December 13, 2025 • 37 mins
June Grasso talks to legal experts about the top Supreme Court stories of the week
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Speaker 1 (00:02):
This is Bloomberg Law with June Grossel from Bloomberg Radio.
Speaker 2 (00:08):
The Supreme Court's conservatives appear poised to give the president
control over dozens of independent federal agencies. At oral arguments
on Monday, they suggested they will allow President Trump to
fire Rebecca Kelly Slaughter from the Federal Trade Commission, despite
a law that says commissioners can only be fired for
(00:31):
specific reasons. The liberal justices, like Sonya so to Mayor
and Elena Kagan, expressed alarm at giving the president such
unchecked authority over agencies that overlook crucial areas like nuclear energy,
consumer products safety, and labor relations.
Speaker 3 (00:51):
You're asking us to destroy the structure of government and
to take away from Congress its ability to protect its
idea that the government is better structured with some agencies
that are independent.
Speaker 4 (01:09):
So the result of what you want is that the
president is going to have massive, unchecked, uncontrolled power not
only to do traditional execution but to make law.
Speaker 2 (01:21):
But the conservative justice is, like Brett Kavanaugh and Neil Gorsuch, say,
the real concern is Congress's creation of agencies that exercise
executive power but can't be held accountable.
Speaker 5 (01:35):
Independent agencies are not accountable to the people. They're not elected,
as Congress and the President are and are exercising massive
power over individual liberty and billion dollar industries, whether it's
the FCC or the FTC or whatever it might be.
Speaker 6 (01:54):
Tomorrow, we could have the Labor Commission, the Education Commission,
the Environmental Commission, and rather than Departments of Interior and
so forth.
Speaker 2 (02:05):
In allowing the president to fire the heads of independent agencies,
the court would be overturning a ninety year old president
called Humphreys executor that protects their independence. My guest is
constitutional law expert William Traynor, a professor at Georgetown Law
Bill tell us about the issues in Rebecca Slaughter's case
(02:28):
against Trump for firing her.
Speaker 7 (02:30):
The issue before the screen Court is that Congress puts
the limits on when the president and fire the heads
of independent agencies. So an independent agency is like the
Federal Trade Commission or the Federal Reserve. So really, since
the start of the Constitution, Congress has imposed limits on
when the president can fired these people. The question in
(02:52):
the case is whether that's unconstitutional, Whether the president can
fire the head of an independent agency for any reason,
even if Congress has said they can only fire them,
you know, if they're engaged in bad behavior. So this
is a very big deal. So much of a government
structure that protects people in different ways or regulates the
economy is done through independent agencies. Congress has wanted to
(03:15):
insulate them from total executive control, and the Supreme Court
is deciding right now whether, in fact, the president has
the kind of control that comes with being able to
fire the leaders of the agencies.
Speaker 2 (03:27):
In these oral arguments, you often hear the Supreme Court
justices say, well, that's a job for Congress. You know,
that's not something that we should be interfering in. So
why are they interfering here where Congress has set up
these agencies and the rules.
Speaker 7 (03:43):
That's a great question. There had been so many times
in which the Court is saying, this is a political matter,
we shouldn't be deciding. But at the same time, the
conservative justices of the Court are very dedicated to what's
called the unitary executive theory, which means that the president
is in total charge of the executive branch. So what
(04:05):
they're saying here is Congress doesn't get to be involved.
The president is in total charge of the executive branch,
including what have historically been things like the independent agencies.
That is kind of one of the core commitments that
has really been at the basis of what Keef Justice
Roberts has thought really going back to when he was
a young attorney, and that's the same thing for most
(04:27):
of the members of the whole conservative wing.
Speaker 2 (04:30):
What kind of concerns did the conservative justices express during
the oral arguments about this ninety year old President Humphrey's executor.
Speaker 7 (04:41):
There are two things that we're seeing the conservative wing
of the Court struggle with. One is they want the
Federal Reserve to continue to be independent. They don't want
the president to be able to fire somebody on the
Federal Reserve. And they don't want that because you know,
that would be terrible for the economy. If the Federal
(05:01):
Reserve is setting interest rates just in order to help
the president rather than to help the economy, that would
be a disaster, be a disaster for the market, the
disaster for the economy as a whole. So the conservative
wing of the Court i think wants to overturn Humphrey's executor,
but they're trying to come up with some rationale in
which they can say the president can fire somebody on
(05:24):
the FTC, but he can't fire somebody on the Federal Reserve.
And they're going to be looking at the Federal Reserve
later in the term. That's a big concern for them.
So I think that animates all of the conservative justices
of the Court. I think also, you know, what I'm
hearing with the Chief Justices, what he's trying to do
is to come up with some way in which there's
(05:46):
some agencies where Congress can in fact limit the president's
ability to fire people. And he's thinking about, you know,
are the ones that are essentially kind of judicial in
their function, and you know, that may be an area
in which Congress can establish requirements or when the prison
can terminate somebody, but that's not the Federal Trade Commission.
(06:07):
Federal Trade Commission is not making the judicial decisions, you know,
it's very much deciding executive type rules. So I think
we're seeing two things on the conservative wing of the Court.
One is they're trying to come up with some way
in which they can say the President can fire somebody
the FDC, but not at the FED. And I think
the Chief is trying to come up with some way
(06:28):
in which there's some type of agencies in which the
president can be limited by Congress, but those would be
ones that are really deciding kind of fuzzi judicial matters,
not the FDC.
Speaker 2 (06:39):
The liberals painted a dire picture of what would happen
if Trump wins here. Just as Soto Mayor said to
the Solicitor General, you're asking us to destroy the structure
of government. Do you think it's that serious.
Speaker 7 (06:53):
I think that's absolutely right. You know, we have had
independent agencies which largely exists to protect peace with limited power,
you know, and they've been in place really for one
hundred years. And the idea is that these should be
basically bipartisan or apolitical. They should not just be tools
of the president. So what the court is considering right
(07:14):
now is whether that whole kind of structure gets got it.
So the stakes on this are huge.
Speaker 2 (07:20):
Well, President Trump wasn't specifically mentioned by name, two of
the liberal justices, Elina Kagan and Katanji Brown Jackson, did
make broad references to his firing of experts and dismantling
of the Department of Education.
Speaker 4 (07:39):
That the more realistic danger here is that we'll have
an education department, as authorized by Congress by law that
won't have any employees in it.
Speaker 8 (07:50):
Having a president come in and fire all the scientists
and the doctors and the economists and the PhDs and
replacing them with loyalists and people who don't know anything
is actually not in the best interest of the citizens
of the United States.
Speaker 7 (08:07):
You know, what we're seeing right now is that in
the Trump administration, you know, the independent agencies and all
of the government washtoogs, there's an attempt to politicize them
in a way that you know, we've never seen before.
So the stakes are very different, and they're much higher.
If Humphrey's executor has been overturned in President bush forty
(08:29):
threes administration, the stakes would have been very different because
President Bush was not focused on making independent agencies kind
of the tool for his politics. But that's what we're
seeing with President Trump, and that's why the stakes are
so high. They've always been big, but in this administration,
where there's such an attempt to kind of move away
(08:50):
from scientific expertise and neutral decision making to control every
part of the executive branch, the stakes are huge. And
that's really part of what those three liberal justices we're questioning.
You know, the other thing that they really are focusing
in an honor. First of all, it's very very hard
to come up with some line where you can say,
(09:13):
Congress can limit the president's ability to fire the heads
of the sec they can't fire at will the heads
of the set. And I can't think of any kind
of coherent way to distinguish those two cases. And that's
one of the things that the liberals were pressing on.
You know, I think they're also pressing on the history.
If you look at the constitutions, the text of the
constitutions doesn't say that the president gets to fire people
(09:35):
in the executive rection. It doesn't deal with removal at all.
So there's not a text that really helps the conservative
way of the Court and Congress really, starting in the
Washington administration, limited the president's ability to fire people running
agencies kind of what was analogous to modern agencies at
the time. So I think what the liberals on the
Court are focusing on are the text, the original understanding,
(09:59):
as well as the huge consequences of essentially giving the
president the power to politicize all of the dependent agencies.
Speaker 2 (10:06):
I wonder what happens when there is a democratic president.
Do the conservatives then try to limit the ruling they're
expected to make.
Speaker 5 (10:14):
Here.
Speaker 7 (10:15):
You know, one of the reasons why I think that
the Court should not overturn Humphrey's Executor is to the
extent that you have any kind of political terms, you're
giving a democratic president the power to do exactly what
President Trump is doing, to politicize every independent agency in
the way that that president wants, you know. And then
(10:35):
how does a conservative court say, well, you know, Humphrey
Executors is back. Once you establish a rule, you know,
it applies to everybody. And that's something that they really
have to think true because of the long term consequences,
because I don't think they would feel comfortable, you know,
with limiting a democratic president after they allow President Trump
to fire people whenever he wants.
Speaker 2 (10:56):
So then you think this is the end of Humphrey's executs.
Speaker 7 (11:00):
Yeah, I think they will completely overrule Humphrey's Executor. I
think the one question for me is whether the Chief
comes up with some limiting principle in which if there
are you know, quasi judicial independent agencies, then Congress can
put limitations on the president's ability to fire. But you know,
(11:21):
the basic point is I think they're going to overturn
Humphrey's executive So I think what the Court will try
to do is to say the president can't fire Jerome Power,
can't fire at least a cook. But you know, I
don't think that that is a coherent approach, you know,
because I think it would be based on history, but
the history doesn't support it.
Speaker 2 (11:39):
Well. We often see some strained interpretations of history from
this court. Thanks so much, Bill. That's Georgetown law professor
William Trainor coming up next. The Court grapples with caps
on campaign spending. I'm June Grosso and you're listening to Bloomberg.
The Supreme Court is considering a Republican led effort to
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erase yet another campaign finance regulation, this time the federal
caps that limit how much political parties can spend in
coordination with candidates. It's the latest in a line of
cases where the conservative majority has upended congressionally enacted limits
on raising and spending money to influence elections, and two
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hours of arguments on Tuesday showed the entrenched divisions between
the liberal and conservative justices over campaign finance restrictions. Liberal
Justice Sonya Sotomayor said that every time the Court interferes
weakening campaign finance rules, it makes matters worse. While conservative
(12:43):
Justice Brett Kavanaugh said that spending limits have hurt political
parties in an era of unlimited spending by other organizations.
Speaker 3 (12:53):
You're telling us that Citizens United and McCutcheon ended up
yes in ample find the voice of corporations, but diminishing
another voice, that of the party. Now you want to
now tinker some more and try to raise the voice
of one party. Our tinkering causes more harm than it
(13:16):
does good.
Speaker 5 (13:17):
That's the real source of the disadvantage. Right, you can
give huge money to the outside group, but you can't
give huge money of the party. So the parties are
very much weakened compared to the outside groups.
Speaker 2 (13:28):
Chief Justice John Roberts, a potentially pivotal vote, said he
didn't see much difference between contribution limits, which the Court
has long upheld, and the caps on coordinated expenditures.
Speaker 6 (13:41):
It seems to me that that's kind of a fiction that, oh,
you know, they're just coordinating expenditures, they're not making direct contributions.
Speaker 3 (13:49):
I don't know in substance what the difference is.
Speaker 2 (13:51):
Doing away with the caps would overturn a quarter century
old precedent. In the same week, the court appears ready
to overturn an ninety year old president and allow President
Trump to fire the heads of independent agencies. Joining me
is an expert on campaign finance reform, Richard Brofald, a
professor at Columbia Law School. Rich Well, you start by
(14:14):
explaining the federal caps on spending by political parties in
coordination with candidates.
Speaker 1 (14:20):
So the Federal Russian Campaign Act, going back to the
nineteen seventies when it was enacted in the aftermath of Artegate,
places limits on donations to candidates, and it also places
limits on donations to parties. It does something else, It
places limits on how much parties can give to candidates,
on the theory that donors, once they max out on
(14:41):
how much the donor can give directly to a candidate,
will then just give to a party to chanting the
money to a candidate. So there's a limit on how
much the parties can give to their candidates. And that
comes up in two ways. One is a literal limit
on contributions actually writing a check, but the parties are
also allowed to engage in their own spending in support
of candidates, and that's called coordinated expenditures. In other words,
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the party does the spending, they don't give the candidate
a check, but they do spending to promote the candidate.
Parties are allowed to do that, but the law places
a limit on how much money they can spend supporting candidates.
And again for the same idea that if there is
no limit on how much they could support candidates through spending.
Once again, donors who once they max out on the
(15:24):
direct donation to the candidate would then just give to
the parties and the parties could then use that money
to basically support their candidates. But parties are allowed to
do this in a way that other organizations are not.
Packs are not allowed to coordinate at all with candidates,
so parties get this extra permission to support the candidates directly,
but with a cap on it, and it varies from
(15:45):
state to state based on the population of the state.
Speaker 9 (15:48):
And what's going on in this case is.
Speaker 1 (15:49):
The National Republican Senate Campaign Committee and JD. Vance, who
this case began was a Senator and a congressman from
Ohio has since retired, have all brought suit challenging this
limit on the ability of parties to coordinate their spending
with candidates.
Speaker 2 (16:04):
And there's a longstanding precedent here.
Speaker 9 (16:07):
Almost twenty five years ago.
Speaker 1 (16:09):
The Supreme Court upheld this limit in a case called
Colorado Republican Sided in two thousand and one, and the
Court said yes, because of the danger of conduits a
party serving as conduits for donor support, these limits make
sense and are constitutional. Well, the Supreme Court is being
asked basically now, is to overturn that decision.
Speaker 2 (16:28):
One of the concerns of the liberal justices was that
lifting the limits on party spending would lead to quid
pro quo bribery, so wealthy donors could bypass the individual
contribution limits by donating through parties instead.
Speaker 1 (16:45):
I mean, that is the major concern of the liberal
justices and of a call the campaign finance reform community
as a whole, is that this will put another hole
in the campaign finance laws and make it easier for
wealthy donors to channel money to candidates. There's still limits
on their ability to give directly, but this would enable
them to give through the parties and so that money
(17:06):
would still get to candidate.
Speaker 9 (17:07):
So yeah, that is the core concern.
Speaker 1 (17:09):
A second concern is, depending on how the Court writes
this decision, it could be the green light for further
challenges to other aspects of the campaign finance laws, depending
on exactly how.
Speaker 9 (17:20):
They write this.
Speaker 1 (17:21):
So it's both upfront making it easier to channel money
from donors to candidates, and also yet one more case
eroding Congress's ability to place limits on campaign money.
Speaker 2 (17:33):
The Administration and the Republican's argument centers on free speech
right as these campaign finance cases since Citizens United have done.
Speaker 1 (17:45):
The essential argument is that this is a limit on
the ability of parties to speak, and that you don't
need it. That the combination of disclosure laws, anti bribery laws,
and limits on literally earmarking that's the term, that's use
a donation that our donor gives to a party to
be used for a candidate, that that's enough. That those
three things banning bribes, requiring disclosure, and saying that when
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a donor gives a party a donation, they can't literally
say this is going to candidate so and so, that
that's enough, and that to go beyond that is to
constrain the ability of parties as free speech actors, as
First Amendment actors, to participate in political process.
Speaker 2 (18:21):
Just as Brett Kavanaugh said, you can give huge money
to the outside group, but you can't give huge money
to the party, and so the parties are very much
weakened compared to the outside group.
Speaker 9 (18:32):
See talking about super PACs.
Speaker 1 (18:33):
And indeed, that is an argument that many people have
raised who don't like this law, including people who might
liberals or reformers. They say this law might have made
some sense when it was first adopted, but given the
proliferation of super PACs and other outside groups, we'd be
better off if parties actually had a bigger voice, that
parties can play a coordination function, that parties maybe can
(18:54):
be a little less extreme than some outside groups, that
parties have more of an interest in governance rather than
being single issue and that actually if we could start
roll over now that the outside groups have kind of
unlimited voice, that anything that strengthens the parties is actually
a good thing, and that you see many people who
are not conservatives who are taking that position, who are
(19:14):
not First Amendment absolutists, but think that in fact, the
campaign financ system has gotten unbalanced and it would actually
be good to strengthen the role of parties.
Speaker 9 (19:22):
And this could do that.
Speaker 2 (19:24):
There was also an argument about standing made by those
defending the caps that JD. Vance, who's no longer a
Senate candidate, doesn't have a stake in the case and
thus there's no standing. And then there was a lot
of discussion about, well, is he going to run for president?
I don't think this standing argument is going anywhere, but
(19:46):
it's interesting, so tell us about it.
Speaker 1 (19:49):
So Ramond Martinez was the man appointed by the court
to defend the law when the government declined to do so,
and he opened by saying, this case is a big deal.
You know, anytime you're being asked to overturn a president
that's twenty five years old, should be very hesitant, and
you should make sure that this is a case that's
jurisdictionally sound, and he basically said it's not. So this
case was brought by some individuals JD. Vance and Congressman
(20:12):
Cheveaux from Ohio, and also by the National.
Speaker 9 (20:14):
Republican Senate Committee.
Speaker 1 (20:16):
With respect to the two individuals, one of them is
actually retired and no longer in politics, So that gets
it down to Vance. And Vance has pretty clearly said
I don't know if I'm running, or more than point,
I don't currently have a plan to run, saying I
might run, I might not run. So mister Martinez's argument was, well,
this case isn't right. We don't know if he's running,
so there's no candidate here to bring it, and therefore
(20:38):
there's no plaintiff. He's not a good plaintiff because whether
he's going to run a speculative. He doesn't clearly have
a stake in this case. So there were some back
and forth on that, but it does seem unlikely. Well,
you never know what the Supreme Court, but almost all
of the oral argument was really focused on the merits
of the case.
Speaker 2 (20:55):
It doesn't seem as clear as in other cases. But
can you tell where the justices are on this? Gorsuch
didn't even ask a question.
Speaker 1 (21:02):
It's worth pointing out that in every single campaign finance
case the Court has taken since Chief Justice Roberts became
Chief Justice and Justice Alito joined the court, the attack
on campaign finance law has won.
Speaker 9 (21:15):
That's about eight cases.
Speaker 1 (21:16):
And turn it around and there's not been a single
case that the Supreme Court has taken since two thousand
and five on campaign finance law where the law was
the state. That's all I think I need to say
about that.
Speaker 2 (21:27):
Yes, Rich, that about says it all. So in light
of that, there were also questions about what's next. Justice
Katanji Brown Jackson basically asked the Republican's lawyer, former Solicitor
General Nol Francisco, if these caps on coordinated expenditures go down,
what's next the caps on contribution limits?
Speaker 8 (21:48):
In McCutcheon, your clients filed a brief saying that the
sky wouldn't fall if the court struck down aggregate limits
because we still have coordinated expended truths. And now here
we are today with your clients saying no more coordinate
expenditure limits. And so I'm wondering if, and I think
(22:09):
others have sort of raised that concern as well, we're
going to be back here with the other kinds of
limits you with you making the same kinds of arguments.
Speaker 10 (22:19):
Well, your honor, I think different limits are on stronger
footing than others. I am not going to say that
my clients are not going to come back and try
to challenge other limitations.
Speaker 1 (22:31):
And indeed, it's the lawyer for people who are defending
this law, which I should say is not the government.
This is a federal statute. Well, the Trump administration will
not defend it. In fact, they'e actually joined in the
attack on it. So the statue was being defended by
two lawyers. One was a lawyer pointed about the Court
to speak for the statute, in addition the lawyer for
the Democratic organizations, and they both argue that basically this
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is the bait and switch that's been going on in
campaign finance law for a long time. Someone says, well,
given changes in the law, this particular restriction does make
any sense, so you should strike it down. And then
they come along and say, well, now you've struck down
this one, the next restriction doesn't make any sense either,
so strike that down. And there seems to be kind
of a salami tactic aspect to this. A number of
the justices are very very skeptical, more than skeptical about
(23:15):
the constitutionality of the contribution restrictions. They don't have to
decide that in this case, but the Court has traditionally
treated coordinated expenditures as the constitutional equivalent of contributions. If
they're going to start protecting coordinated expenditures more saying that
they're more protected from limitation, it's not a big leap
to say that. That kind of thinking would also apply
(23:35):
to the contribution restrictions.
Speaker 2 (23:37):
Finally, if by chance, the Court were to uphold the
spending caps, would you be surprised, fall off your chair?
Surprised or mmm, that's interesting.
Speaker 9 (23:48):
Surprised, Well, probably fall off my chair.
Speaker 1 (23:52):
I mean when the Court upheld this law in twentsand
and one, it was a five to four vote them.
And in terms of just the carmentary this Supreme Court,
I'm not sure if Justice Barrett has written on a
big campaign finance case, but all the other Conservatives have
and they've been rather consistently skeptical campaign finance.
Speaker 2 (24:10):
The record you cid it does seem to indicate that
this cap is the next to go. Always great to
have you on, rich That's Professor Richard Braflt. Of Columbia
Law School. Coming up next on the Bloomberg Law Show.
Will investment funds be facing more lawsuits by activist investors?
Remember you can always get the latest legal news by
(24:30):
listening to our Bloomberg Law podcast wherever you get your
favorite podcasts. I'm June Grasso when this is Bloomberg.
Speaker 5 (24:39):
I think this case is extremely close. I'll just put
cards out there on that.
Speaker 2 (24:45):
And that deduction by Justice Brett Cavanaugh seemed correct because
Wednesday's eighty minute oral argument at the Supreme Court didn't
give a clear indication about the likely outcome. Wall Street
is watching the case over whether to allow investors to
broadly use an eighty five year old law to sue
(25:06):
funds over their management decisions. A lower court had allowed
activist investors led by SABA Capital Master Fund to sue
eleven closed end funds, including some affiliated with FS Credit
Opportunities and Blackrock. Justice Sonya Soto Mayor pointed to the
legislative history of the Investment Company Act to show that
(25:28):
Congress intended to allow private rights of action.
Speaker 3 (25:32):
I know that many of my colleagues don't believe in
statutory history, but here we have both a House and
a Senate reports, a company, the nineteen eighty amendments to
the ICA, and in both the House and the Senate
reports it says that quote, private rights of action for
(25:54):
violations of the federal securities laws are a necessary adjunct
to the secs and for enforcement efforts.
Speaker 2 (26:02):
But in recent decades, the Supreme Court has avoided finding
private rights of action unless Congress expressly authorizes them in
a statute. And Conservative Justice Neil Gorsich was critical of
allowing so called implied rights of action.
Speaker 6 (26:19):
Pretty disastrous for our system of government, where the people
are supposed to write the laws that govern them, not judges.
Speaker 2 (26:27):
The Trump administration is backing the mutual funds. Joining me
is securities law expert James Park, a professor at UCLA
Law School. Jim tell us about this legal fight.
Speaker 11 (26:39):
Start sort of from the beginning. You have a hedge
fund SABA Capital, and one of its strategies is it
buys stock in mutual funds, mutual funds that are closed
and did which means that they have stock trading in
secondary markets. And the ideavia on the strategy is you
buy a substantial stake and you influence the governance of
(27:00):
the fund. You might think that it has poor governance,
and then that should increase the price of the stock.
That's what activist stock investors typically do, and then you
hopefully sell at a profit. And so they did this
for a number of mutual funds, and the funds basically
tried to take away their right to vote. There was
a state law in the state where they were formed
(27:22):
which said that you know, if you pass a resolution,
you can take away a shareholder's right to vote unless
a majority of the other shareholders basically give it back.
And this is, you know, almost a takeover defense sort
of thing. It reduces their influence on the company's governance.
And so what SABA Capital is arguing is that that
violates a law, a federal law called the Investment Company Act,
(27:46):
which is passed in nineteen forty, which is meant to
regulate mutual funds. The Investment Company Act basically says that
shareholders are supposed to have votes proportionate to the number
of shares that they own. And so what SABA the
Capital was arguing is that we have a private right
of action to sue and the remedy should be recision,
(28:06):
which means basically, we get our money back. And so
there's a question as to whether the Investment Company Act
authorizes a lawsuit like this, because the language does not
come out and say in a very straightforward way that
you have the right to sue for violations of the
Investment Company Act. And so the only way you can
say they have a right to sue is to say
(28:26):
there's something called an implied remedy here, sort of an
implicit right to sue that the Court can basically say
is evident from the law.
Speaker 2 (28:36):
The Second Circuit Court of Appeals, which handles a lot
of these kind of financial cases and is well respected,
do it allow a private right of action?
Speaker 9 (28:47):
They did.
Speaker 11 (28:47):
They basically did in a different case. And Judge Laval,
who is a very prominent, respected Second Circuit judge, said
that the statute has language that can be read to
indicate that Congress intended for private parties to be able
to bring suit for recision when there is a violation
(29:09):
of the Investment Company Act, and he mainly based his
argument on the text. The text of the law says,
you know, if you hihilated the Investment Company Act, then
the various agreement that you entered into with the mutual
fund is unenforceable. It talks about, you know, in certain circumstances,
(29:29):
recision should not be denied by a party if the
benefit of recision outweighs some of the downsides. So there
is language that indicates that Congress might have envisioned these
private lawsuits happening, but it's not set in a straightforward way,
and I think that's what made the question ambiguous. And
in fact, the Third Circuit and a number of other
(29:51):
circuits have held the opposite and said that there is
not an implied right to sue under the Investment Company Act,
and Meeting Court generally has not favored these implicit rights,
which are not straightforward in the text of the statute.
Speaker 2 (30:07):
And what were the concerns of the justices about allowing
a private right of action?
Speaker 11 (30:13):
There were, you know, a number of concerns, and they
mostly focused on the statutory interpretation argument as opposed to
broader policy concerns. And you know, I think that they
were concerned that the language was not completely straightforward and
that there were some really difficult issues of interpreting what
the statute meant. Justice Kavanaugh went so far as to
(30:36):
say this was a very close case, that there were
good arguments on both sides. Some of the more liberal
justices pointed to the legislative history, and the legislative history
actually indicates that Congress thought that there would be an
implied right of action, And there were some reports senate
in house reports which said that the envisioned investors could sue.
But a lot of the more conservative justices, as you
(30:58):
may know, they don't really like to look at legislative history.
They like to look at the text of the statute,
and so a lot of the oral argument was puzzling
through how we read this language. That's basically what the
argument was mainly about.
Speaker 2 (31:13):
I thought it was interesting that Justice Sodomayor prefaced her
remarks about the statutory history by saying, I know many
of my colleagues don't believe in statutory history. She also
referred to these private lawsuits as being in conjunction with
the SEC's enforcement efforts. But if you have private investors
(31:35):
bringing their own lawsuits, does that interfere with the SEC's
enforcement plans.
Speaker 11 (31:42):
Definitely. The mutual fund industry has taken the position that
the statute is meant to be enforced by the SEC
rather than private plaintiffs, and that the SEC can come
in if there's a violation of the Investment Company Act
and bring various enforcement actions. And you know, I think
the response to that is the SEC has limited resources.
(32:03):
There are a lot of these mutual funds out there,
a lot of potential violations, and having private attorney generals
who are able to bring these suits maybe a more
effective way of enforcing these provisions. That was not really
discussed much in the oral argument. I think that argument
has fallen a bit out of favor with the more
conservative justices, but definitely the mutual fund industry believes that
(32:27):
it's really the sec that should be bringing enforcement actions
in this space.
Speaker 2 (32:32):
What about suing in state court rather than federal court.
Here's what Justice Kavanaugh said, So.
Speaker 5 (32:38):
It's a federal court state court issue. As I see it,
like this is going to happen. It's just going to
happen in federal court or state court.
Speaker 11 (32:45):
There is also a lot of discussion about that possibility
that maybe what the statute means is that the contract
is unenforceable if there's a violation of the Investment Company Act,
and so then there would be litigation in state court
about the enforceability of the contract, And so that was
(33:06):
seen as a possibility. Have there ever been suits like that.
I don't know, and I think there would be a
little bit complicated, you know, especially the types of theories
that you might want to bring. Federal courts may have
a bit of an advantage over state courts in hearing
these types of issues, and so it would be a
bit awkward to say that these claims would mainly be
(33:29):
brought in state court as opposed to Federal Court if
you want to have this be an effective remedy in
my view.
Speaker 2 (33:35):
Jim, can you give us a sort of simplistic explanation
of the position of each side here on the merits
of the case.
Speaker 11 (33:43):
On one side, the investors might argue, we need some remedy,
we need a clear remedy when there are violations, and
you know, recision is a pretty powerful remedy under the
Investment Company Act, which was meant to regulate mutual funds.
On the other hand, I think what the mutual fund
in as worried about is that you're going to get
a flood of lawsuits and that that might actually be
(34:05):
bad for most investors in the mutual fund because only
a few investors might be interested, insuing, I'm only a
few investors may be pursuing an activist strategy with the fund,
and so the other investors may not be all that interested,
and it's costly to defend these lawsuits, and those costs
(34:25):
come out of the pockets of the other mutual fund shareholders.
Speaker 2 (34:30):
It was hard to read the argument, although it did
seem like the liberal justices and perhaps the Chief Justice
and Justice Kavanaugh, might favor allowing the private lawsuits. But
what was your take?
Speaker 11 (34:43):
It's close. I mean, my guess is I actually think
that they will find that there is a right of
action based upon the text of the statute. I think
there is enough in the text of the statute to
persuade at least some of the conservative justices. Is that
Congress intended for there to be a private right of
(35:04):
action for recision, I think the more liberal justices will
be persuaded by both the text, the legislative history, and
policy considerations. So I think they'll need to get a
couple of the Republican justices to decide with them, which
I think is very possible. It's not a sure thing,
but just my sense of the argument. If I felt
(35:24):
like Saba Capital might have had a bit of a
better argument in terms of the text on the statutory
interpretation issue.
Speaker 2 (35:30):
And do you think that it's the correct decision to
allow the private investors to.
Speaker 11 (35:34):
Sue As a policy matter, I think the risk that
it's going to lead to a flood of lawsuits may
be low. We'll have to see though. And my colleague
at UCLA for non Restreppo, actually has a study that
he just completed that looked at what happened after the
second Circuit allowed these lawsuits, and he didn't find a
flood of cases, and he didn't find a big impact
(35:56):
on the mutual fund industry. These are preliminary results, he
tells me, and so he may, you know, find something
different as he delves into the data. My sense is that,
you know, SABA Capital is a little bit of an
outlier in terms of pursuing a strategy like this. Most
activist funds are targeting public corporations rather than mutual funds. Now,
(36:17):
it might be that if you know you have more
rights and more leverage, that more funds may get into
this space. But it is a strategy that does require
you to make a pretty substantial investment in the mutual
funds so that you have significant votes. And it's a
little bit different than some of the shareholder lawsuits we
see with public companies, which have been criticized because you know,
(36:38):
you have plainers who own only a few shares who
have a right to bring a private action represented by
an attorney in a class action, and so that might
be the reason we see a lot of litigation in
the public company space. I don't know if that will
necessarily be true with respect to mutual funds. And you know,
(36:58):
the other thing to keep in mind is the imply
right of action is also just for recision, which means
the remedy as you get your money back, as opposed
to damages. That may also have some impact on the
incentives of plaintiffs to bring a lot of lawsuits for
violations of the Investment company Acts.
Speaker 2 (37:14):
What's an investor lawsuit without damages? Thanks so much, Jim.
That's Professor James Park of UCLA Law School. And that's
it for this edition of The Bloomberg Law Show. Remember
you can always get the latest legal news on our
Bloomberg Law Podcast. You can find them on Apple Podcasts, Spotify,
and at www dot Bloomberg dot com, slash podcast, Slash Law,
(37:37):
and remember to tune into The Bloomberg Law Show every
weeknight at ten pm Wall Street Time. I'm June Grosso
and you're listening to Bloomberg
This is Bloomberg Law with June Grossel from Bloomberg Radio.
Speaker 2 (00:08):
The Supreme Court's conservatives appear poised to give the president
control over dozens of independent federal agencies. At oral arguments
on Monday, they suggested they will allow President Trump to
fire Rebecca Kelly Slaughter from the Federal Trade Commission, despite
a law that says commissioners can only be fired for
(00:31):
specific reasons. The liberal justices, like Sonya so to Mayor
and Elena Kagan, expressed alarm at giving the president such
unchecked authority over agencies that overlook crucial areas like nuclear energy,
consumer products safety, and labor relations.
Speaker 3 (00:51):
You're asking us to destroy the structure of government and
to take away from Congress its ability to protect its
idea that the government is better structured with some agencies
that are independent.
Speaker 4 (01:09):
So the result of what you want is that the
president is going to have massive, unchecked, uncontrolled power not
only to do traditional execution but to make law.
Speaker 2 (01:21):
But the conservative justice is, like Brett Kavanaugh and Neil Gorsuch, say,
the real concern is Congress's creation of agencies that exercise
executive power but can't be held accountable.
Speaker 5 (01:35):
Independent agencies are not accountable to the people. They're not elected,
as Congress and the President are and are exercising massive
power over individual liberty and billion dollar industries, whether it's
the FCC or the FTC or whatever it might be.
Speaker 6 (01:54):
Tomorrow, we could have the Labor Commission, the Education Commission,
the Environmental Commission, and rather than Departments of Interior and
so forth.
Speaker 2 (02:05):
In allowing the president to fire the heads of independent agencies,
the court would be overturning a ninety year old president
called Humphreys executor that protects their independence. My guest is
constitutional law expert William Traynor, a professor at Georgetown Law
Bill tell us about the issues in Rebecca Slaughter's case
(02:28):
against Trump for firing her.
Speaker 7 (02:30):
The issue before the screen Court is that Congress puts
the limits on when the president and fire the heads
of independent agencies. So an independent agency is like the
Federal Trade Commission or the Federal Reserve. So really, since
the start of the Constitution, Congress has imposed limits on
when the president can fired these people. The question in
(02:52):
the case is whether that's unconstitutional, Whether the president can
fire the head of an independent agency for any reason,
even if Congress has said they can only fire them,
you know, if they're engaged in bad behavior. So this
is a very big deal. So much of a government
structure that protects people in different ways or regulates the
economy is done through independent agencies. Congress has wanted to
(03:15):
insulate them from total executive control, and the Supreme Court
is deciding right now whether, in fact, the president has
the kind of control that comes with being able to
fire the leaders of the agencies.
Speaker 2 (03:27):
In these oral arguments, you often hear the Supreme Court
justices say, well, that's a job for Congress. You know,
that's not something that we should be interfering in. So
why are they interfering here where Congress has set up
these agencies and the rules.
Speaker 7 (03:43):
That's a great question. There had been so many times
in which the Court is saying, this is a political matter,
we shouldn't be deciding. But at the same time, the
conservative justices of the Court are very dedicated to what's
called the unitary executive theory, which means that the president
is in total charge of the executive branch. So what
(04:05):
they're saying here is Congress doesn't get to be involved.
The president is in total charge of the executive branch,
including what have historically been things like the independent agencies.
That is kind of one of the core commitments that
has really been at the basis of what Keef Justice
Roberts has thought really going back to when he was
a young attorney, and that's the same thing for most
(04:27):
of the members of the whole conservative wing.
Speaker 2 (04:30):
What kind of concerns did the conservative justices express during
the oral arguments about this ninety year old President Humphrey's executor.
Speaker 7 (04:41):
There are two things that we're seeing the conservative wing
of the Court struggle with. One is they want the
Federal Reserve to continue to be independent. They don't want
the president to be able to fire somebody on the
Federal Reserve. And they don't want that because you know,
that would be terrible for the economy. If the Federal
(05:01):
Reserve is setting interest rates just in order to help
the president rather than to help the economy, that would
be a disaster, be a disaster for the market, the
disaster for the economy as a whole. So the conservative
wing of the Court i think wants to overturn Humphrey's executor,
but they're trying to come up with some rationale in
which they can say the president can fire somebody on
(05:24):
the FTC, but he can't fire somebody on the Federal Reserve.
And they're going to be looking at the Federal Reserve
later in the term. That's a big concern for them.
So I think that animates all of the conservative justices
of the Court. I think also, you know, what I'm
hearing with the Chief Justices, what he's trying to do
is to come up with some way in which there's
(05:46):
some agencies where Congress can in fact limit the president's
ability to fire people. And he's thinking about, you know,
are the ones that are essentially kind of judicial in
their function, and you know, that may be an area
in which Congress can establish requirements or when the prison
can terminate somebody, but that's not the Federal Trade Commission.
(06:07):
Federal Trade Commission is not making the judicial decisions, you know,
it's very much deciding executive type rules. So I think
we're seeing two things on the conservative wing of the Court.
One is they're trying to come up with some way
in which they can say the President can fire somebody
the FDC, but not at the FED. And I think
the Chief is trying to come up with some way
(06:28):
in which there's some type of agencies in which the
president can be limited by Congress, but those would be
ones that are really deciding kind of fuzzi judicial matters,
not the FDC.
Speaker 2 (06:39):
The liberals painted a dire picture of what would happen
if Trump wins here. Just as Soto Mayor said to
the Solicitor General, you're asking us to destroy the structure
of government. Do you think it's that serious.
Speaker 7 (06:53):
I think that's absolutely right. You know, we have had
independent agencies which largely exists to protect peace with limited power,
you know, and they've been in place really for one
hundred years. And the idea is that these should be
basically bipartisan or apolitical. They should not just be tools
of the president. So what the court is considering right
(07:14):
now is whether that whole kind of structure gets got it.
So the stakes on this are huge.
Speaker 2 (07:20):
Well, President Trump wasn't specifically mentioned by name, two of
the liberal justices, Elina Kagan and Katanji Brown Jackson, did
make broad references to his firing of experts and dismantling
of the Department of Education.
Speaker 4 (07:39):
That the more realistic danger here is that we'll have
an education department, as authorized by Congress by law that
won't have any employees in it.
Speaker 8 (07:50):
Having a president come in and fire all the scientists
and the doctors and the economists and the PhDs and
replacing them with loyalists and people who don't know anything
is actually not in the best interest of the citizens
of the United States.
Speaker 7 (08:07):
You know, what we're seeing right now is that in
the Trump administration, you know, the independent agencies and all
of the government washtoogs, there's an attempt to politicize them
in a way that you know, we've never seen before.
So the stakes are very different, and they're much higher.
If Humphrey's executor has been overturned in President bush forty
(08:29):
threes administration, the stakes would have been very different because
President Bush was not focused on making independent agencies kind
of the tool for his politics. But that's what we're
seeing with President Trump, and that's why the stakes are
so high. They've always been big, but in this administration,
where there's such an attempt to kind of move away
(08:50):
from scientific expertise and neutral decision making to control every
part of the executive branch, the stakes are huge. And
that's really part of what those three liberal justices we're questioning.
You know, the other thing that they really are focusing
in an honor. First of all, it's very very hard
to come up with some line where you can say,
(09:13):
Congress can limit the president's ability to fire the heads
of the sec they can't fire at will the heads
of the set. And I can't think of any kind
of coherent way to distinguish those two cases. And that's
one of the things that the liberals were pressing on.
You know, I think they're also pressing on the history.
If you look at the constitutions, the text of the
constitutions doesn't say that the president gets to fire people
(09:35):
in the executive rection. It doesn't deal with removal at all.
So there's not a text that really helps the conservative
way of the Court and Congress really, starting in the
Washington administration, limited the president's ability to fire people running
agencies kind of what was analogous to modern agencies at
the time. So I think what the liberals on the
Court are focusing on are the text, the original understanding,
(09:59):
as well as the huge consequences of essentially giving the
president the power to politicize all of the dependent agencies.
Speaker 2 (10:06):
I wonder what happens when there is a democratic president.
Do the conservatives then try to limit the ruling they're
expected to make.
Speaker 5 (10:14):
Here.
Speaker 7 (10:15):
You know, one of the reasons why I think that
the Court should not overturn Humphrey's Executor is to the
extent that you have any kind of political terms, you're
giving a democratic president the power to do exactly what
President Trump is doing, to politicize every independent agency in
the way that that president wants, you know. And then
(10:35):
how does a conservative court say, well, you know, Humphrey
Executors is back. Once you establish a rule, you know,
it applies to everybody. And that's something that they really
have to think true because of the long term consequences,
because I don't think they would feel comfortable, you know,
with limiting a democratic president after they allow President Trump
to fire people whenever he wants.
Speaker 2 (10:56):
So then you think this is the end of Humphrey's executs.
Speaker 7 (11:00):
Yeah, I think they will completely overrule Humphrey's Executor. I
think the one question for me is whether the Chief
comes up with some limiting principle in which if there
are you know, quasi judicial independent agencies, then Congress can
put limitations on the president's ability to fire. But you know,
(11:21):
the basic point is I think they're going to overturn
Humphrey's executive So I think what the Court will try
to do is to say the president can't fire Jerome Power,
can't fire at least a cook. But you know, I
don't think that that is a coherent approach, you know,
because I think it would be based on history, but
the history doesn't support it.
Speaker 2 (11:39):
Well. We often see some strained interpretations of history from
this court. Thanks so much, Bill. That's Georgetown law professor
William Trainor coming up next. The Court grapples with caps
on campaign spending. I'm June Grosso and you're listening to Bloomberg.
The Supreme Court is considering a Republican led effort to
(12:00):
erase yet another campaign finance regulation, this time the federal
caps that limit how much political parties can spend in
coordination with candidates. It's the latest in a line of
cases where the conservative majority has upended congressionally enacted limits
on raising and spending money to influence elections, and two
(12:23):
hours of arguments on Tuesday showed the entrenched divisions between
the liberal and conservative justices over campaign finance restrictions. Liberal
Justice Sonya Sotomayor said that every time the Court interferes
weakening campaign finance rules, it makes matters worse. While conservative
(12:43):
Justice Brett Kavanaugh said that spending limits have hurt political
parties in an era of unlimited spending by other organizations.
Speaker 3 (12:53):
You're telling us that Citizens United and McCutcheon ended up
yes in ample find the voice of corporations, but diminishing
another voice, that of the party. Now you want to
now tinker some more and try to raise the voice
of one party. Our tinkering causes more harm than it
(13:16):
does good.
Speaker 5 (13:17):
That's the real source of the disadvantage. Right, you can
give huge money to the outside group, but you can't
give huge money of the party. So the parties are
very much weakened compared to the outside groups.
Speaker 2 (13:28):
Chief Justice John Roberts, a potentially pivotal vote, said he
didn't see much difference between contribution limits, which the Court
has long upheld, and the caps on coordinated expenditures.
Speaker 6 (13:41):
It seems to me that that's kind of a fiction that, oh,
you know, they're just coordinating expenditures, they're not making direct contributions.
Speaker 3 (13:49):
I don't know in substance what the difference is.
Speaker 2 (13:51):
Doing away with the caps would overturn a quarter century
old precedent. In the same week, the court appears ready
to overturn an ninety year old president and allow President
Trump to fire the heads of independent agencies. Joining me
is an expert on campaign finance reform, Richard Brofald, a
professor at Columbia Law School. Rich Well, you start by
(14:14):
explaining the federal caps on spending by political parties in
coordination with candidates.
Speaker 1 (14:20):
So the Federal Russian Campaign Act, going back to the
nineteen seventies when it was enacted in the aftermath of Artegate,
places limits on donations to candidates, and it also places
limits on donations to parties. It does something else, It
places limits on how much parties can give to candidates,
on the theory that donors, once they max out on
(14:41):
how much the donor can give directly to a candidate,
will then just give to a party to chanting the
money to a candidate. So there's a limit on how
much the parties can give to their candidates. And that
comes up in two ways. One is a literal limit
on contributions actually writing a check, but the parties are
also allowed to engage in their own spending in support
of candidates, and that's called coordinated expenditures. In other words,
(15:03):
the party does the spending, they don't give the candidate
a check, but they do spending to promote the candidate.
Parties are allowed to do that, but the law places
a limit on how much money they can spend supporting candidates.
And again for the same idea that if there is
no limit on how much they could support candidates through spending.
Once again, donors who once they max out on the
(15:24):
direct donation to the candidate would then just give to
the parties and the parties could then use that money
to basically support their candidates. But parties are allowed to
do this in a way that other organizations are not.
Packs are not allowed to coordinate at all with candidates,
so parties get this extra permission to support the candidates directly,
but with a cap on it, and it varies from
(15:45):
state to state based on the population of the state.
Speaker 9 (15:48):
And what's going on in this case is.
Speaker 1 (15:49):
The National Republican Senate Campaign Committee and JD. Vance, who
this case began was a Senator and a congressman from
Ohio has since retired, have all brought suit challenging this
limit on the ability of parties to coordinate their spending
with candidates.
Speaker 2 (16:04):
And there's a longstanding precedent here.
Speaker 9 (16:07):
Almost twenty five years ago.
Speaker 1 (16:09):
The Supreme Court upheld this limit in a case called
Colorado Republican Sided in two thousand and one, and the
Court said yes, because of the danger of conduits a
party serving as conduits for donor support, these limits make
sense and are constitutional. Well, the Supreme Court is being
asked basically now, is to overturn that decision.
Speaker 2 (16:28):
One of the concerns of the liberal justices was that
lifting the limits on party spending would lead to quid
pro quo bribery, so wealthy donors could bypass the individual
contribution limits by donating through parties instead.
Speaker 1 (16:45):
I mean, that is the major concern of the liberal
justices and of a call the campaign finance reform community
as a whole, is that this will put another hole
in the campaign finance laws and make it easier for
wealthy donors to channel money to candidates. There's still limits
on their ability to give directly, but this would enable
them to give through the parties and so that money
(17:06):
would still get to candidate.
Speaker 9 (17:07):
So yeah, that is the core concern.
Speaker 1 (17:09):
A second concern is, depending on how the Court writes
this decision, it could be the green light for further
challenges to other aspects of the campaign finance laws, depending
on exactly how.
Speaker 9 (17:20):
They write this.
Speaker 1 (17:21):
So it's both upfront making it easier to channel money
from donors to candidates, and also yet one more case
eroding Congress's ability to place limits on campaign money.
Speaker 2 (17:33):
The Administration and the Republican's argument centers on free speech
right as these campaign finance cases since Citizens United have done.
Speaker 1 (17:45):
The essential argument is that this is a limit on
the ability of parties to speak, and that you don't
need it. That the combination of disclosure laws, anti bribery laws,
and limits on literally earmarking that's the term, that's use
a donation that our donor gives to a party to
be used for a candidate, that that's enough. That those
three things banning bribes, requiring disclosure, and saying that when
(18:08):
a donor gives a party a donation, they can't literally
say this is going to candidate so and so, that
that's enough, and that to go beyond that is to
constrain the ability of parties as free speech actors, as
First Amendment actors, to participate in political process.
Speaker 2 (18:21):
Just as Brett Kavanaugh said, you can give huge money
to the outside group, but you can't give huge money
to the party, and so the parties are very much
weakened compared to the outside group.
Speaker 9 (18:32):
See talking about super PACs.
Speaker 1 (18:33):
And indeed, that is an argument that many people have
raised who don't like this law, including people who might
liberals or reformers. They say this law might have made
some sense when it was first adopted, but given the
proliferation of super PACs and other outside groups, we'd be
better off if parties actually had a bigger voice, that
parties can play a coordination function, that parties maybe can
(18:54):
be a little less extreme than some outside groups, that
parties have more of an interest in governance rather than
being single issue and that actually if we could start
roll over now that the outside groups have kind of
unlimited voice, that anything that strengthens the parties is actually
a good thing, and that you see many people who
are not conservatives who are taking that position, who are
(19:14):
not First Amendment absolutists, but think that in fact, the
campaign financ system has gotten unbalanced and it would actually
be good to strengthen the role of parties.
Speaker 9 (19:22):
And this could do that.
Speaker 2 (19:24):
There was also an argument about standing made by those
defending the caps that JD. Vance, who's no longer a
Senate candidate, doesn't have a stake in the case and
thus there's no standing. And then there was a lot
of discussion about, well, is he going to run for president?
I don't think this standing argument is going anywhere, but
(19:46):
it's interesting, so tell us about it.
Speaker 1 (19:49):
So Ramond Martinez was the man appointed by the court
to defend the law when the government declined to do so,
and he opened by saying, this case is a big deal.
You know, anytime you're being asked to overturn a president
that's twenty five years old, should be very hesitant, and
you should make sure that this is a case that's
jurisdictionally sound, and he basically said it's not. So this
case was brought by some individuals JD. Vance and Congressman
(20:12):
Cheveaux from Ohio, and also by the National.
Speaker 9 (20:14):
Republican Senate Committee.
Speaker 1 (20:16):
With respect to the two individuals, one of them is
actually retired and no longer in politics, So that gets
it down to Vance. And Vance has pretty clearly said
I don't know if I'm running, or more than point,
I don't currently have a plan to run, saying I
might run, I might not run. So mister Martinez's argument was, well,
this case isn't right. We don't know if he's running,
so there's no candidate here to bring it, and therefore
(20:38):
there's no plaintiff. He's not a good plaintiff because whether
he's going to run a speculative. He doesn't clearly have
a stake in this case. So there were some back
and forth on that, but it does seem unlikely. Well,
you never know what the Supreme Court, but almost all
of the oral argument was really focused on the merits
of the case.
Speaker 2 (20:55):
It doesn't seem as clear as in other cases. But
can you tell where the justices are on this? Gorsuch
didn't even ask a question.
Speaker 1 (21:02):
It's worth pointing out that in every single campaign finance
case the Court has taken since Chief Justice Roberts became
Chief Justice and Justice Alito joined the court, the attack
on campaign finance law has won.
Speaker 9 (21:15):
That's about eight cases.
Speaker 1 (21:16):
And turn it around and there's not been a single
case that the Supreme Court has taken since two thousand
and five on campaign finance law where the law was
the state. That's all I think I need to say
about that.
Speaker 2 (21:27):
Yes, Rich, that about says it all. So in light
of that, there were also questions about what's next. Justice
Katanji Brown Jackson basically asked the Republican's lawyer, former Solicitor
General Nol Francisco, if these caps on coordinated expenditures go down,
what's next the caps on contribution limits?
Speaker 8 (21:48):
In McCutcheon, your clients filed a brief saying that the
sky wouldn't fall if the court struck down aggregate limits
because we still have coordinated expended truths. And now here
we are today with your clients saying no more coordinate
expenditure limits. And so I'm wondering if, and I think
(22:09):
others have sort of raised that concern as well, we're
going to be back here with the other kinds of
limits you with you making the same kinds of arguments.
Speaker 10 (22:19):
Well, your honor, I think different limits are on stronger
footing than others. I am not going to say that
my clients are not going to come back and try
to challenge other limitations.
Speaker 1 (22:31):
And indeed, it's the lawyer for people who are defending
this law, which I should say is not the government.
This is a federal statute. Well, the Trump administration will
not defend it. In fact, they'e actually joined in the
attack on it. So the statue was being defended by
two lawyers. One was a lawyer pointed about the Court
to speak for the statute, in addition the lawyer for
the Democratic organizations, and they both argue that basically this
(22:52):
is the bait and switch that's been going on in
campaign finance law for a long time. Someone says, well,
given changes in the law, this particular restriction does make
any sense, so you should strike it down. And then
they come along and say, well, now you've struck down
this one, the next restriction doesn't make any sense either,
so strike that down. And there seems to be kind
of a salami tactic aspect to this. A number of
the justices are very very skeptical, more than skeptical about
(23:15):
the constitutionality of the contribution restrictions. They don't have to
decide that in this case, but the Court has traditionally
treated coordinated expenditures as the constitutional equivalent of contributions. If
they're going to start protecting coordinated expenditures more saying that
they're more protected from limitation, it's not a big leap
to say that. That kind of thinking would also apply
(23:35):
to the contribution restrictions.
Speaker 2 (23:37):
Finally, if by chance, the Court were to uphold the
spending caps, would you be surprised, fall off your chair?
Surprised or mmm, that's interesting.
Speaker 9 (23:48):
Surprised, Well, probably fall off my chair.
Speaker 1 (23:52):
I mean when the Court upheld this law in twentsand
and one, it was a five to four vote them.
And in terms of just the carmentary this Supreme Court,
I'm not sure if Justice Barrett has written on a
big campaign finance case, but all the other Conservatives have
and they've been rather consistently skeptical campaign finance.
Speaker 2 (24:10):
The record you cid it does seem to indicate that
this cap is the next to go. Always great to
have you on, rich That's Professor Richard Braflt. Of Columbia
Law School. Coming up next on the Bloomberg Law Show.
Will investment funds be facing more lawsuits by activist investors?
Remember you can always get the latest legal news by
(24:30):
listening to our Bloomberg Law podcast wherever you get your
favorite podcasts. I'm June Grasso when this is Bloomberg.
Speaker 5 (24:39):
I think this case is extremely close. I'll just put
cards out there on that.
Speaker 2 (24:45):
And that deduction by Justice Brett Cavanaugh seemed correct because
Wednesday's eighty minute oral argument at the Supreme Court didn't
give a clear indication about the likely outcome. Wall Street
is watching the case over whether to allow investors to
broadly use an eighty five year old law to sue
(25:06):
funds over their management decisions. A lower court had allowed
activist investors led by SABA Capital Master Fund to sue
eleven closed end funds, including some affiliated with FS Credit
Opportunities and Blackrock. Justice Sonya Soto Mayor pointed to the
legislative history of the Investment Company Act to show that
(25:28):
Congress intended to allow private rights of action.
Speaker 3 (25:32):
I know that many of my colleagues don't believe in
statutory history, but here we have both a House and
a Senate reports, a company, the nineteen eighty amendments to
the ICA, and in both the House and the Senate
reports it says that quote, private rights of action for
(25:54):
violations of the federal securities laws are a necessary adjunct
to the secs and for enforcement efforts.
Speaker 2 (26:02):
But in recent decades, the Supreme Court has avoided finding
private rights of action unless Congress expressly authorizes them in
a statute. And Conservative Justice Neil Gorsich was critical of
allowing so called implied rights of action.
Speaker 6 (26:19):
Pretty disastrous for our system of government, where the people
are supposed to write the laws that govern them, not judges.
Speaker 2 (26:27):
The Trump administration is backing the mutual funds. Joining me
is securities law expert James Park, a professor at UCLA
Law School. Jim tell us about this legal fight.
Speaker 11 (26:39):
Start sort of from the beginning. You have a hedge
fund SABA Capital, and one of its strategies is it
buys stock in mutual funds, mutual funds that are closed
and did which means that they have stock trading in
secondary markets. And the ideavia on the strategy is you
buy a substantial stake and you influence the governance of
(27:00):
the fund. You might think that it has poor governance,
and then that should increase the price of the stock.
That's what activist stock investors typically do, and then you
hopefully sell at a profit. And so they did this
for a number of mutual funds, and the funds basically
tried to take away their right to vote. There was
a state law in the state where they were formed
(27:22):
which said that you know, if you pass a resolution,
you can take away a shareholder's right to vote unless
a majority of the other shareholders basically give it back.
And this is, you know, almost a takeover defense sort
of thing. It reduces their influence on the company's governance.
And so what SABA Capital is arguing is that that
violates a law, a federal law called the Investment Company Act,
(27:46):
which is passed in nineteen forty, which is meant to
regulate mutual funds. The Investment Company Act basically says that
shareholders are supposed to have votes proportionate to the number
of shares that they own. And so what SABA the
Capital was arguing is that we have a private right
of action to sue and the remedy should be recision,
(28:06):
which means basically, we get our money back. And so
there's a question as to whether the Investment Company Act
authorizes a lawsuit like this, because the language does not
come out and say in a very straightforward way that
you have the right to sue for violations of the
Investment Company Act. And so the only way you can
say they have a right to sue is to say
(28:26):
there's something called an implied remedy here, sort of an
implicit right to sue that the Court can basically say
is evident from the law.
Speaker 2 (28:36):
The Second Circuit Court of Appeals, which handles a lot
of these kind of financial cases and is well respected,
do it allow a private right of action?
Speaker 9 (28:47):
They did.
Speaker 11 (28:47):
They basically did in a different case. And Judge Laval,
who is a very prominent, respected Second Circuit judge, said
that the statute has language that can be read to
indicate that Congress intended for private parties to be able
to bring suit for recision when there is a violation
(29:09):
of the Investment Company Act, and he mainly based his
argument on the text. The text of the law says,
you know, if you hihilated the Investment Company Act, then
the various agreement that you entered into with the mutual
fund is unenforceable. It talks about, you know, in certain circumstances,
(29:29):
recision should not be denied by a party if the
benefit of recision outweighs some of the downsides. So there
is language that indicates that Congress might have envisioned these
private lawsuits happening, but it's not set in a straightforward way,
and I think that's what made the question ambiguous. And
in fact, the Third Circuit and a number of other
(29:51):
circuits have held the opposite and said that there is
not an implied right to sue under the Investment Company Act,
and Meeting Court generally has not favored these implicit rights,
which are not straightforward in the text of the statute.
Speaker 2 (30:07):
And what were the concerns of the justices about allowing
a private right of action?
Speaker 11 (30:13):
There were, you know, a number of concerns, and they
mostly focused on the statutory interpretation argument as opposed to
broader policy concerns. And you know, I think that they
were concerned that the language was not completely straightforward and
that there were some really difficult issues of interpreting what
the statute meant. Justice Kavanaugh went so far as to
(30:36):
say this was a very close case, that there were
good arguments on both sides. Some of the more liberal
justices pointed to the legislative history, and the legislative history
actually indicates that Congress thought that there would be an
implied right of action, And there were some reports senate
in house reports which said that the envisioned investors could sue.
But a lot of the more conservative justices, as you
(30:58):
may know, they don't really like to look at legislative history.
They like to look at the text of the statute,
and so a lot of the oral argument was puzzling
through how we read this language. That's basically what the
argument was mainly about.
Speaker 2 (31:13):
I thought it was interesting that Justice Sodomayor prefaced her
remarks about the statutory history by saying, I know many
of my colleagues don't believe in statutory history. She also
referred to these private lawsuits as being in conjunction with
the SEC's enforcement efforts. But if you have private investors
(31:35):
bringing their own lawsuits, does that interfere with the SEC's
enforcement plans.
Speaker 11 (31:42):
Definitely. The mutual fund industry has taken the position that
the statute is meant to be enforced by the SEC
rather than private plaintiffs, and that the SEC can come
in if there's a violation of the Investment Company Act
and bring various enforcement actions. And you know, I think
the response to that is the SEC has limited resources.
(32:03):
There are a lot of these mutual funds out there,
a lot of potential violations, and having private attorney generals
who are able to bring these suits maybe a more
effective way of enforcing these provisions. That was not really
discussed much in the oral argument. I think that argument
has fallen a bit out of favor with the more
conservative justices, but definitely the mutual fund industry believes that
(32:27):
it's really the sec that should be bringing enforcement actions
in this space.
Speaker 2 (32:32):
What about suing in state court rather than federal court.
Here's what Justice Kavanaugh said, So.
Speaker 5 (32:38):
It's a federal court state court issue. As I see it,
like this is going to happen. It's just going to
happen in federal court or state court.
Speaker 11 (32:45):
There is also a lot of discussion about that possibility
that maybe what the statute means is that the contract
is unenforceable if there's a violation of the Investment Company Act,
and so then there would be litigation in state court
about the enforceability of the contract, And so that was
(33:06):
seen as a possibility. Have there ever been suits like that.
I don't know, and I think there would be a
little bit complicated, you know, especially the types of theories
that you might want to bring. Federal courts may have
a bit of an advantage over state courts in hearing
these types of issues, and so it would be a
bit awkward to say that these claims would mainly be
(33:29):
brought in state court as opposed to Federal Court if
you want to have this be an effective remedy in
my view.
Speaker 2 (33:35):
Jim, can you give us a sort of simplistic explanation
of the position of each side here on the merits
of the case.
Speaker 11 (33:43):
On one side, the investors might argue, we need some remedy,
we need a clear remedy when there are violations, and
you know, recision is a pretty powerful remedy under the
Investment Company Act, which was meant to regulate mutual funds.
On the other hand, I think what the mutual fund
in as worried about is that you're going to get
a flood of lawsuits and that that might actually be
(34:05):
bad for most investors in the mutual fund because only
a few investors might be interested, insuing, I'm only a
few investors may be pursuing an activist strategy with the fund,
and so the other investors may not be all that interested,
and it's costly to defend these lawsuits, and those costs
(34:25):
come out of the pockets of the other mutual fund shareholders.
Speaker 2 (34:30):
It was hard to read the argument, although it did
seem like the liberal justices and perhaps the Chief Justice
and Justice Kavanaugh, might favor allowing the private lawsuits. But
what was your take?
Speaker 11 (34:43):
It's close. I mean, my guess is I actually think
that they will find that there is a right of
action based upon the text of the statute. I think
there is enough in the text of the statute to
persuade at least some of the conservative justices. Is that
Congress intended for there to be a private right of
(35:04):
action for recision, I think the more liberal justices will
be persuaded by both the text, the legislative history, and
policy considerations. So I think they'll need to get a
couple of the Republican justices to decide with them, which
I think is very possible. It's not a sure thing,
but just my sense of the argument. If I felt
(35:24):
like Saba Capital might have had a bit of a
better argument in terms of the text on the statutory
interpretation issue.
Speaker 2 (35:30):
And do you think that it's the correct decision to
allow the private investors to.
Speaker 11 (35:34):
Sue As a policy matter, I think the risk that
it's going to lead to a flood of lawsuits may
be low. We'll have to see though. And my colleague
at UCLA for non Restreppo, actually has a study that
he just completed that looked at what happened after the
second Circuit allowed these lawsuits, and he didn't find a
flood of cases, and he didn't find a big impact
(35:56):
on the mutual fund industry. These are preliminary results, he
tells me, and so he may, you know, find something
different as he delves into the data. My sense is that,
you know, SABA Capital is a little bit of an
outlier in terms of pursuing a strategy like this. Most
activist funds are targeting public corporations rather than mutual funds. Now,
(36:17):
it might be that if you know you have more
rights and more leverage, that more funds may get into
this space. But it is a strategy that does require
you to make a pretty substantial investment in the mutual
funds so that you have significant votes. And it's a
little bit different than some of the shareholder lawsuits we
see with public companies, which have been criticized because you know,
(36:38):
you have plainers who own only a few shares who
have a right to bring a private action represented by
an attorney in a class action, and so that might
be the reason we see a lot of litigation in
the public company space. I don't know if that will
necessarily be true with respect to mutual funds. And you know,
(36:58):
the other thing to keep in mind is the imply
right of action is also just for recision, which means
the remedy as you get your money back, as opposed
to damages. That may also have some impact on the
incentives of plaintiffs to bring a lot of lawsuits for
violations of the Investment company Acts.
Speaker 2 (37:14):
What's an investor lawsuit without damages? Thanks so much, Jim.
That's Professor James Park of UCLA Law School. And that's
it for this edition of The Bloomberg Law Show. Remember
you can always get the latest legal news on our
Bloomberg Law Podcast. You can find them on Apple Podcasts, Spotify,
and at www dot Bloomberg dot com, slash podcast, Slash Law,
(37:37):
and remember to tune into The Bloomberg Law Show every
weeknight at ten pm Wall Street Time. I'm June Grosso
and you're listening to Bloomberg
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