October 4, 2024 • 39 mins
Former United States Solicitor General Gregory Garre, a partner at Latham & Watkins, discusses the upcoming Supreme Court term which includes cases on transgender rights, ghost guns and shareholder lawsuits. Former FTC Chair William Kovacic, a professor at George Washington University Law School, discusses the fast clip of deals being abandoned after antitrust inquiries. June Grasso hosts.
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Speaker 1 (00:03):
This is Bloomberg Law with June Brusso from Bloomberg Radio.
The Supreme Court kicks off its new term on Monday.
The justices are coming off a blockbuster term with several
highly controversial decisions that divided the justices down ideological lines.
(00:24):
The Court continues to face criticism and calls for reform
after ethical controversies, and public trust in the Court has
continued its downward slide to historic lows. Several blockbuster cases
involving transgender rights, ghost guns, and online pornography are already
scheduled for this term, but it's shaping up to be
(00:46):
less contentious than last at least so far. More cases
will be added to the docket. Joining me is former
United States Solicitor General Gregory Garr, the Global Chair of
the Supreme Court in appellate practice at least Nathan and
Watkins greg the Supreme Court's coming off this blockbuster term
some highly controversial six to three decisions. There are continuing
(01:10):
calls for reform. Public trust is on a downward slide
to historic lows, and some of the justices themselves have
publicly expressed concerns about the court. What's on the line,
if anything, for the Court this term.
Speaker 2 (01:25):
Well, I think a lots on the line. Every year
for the Supreme Court is a big year. As you say,
there's been some clouds surrounding the Supreme Court recently, and
so they've got to go back to work and they've
got to, you know, as always, work on building and
sustaining the public trust. They've got twenty eight cases so far,
which is light as the docket's been in recent terms.
(01:46):
But things always heat up in October and we expect
that the Court will add to its docket, and for
all we know, there could be election related cases down
the pipeline as well.
Speaker 1 (01:55):
Let's take a look at some of the cases that
are coming up, starting with a few cases that are
going to be argued next week. On Tuesday, the justices,
we'll hear arguments in the case of Garland versus Van Derstock,
a high profile case involving a challenge to the Biden
administration's regulation of ghost guns. Tell us about the issue here.
Speaker 2 (02:19):
So, the Court has taken a number of gun cases
in recent years, and they sort of fall into two dockets.
One set of cases involves challenges under the Second Amendment
in the individual right to bear firearms and The second
involves more traditional administrative law type challenges, where the argument
is that an agency has passed a rule involving guns
(02:40):
that exceeds its statutory authority. The ghost gun case falls
into that latter category. As you noted, it involves a
challenge of twenty twenty two regulation by the Bureau of Alcohol,
Tobacco and Firearms that defines kits that are sold with
parts that can be used to assemble a gun as
little as thirty minutes. And the rule says that those
kits qualify as a firearm under the Gun Control Act
(03:04):
and can be regulated as such. And that's important, the
government claims, because the guns, once assembled, lack serial numbers,
and so that's why they're known as ghost guns. So
this case is a lot like the bump stock case
that the Supreme Court decided last year Garland versus Carhill.
In that case, the court invalidated a rule regulating bump
(03:25):
stocks as going beyond the technical definition in a statute
of barring machine guns. So we can expect a very
technical review of the part kits and ghost guns in
this case and whether that assemblage qualifies as a firearm
under the Gun Control Act. The Court previously undered in
(03:45):
order in this case, allowing the government to reinstate the
rule while it was being litigated. But Justices Thomas, Alito
and Gorsich and Kavanaugh all descended from that, which means
that the Chief Justice and Justice Barrett likely hold the
controlling votes in this case.
Speaker 1 (04:00):
The Fifth Circuit upheld the lower court's decision to strike
down the regulation. What was the reasoning there?
Speaker 2 (04:09):
Again, this is a statutory interpretation case, and it involves
the technical terms of the statute, including the particular parts
the frames and receivers, and whether or not the agency's
interpretation of that is reasonable in light of the statutory
definition of firearms. I mean, it's a gun case, but
it's really a conventional statutory interpretation case.
Speaker 1 (04:31):
Considering that the court throughout the federal ban on bump stocks,
I'm wondering why they took this case, which is similar.
Speaker 2 (04:42):
Well, it's a different issue, and it's a very important
issue according to the sisterenor General who asked the Court
to take this case. So in light of that request,
it's less surprising that the Court agreed to hear it,
and I think all agree that the issue is quite important.
Speaker 1 (04:57):
Can you read anything into the fact that the Court
is allowing the rule to be enforced until it's settled
at the Supreme Court.
Speaker 2 (05:06):
I wouldn't read too much into that June. You know,
now that the case is before the Court, I think
the justices will take a close look at it. I
think what is significant is that in that prior order
you had four justices descending, so you can expect that
those justices are probably skeptical of the rule as it
arrives at the Court.
Speaker 1 (05:24):
The Justice is sidestepped a lot of appeals over the
Second Amendment, including challenges to bands in Illinois and assault
style weapons, federal bands on firearm possession by felons. Do
you think they're taking a break from the Second Amendment.
Speaker 2 (05:40):
I think some of them would like to take a
break from the Second Amendment, but the cases keep coming.
The recent decision a few terms ago in Bruin sort
of re establishing the framework for evaluating Second Amendment challenges,
has created a lot of litigation. There's more cases in
the pipeline, so I think whether anyone likes it or not,
I think we're going to see a stream of cases
(06:00):
arriving at the Supreme Court.
Speaker 1 (06:02):
Now next week on Wednesday, Oral arguments in a death
penalty case Glossop versus Oklahoma, And this goes back to
two thousand and four when Richard Glossip was convicted of
murder and sentenced to death. Nine execution dates have been
set for him, and he's had his last meal three times.
According to the Death Penalty Information Center, it seems as
(06:25):
if over the years the case against him has fallen
apart in many ways.
Speaker 2 (06:30):
This is truly someone who has had almost nine lives already.
So he was sentenced to death for a killing at
a motel in Oklahoma City a couple of decades ago,
in which the case really turned on the testimony of
one individual who worked at the hotel and who said
that Richard Glossip paid the mand to kill the victim.
(06:51):
And what makes this case really interesting today is that
Golossop's challenge is now supported by the people who sought
the death only against him, the prosecution prosecutor's attorney general
in this case of Oklahoma, who now agrees, based on
newly discovered evidence, that glossip conviction is tainted by constitutional errors,
(07:12):
including a very important Brady error. Brady is the decision
in which puts an obligation on the prosecution to come
forward with exculplatory evidence in criminal cases. In this case,
the claim is based on the prosecution's failure to turn
over exculplatory evidence that bore in the credibility of the
state's star witness, again, this man who claimed that Glossip
(07:35):
paid him to kill the victim. The Oklahoma Court of
Appeals refused to set aside glossop death sentence, even notwithstanding
the Attorney General's own confession of error in the case.
Supreme Court, which hasn't taken many death cases in the
past few years, granted review. So now it'll be really
interesting to see what the Supreme Court does as it
(07:55):
reviews glossip claims of constitutional error, again with the attorney
general roll of the state separately represented, arguing alongside gloss Up,
and then looking in the background of this case is
the interesting question of how courts should treat a state's
own confession of error in a decade's old case. On
the one hand, you would think that would be a
(08:15):
pretty compelling reason to re examine and perhaps set aside
a conviction. On the other hand, there have been some
concerns of political considerations that could enter the mix. As
you go from one administration to the next, so that
the court's going to take a close and fresh look
at this case.
Speaker 1 (08:30):
The Court's not going to consider all the alleged errors
by police and prosecutors, but just that prosecutors didn't turn
over these handwritten notes that the state's key witness was
suffering from a serious mental disorder.
Speaker 2 (08:46):
Yeah, that's exactly right. There are a lot of claims
in the case, but the Supreme Court's review here is
going to focus on that Brady error, which involved the
failure to turn over those notes, which mister Glossip claims
could have been used to impeach this witness, whose testimony
The case, I think both sides agree, basically turned on.
Speaker 1 (09:05):
So the Supreme Court, as you mentioned, hasn't taken many
death penalty cases recently, and there's a history of finding
that state convictions should remain final even if there is
later evidence that they may be unreliable. The Supreme Court,
in a six or three decision last week, allowed Zuri
(09:26):
to execute a man for a murder even though his
conviction was contested by prosecutors. So, no matter how strong
the evidence, if they stick to the idea that state
convictions should be final. Will it make any difference.
Speaker 2 (09:42):
I think you're right June that the Court has been
hesitant to overturn state court convictions. In a way, it
has to be because of the statutory law governing habeas
corpus and the like. But nevertheless, here there are clean
constitutional claims of error, including brain and that's something that
justices on both sides of the ideological spectrum. They have
(10:05):
taken very seriously, and the fact that this is a
death case only raises the stake. So I think it's
the court it looks at this record and agrees there
is constitutional error here. I would surprise if it didn't
take some form of corrective action. But there's no doubt
that those challenging death sentences face an uphill battle before
the current court.
Speaker 1 (10:26):
So now, perhaps the highest profile case so far on
the docket involves a polarizing issue across the country. Tennessee's
ban on gender transition care for miners tell us about
the issue here.
Speaker 2 (10:41):
So this is really the one big culture war case
that's currently on the docket right now. It involves a
challenge to a Tennessee law that bars gender type medical
procedures or treatment for miners, including surgeries and puberty blockers
and hormone treatments and the like. And it's a lot
that twenty one other states have acted right now in
similar form, and several individuals, backed by the Biden administration itself,
(11:05):
have challenged the law on the ground that it rests
on a sex based classification that violates the Equal Protection Clause.
The six Circuit upheld the law below Supreme Court grant review,
and that the key question now is whether the law
triggers heightened scrutiny under the equal Protection clause or instead
the much lower rational basis review. And that turns on
(11:28):
whether you view the Tennessee laws making a classification based
on sex or instead one that is based on the
regulation of access to medical care and that acts on
an even handed basis among miners regardless of sex. And
what's interesting about this is that question implicates a case
from a few terms ago Bostk versus Clayton County, in
(11:49):
which the Court, in a closely divided opinion written by
Justice Gorsicic joining with the more liberal justices, held the
Title seven's prohibition against sex based discrimination applies to sexual orientation.
So the US argues that the reason of mastak leads
to the conclusion that laws concerning access to gender treatments
are sex based in the sense that one who is
(12:10):
male at birth can get testosterone treatments, but a female
at birth can't, Whereas the state argues in this case
that the law doesn't draw any distinction based on sex
because it simply applies to all minors and borrowers access
to these treatments, and the case of gender type procedures
for all individuals regardless of sex. And then lurking in
(12:32):
the background of this case is a debate over the
medical importance of these treatments for those seeking access to them,
which could well color the legal arguments on both sides
of the case.
Speaker 1 (12:43):
You mentioned that about two dozen states have laws restricting
access to therapies like this, So could this decision establish
a landmark legal precedent.
Speaker 2 (12:54):
I think it's going to be quite important because this
is one of the early cases in which the Court
as confronted issue of transgender rights and laws drawing classifications
of this type. So, although I suspect that the Court's
decision will be focused on the Tennessee law at issue here,
I think it could have long term implications for laws
(13:18):
and actions dealing with this important question.
Speaker 1 (13:21):
Coming up next on the Bloomberg Law show cases involving
flavored vapes and e cigarettes, environmental rules, and securities, fraud lawsuits.
I'm June Grosso and you're listening to Bloomberg. The Supreme
Court's new term starts on Monday, and I've been talking
to former US Solicitor General Gregory gar about some of
(13:42):
the noteworthy cases the justices will be deciding. Another case
involving miners is Free Speech Coalition versus Paxton. It's about
age verification for pornographic websites.
Speaker 2 (13:56):
So Texas enacted a law that says that any website
that publishes pornographic or other harmful material must require users
to verify that they're eighteen years or older in order
to access the site using various forms of virtual ideas.
And the argument that the plan is brought in this
case is that the law violates the First Amendment by
(14:18):
burdening adults rights to access the material on such websites
by basically making it more burdens than their cumbersome to
have to show an idea or the like to get
onto the site. The Fifth Circuit upheld the law in
the Supreme Court granted review. There's another case where the
big question is how strictly the court has to review
the law. Do you apply strict scrutiny or the much
(14:38):
lower form of review rational basis, And that turns on
the Court's reading of a fifty five year old case
called Ginsburg versus New York in nineteen sixty eight, in
which the Court held that the States may restrict miners'
access to pornographic material. But in more recent cases, including
case ten years or so ago in Ashcroft versus acl You,
(14:58):
the Court is subjected laws restricting adult access to websites
and the like to strict scrutiny. And this court is
established itself as very pro First Amendment and arguably is
one of the most pro First Amendment courts in the
Court's history. So it'll be interesting to see how it
analyzes this law.
Speaker 1 (15:16):
So the Supreme Court in April refused a request by
the challengers to halt enforcement of the law while litigation
in the dispute proceeds. Every time they do something like that,
I say, does that indicate where they're going here?
Speaker 2 (15:31):
I mean, of course, if the court really hates a law,
it's going to prevent it from being in forced, so
that that's a strong indication it's not going to get
a favorable reception when it arrives. But it's a really
high standard to invalidate a law during litigation. And so
I think that's, you know, one sort of tea leaf.
But I think that in itself is unlikely to tell
us much about how the court would resolve this case.
(15:53):
So this this well could be a case that involves
an interesting lineup in a narrow decision.
Speaker 1 (15:58):
So another case from the fifth This is about the
FDA's efforts to curb flavored vapes and e cigarettes.
Speaker 2 (16:07):
And here it's a challenge to the FDA's defense of
its rejection of the applications by two companies who sell
flavored vaping products. And the FDA declined the application, as
it has done for most similar applications, because of public
health concerns stemming from the use of flavored vaping products
and the attraction of minors. And so the companies argued
(16:29):
here that the FDA had violated the Administrative Procedures Act
by acting arbitrarily and capriciously in that it had engaged
in sort of an unfair surprise by changing the rules
for evaluating these applications in midstream with that fair notice
and improperly refusing to consider certain evidence. It was something
of a surprise that the Fifth Circuit here broke with
(16:51):
other courts that had faced similar challenges and finding that
the FDA had acted unlawfully into supproving these applications. And
so I think that this could be a sleeper case.
And it's definitely an interesting case to follow, because it's
really more of a Nuts and Bolt's administrative law case
than sort of an e cigarette case. But a decision
(17:11):
by the Supreme Court in this case upholding the Fifth
Circuit I think would invigorate arbitrary and capricious challenges to
all sorts of rules. And one thing that we've seen
in the past few years, as you know, is the
Supreme Court taking an intense interest in administrative law cases
and really sort of pushing back on various aspects of
(17:31):
the administrative state. Kept off last term, of course, in
the decision overturning Chevron deference.
Speaker 1 (17:38):
Yes, I say the Court has taken a sledgehammer to
agency power. Perhaps a too intense description there, but what
could be the implications of ruling against the FDA in
a case like this where health of children is concerned,
and you know the FDA's authority over health concerns in general,
(18:00):
or is it just about the standard of arbitrarian capricious.
Speaker 2 (18:03):
In a sense, it's broader, June. I think it does
raise public health implications of allowing these sorts of products
which FDA is regulating. And of course, if the Supreme
Court affirms the Fifth Circuit here, it doesn't mean that
the applications would be granted. It would mean that the
FDA would have to go back and take another look
at them, presumably. But the broader implications here are if
(18:24):
the Supreme Court agrees that the agencies acted arbitrarily here,
then I think what it would mean is that courts
would have to take a much closer look at agency
decision making and claims that agencies have changed the rules
sort of in the course of an administrative decision making process.
That's the sort of claim that agencies, you know, typically
(18:48):
at one a decade or so ago. And you know,
it's tough for sledding these days. So I do think
that this is a really important case to keep our
eyes home.
Speaker 1 (18:57):
Next, let's turn to a completely different area involving standards
for investor claims in shareholder lawsuits in Vidia versus e
Omen j out of the Ninth.
Speaker 2 (19:10):
Circuit, so this is a technical securities case. The question
is whether the heightened pleading requirements of the private securities
litigation format apply to allegations of security fraud based on
internal company documents. Such a plan of seeking to establish
center using company documents have to allege the actual contents
of those documents, and the question tends to come up
(19:33):
when securities planet is claim that a company's internal documents
contradict its public statements that the company's executives and the
like are making two investors. But oftentimes, or sometimes at
least the planets don't actually have their hands on the documents,
so they're making allegations based on what they surmise are
in the documents. In this case, the planeffs claim that
the CEO of Navidia, a company in the manufacturer's computer chips,
(19:56):
made public statements at odds with the company's reports about
what other or crypto miners or gamers were buying their chips,
which became important when NA Video's revenues dropped after the
twenty eighteen crypto crash. The Planets argue that imposing a
heightened pleading standard in this context is at odds with
the PSLRA and the court's prior precedents, and the Supreme Court,
(20:19):
though in prior cases, has generally sort of rigorously enforced
these heightened pleading standards. There's a related question that comes
up in this case which is interesting, which is whether
a planeff can rely on expert testimony itself to establish
the falsity of internal documents based on an assumption of
what the information the documents contain. So that'll be one
(20:40):
we want to follow as well. You know, the backdrop
of this case is that business really has had something
of a mixed record before this court in the past
few terms. This is not a court that is reflectively
ruling in favor of business, and so it will be
interesting to follow this case and see where the court
ends up here.
Speaker 1 (20:58):
So a decision here would give companies leverage for earlier
dismissal of shareholder lawsuits.
Speaker 2 (21:06):
Exactly If the heightened pleating standards apply to these sorts
of claims and internal documents, then it's going to be
much harder for plantiffs to bring claims based on internal
company documents because they often don't have access to the
full contents of those documents.
Speaker 1 (21:21):
Next, let's discuss a case on water pollution in the
EPA's powers. And this case involves San Francisco versus the EPA,
which is not one of the cities I would expect
to go against the EPA. So tell us what San
Francisco's case against the EPA is.
Speaker 2 (21:37):
Yeah, it's kind of an indication of where we arrived
with aggressive environmental enforcement, where you've got San Francisco itself
taking on the EPA. So this case arises out of
a permit issued by EPA under the Clean Water Act
for San Francisco's discharge of sewage into the Pacific Ocean.
And the question is whether the Clean Water Act authorizes
EPA to impose general water quality standards in San Francisco
(22:00):
and other jurisdictions for the quality of the receiving waters,
as opposed to specific what's called effluent limitations on discharges.
San Francisco itself taking on the EPA. So, San Francisco
argues that the Clean Water Act was intentionally designed to
enable EPA to regulate what was coming out of the
pipe or what's known as point sources through these effluent
(22:21):
limitations which impose specific limits on particular pollutants, and that
you know, EPA is sort of changing the game when
it's trying to impose general water quality standards on the
regulated which then is much more abstract and difficult for
jurisdictions to comply with. But EPA says not so fast.
EPA says that that the Clean Water Act can't be
(22:42):
interpreted that narrowly, that although it refers to effluent limitations
on discharge, that it also allows EPA to regulate water
quality in other ways. The case really boils down to
whether EPA's interpretation violates the Administrative Proceedure Act on the
ground that it contravenes the statute. Now, this is exactly
the sort of thing to which EPA would have asked
(23:04):
for and received Chevron deference a decade or so ago,
and after the liver Bright decision last term, though, it's
going to have to fight this one out on the
level playing field.
Speaker 1 (23:13):
And do you think that lowber Bright and the courts,
I'm going to say, tendency to eliminate environmental protections or
to rule against the EPA. I mean, last term they
split about blocking the EPA's good neighbor ozone emission rule.
I mean, do you think that bodes ill for the
EPA here?
Speaker 2 (23:33):
I think it could. I mean there's been something of
a perfect storm where you combine aggressive agency enforcement with
reliance on broad statutory provisions, which is where what we've
seen come up time and again in these cases. And
if that's the way the Supreme Court views this case,
then EPA may be in for a fight.
Speaker 1 (23:54):
Thanks so much, Greg for joining me again in our
yearly preview of the Supreme Court term. Former Uslicitor General
Gregory Garr, a partner at Latham and Watkins. Coming up next.
Why deals are collapsing? This is bloomberg. The Biden administration
is touting the fact that so many potential deals are
(24:15):
being abandoned under its policy of pushing for fewer settlements
and more lawsuits. Firms attracting antitrust scrutiny are abandoning deals
at their highest clip in years. Six significant merger inquiries
during the first half of the year ended with the
Federal Trade Commission or the Department of Justice saying the
party's nixt a proposed transaction that figure exceeds yearly totals
(24:41):
from the previous decade, according to a report from the
law firm Deckert. Joining me is William Kavasik, former chair
of the FTC and a professor at George Washington University
Law School. I wanted to start with getting your first
reaction to the report that firm attracting antitrust scrutiny are
(25:02):
abandoning deals at the highest level in years.
Speaker 3 (25:07):
My sense in talking to friends who are counseling companies
is that's true. It's very difficult to judge how much
in which deals are being chased off. On the one hand,
the commitment to litigate cases more broadly, plus a variety
of other policy adjustments that basically takes settlements out of
(25:30):
the picture or make settlements harder to achieve, not impossible,
means that at the margin, more companies are deciding not
to proceed with deals. And that's not just a function
of the US regime. If it's a company that does business,
say in the European Union and the United Kingdom, or
is a global goods and services company, the risk associated
(25:54):
with going forward has increased in the United Kingdom and
in Europe, and that means means that you not only
have to cope with the additional cost delay in the
United States. There is the certainty of additional reviews in
other countries, so that when firms are looking at the
path they have to take in order to achieve the result,
(26:17):
they have in mind that is a more perilous path
than it was before, and at a minimum, it is
a path that is slower and more expensive. And I
think at the margin that's discouraging companies from even pursuing
certain types of deals, in part because when they turn
to their internal advisors, their own internal counsel, or to
(26:39):
external counsel and say, will this deal get through, they're
being told it is highly unpredictable, it's very risky. It's
risky both for the buyer but certainly for the seller
as well, and that additional risk, I am certain is
scaring off some transactions. It's hard to tell how many.
Speaker 1 (26:59):
By administration has touted these trends, But do the numbers
mean that the deals are anti competitive and so the
firms are banning them or just because they don't want to,
as you say, go through litigation with the government or
this long review process.
Speaker 3 (27:15):
Yeah. Part of it is that in the past, where
there was a perceived problem, even if the company sought
the problem didn't exist or was trivial, it was possible
for them to negotiate with the FTC or the DOJ
a settlement that solved the problem, either with divestitures or
with behavioral commitments. That flexibility has been largely rung out
(27:39):
of the system, where although the agencies are not completely
unwilling to accept settlements, and we saw a chevron and
has accept such a settlement, only just recently, the government
agencies have said, by and large, we think settlements don't work,
that even structural solutions are often ineffective. As a consequence,
(28:01):
because we don't believe they work, we're willing to go
to court and try and block deals rather than negotiate.
So even where a competitive problem existed until the relatively
recent past, the government agencies were willing to bargain and
to accept settlements, that flexibility to a large degree has
been taken out of the system, which means that even
(28:22):
where companies recognize that there was a competitive problem, they've
lost the ability to negotiate with the government to find
a solution, or if they really want the deal to
be done, they have to be willing to go to
court and argue to the court. We have a solution
in place to solve the problem and to persuade the
court that death solution is effective.
Speaker 1 (28:43):
So as you say, Jonathan Canter, the DOJ's antitrust head,
and FTC chair Lena Khan, have said they are skeptical
that settlements or consent degrees work. Do you think they work?
I mean, even if they don't work, do you just
give up on them completely?
Speaker 3 (28:59):
I think that their concerns there's somewhat exaggerated. That the
concerns I've expressed are not baseless. There is a history
of failed settlements and a number of sectors. There is
always a danger in settlements that, for the sake of
building up numbers of enforcement events and moving matters through
the system, both the parties and the agencies will step
(29:21):
forward to the world saying we accepted a solution that
protects consumers. I've never read a press release from a
government agency in the US or abroad that said we
accepted the settlement, but there are real risks here, and
if you want to watch whether or not this works,
you should focus on the following factors. That press release
(29:41):
has never written. The press release always says we spotted
the problem, and like the most skillful surgeons you ever saw,
we intervene to take out all of the any competitive possibilities.
The patient of competition is alive and thriving. We are
the most successful competition on the earth. That's the way
(30:01):
the settlement press release reads. But that often is a
fiction or not quite right. So Assistant Attorney General Canter
and fair Con are exactly right that we should perhaps
be more wary about settlements. But there's a spectrum of
options that range from absolute skepticism and doubt to a
more critical point of view that still accepts the settlements.
(30:25):
And here I think is what's lost in the process
is that let's suppose that you have a settlement that
gets you ninety percent of where you want to be.
That settlement allows you to move more resources to focus
on deals that are manifestly any competitives and deserve litigation challenge.
If you take away the flexibility to take that ninety
percent solution, it means that you better be willing to
(30:48):
fight a much larger number of deals for which you
do not have the resources to carry out all of
those battles, or you are going to find quiet and
more subtle ways to let deals go through that may
involve some informal conceptions, may involve you waving through deals
that are not so visible, that aren't tech, that aren't food,
(31:09):
that aren't energy, in order to keep your statistics balance
sheet clean with no settlements, but with prohibitions or clearances
being the main option. So I think their express concerns
are somewhat exaggerated, and I don't think that they quite
respond to the reality of what decisions an agency has
(31:29):
to make when it has a continuing flow of filings
where you have some transactions that are going to be
problematic a lot or a little, you need some flexibility
to accept deals for transactions to pose a more modest
competitive risk where the settlement is maybe not perfect, but
it might be good enough in order to allow you
(31:51):
to mobilize resources to focus on deals that are manifestly
problematic for which you have to pursue the settlements. So
to some extent, I think that they have denied themselves
an element of flexibility that is very important to making
the entire merger review process effective.
Speaker 1 (32:10):
So, Bill, can you talk a little bit about how
they've also stepped up enforcement in areas that previously they
didn't look to so much like labor and potential competition
in vertical mergers.
Speaker 3 (32:25):
They've unmistakably highlighted the importance of competition in markets for
labor and any stress. Law for a long time has
recognized that competition for labor inputs is very important, but
it hasn't elevated those concerns as much as the agencies have.
That happened in the DOJ, Simon and Schuster transaction, where
(32:46):
DOJ relied very successfully on essentially a labor market theory
of arms. The most interesting of all the labor cases,
I think is the Albertsons Kroger transaction, where, to an
extent not previously seen, the FTC has elevated the role
of labor as a key input, has highlighted the impact
(33:07):
on organized labor of the transaction, saying that the transaction
will deny unions the ability to bargain as effectively as
they might otherwise. That transaction is the most interesting test
of the effort of the agencies to extend the frontiers
where labor theories of harm are important. Unmistakably, they've also
(33:28):
demonstrated their willingness to litigate vertical merger series of harm
more than the agencies had in the past. The Trump
administration did challenge the at Time Warner Deal unsuccessfully, but
that was a major effort to focus on vertical series
of harm. The FTC and DJ have had success, some failures,
but success as well. The FTC's challenged to illuminate Grail
(33:52):
vertical transaction, where the FDC was largely successful. What happened
is that the agencies, because of their skepticism of seven,
have cast aside the previous practice of resolving vertical concerns
by taking supplements. It's not as though the agencies before
twenty twenty or before the Ate and Time Warner Deal
(34:12):
ignored vertical issues, but those vertical issues usually were resolved
with settlements that imposed behavioral controls on the firms, especially
controls that said that you won't discriminate against third parties
with respect to access to an asset or an output
that you now control. So what we've seen is what's
interesting and distinctive about the modern practice is that the
(34:34):
agencies have been willing to litigate those deals to block
them again, not with complete success, but firms now realize
that a vertical merger is much more likely to show
up in the courtroom in a litigated challenge rather than
result in a somewhat predictable behavioral fix. That means that
vertical deals are riskier now than they used to be.
(34:57):
And on the question of nascent competition, both agencies are
approaching the acquisition of upstart firms or smaller firms with
interesting ideas with a lot more skepticism than their predecessors.
They believe that a grievous failure of anti trust policy
in the previous decades was not to bear down on
(35:19):
acquisitions by established incumbents of smaller upstarts. So they've decided that,
especially for big tech, that acquisitions of small upstarts in
a variety of different areas could pose a competitive threat,
both because the upstart has the capability to grow into
an independent source of rivalry to the incumbent dominant firms,
(35:43):
or that the upstart has a complementary capability which, when
added to the portfolio of the incumbent, gives it a
greater ability to resist entry and expansion by other firms. Now,
those series of harm have been somewhat harder to establish.
The courts have been somewhat more resistant to those theories,
in particular because they feel the government has lacked proof
(36:06):
that shows that the acquisition of the nascent threat is
likely to be harmful. They accept the theory that the
acquisition could be harmful. They haven't repudiated the government with
respect to the theory, but they've said, you have an
interesting hypothesis about what might happen if this smaller upstart
firm is acquired. Do you have more facts to show
(36:27):
to give us confidence that that hypothesis is likely to
be true?
Speaker 1 (36:31):
Finally, the Biden administration formalized its enforcement approach in merger guidelines.
What's your take on those merger guidelines?
Speaker 3 (36:40):
The merger guidelines unmistakably stake out a broader perimeter of enforcement.
They embrace a wider range of theories of harm. They
announced that the government will review horizontal mergers at lower
concentration thresholds than they had announced that they would in
the previous guidelines issued twenty ten. They spell out greater
(37:02):
skepticism about efficiencies as justification for mergers. So in a
very general way, the twenty twenty three government merger guidelines
announce a decided effort to extend the frontiers of enforcement
beyond the boundaries at which they've been set certainly since
twenty ten. The real effect of those guidelines, and all
(37:25):
government guidelines, depends on their absorption in the courts. The
guidelines are important as an indication of what the government
means to do, but it's only when federal judges look
at those guidelines and say these make sense as a
principle for merger control and adopt the reasoning in published opinions.
(37:46):
There are several cases now in litigation that will give
judges an opportunity to do that. Albertson's Kroger is one.
The Tapestry Capri case is another, involving accessories handbags. The
temper Steally Mattress merger case is a third that's in litigation.
There are a couple of others at the fringes of litigation. Now.
(38:09):
Those cases are interesting to watch because they will tell
us how rapid this rate of absorption is. You need
a critical mass of district judge or Court of Appeals
pinions that say we don't have to follow these guidelines.
They don't bind us, but we find their reasoning compelling,
and we are going to embrace and rely upon the
(38:29):
analytical approach that they've set out. So over the next
eighteen twenty four months, we will see if that judicial
uptake is happening.
Speaker 1 (38:38):
Thanks so much for sharing those insights with us. Bill.
That's William Klevasik, former chair of the FTC and a
professor at GW Law School. And that's it for this
edition of the Bloomberg Law Podcast. Remember you've can always
get the latest legal news by subscribing and listening to
the show on Apple Podcasts, Spotify, and at Bloomberg dot com,
(38:59):
slash podcast, Slash Law. I'm June Grosso and this is
Bloomberg
This is Bloomberg Law with June Brusso from Bloomberg Radio.
The Supreme Court kicks off its new term on Monday.
The justices are coming off a blockbuster term with several
highly controversial decisions that divided the justices down ideological lines.
(00:24):
The Court continues to face criticism and calls for reform
after ethical controversies, and public trust in the Court has
continued its downward slide to historic lows. Several blockbuster cases
involving transgender rights, ghost guns, and online pornography are already
scheduled for this term, but it's shaping up to be
(00:46):
less contentious than last at least so far. More cases
will be added to the docket. Joining me is former
United States Solicitor General Gregory Garr, the Global Chair of
the Supreme Court in appellate practice at least Nathan and
Watkins greg the Supreme Court's coming off this blockbuster term
some highly controversial six to three decisions. There are continuing
(01:10):
calls for reform. Public trust is on a downward slide
to historic lows, and some of the justices themselves have
publicly expressed concerns about the court. What's on the line,
if anything, for the Court this term.
Speaker 2 (01:25):
Well, I think a lots on the line. Every year
for the Supreme Court is a big year. As you say,
there's been some clouds surrounding the Supreme Court recently, and
so they've got to go back to work and they've
got to, you know, as always, work on building and
sustaining the public trust. They've got twenty eight cases so far,
which is light as the docket's been in recent terms.
(01:46):
But things always heat up in October and we expect
that the Court will add to its docket, and for
all we know, there could be election related cases down
the pipeline as well.
Speaker 1 (01:55):
Let's take a look at some of the cases that
are coming up, starting with a few cases that are
going to be argued next week. On Tuesday, the justices,
we'll hear arguments in the case of Garland versus Van Derstock,
a high profile case involving a challenge to the Biden
administration's regulation of ghost guns. Tell us about the issue here.
Speaker 2 (02:19):
So, the Court has taken a number of gun cases
in recent years, and they sort of fall into two dockets.
One set of cases involves challenges under the Second Amendment
in the individual right to bear firearms and The second
involves more traditional administrative law type challenges, where the argument
is that an agency has passed a rule involving guns
(02:40):
that exceeds its statutory authority. The ghost gun case falls
into that latter category. As you noted, it involves a
challenge of twenty twenty two regulation by the Bureau of Alcohol,
Tobacco and Firearms that defines kits that are sold with
parts that can be used to assemble a gun as
little as thirty minutes. And the rule says that those
kits qualify as a firearm under the Gun Control Act
(03:04):
and can be regulated as such. And that's important, the
government claims, because the guns, once assembled, lack serial numbers,
and so that's why they're known as ghost guns. So
this case is a lot like the bump stock case
that the Supreme Court decided last year Garland versus Carhill.
In that case, the court invalidated a rule regulating bump
(03:25):
stocks as going beyond the technical definition in a statute
of barring machine guns. So we can expect a very
technical review of the part kits and ghost guns in
this case and whether that assemblage qualifies as a firearm
under the Gun Control Act. The Court previously undered in
(03:45):
order in this case, allowing the government to reinstate the
rule while it was being litigated. But Justices Thomas, Alito
and Gorsich and Kavanaugh all descended from that, which means
that the Chief Justice and Justice Barrett likely hold the
controlling votes in this case.
Speaker 1 (04:00):
The Fifth Circuit upheld the lower court's decision to strike
down the regulation. What was the reasoning there?
Speaker 2 (04:09):
Again, this is a statutory interpretation case, and it involves
the technical terms of the statute, including the particular parts
the frames and receivers, and whether or not the agency's
interpretation of that is reasonable in light of the statutory
definition of firearms. I mean, it's a gun case, but
it's really a conventional statutory interpretation case.
Speaker 1 (04:31):
Considering that the court throughout the federal ban on bump stocks,
I'm wondering why they took this case, which is similar.
Speaker 2 (04:42):
Well, it's a different issue, and it's a very important
issue according to the sisterenor General who asked the Court
to take this case. So in light of that request,
it's less surprising that the Court agreed to hear it,
and I think all agree that the issue is quite important.
Speaker 1 (04:57):
Can you read anything into the fact that the Court
is allowing the rule to be enforced until it's settled
at the Supreme Court.
Speaker 2 (05:06):
I wouldn't read too much into that June. You know,
now that the case is before the Court, I think
the justices will take a close look at it. I
think what is significant is that in that prior order
you had four justices descending, so you can expect that
those justices are probably skeptical of the rule as it
arrives at the Court.
Speaker 1 (05:24):
The Justice is sidestepped a lot of appeals over the
Second Amendment, including challenges to bands in Illinois and assault
style weapons, federal bands on firearm possession by felons. Do
you think they're taking a break from the Second Amendment.
Speaker 2 (05:40):
I think some of them would like to take a
break from the Second Amendment, but the cases keep coming.
The recent decision a few terms ago in Bruin sort
of re establishing the framework for evaluating Second Amendment challenges,
has created a lot of litigation. There's more cases in
the pipeline, so I think whether anyone likes it or not,
I think we're going to see a stream of cases
(06:00):
arriving at the Supreme Court.
Speaker 1 (06:02):
Now next week on Wednesday, Oral arguments in a death
penalty case Glossop versus Oklahoma, And this goes back to
two thousand and four when Richard Glossip was convicted of
murder and sentenced to death. Nine execution dates have been
set for him, and he's had his last meal three times.
According to the Death Penalty Information Center, it seems as
(06:25):
if over the years the case against him has fallen
apart in many ways.
Speaker 2 (06:30):
This is truly someone who has had almost nine lives already.
So he was sentenced to death for a killing at
a motel in Oklahoma City a couple of decades ago,
in which the case really turned on the testimony of
one individual who worked at the hotel and who said
that Richard Glossip paid the mand to kill the victim.
(06:51):
And what makes this case really interesting today is that
Golossop's challenge is now supported by the people who sought
the death only against him, the prosecution prosecutor's attorney general
in this case of Oklahoma, who now agrees, based on
newly discovered evidence, that glossip conviction is tainted by constitutional errors,
(07:12):
including a very important Brady error. Brady is the decision
in which puts an obligation on the prosecution to come
forward with exculplatory evidence in criminal cases. In this case,
the claim is based on the prosecution's failure to turn
over exculplatory evidence that bore in the credibility of the
state's star witness, again, this man who claimed that Glossip
(07:35):
paid him to kill the victim. The Oklahoma Court of
Appeals refused to set aside glossop death sentence, even notwithstanding
the Attorney General's own confession of error in the case.
Supreme Court, which hasn't taken many death cases in the
past few years, granted review. So now it'll be really
interesting to see what the Supreme Court does as it
(07:55):
reviews glossip claims of constitutional error, again with the attorney
general roll of the state separately represented, arguing alongside gloss Up,
and then looking in the background of this case is
the interesting question of how courts should treat a state's
own confession of error in a decade's old case. On
the one hand, you would think that would be a
(08:15):
pretty compelling reason to re examine and perhaps set aside
a conviction. On the other hand, there have been some
concerns of political considerations that could enter the mix. As
you go from one administration to the next, so that
the court's going to take a close and fresh look
at this case.
Speaker 1 (08:30):
The Court's not going to consider all the alleged errors
by police and prosecutors, but just that prosecutors didn't turn
over these handwritten notes that the state's key witness was
suffering from a serious mental disorder.
Speaker 2 (08:46):
Yeah, that's exactly right. There are a lot of claims
in the case, but the Supreme Court's review here is
going to focus on that Brady error, which involved the
failure to turn over those notes, which mister Glossip claims
could have been used to impeach this witness, whose testimony
The case, I think both sides agree, basically turned on.
Speaker 1 (09:05):
So the Supreme Court, as you mentioned, hasn't taken many
death penalty cases recently, and there's a history of finding
that state convictions should remain final even if there is
later evidence that they may be unreliable. The Supreme Court,
in a six or three decision last week, allowed Zuri
(09:26):
to execute a man for a murder even though his
conviction was contested by prosecutors. So, no matter how strong
the evidence, if they stick to the idea that state
convictions should be final. Will it make any difference.
Speaker 2 (09:42):
I think you're right June that the Court has been
hesitant to overturn state court convictions. In a way, it
has to be because of the statutory law governing habeas
corpus and the like. But nevertheless, here there are clean
constitutional claims of error, including brain and that's something that
justices on both sides of the ideological spectrum. They have
(10:05):
taken very seriously, and the fact that this is a
death case only raises the stake. So I think it's
the court it looks at this record and agrees there
is constitutional error here. I would surprise if it didn't
take some form of corrective action. But there's no doubt
that those challenging death sentences face an uphill battle before
the current court.
Speaker 1 (10:26):
So now, perhaps the highest profile case so far on
the docket involves a polarizing issue across the country. Tennessee's
ban on gender transition care for miners tell us about
the issue here.
Speaker 2 (10:41):
So this is really the one big culture war case
that's currently on the docket right now. It involves a
challenge to a Tennessee law that bars gender type medical
procedures or treatment for miners, including surgeries and puberty blockers
and hormone treatments and the like. And it's a lot
that twenty one other states have acted right now in
similar form, and several individuals, backed by the Biden administration itself,
(11:05):
have challenged the law on the ground that it rests
on a sex based classification that violates the Equal Protection Clause.
The six Circuit upheld the law below Supreme Court grant review,
and that the key question now is whether the law
triggers heightened scrutiny under the equal Protection clause or instead
the much lower rational basis review. And that turns on
(11:28):
whether you view the Tennessee laws making a classification based
on sex or instead one that is based on the
regulation of access to medical care and that acts on
an even handed basis among miners regardless of sex. And
what's interesting about this is that question implicates a case
from a few terms ago Bostk versus Clayton County, in
(11:49):
which the Court, in a closely divided opinion written by
Justice Gorsicic joining with the more liberal justices, held the
Title seven's prohibition against sex based discrimination applies to sexual orientation.
So the US argues that the reason of mastak leads
to the conclusion that laws concerning access to gender treatments
are sex based in the sense that one who is
(12:10):
male at birth can get testosterone treatments, but a female
at birth can't, Whereas the state argues in this case
that the law doesn't draw any distinction based on sex
because it simply applies to all minors and borrowers access
to these treatments, and the case of gender type procedures
for all individuals regardless of sex. And then lurking in
(12:32):
the background of this case is a debate over the
medical importance of these treatments for those seeking access to them,
which could well color the legal arguments on both sides
of the case.
Speaker 1 (12:43):
You mentioned that about two dozen states have laws restricting
access to therapies like this, So could this decision establish
a landmark legal precedent.
Speaker 2 (12:54):
I think it's going to be quite important because this
is one of the early cases in which the Court
as confronted issue of transgender rights and laws drawing classifications
of this type. So, although I suspect that the Court's
decision will be focused on the Tennessee law at issue here,
I think it could have long term implications for laws
(13:18):
and actions dealing with this important question.
Speaker 1 (13:21):
Coming up next on the Bloomberg Law show cases involving
flavored vapes and e cigarettes, environmental rules, and securities, fraud lawsuits.
I'm June Grosso and you're listening to Bloomberg. The Supreme
Court's new term starts on Monday, and I've been talking
to former US Solicitor General Gregory gar about some of
(13:42):
the noteworthy cases the justices will be deciding. Another case
involving miners is Free Speech Coalition versus Paxton. It's about
age verification for pornographic websites.
Speaker 2 (13:56):
So Texas enacted a law that says that any website
that publishes pornographic or other harmful material must require users
to verify that they're eighteen years or older in order
to access the site using various forms of virtual ideas.
And the argument that the plan is brought in this
case is that the law violates the First Amendment by
(14:18):
burdening adults rights to access the material on such websites
by basically making it more burdens than their cumbersome to
have to show an idea or the like to get
onto the site. The Fifth Circuit upheld the law in
the Supreme Court granted review. There's another case where the
big question is how strictly the court has to review
the law. Do you apply strict scrutiny or the much
(14:38):
lower form of review rational basis, And that turns on
the Court's reading of a fifty five year old case
called Ginsburg versus New York in nineteen sixty eight, in
which the Court held that the States may restrict miners'
access to pornographic material. But in more recent cases, including
case ten years or so ago in Ashcroft versus acl You,
(14:58):
the Court is subjected laws restricting adult access to websites
and the like to strict scrutiny. And this court is
established itself as very pro First Amendment and arguably is
one of the most pro First Amendment courts in the
Court's history. So it'll be interesting to see how it
analyzes this law.
Speaker 1 (15:16):
So the Supreme Court in April refused a request by
the challengers to halt enforcement of the law while litigation
in the dispute proceeds. Every time they do something like that,
I say, does that indicate where they're going here?
Speaker 2 (15:31):
I mean, of course, if the court really hates a law,
it's going to prevent it from being in forced, so
that that's a strong indication it's not going to get
a favorable reception when it arrives. But it's a really
high standard to invalidate a law during litigation. And so
I think that's, you know, one sort of tea leaf.
But I think that in itself is unlikely to tell
us much about how the court would resolve this case.
(15:53):
So this this well could be a case that involves
an interesting lineup in a narrow decision.
Speaker 1 (15:58):
So another case from the fifth This is about the
FDA's efforts to curb flavored vapes and e cigarettes.
Speaker 2 (16:07):
And here it's a challenge to the FDA's defense of
its rejection of the applications by two companies who sell
flavored vaping products. And the FDA declined the application, as
it has done for most similar applications, because of public
health concerns stemming from the use of flavored vaping products
and the attraction of minors. And so the companies argued
(16:29):
here that the FDA had violated the Administrative Procedures Act
by acting arbitrarily and capriciously in that it had engaged
in sort of an unfair surprise by changing the rules
for evaluating these applications in midstream with that fair notice
and improperly refusing to consider certain evidence. It was something
of a surprise that the Fifth Circuit here broke with
(16:51):
other courts that had faced similar challenges and finding that
the FDA had acted unlawfully into supproving these applications. And
so I think that this could be a sleeper case.
And it's definitely an interesting case to follow, because it's
really more of a Nuts and Bolt's administrative law case
than sort of an e cigarette case. But a decision
(17:11):
by the Supreme Court in this case upholding the Fifth
Circuit I think would invigorate arbitrary and capricious challenges to
all sorts of rules. And one thing that we've seen
in the past few years, as you know, is the
Supreme Court taking an intense interest in administrative law cases
and really sort of pushing back on various aspects of
(17:31):
the administrative state. Kept off last term, of course, in
the decision overturning Chevron deference.
Speaker 1 (17:38):
Yes, I say the Court has taken a sledgehammer to
agency power. Perhaps a too intense description there, but what
could be the implications of ruling against the FDA in
a case like this where health of children is concerned,
and you know the FDA's authority over health concerns in general,
(18:00):
or is it just about the standard of arbitrarian capricious.
Speaker 2 (18:03):
In a sense, it's broader, June. I think it does
raise public health implications of allowing these sorts of products
which FDA is regulating. And of course, if the Supreme
Court affirms the Fifth Circuit here, it doesn't mean that
the applications would be granted. It would mean that the
FDA would have to go back and take another look
at them, presumably. But the broader implications here are if
(18:24):
the Supreme Court agrees that the agencies acted arbitrarily here,
then I think what it would mean is that courts
would have to take a much closer look at agency
decision making and claims that agencies have changed the rules
sort of in the course of an administrative decision making process.
That's the sort of claim that agencies, you know, typically
(18:48):
at one a decade or so ago. And you know,
it's tough for sledding these days. So I do think
that this is a really important case to keep our
eyes home.
Speaker 1 (18:57):
Next, let's turn to a completely different area involving standards
for investor claims in shareholder lawsuits in Vidia versus e
Omen j out of the Ninth.
Speaker 2 (19:10):
Circuit, so this is a technical securities case. The question
is whether the heightened pleading requirements of the private securities
litigation format apply to allegations of security fraud based on
internal company documents. Such a plan of seeking to establish
center using company documents have to allege the actual contents
of those documents, and the question tends to come up
(19:33):
when securities planet is claim that a company's internal documents
contradict its public statements that the company's executives and the
like are making two investors. But oftentimes, or sometimes at
least the planets don't actually have their hands on the documents,
so they're making allegations based on what they surmise are
in the documents. In this case, the planeffs claim that
the CEO of Navidia, a company in the manufacturer's computer chips,
(19:56):
made public statements at odds with the company's reports about
what other or crypto miners or gamers were buying their chips,
which became important when NA Video's revenues dropped after the
twenty eighteen crypto crash. The Planets argue that imposing a
heightened pleading standard in this context is at odds with
the PSLRA and the court's prior precedents, and the Supreme Court,
(20:19):
though in prior cases, has generally sort of rigorously enforced
these heightened pleading standards. There's a related question that comes
up in this case which is interesting, which is whether
a planeff can rely on expert testimony itself to establish
the falsity of internal documents based on an assumption of
what the information the documents contain. So that'll be one
(20:40):
we want to follow as well. You know, the backdrop
of this case is that business really has had something
of a mixed record before this court in the past
few terms. This is not a court that is reflectively
ruling in favor of business, and so it will be
interesting to follow this case and see where the court
ends up here.
Speaker 1 (20:58):
So a decision here would give companies leverage for earlier
dismissal of shareholder lawsuits.
Speaker 2 (21:06):
Exactly If the heightened pleating standards apply to these sorts
of claims and internal documents, then it's going to be
much harder for plantiffs to bring claims based on internal
company documents because they often don't have access to the
full contents of those documents.
Speaker 1 (21:21):
Next, let's discuss a case on water pollution in the
EPA's powers. And this case involves San Francisco versus the EPA,
which is not one of the cities I would expect
to go against the EPA. So tell us what San
Francisco's case against the EPA is.
Speaker 2 (21:37):
Yeah, it's kind of an indication of where we arrived
with aggressive environmental enforcement, where you've got San Francisco itself
taking on the EPA. So this case arises out of
a permit issued by EPA under the Clean Water Act
for San Francisco's discharge of sewage into the Pacific Ocean.
And the question is whether the Clean Water Act authorizes
EPA to impose general water quality standards in San Francisco
(22:00):
and other jurisdictions for the quality of the receiving waters,
as opposed to specific what's called effluent limitations on discharges.
San Francisco itself taking on the EPA. So, San Francisco
argues that the Clean Water Act was intentionally designed to
enable EPA to regulate what was coming out of the
pipe or what's known as point sources through these effluent
(22:21):
limitations which impose specific limits on particular pollutants, and that
you know, EPA is sort of changing the game when
it's trying to impose general water quality standards on the
regulated which then is much more abstract and difficult for
jurisdictions to comply with. But EPA says not so fast.
EPA says that that the Clean Water Act can't be
(22:42):
interpreted that narrowly, that although it refers to effluent limitations
on discharge, that it also allows EPA to regulate water
quality in other ways. The case really boils down to
whether EPA's interpretation violates the Administrative Proceedure Act on the
ground that it contravenes the statute. Now, this is exactly
the sort of thing to which EPA would have asked
(23:04):
for and received Chevron deference a decade or so ago,
and after the liver Bright decision last term, though, it's
going to have to fight this one out on the
level playing field.
Speaker 1 (23:13):
And do you think that lowber Bright and the courts,
I'm going to say, tendency to eliminate environmental protections or
to rule against the EPA. I mean, last term they
split about blocking the EPA's good neighbor ozone emission rule.
I mean, do you think that bodes ill for the
EPA here?
Speaker 2 (23:33):
I think it could. I mean there's been something of
a perfect storm where you combine aggressive agency enforcement with
reliance on broad statutory provisions, which is where what we've
seen come up time and again in these cases. And
if that's the way the Supreme Court views this case,
then EPA may be in for a fight.
Speaker 1 (23:54):
Thanks so much, Greg for joining me again in our
yearly preview of the Supreme Court term. Former Uslicitor General
Gregory Garr, a partner at Latham and Watkins. Coming up next.
Why deals are collapsing? This is bloomberg. The Biden administration
is touting the fact that so many potential deals are
(24:15):
being abandoned under its policy of pushing for fewer settlements
and more lawsuits. Firms attracting antitrust scrutiny are abandoning deals
at their highest clip in years. Six significant merger inquiries
during the first half of the year ended with the
Federal Trade Commission or the Department of Justice saying the
party's nixt a proposed transaction that figure exceeds yearly totals
(24:41):
from the previous decade, according to a report from the
law firm Deckert. Joining me is William Kavasik, former chair
of the FTC and a professor at George Washington University
Law School. I wanted to start with getting your first
reaction to the report that firm attracting antitrust scrutiny are
(25:02):
abandoning deals at the highest level in years.
Speaker 3 (25:07):
My sense in talking to friends who are counseling companies
is that's true. It's very difficult to judge how much
in which deals are being chased off. On the one hand,
the commitment to litigate cases more broadly, plus a variety
of other policy adjustments that basically takes settlements out of
(25:30):
the picture or make settlements harder to achieve, not impossible,
means that at the margin, more companies are deciding not
to proceed with deals. And that's not just a function
of the US regime. If it's a company that does business,
say in the European Union and the United Kingdom, or
is a global goods and services company, the risk associated
(25:54):
with going forward has increased in the United Kingdom and
in Europe, and that means means that you not only
have to cope with the additional cost delay in the
United States. There is the certainty of additional reviews in
other countries, so that when firms are looking at the
path they have to take in order to achieve the result,
(26:17):
they have in mind that is a more perilous path
than it was before, and at a minimum, it is
a path that is slower and more expensive. And I
think at the margin that's discouraging companies from even pursuing
certain types of deals, in part because when they turn
to their internal advisors, their own internal counsel, or to
(26:39):
external counsel and say, will this deal get through, they're
being told it is highly unpredictable, it's very risky. It's
risky both for the buyer but certainly for the seller
as well, and that additional risk, I am certain is
scaring off some transactions. It's hard to tell how many.
Speaker 1 (26:59):
By administration has touted these trends, But do the numbers
mean that the deals are anti competitive and so the
firms are banning them or just because they don't want to,
as you say, go through litigation with the government or
this long review process.
Speaker 3 (27:15):
Yeah. Part of it is that in the past, where
there was a perceived problem, even if the company sought
the problem didn't exist or was trivial, it was possible
for them to negotiate with the FTC or the DOJ
a settlement that solved the problem, either with divestitures or
with behavioral commitments. That flexibility has been largely rung out
(27:39):
of the system, where although the agencies are not completely
unwilling to accept settlements, and we saw a chevron and
has accept such a settlement, only just recently, the government
agencies have said, by and large, we think settlements don't work,
that even structural solutions are often ineffective. As a consequence,
(28:01):
because we don't believe they work, we're willing to go
to court and try and block deals rather than negotiate.
So even where a competitive problem existed until the relatively
recent past, the government agencies were willing to bargain and
to accept settlements, that flexibility to a large degree has
been taken out of the system, which means that even
(28:22):
where companies recognize that there was a competitive problem, they've
lost the ability to negotiate with the government to find
a solution, or if they really want the deal to
be done, they have to be willing to go to
court and argue to the court. We have a solution
in place to solve the problem and to persuade the
court that death solution is effective.
Speaker 1 (28:43):
So as you say, Jonathan Canter, the DOJ's antitrust head,
and FTC chair Lena Khan, have said they are skeptical
that settlements or consent degrees work. Do you think they work?
I mean, even if they don't work, do you just
give up on them completely?
Speaker 3 (28:59):
I think that their concerns there's somewhat exaggerated. That the
concerns I've expressed are not baseless. There is a history
of failed settlements and a number of sectors. There is
always a danger in settlements that, for the sake of
building up numbers of enforcement events and moving matters through
the system, both the parties and the agencies will step
(29:21):
forward to the world saying we accepted a solution that
protects consumers. I've never read a press release from a
government agency in the US or abroad that said we
accepted the settlement, but there are real risks here, and
if you want to watch whether or not this works,
you should focus on the following factors. That press release
(29:41):
has never written. The press release always says we spotted
the problem, and like the most skillful surgeons you ever saw,
we intervene to take out all of the any competitive possibilities.
The patient of competition is alive and thriving. We are
the most successful competition on the earth. That's the way
(30:01):
the settlement press release reads. But that often is a
fiction or not quite right. So Assistant Attorney General Canter
and fair Con are exactly right that we should perhaps
be more wary about settlements. But there's a spectrum of
options that range from absolute skepticism and doubt to a
more critical point of view that still accepts the settlements.
(30:25):
And here I think is what's lost in the process
is that let's suppose that you have a settlement that
gets you ninety percent of where you want to be.
That settlement allows you to move more resources to focus
on deals that are manifestly any competitives and deserve litigation challenge.
If you take away the flexibility to take that ninety
percent solution, it means that you better be willing to
(30:48):
fight a much larger number of deals for which you
do not have the resources to carry out all of
those battles, or you are going to find quiet and
more subtle ways to let deals go through that may
involve some informal conceptions, may involve you waving through deals
that are not so visible, that aren't tech, that aren't food,
(31:09):
that aren't energy, in order to keep your statistics balance
sheet clean with no settlements, but with prohibitions or clearances
being the main option. So I think their express concerns
are somewhat exaggerated, and I don't think that they quite
respond to the reality of what decisions an agency has
(31:29):
to make when it has a continuing flow of filings
where you have some transactions that are going to be
problematic a lot or a little, you need some flexibility
to accept deals for transactions to pose a more modest
competitive risk where the settlement is maybe not perfect, but
it might be good enough in order to allow you
(31:51):
to mobilize resources to focus on deals that are manifestly
problematic for which you have to pursue the settlements. So
to some extent, I think that they have denied themselves
an element of flexibility that is very important to making
the entire merger review process effective.
Speaker 1 (32:10):
So, Bill, can you talk a little bit about how
they've also stepped up enforcement in areas that previously they
didn't look to so much like labor and potential competition
in vertical mergers.
Speaker 3 (32:25):
They've unmistakably highlighted the importance of competition in markets for
labor and any stress. Law for a long time has
recognized that competition for labor inputs is very important, but
it hasn't elevated those concerns as much as the agencies have.
That happened in the DOJ, Simon and Schuster transaction, where
(32:46):
DOJ relied very successfully on essentially a labor market theory
of arms. The most interesting of all the labor cases,
I think is the Albertsons Kroger transaction, where, to an
extent not previously seen, the FTC has elevated the role
of labor as a key input, has highlighted the impact
(33:07):
on organized labor of the transaction, saying that the transaction
will deny unions the ability to bargain as effectively as
they might otherwise. That transaction is the most interesting test
of the effort of the agencies to extend the frontiers
where labor theories of harm are important. Unmistakably, they've also
(33:28):
demonstrated their willingness to litigate vertical merger series of harm
more than the agencies had in the past. The Trump
administration did challenge the at Time Warner Deal unsuccessfully, but
that was a major effort to focus on vertical series
of harm. The FTC and DJ have had success, some failures,
but success as well. The FTC's challenged to illuminate Grail
(33:52):
vertical transaction, where the FDC was largely successful. What happened
is that the agencies, because of their skepticism of seven,
have cast aside the previous practice of resolving vertical concerns
by taking supplements. It's not as though the agencies before
twenty twenty or before the Ate and Time Warner Deal
(34:12):
ignored vertical issues, but those vertical issues usually were resolved
with settlements that imposed behavioral controls on the firms, especially
controls that said that you won't discriminate against third parties
with respect to access to an asset or an output
that you now control. So what we've seen is what's
interesting and distinctive about the modern practice is that the
(34:34):
agencies have been willing to litigate those deals to block
them again, not with complete success, but firms now realize
that a vertical merger is much more likely to show
up in the courtroom in a litigated challenge rather than
result in a somewhat predictable behavioral fix. That means that
vertical deals are riskier now than they used to be.
(34:57):
And on the question of nascent competition, both agencies are
approaching the acquisition of upstart firms or smaller firms with
interesting ideas with a lot more skepticism than their predecessors.
They believe that a grievous failure of anti trust policy
in the previous decades was not to bear down on
(35:19):
acquisitions by established incumbents of smaller upstarts. So they've decided that,
especially for big tech, that acquisitions of small upstarts in
a variety of different areas could pose a competitive threat,
both because the upstart has the capability to grow into
an independent source of rivalry to the incumbent dominant firms,
(35:43):
or that the upstart has a complementary capability which, when
added to the portfolio of the incumbent, gives it a
greater ability to resist entry and expansion by other firms. Now,
those series of harm have been somewhat harder to establish.
The courts have been somewhat more resistant to those theories,
in particular because they feel the government has lacked proof
(36:06):
that shows that the acquisition of the nascent threat is
likely to be harmful. They accept the theory that the
acquisition could be harmful. They haven't repudiated the government with
respect to the theory, but they've said, you have an
interesting hypothesis about what might happen if this smaller upstart
firm is acquired. Do you have more facts to show
(36:27):
to give us confidence that that hypothesis is likely to
be true?
Speaker 1 (36:31):
Finally, the Biden administration formalized its enforcement approach in merger guidelines.
What's your take on those merger guidelines?
Speaker 3 (36:40):
The merger guidelines unmistakably stake out a broader perimeter of enforcement.
They embrace a wider range of theories of harm. They
announced that the government will review horizontal mergers at lower
concentration thresholds than they had announced that they would in
the previous guidelines issued twenty ten. They spell out greater
(37:02):
skepticism about efficiencies as justification for mergers. So in a
very general way, the twenty twenty three government merger guidelines
announce a decided effort to extend the frontiers of enforcement
beyond the boundaries at which they've been set certainly since
twenty ten. The real effect of those guidelines, and all
(37:25):
government guidelines, depends on their absorption in the courts. The
guidelines are important as an indication of what the government
means to do, but it's only when federal judges look
at those guidelines and say these make sense as a
principle for merger control and adopt the reasoning in published opinions.
(37:46):
There are several cases now in litigation that will give
judges an opportunity to do that. Albertson's Kroger is one.
The Tapestry Capri case is another, involving accessories handbags. The
temper Steally Mattress merger case is a third that's in litigation.
There are a couple of others at the fringes of litigation. Now.
(38:09):
Those cases are interesting to watch because they will tell
us how rapid this rate of absorption is. You need
a critical mass of district judge or Court of Appeals
pinions that say we don't have to follow these guidelines.
They don't bind us, but we find their reasoning compelling,
and we are going to embrace and rely upon the
(38:29):
analytical approach that they've set out. So over the next
eighteen twenty four months, we will see if that judicial
uptake is happening.
Speaker 1 (38:38):
Thanks so much for sharing those insights with us. Bill.
That's William Klevasik, former chair of the FTC and a
professor at GW Law School. And that's it for this
edition of the Bloomberg Law Podcast. Remember you've can always
get the latest legal news by subscribing and listening to
the show on Apple Podcasts, Spotify, and at Bloomberg dot com,
(38:59):
slash podcast, Slash Law. I'm June Grosso and this is
Bloomberg
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