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ELON MUSK FLEES TO BILLIONAIRES’ NEW COURT  
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Katya Schwenk; Helen Santoro
February 27, 2024
The Lever
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_ Burned by legal decisions, Elon Musk is relocating his rocket
company to Texas — where he’ll enjoy a new, separate justice
system controlled by his ally, Gov. Greg Abbott _

Elon Musk and the Texas State Capitol Building in Austin, Kirsty
Wigglesworth and Harry Cabluckfile

 

Elon Musk’s lawsuit-plagued SpaceX rocket company is departing
Delaware for a new legal home base in Texas just as the Lone Star
State rolls out a new, separate court system for businesses that will
allow Republican Texas Governor — and longtime Musk ally — Greg
Abbott to handpick judges.

Texas’s oil and gas industries, alongside a host of other corporate
interests, lobbied hard
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year for the state’s new business court system, which will begin
hearing cases this September. The fierce support from Big Oil,
Texas’s largest industry,
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was evidence, critics charged, that business interests in Texas were
effectively trying to buy their own courts.

Despite pushback, businesses succeeded. After lawmakers brought the
bill to his desk, Abbott signed the proposal
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into law in June. Texas has now created what critics argue is a
two-tiered system of justice, where cases involving massive
corporations are funneled into separate courts and heard by judges
appointed personally by the governor.

“It’s an end run around the elected judiciary for the benefit of
Governor Abbott and his campaign contributors,” said Rick Levy, the
president of the Texas chapter of the AFL-CIO federation of unions,
adding that he saw the new court system as “another instance of
trying to concentrate political power in the hands of a governor who
seems very eager to amass it.”

While Musk has not said the new courts are a factor in the move, he
and his explosion-prone spacecraft company
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are poised to benefit from the new court system, as well as his
long-standing chummy relationship
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with Abbott. 

“I think [Musk] thinks that maybe he’ll have influence there —
that if there’s too much litigation, then he’ll push the
legislature to limit it,” said Michal Barzuza, a professor at the
University of Virginia School of Law who writes about corporate
governance. 

Barzuza emphasized Abbot’s warm reception to Musk’s announcement
of his SpaceX reincorporation plans. “Welcome Home!” the governor
tweeted [[link removed]]
on Feb. 14 in response to Musk’s announcement that SpaceX would
reincorporate in the state.

Some 29 other states have similar business courts
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to the Texas plan. Such a system, proponents say, can ensure complex
cases involving big corporations are overseen by judges with
appropriate legal expertise. But while other courts are often overseen
by both lawmakers and the governor’s office, as in Delaware
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will be uniquely at the whims of the executive branch. Judges in
Texas’s courts will serve two-year terms — far shorter than most
other states — and will be appointed by the governor. 

This could, in theory, make it quite easy for Abbott to quickly
replace judges that don’t toe the line.

“The judge essentially doesn’t have the last say if who’s on the
court can be quickly changed,” said Anne Tucker, a professor at
Georgia State University College of Law who has worked on developing
business courts in other states. “Particularly if there’s an
unpopular — even if legally correct — outcome.”

“We’re Proud He Calls Texas Home”

Until this month, SpaceX, which Musk founded in 2002, was incorporated
in the state of Delaware, often a headquarters of choice for business
thanks to business-friendly laws and the state’s own ostensibly
advantageous corporate court system
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that tries cases only before judges, not juries. But after a Delaware
business court judge handed down a series of unfavorable rulings
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to Musk — most recently finding in January that Musk’s $56 billion
compensation deal
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from Tesla should be reversed — the billionaire turned against the
state.

“Never incorporate your company in the state of Delaware,” Musk
wrote on X
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shortly after the ruling came down. Within two weeks, he had filed to
reincorporate SpaceX in Texas. Musk proclaimed he would fight to bring
Tesla to the state as well, although because Tesla is a publicly
traded company, the move would require a shareholder vote.

Musk and Abbott, who has reigned dictatorial
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over Texas during his three terms as governor, have long had a close
relationship. Musk was an early Abbott supporter, donating $10,000 to
his first gubernatorial campaign
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in 2014. The investment has paid off. 

“There is no greater entrepreneur in the entire world than Elon
Musk,” Abbott said in May 2023 when Tesla broke ground on a $375
million lithium refinery
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for its electric-vehicle batteries in the state. “We’re proud he
calls Texas home.”

Texas has given various sweetheart deals to Musk and his companies
over the years, despite the company’s troubling environmental
impacts
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in the state, including filling fragile national wildlife refuge lands
with rocket debris. SpaceX received $15 million in incentives from
former Texas governor Rick Perry
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(R) to bring parts of the company’s operations to the state in the
first place. 

Under Abbott, the special treatment has continued. Tesla received $60
million in local tax rebates
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when the company brought a new factory to the Austin area in 2020, and
state officials are currently considering a generous land swap
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with SpaceX that would give the company 43 acres of a state park in
the vicinity of
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its massive starship launchpad and facilities in Boca Chica, despite
opposition
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from local residents and environmentalists.

“The love affair between the Republican officials here and Elon Musk
seems to be paying off for both of them,” said Levy with the
AFL-CIO.

Abbott has also been a champion
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of the state’s oil and gas industries — which represent some of
his biggest campaign donors
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These fossil fuel interests were among the companies that lined up to
support the bill that created Texas’s new court system: Supporters
included oil trade groups including the Texas Pipeline Association and
the Texas Oil & Gas Association, as well as other pro-business groups
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Association of Manufacturers and the Texas Association of Businesses.

State Rep. Jeff Leach (R), a key co-author of the Texas business-court
bill and member of the state’s Judiciary and Civil Jurisprudence
Committee that oversaw the legislation, also celebrated SpaceX’s
reincorporation
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month alongside Abbott. “We’ve been proud to consider SpaceX a
Texan for quite some time — congratulations on making it
official!” he tweeted on Feb. 14.

“A Massive Stress Test”

While Musk hasn’t fully divulged his motivations for moving to
Texas, Barzuza at the University of Virginia School of Law noted that
Musk likely expects he could wield greater “political clout” in a
state where SpaceX conducts significant operations. 

Now, too, his companies will have access to a tailor-made court
system. “I would imagine that it’s only seen as a bonus of getting
away from Delaware and getting access to the specialized courts,”
said Tucker at the Georgia State University College of Law.

Abbott has not yet appointed judges for the new courts. But according
to records
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obtained by trade publication _The Texas Lawbook_, applicants include
Sylvia Matthews, a judge that shielded dozens of natural gas companies
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from litigation over power-grid failures during a devastating winter
storm in 2021, Scott Brister, a former Texas Supreme Court justice who
defended oil and gas conglomerate BP in litigation over the
devastating oil spill
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in the Gulf of Mexico, and David Gunn, an appellate attorney who touts
the victories he has won for ExxonMobil
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cases.

“It is early days and would be premature to speculate about how the
new court might affect specific businesses,” noted Alex Winslow, the
director of communications for the Texas Trial Lawyers Association —
which opposed the new court system — in an email to _The Lever_. 

Tucker echoed this sentiment. “The Texas business court may end up
being a robust and well-functioning judiciary — that is just yet to
be seen,” she said. 

But, she noted, how the courts handle a case involving a company like
SpaceX would be revealing. “A new and untested court is going to
potentially have a massive stress test if it is asked to flex its new
judicial powers against either [Musk] or one of his companies,” she
said.

Musk has shown an interest in cases with implications that go far
beyond the narrow interests of his companies. A suit brought by SpaceX
in Texas, for instance, is currently challenging the fundamental
structure of the National Labor Relations Board
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a case that threatens the very foundation of workers’ protections in
the U.S.

Musk has been fighting to keep that case in Texas court
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even though it revolves around a labor dispute in California. A Texas
judge on Feb. 15 ruled [[link removed]] that
the case should be heard in the presumably less-friendly California
courts, but an appellate judge last week put the transfer on hold
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SpaceX’s appeal — keeping the case, for now, in Texas.

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* Elon Musk; Texas Courts; Space X; Governor Abbott;
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