OpenAI Can’t Dodge Elon Musk’s Fraud Claims in Restructuring Suit

A judge narrowed claims in Elon Musk's lawsuit alleging that OpenAI broke its promise to function as a public charity by making plans to transform itself into a for-profit business. 

US District Judge Yvonne Gonzalez Rogers in Oakland, California, on Thursday ruled that the world's richest person can pursue fraud claims in the complaint he filed against OpenAI last year. She also declined to dismiss an unjust enrichment claim against OpenAI and Microsoft, a major investor in the startup. 

But she threw out claims of false advertising and breach of fiduciary duty claims against the startup. Both companies won dismissal of Musk's racketeering claims, but she gave the billionaire a chance to revise that allegation through an amended complaint.

In response to a request for comment, an OpenAI spokesperson cited a social media post from last month saying that Musk's actions are an unlawful bid to curb the company's growth for the benefit of his rival startup, xAI, that he launched in 2023.

A lawyer for Musk welcomed the ruling, saying it acknowledges his “serious allegations” that will proceed to trial.

“My client remains committed to protecting OpenAI's original charitable mission and the safe development of AI,” the attorney, Marc Toberoff, said in an email.

Representatives of Microsoft didn't immediately respond to a request for comment.

The legal wrangling between Musk and Sam Altman, who worked together to launch OpenAI a decade ago, is playing out as the startup is in talks with officials in Delaware and California over its restructuring plans and faces pressure to complete the overhaul by the end of 2025. If not, SoftBank Group would be able to drop the amount of funding it's contributing to the startup from $30 billion to $20 billion, as Bloomberg has reported, while OpenAI would have the option to find other investors.

Gonzalez Rogers recently said she intended to scale back the claims in the lawsuit when she scheduled a March trial over the dispute.

Musk has alleged the alliance OpenAI built with Microsoft after he left the startup's board in 2018 is a bid to dominate the generative AI industry that threatens free market competition by rivals. His lawyers also claim Microsoft knew OpenAI co-founders Altman and Greg Brockman were engaging in “a scheme to defraud Musk of his valuable contributions and backing to enrich themselves.”

Gonzalez Rogers granted a request by OpenAI and Microsoft to toss out Musk's claim they aided the fraud. But she ruled that Microsoft must face claims of interfering with OpenAI and Musk's contract, which he says called for the startup's technology to benefit the public.

Musk has “plausibly alleged that Microsoft knew of the charitable trust and took steps constituting ‘substantial assistance or encouragement' in the violation” of the contract, Gonzalez Rogers said in her ruling.

The case is Musk v. Altman, 24-cv-04722, US District Court, Northern District of California (Oakland).

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