Thread by @robertwiblin

People are sleeping on huge news in the Musk vs OpenAI case today.

The judge finds that if Musk's donation gives him legal standing she thinks it's very likely that she'd want to block their entire $100 billion non-profit to for-profit conversion!

I deep dive below. 1/

Musk is trying to stop the OpenAI business effectively converting from a non-profit to for-profit.

To do that he needs to prove both that he is being wronged in a way that allows him to bring a case to the court ('legal standing'), AND that the conversion to a for-profit is unacceptable, breaching the trust created when OpenAI accepted his donations. 2/

Musk gave the OpenAI foundation over $44m in tax-deductible donations to pursue its charitable purpose.

In California law, this gives him the right to challenge the conversion only if that donation was 'restricted' in such a way that it created an "enforceable contract or a charitable trust". It's a fairly technical legal point. 3/

Now, today's court order responds to Musk's attempt to prevent the conversion going ahead even before the case reaches trial — a 'preliminary injunction'.

For the judge to block the conversion pre-emptively, she would have had to be convinced both that Musk was very likely to ultimately win at trial, and that it would be impossible to undo the damage caused by the conversion after the fact, creating 'irreparable harm'. 4/

This is a very high bar that was always tough to reach and unlikely to happen.

In fact the judge finds that irreparable harm will occur: "The Court agrees that significant and irreparable harm is incurred when the public’s money is used to fund a non-profit’s conversion into a for-profit."

But she denies the preliminary injunction because Musk is not overwhelmingly likely to prevail at trial.

Why isn't Musk that likely to win? 5/

It's not that Musk wouldn't have strong grounds to block the conversion if he does have standing to object — the judge thinks that part of the case is very solid:

"...if a trust was created, the balance of equities would certainly tip towards plaintiffs in the context of a breach. As Altman and Brockman made foundational, commitments foreswearing any intent to use OpenAI as a vehicle to enrich themselves, the Court finds no inequity in an injunction that seeks to preserve the status quo of OpenAI’s corporate form as long as the process proceeds in an expedited manner." 6/

It's just that the question of whether his donation created a trust that gives him legal standing, the more boring technical point, is 50/50:

"the threshold question of whether a charitable trust was created remains a toss-up"

While not willing to pre-emptively block the conversion, the judge is bringing forward the case to the fall so that she can rule on all of this before the conversion is likely to have naturally taken place. 7/

Reading between the lines, if that case goes ahead, there's maybe a 45% chance that she'll say the conversion is unlawful (50% * 90%) and cannot proceed! Wild stuff.

That's if the OpenAI foundation board wants to proceed.

It's the foundation board that is meant to ensure their organisation's conduct remains entirely legal, and pursues their charitable purpose to the greatest extent possible. 8/

They face a difficult decision — firstly it would be highly embarrassing to push forward with the conversion then have the whole thing suddenly blocked in a trial later this year, which as we can see above is a very live possibility. 9/

And that outcome would throw OpenAI the business into chaos, upending their financial and governance plans.

The effect on morale and staff retention wouldn't be great, and the possibility of this outcome will be troubling to investors in the meantime. 10/

Furthermore, taking this to trial will cause the details of the conversion to be scrutinised in court.

Even if the judge decides Musk does not have standing, she may well find it hard to avoid the temptation to say negative things about the appropriateness of the conversion itself (as she already has).

This could inform the California and Delaware Attorneys General and swing them towards blocking a conversion that is already controversial and of very unclear legality. 11/

Furthermore, up until now the foundation board might have been able to claim they didn't know better.

But with this laid out in a court order they can no longer claim ignorance. 12/

So in 6 months the OpenAI foundation board might be found to have committed a gross breach of their fiduciary duty to the public — so much that the courts could conceivably find them personally liable (!).

The newly added members are serious respectable people with no interest in this sort of legal hot water. 13/

Note that the AGs, and in theory the nonprofit board itself, should only care about the substantive merit of the case — protecting donor interests and the foundation's charitable purpose — which the judge seems to think are very likely to go against the conversion.

(Musk's personal legal standing is irrelevant from their point of view.) 14/

So... I'm glad I'm not in the board's position.

I'll try to do an emergency podcast on this ASAP (can't promise though, need to check others' availability).

The court order itself is here:

(Look at Section III subjection C. Pp. 12-15.) 15/courthousenews.com/wp-content/upl…

One nice paragraph I forgot to screengrab is this.

The court is very firm that, contra misinformed members of the public, OpenAI was absolutely founded as a charitable body and its resources being diverted into a for profit would harm the public, should that interfere with best accomplishing its charitable purpose.