The key thing to realize here is that the plaintiff was not a public figure, notwithstanding his role in an otherwise well-publicized incident. The plaintiff doesn't have to show that Musk acted with malice or reckless disregard.

Elon is fighting this because he can, but even his lawyer would know it's a loser. OTOH, it's probably a fun case for the lawyer, like the cases assigned in law school that are designed to be losers but you make it a personal challenge to see how far you can take it. Plus he's getting paid well.