Fraud and Breach of Contract Claim Over Elon Musk's $1 Million Petition Signature Lottery from 2024 Can Go Forward

From McAferty v. Musk, decided Wednesday by Judge Robert Pitman (W.D. Tex.); the factual summary is based on the allegations in plaintiff's complaint:

Plaintiff brings this putative class action to challenge the actions of Defendants in the lead up to the 2024 election. Musk founded America PAC, an independent expenditure only political action committee created to support "Secure Borders, Safe Cities, Free Speech, Sensible Spending, Fair Justice System and Self-Protection" and help elect Donald Trump as president. In October 2024, America PAC launched a "Petition in Favor of Free Speech and the Right to Bear Arms" (the "Petition") on their website. Visitors to America PAC's website could sign the Petition, which stated "The First and Second Amendments guarantee freedom of speech and the right to bear arms. By signing below, I am pledging my support for the First and Second Amendments." …

At an October 19, 2024 town hall, Musk announced another effort to promote the Petition. He said, "I have a surprise for you. Which is that we're going to be awarding $1 million dollars, randomly, to people who have signed the [P]etition. Every day from now until the election." Musk said they were launching this initiative because "I figured, 'How do we get people to know about [the Petition]?'" Musk then called an audience member, John Dreher ("Dreher"), to the stage as the first $1 million recipient, and said, "By the way, John had no idea." When Dreher came onto the stage to accept an oversized check, Musk told Dreher, "The only thing we ask for the million dollars is that you be a spokesperson for the [P]etition." [This was further promoted via various X posts. -EV] …

Another America PAC town hall was held on October 20, 2024, at which Musk announced a second $1 million recipient, Kristine Fiskell, who was in the audience that day. In total, America PAC awarded $1 million to nine individuals in October 2024, and Plaintiff alleges that each $1 million recipient "is featured on America PAC's website and X handle." As of the filing of Plaintiff's complaint, over 1 million people had signed the Petition.

In late October 2024, the District Attorney of Philadelphia filed a civil suit on behalf of the Commonwealth of Pennsylvania against Defendants alleging that the Petition was an illegal lottery and a violation of the Pennsylvania Consumer Protection Act. The Philadelphia Court of Common Pleas held a hearing on the case on November 4, 2024, where the court heard sworn testimony from, among others, America PAC's representative Chris Young ("Young"), the organization's director and treasurer.

Young testified that those selected to earn $ 1 million were not chosen by random chance but instead America PAC looked for individuals who signed the Petition that it thought would be a good fit to represent the organization as spokespeople. Based on this testimony, the complaint alleges that recipients were not chosen by chance but instead chosen based on their personal stories and thereafter signed a contract with America PAC to be their spokesperson….

Plaintiff alleges that she signed the Petition "in reliance on statements by [Defendants] that in doing so she had a chance of receiving $1,000,000." She asserts that had "she been aware that she had no chance of receiving $1,000,000, she would not have signed or supported the [Petition] and would not have provided her PII [personally identifiable information] to Defendants." She states that her signature and her PII "were given as valuable consideration for a chance to receive the $1,000,000" and that Defendants profited off her PII….

Plaintiff sued, and the court allowed her common law fraud and breach of contract claims to go forward; an excerpt:

To prevail on her fraud claim, Plaintiff must prove:

(1) that a material representation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury.

Plaintiff has adequately alleged all six elements. First, she alleges that Defendants' representations—that by signing the Petition, Plaintiff and others were eligible to randomly win $1 million—were material because "a reasonable person would attach importance to such a representation" given the "large sums of money involved." Second, she alleges that "Defendants' representations were false because [Defendants] have since admitted that the winners were pre-determined."

Third, she alleges that Defendants knew the representations were false when they were made, and fourth, that Defendants intended that Plaintiff and others would sign the Petition based on the representations. Fifth, Plaintiff states that she signed the Petition and gave Defendants her PII in reliance on Defendants' statements and asserts that she would not have done so if she had known that she did not have a chance to win the $1 million. Last, she asserts that she suffered damages by giving her PII to Defendants.

Defendants argue that Plaintiff has not properly alleged three of those elements. They first contend that Plaintiff has not pled a plausible false representation because, in Defendants' view, the PAC's decision to "pre-determine" recipients is consistent with the notion that the recipients were selected "randomly." Defendants' argument on this ground is wholly unpersuasive. As Defendants themselves point out, a common definition for "randomly" is "lacking a definite plan, purpose, or pattern." If Defendants pre-determined the $1 million recipients based on their personal stories rather than chance, as Plaintiff has alleged, then the recipients were obviously not chosen in a way that "lack[ed] a definite plan, purpose, or pattern." Whether Musk's statement falsely or accurately described the way the $1 million recipients were selected will be elucidated through discovery. For now, Plaintiff has plausibly alleged a false representation.

Defendants next argue that Plaintiff cannot allege justifiable reliance because "a person may not justifiably rely on a representation if there are red flags indicating such reliance is unwarranted." Defendants list several "red flags" that they claim Plaintiff should have interpreted as proof that the Petition program was not a random lottery: (1) in the same video where Musk uses the word "randomly" to describe the selection process, he also states two minutes later that the payment was conditioned on the requirement that the recipient "be a spokesperson for the [P]etition"; (2) as of October 20, when Plaintiff signed the Petition, the only two recipients who had been declared were present at the town halls where they were announced; and (3) in America PAC's X post sharing the Musk townhall announcement, it stated that the $1 million recipients were being "selected to earn" the money. Defendants ask the Court to conclude that "no reasonable person could have relied upon the (undisputed) assertions" in Musk's announcement and the subsequent X posts. The Court cannot do so.

While these supposed "red flags" are relevant to an ultimate determination of whether Plaintiff justifiably relied upon Musk's assertion that recipients would be chosen randomly, it would be inappropriate to conclusively decide this issue on a motion to dismiss. All that the Court is tasked with now is determining whether Plaintiff has plausibly alleged justifiable reliance, construing all facts in her favor. Doing so, the Court finds it is plausible that she would rely on Musk's assertion that $1 million would be given out randomly notwithstanding his or America PAC's later statements. Plaintiff's justifiable reliance is further plausible in light of other possibly misleading words Defendants used to describe the Petition program: (1) Defendants would be "awarding $1 million" to those who signed the Petition); (2) John Dreher had "won $1 million for signing the [Petition]"; (3) every day, America PAC would be "giving away" $1 million to someone who signed the Petition; and (4) "All you need to do is sign the [Petition] … to have a daily chance of winning $1,000,000." For these reasons, the Court is satisfied that Plaintiff has plausibly alleged justifiable reliance….

For more on the breach of contract claim, the rejection of the Texas Deceptive Trade Practices Act, and the standing analysis, see the full opinion.

Alexander G. Kykta, Jarrett Lee Ellzey, and Leigh S. Montgomery (Ellzey & Associates, PLLC) and Josh Sanford (Sanford Law Firm) represent plaintiffs.

Comments

[santamonica811]

Sure seems like fraud to me. If "random" is not at all random, and if all (or the vast majority of) the people would never have signed up but for the false representation, then there seems to be a colorable case.

During law school (and beyond), I was dating a smoking hot Russian. A ridiculously hot Russian. (RHR) We would occasionally go to one of those sales pitches for times-shares, just for the free meals, and the free swag. I was a starving student, after all. And there was always a random drawing at the end, with a bunch of crappy prizes, and few decent prizes, and one great prize. A fancy trip. A TV. A washer & dryer. Something quite nice and expensive.

Anyway, there would be between 100 and 500 people in the audience. I and the RHR went about 7 or 8 times. We won the big prize EVERY SINGLE time. "Randomly." You can figure out the odds of that yourselves, of course. The people doing the drawing took one look at RHR and said to themselves, "We have ourselves a winner!!!!"

So, back to this case. Color me skeptical about the defendant(s) here. We'll see what discovery yields, of course. But I suspect that the is a case that will settle, quietly, WAY before this ever gets in front of a jury.

[Life of Brian]

Agree it will almost certainly settle if the class action is certified, but not for an amount that will make it worth the while of anyone but the attorneys. The value of a 9/>1,000,000 chance to win $1,000,000 doesn't even break double digits even if they can show the class members actually had zero chance rather than a reduced chance, and the supposed $47/head value of the PII received the deference it was supposed to in a motion to dismiss but seems unlikely to go the distance.

[ah....Clem]

I'm shocked, shocked it tell you, that Musk would deceive his followers like this. Elon perpetrating a scam seems so out of character.

(Agree with santamonica811 above that this will settle long before it gets to a jury, maybe even before discovery)

[Kazinski]

But what are the damages?

How much time and effort did she spend to sign the petition?

[santamonica811]

Kaz,
Oh, I agree. I think that, as scams go, this was a pretty good one. If for no other reason--as you've already pointed out--each individual person's damages are essentially zero. So, unless a class gets certified, this case goes nowhere. (Although it would be funny to imagine a hundred thousand people suing Musk, in 500 different Small Claims courts around the country, each case being for $5 in actual damages (plus the costs for filing the Small Claims cases, the costs for serving the defendant, etc; which are allowed to be added...at least here in California. I presume that varies from state-to-state, no?)

I think that if Musk were the named defendant, he would have to personally appear or default in each case. He obviously could not have an attorney appear on his behalf in any of these 100,000 cases.

What a pleasant daydream . . . .

[Michael P]

Even if a class is certified, the total damages to the class will be ... $9M?

I suspect that small claims court would not have jurisdiction over a $1M check. Jurisdiction of a court is usually based on actual damages, not damages averaged over a group.

[AmosArch]

I think that if Musk were the named defendant, he would have to personally appear or default in each case. He obviously could not have an attorney appear on his behalf in any of these 100,000 cases.
>>>>>>>>>>>>>>>>>>>>>>>>

I have no idea what point you are trying to make here. Do you seriously believe Musk would be compelled to attend 100000 actual individual separate trials? Or is this just a ELON BAAAAAAAAA....D revenge fantasy which you for some reason are describing it specifically halfway as if it was factual possibility? In what way is your fantasy a 'clever' riposte to kasinski's actually valid point?

[John F. Carr]

An opportunity for interpleader? Toss a few millions of dollars into the pot and let the lawyers fight until the money is exhausted.

[ReaderY]

There’s an obvious defense: because lotteries are illegal, a contract to enter into a lottery is unenforcanle. Plaintiff therefore could bot have wxpected that such a law would be honored.

When a gamblig game is illegal, the players can have no expectation of getting a payoff, and hence can no more complain if the game is rigged than if the police come in, bust it, and take everything.

Of course, the defense is not exactly in Musk’s interest on collateral matters.

[David Nieporent]

There’s an obvious defense: because lotteries are illegal, a contract to enter into a lottery is unenforcanle. Plaintiff therefore could bot have wxpected that such a law would be honored.

An obvious defense… that the court expressly rejected, at least at this stage:

Defendants also contend that Plaintiff has not alleged a valid contract because lotteries are illegal under Texas law, (see Tex. Const, art. III, § 47), and therefore any contract to create a lottery would be void and unenforceable. (Mot., Dkt. 5, at 18 (citing In re OCA, Inc., 552 F.3d 413, 422 (5th Cir. 2008))). However, “[c]ontracts are presumptively legal, so the party challenging the contract carries the burden of proving illegality.” In re OCA, Inc., 552 F.3d at 422 (citing Franklin v. Jackson, 847 S.W.2d 306, 310 (Tex. App.—El Paso 1992, writ denied)). Based on Plaintiff’s complaint, it appears that the Petition program operated mostly online, except for Musk’s two town halls. There have been no allegations demonstrating that the program was based in Texas. As such, Defendants have not met their burden in showing that the contract would have been void under Texas law. Plaintiff has plausibly alleged the existence of a valid contract.

Note that while "lotteries" are generally illegal except for charitable purposes, sweepstakes are not, which is why consumer product companies run the latter all the time. (The general difference is whether one has to pay to enter.)