August 2022 in Brief: Business Litigation & Dispute Resolution

Business Litigation

Twitter-Tesla Tussle Intensifies with Whistleblower Complaint

By Margaret M. Cassidy, Esq.

Twitter and Tesla are in heated, high stakes litigation over Tesla walking away from its plans to acquire Twitter. Tesla walked away from the deal for, among other things, claiming that Twitter had more spam users and automated bots on its platform than it had represented. Twitter denied the accusations.

It seems Tesla was just given a gift in that litigation.

A Twitter executive responsible for network security and user privacy, to include ferreting out spam and automated bots, filed complaints with the Securities and Exchange Commission, the Federal Trade Commission, and the Department of Justice. The whistleblower alleged that Twitter was not protecting users’ privacy; that it had more spam and bot accounts then it represented; and that Twitter executives obscured the privacy, account, and network security issues from the board.

Twitter denies the accusations and is claiming the whistleblower was fired for cause. Twitter’s CEO told employees that the whistleblower’s accusations were inaccurate and that it has never made material misstatements.

Fallout has started for Twitter; its shares fell on the news of the complaints. Elon Musk reported that he has subpoenaed the whistleblower as part of the suit over the collapsed acquisition. Further, in a rare bipartisan move, senators from both parties have scheduled a hearing where the whistleblower will testify.

Regardless of how this plays out for the lawsuit, Twitter’s governance, culture, and internal controls will now be scrutinized by regulators, Congress, the media, and its investors.

Dispute Resolution

Second Circuit Clarifies Standard for Attachment in Aid of Arbitration

By Leslie A. Berkoff, Partner at Moritt Hock & Hamroff LLP, Chair of Dispute Resolution Department

The Second Circuit has addressed two issues previously left open in a prior decision in a recent case Iraq Telecom Limited v. IBL Bank S.A.L., holding that courts addressing attachments under New York law may consider both statutory and non-statutory factors in deciding whether to attach a party’s assets, or vacate or modify an existing attachment—but non-statutory factors can only be considered if they are determined to be “extraordinary.”

In this case, the plaintiff had initiated arbitration proceedings in Lebanon against a Lebanese bank after obtaining a declaratory judgment that the bank and several other defendants had defrauded the plaintiff. Based on that prior judgment, the plaintiff initiated another arbitration against just the bank, seeking $97 million in damages, and during the pendency of that action, the plaintiff filed a petition in SDNY seeking to attach the bank’s New York assets. The district court initially issued an ex parte order attaching $100 million in assets, but then reduced the amount to $3 million once the bank appeared and moved to vacate the attachment. The district court found that the plaintiff satisfied all of the statutory factors for attachment, but reduced the amount based on its finding that the plaintiff was not likely to succeed on the full amount of its claimed damages in the second arbitration. The district court reduced the amount further based upon “extraordinary circumstances” finding the following extraordinary circumstances: (1) the potential impact of the attachment on the Lebanese economy if the bank became insolvent; (2) the fact that a large attachment could cause the bank to fall out of compliance with certain reserve requirements imposed by Lebanon’s central bank; (3) the attachment could interfere with innocent bank customers’ ability to access their money; (4) the attachment could undermine confidence in New York’s financial institutions; and (5) the bank was not the principal wrongdoer in the fraudulent scheme.

On appeal, the Second Circuit rejected the Plaintiff’s argument that a court cannot consider non-statutory “extraordinary circumstances.” However, the Second Circuit agreed with the Plaintiff that the district court erred in using the “extraordinary circumstances” to reduce the attachment all the way to $3 million. The Court found that the district court failed to consider whether a higher amount could have been utilized, even if it was less than the initial demand of $100 million. The Second Circuit remanded to the district court to reconsider the amount of the attachment. Finally, the Second Circuit also found that the district court erred in finding that the plaintiff was unlikely to succeed on the full amount of its claimed damages. Given the importance of the New York courts in hearing international disputes, this decision’s analysis concerning the application of both the statutory and non-statutory factors can provide important guidance to parties and practitioners in this area.