U.S. District Judge Yvonne Gonzalez Rogers showed no patience for how the parties have handled the case in her two-page order scrubbing 16 OpenAI defenses that Musk had attacked for offering "neither legal authority nor factual allegations." Those defenses were raised against accusations of a bait-and-switch soliciting investor money on promises that the artificial intelligence technology under development would be kept for the public benefit.
"The court will not waste precious judicial resources on the parties' gamesmanship. Instead, the court finds the following specific affirmative defenses plainly insufficiently alleged, irrelevant, redundant or immaterial," Judge Gonzalez Rogers said.
Musk had sought to cripple OpenAI's defenses entirely, targeting all 55 of its affirmative defenses. But Judge Gonzalez Rogers called that a step too far in a dispute where the parties "have repeatedly over-litigated this case."
"The pleading of excessive affirmative defenses is consistent with the approach. Plaintiffs are correct that defendants have inappropriately asserted an excessive number of defenses, many of which appear to be irrelevant, redundant, insufficient, or immaterial," the judge said. "That said, plaintiffs failed to take the high ground, instead moving to strike all of the asserted defenses. They too over-reached."
Tuesday's ruling nevertheless gives Musk an important part of what the world's richest man had sought in his late June motion. Judge Gonzalez Rogers specifically nixed the 16 defenses Musk had argued failed the requirements for heightened pleading standards. In particular, Musk argued the now-scrubbed defenses do not identify the part of his complaint against which they are meant to be used.
An attorney for Musk, Marc Toberoff of Toberoff & Associates PC, hailed the ruling Tuesday.
"OpenAI's deflective strategy of wild distraction is wearing thin on everyone. We look forward to prosecuting this case on the real issues: OpenAI's ongoing fraud and complete betrayal of its charitable mission," Toberoff said in a statement.
OpenAI did not immediately respond to a request for comment Tuesday.
Under Tuesday's order, OpenAI can no longer assert, among other things, that Musk's claims are blocked by his own "unclean hands," that they were filed too late, that Musk botched his own (if any) contractual obligations, that OpenAI lived up to its end of any bargain, that any agreement was terminated before the contested conduct, that nothing triggered OpenAI's obligations under any agreement, that Musk effectively consented or failed to object, that any claimed damages are speculative and remote, that Musk did not do enough to mitigate any damages, and that giving Musk the relief sought would violate public policy.
The AI giant had tried to preserve the defenses by arguing in a July 10 opposition brief that the motion to strike was "nothing more than a tactical maneuver to continue to frustrate discovery." OpenAI had argued it needed so many defenses to respond to the ballooning claims against it, and that the defenses had all the backing they needed.
Musk was an early funder of ChatGPT. In his suit, Musk has accused OpenAI and CEO Sam Altman — Musk's former business partner — of setting the business's "founding agreement aflame" by moving to make the organization private. He said OpenAI was baiting and switching investors by allowing them to pour money into a technological innovation they believed would remain public.
OpenAI has hit back against the suit with counterclaims for unfair competition and business interference, castigating Musk's campaign against the company as "harassment." Musk has sought dismissal of the counterclaims, arguing they target protected First Amendment activity, namely warnings to the attorneys general of California and Delaware over the for-profit idea, and made a $97.4 billion offer to buy OpenAI.
A trial in the case is currently set for March 2026.
OpenAI changed course at least somewhat on its transition plans when it said May 5 that it would continue to be overseen and controlled by a nonprofit. The for-profit LLC will transition to a public benefit corporation, "a purpose-driven company structure that has to consider the interests of both shareholders and the mission," OpenAI said. Musk's attorneys have called the move nothing but a "cosmetic restructuring."
Days earlier, Judge Gonzalez Rogers held that Microsoft, OpenAI and several of their affiliates cannot escape the bulk of Musk's lawsuit: tossing claims for breach of express contract and breach of implied covenant of good faith and fair dealing, but finding that Musk has adequately alleged there is an implied-in-fact contract with OpenAI. Microsoft has raised its own defenses, which are not subject to the instant motion or order.
The judge also allowed Musk's claim for breach of quasi-contract, or unjust enrichment, to move forward, finding that the billionaire has adequately alleged that the defendants "unjustly retained the benefit" of their alleged scheme to solicit investors' money for the artificial intelligence venture before turning around and taking it private.
On May 22, Musk filed an amended California federal court complaint continuing to allege that the ChatGPT maker tricked him into contributing nearly $45 million with false promises of remaining a nonprofit. OpenAI and its investor Microsoft responded in June, urging the judge to trim the complaint again, arguing the billionaire and his own artificial intelligence company, xAI, have not made any changes to their previously nixed claims for contract breach and fraudulent enterprise.
Musk is represented by Marc Toberoff and Jaymie Parkkinen of Toberoff & Associates PC.
The OpenAI parties are represented by Jordan Eth, William Frentzen and David J. Wiener of Morrison Foerster LLP and Bradley R. Wilson, Sarah K. Eddy and Nathaniel D. Cullerton of Wachtell Lipton Rosen & Katz.
Microsoft is represented by Russell P. Cohen, Howard M. Ullman, Nisha Patel, Andrew J. Levander and Jay Jurata of Dechert LLP.
The case is Musk et al. v. OpenAI Inc. et al., case number 4:24-cv-04722, in the U.S. District Court for the Northern District of California.
--Additional reporting by Bonnie Eslinger, Hailey Konnath, Lauren Berg, Nadia Dreid, Ivan Moreno, Hannah Albarazi, Jared Foretek, Dorothy Atkins and Al Barbarino. Editing by Vaqas Asghar.
For a reprint of this article, please contact reprints@law360.com.
