decree.
Cert petition. Musk's petition for certiorari challenged the constitutionality of the settlement, asking whether his agreement to abide by certain conditions violates the unconstitutional-conditions doctrine. According to Musk, the lower courts erroneously focused on the fact that Musk had waived certain rights when accepting the settlement. The petition argues that under the unconstitutional-conditions doctrine, such conditions are invalid even when the non-governmental party accepted a benefit in exchange.
SEC's response. At the outset, the SEC's response argued that the Second Circuit found that Musk waived his argument that any waiver of his First Amendment rights is unenforceable. Since this issue was not properly preserved or passed on by the lower courts, the Supreme Court should not grant certiorari to review this issue, the SEC says.
The SEC went on to contend that Musk's argument fails on its own terms because the Court has consistently held that to resolve litigation, parties may choose to waive even fundamental constitutional rights. Musk had the choice between forgoing the future exercise of certain rights or proceeding to trial, and his choice of the former reflected a rational judgment.
Even if the argument had merit, the SEC said, this case would be a poor vehicle for evaluating any unconstitutional-conditions argument. Even if Musk had not forfeited the argument, he failed to identify any decision applying the doctrine to the settlement of legal claims, and the cases cited by Musk were not analogous to the matter at hand. To accept Musk's expansive notion of the doctrine would call into question traditional law enforcement practices and deprive parties of the benefits of waivers in settlement agreements. Plus, the settlement was designed to minimize future securities-law violations by Musk: he is not precluded from engaging in any form of speech or required to obtain pre-approval from a government official.
The Commission admits that there are cases suggesting that the government's ability to obtain waivers of First Amendment rights is not unlimited. There is no support, however, for Musk's position that a promise not to engage in activities otherwise protected by the First Amendment can never be a valid settlement term.
Finally, the SEC maintains that review is unwarranted for lack of practical significance. The related Tesla consent judgment produces the "same operational result," and Musk would still be subject to the same pre-approval procedures. Plus, the provision at issue in this case is idiosyncratic and unlikely to affect other litigants.
The case is No. 23-626.
In its response to Elon Musk's petition for certiorari, the SEC argues that Musk's argument fails on its own merits. Musk's argument is based on the unconstitutional-conditions doctrine, but the SEC points out that he forfeited that claim by not making that argument before the district court. Even so, the Court has consistently held that to resolve litigation, parties can choose to waive even fundamental rights. In this case, the SEC says, the settlement was reasonably designed to minimize the likelihood that Musk would violate the securities laws, and further review is not warranted (Musk v. SEC, March 22, 2024).
Tempest in a tweet-up. In October 2018, Elon Musk and Tesla entered into consent judgments with the SEC. Earlier, Musk had tweeted that he had secured sufficient funding to take Tesla private. This tweet, and some similar ones made on the same day, caused Tesla's stock price to jump even though, as the SEC alleged, any such deal was far from certain. Enforcement actions against Musk and Tesla were quickly brought and settled, with Musk, among other concessions, agreeing to comply with procedures designed to reign in his communications about material Tesla business matters.
In 2019, the SEC brought contempt proceedings when Musk made another questionable tweet, and the settlement was revised to specify what is considered material. Musk posted additional tweets concerning his possibly selling part of his Tesla holdings in late 2021, and the SEC served subpoenas on Tesla and Musk; he did not comply and filed a motion to be relieved from the judgment. In 2022, the Southern District of New York rejected Musk’s attempt to back out of the tweet-vetting settlement.
The Second Circuit affirmed in a brief summary order. The panel rejected Musk's argument that changed circumstances made compliance with the consent decree more onerous. There was also no evidence that the SEC used the decree to conduct bad faith, harassing investigations of Musk's protected speech. The panel also pointed out that Musk had voluntarily entered into the consent decree.
Cert petition. Musk's petition for certiorari challenged the constitutionality of the settlement, asking whether his agreement to abide by certain conditions violates the unconstitutional-conditions doctrine. According to Musk, the lower courts erroneously focused on the fact that Musk had waived certain rights when accepting the settlement. The petition argues that under the unconstitutional-conditions doctrine, such conditions are invalid even when the non-governmental party accepted a benefit in exchange.
SEC's response. At the outset, the SEC's response argued that the Second Circuit found that Musk waived his argument that any waiver of his First Amendment rights is unenforceable. Since this issue was not properly preserved or passed on by the lower courts, the Supreme Court should not grant certiorari to review this issue, the SEC says.
The SEC went on to contend that Musk's argument fails on its own terms because the Court has consistently held that to resolve litigation, parties may choose to waive even fundamental constitutional rights. Musk had the choice between forgoing the future exercise of certain rights or proceeding to trial, and his choice of the former reflected a rational judgment.
Even if the argument had merit, the SEC said, this case would be a poor vehicle for evaluating any unconstitutional-conditions argument. Even if Musk had not forfeited the argument, he failed to identify any decision applying the doctrine to the settlement of legal claims, and the cases cited by Musk were not analogous to the matter at hand. To accept Musk's expansive notion of the doctrine would call into question traditional law enforcement practices and deprive parties of the benefits of waivers in settlement agreements. Plus, the settlement was designed to minimize future securities-law violations by Musk: he is not precluded from engaging in any form of speech or required to obtain pre-approval from a government official.
The Commission admits that there are cases suggesting that the government's ability to obtain waivers of First Amendment rights is not unlimited. There is no support, however, for Musk's position that a promise not to engage in activities otherwise protected by the First Amendment can never be a valid settlement term.
Finally, the SEC maintains that review is unwarranted for lack of practical significance. The related Tesla consent judgment produces the "same operational result," and Musk would still be subject to the same pre-approval procedures. Plus, the provision at issue in this case is idiosyncratic and unlikely to affect other litigants.
The case is No. 23-626.
