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Chocolate Merger, SCOTUS & Texas Takes on Delaware · Bloomberg Law

0:03
Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
0:09
Speaker 1: Will the FTC try to stop the largest packaged food
0:13
Speaker 1: deal in years? Mars, known for its candy like m
0:17
Speaker 1: and Ms, Milky Ways, Skittles, Twigs and on and on,
0:20
Speaker 1: wants to buy cheese at maker Kelenova for nearly thirty
0:24
Speaker 1: six billion dollars. But will FTC chair Lena Kahn's views
0:29
Speaker 1: about a chocolate oligopoly lead to a challenge to the deal?
0:34
Speaker 1: Joining me is Bloomberg Anti trust reporter Leon Nylan Leah
0:38
Speaker 1: tell us how Lena Kahan had a problem with the
0:41
Speaker 1: chocolate oligopoly about a decade.
0:44
Speaker 2: Ago before she became FTC chair and con worked for
0:48
Speaker 2: an advocacy group that focuses on anti chask to open markets,
0:51
Speaker 2: and she did a lot of research and writing sort
0:54
Speaker 2: of about consolidation within various industries and one of those
0:57
Speaker 2: a scud So. About ten years ago she wrote a
1:01
Speaker 2: story about how there had been a significant con coolidation
1:04
Speaker 2: within the candy industry, particularly chocolate candies, and how today
1:08
Speaker 2: there are only about three major chocolate companies That's Nestleie
1:14
Speaker 2: Mars and her Shee's. You know you have a couple
1:16
Speaker 2: other ones like Baro Rocho, which is an Italian company,
1:20
Speaker 2: but those are the big free So even though when
1:23
Speaker 2: you go to the bircery store you see like what
1:26
Speaker 2: looks like, you know, dozens of different brands, really most
1:30
Speaker 2: of those are owned by one of these free companies.
1:32
Speaker 2: And so she was lamenting a little bit. How when
1:35
Speaker 2: there is this kind of confolidation, there ends up being
1:37
Speaker 2: a little bit less innovation in market.
1:39
Speaker 1: See, now I would wish there was less innovation in
1:43
Speaker 1: candy so that I would not be so tempted. I
1:47
Speaker 1: never noticed that there was a lack of diversity in candy.
1:52
Speaker 1: So tell us about this proposed or possible Mars deal.
1:57
Speaker 2: Yeah, so Mars, which is primarily a candy company, is
2:00
Speaker 2: looking at buying Kelenova. Keelenova is a company that was
2:04
Speaker 2: spun out of Keellog to Kellogg, the cereal company decided
2:07
Speaker 2: to split up its business in between Kellogg the traditional
2:11
Speaker 2: cereal and like everything else it did, And so Keelenova
2:14
Speaker 2: is sort of the everything else. So it has pop tarts,
2:17
Speaker 2: it has cheese, it it has nutri grain bars, it
2:20
Speaker 2: has all of these other sort of like snack food
2:23
Speaker 2: and frozen items in packaged food, and so Mars would
2:27
Speaker 2: like to buy it because, as I said, primarily it
2:29
Speaker 2: is a candy company, but it would like to sort
2:32
Speaker 2: of get a little bit more into snack food. So
2:34
Speaker 2: they are looking at doing a thirty six billion dollars
2:37
Speaker 2: deal and it's really going to put Mars into one
2:39
Speaker 2: of the top packaged food companies in the world. So
2:43
Speaker 2: right now the top ones are Unilever, PepsiCo, and Nestlie
2:47
Speaker 2: and this would make Mars the number four, right behind
2:50
Speaker 2: those three. So the FTC is going to take a
2:53
Speaker 2: look at the dial because there's a lot of interest
2:55
Speaker 2: in food right now, particularly with all the inflation that's
2:59
Speaker 2: been going on. There's been some suggestions that the reason
3:03
Speaker 2: that food prices haven't come down as much is because
3:05
Speaker 2: there is so much consolidation in the industry that a
3:08
Speaker 2: lot of the food companies can sort of keep their
3:10
Speaker 2: prices high in a way that they would otherwise not
3:13
Speaker 2: be able to if there was more competition.
3:16
Speaker 1: They do compete in snack bars. Is the analysis going
3:20
Speaker 1: to depend on how they compete in snack bars or
3:24
Speaker 1: is it going to focus on their becoming then the
3:27
Speaker 1: fourth largest packaged food dealer. I mean, it really doesn't
3:31
Speaker 1: seem like there's a lot of overlap in what Mars
3:36
Speaker 1: and Kelenova do.
3:38
Speaker 2: Yeah, the biggest overlap is that you said in snack bars.
3:41
Speaker 2: So one of them owns Utri Grain and the other
3:44
Speaker 2: owns Matro's Bakery, And if you ever had those items,
3:46
Speaker 2: they're very similarly. You know, they have the fruit in
3:48
Speaker 2: the middle and then there's the grains on the outside.
3:51
Speaker 2: One of them also owns Hind Bars, you know, all
3:54
Speaker 2: those like nut and chocolate ones, and the other owns
3:57
Speaker 2: are expires, which they often have like fruit and that's
4:00
Speaker 2: mixed together into sort of a bar. But these are
4:03
Speaker 2: all sort of like the slightly healthier nack and or
4:08
Speaker 2: the real replacement type things that you might you know,
4:10
Speaker 2: grab when you're hungry. And so the FTC is definitely
4:13
Speaker 2: going to take a look at that. And you know,
4:15
Speaker 2: the traditional way that this would be resolved is that
4:19
Speaker 2: they would try and sell off one of these brands.
4:21
Speaker 2: They would keep one and they could sell off the other.
4:23
Speaker 2: This FTC has been a lot more reluctant to accept
4:27
Speaker 2: that kind of a deal. I mean, I am here
4:29
Speaker 2: in Portland because of the Kroger Albertson steal and that's
4:32
Speaker 2: exactly where they're challenging at Kroger and Auversons are saying,
4:34
Speaker 2: you know, we'll sell us some supermarkets, everything will be fine,
4:37
Speaker 2: and the FTC is like, eh, we're not really sure.
4:40
Speaker 2: So that may be a little bit harder in this case.
4:44
Speaker 1: How long does the FTC have before they have to
4:47
Speaker 1: make a decision in the Mars case.
4:50
Speaker 2: Yeah, so Mars and Kelenova just announced the steal a
4:52
Speaker 2: couple of weeks ago. They will file their initial paperwork
4:55
Speaker 2: pretty soon, and then the FEC will have thirty days
4:59
Speaker 2: to decide if it wants to do an in depth
5:01
Speaker 2: review that we call a second request. A lot of
5:03
Speaker 2: those people I spoke to said they believe that FPC
5:06
Speaker 2: is definitely going to do a second request here. Once
5:09
Speaker 2: it goes into the second request phase, that can take
5:11
Speaker 2: several months or maybe even up to a year for
5:13
Speaker 2: them to sort of make a decision about what they're
5:15
Speaker 2: going to do with the deal.
5:16
Speaker 1: So, speaking of Kroger Albertson's, I understand that the surgeon
5:21
Speaker 1: grocery prices played a big part in the opening statements
5:26
Speaker 1: at the trial.
5:28
Speaker 2: Yeah, you know, this is a merger between what the
5:30
Speaker 2: US calls the two largest traditional grocery stores, Kroger and Robertsons,
5:35
Speaker 2: and you know there's sort of one stop shop places
5:38
Speaker 2: where you go and you can get sort of all
5:40
Speaker 2: of the food you might need for a week. And
5:41
Speaker 2: they have alleged that both Kroger and Robertsons spend a
5:44
Speaker 2: lot of time thinking about how the other one prices,
5:47
Speaker 2: particularly on what they consider it to be consumer stables,
5:50
Speaker 2: which are things like milk, eggs, bananas, things along those
5:54
Speaker 2: lines that Americans purchased a lot, probably even weakly. So
5:57
Speaker 2: we have heard a lot about egg pricing in particular.
6:00
Speaker 2: You know, there's been a lot of up and down
6:02
Speaker 2: in egg pricing since the pandemic, in part because there's
6:05
Speaker 2: been a couple like bird flu outbreaks here in the US.
6:08
Speaker 2: But there has been some testimony that Albertson's and Kroger
6:12
Speaker 2: look to each other very significantly on how to price
6:15
Speaker 2: their eggs. They do weekly reports on what the other
6:19
Speaker 2: one is charging in the market, and they oftentimes, yeah,
6:22
Speaker 2: like adjust their pricing based on what either you know,
6:25
Speaker 2: Kroger or Albertson's just charging. The companies have argued that
6:28
Speaker 2: they don't compete with each other as much as the
6:31
Speaker 2: FTC claims that really their biggest competitors Walmart. Walmart obviously
6:36
Speaker 2: is one of the biggest food sellers in the United States.
6:39
Speaker 2: But you know, we've seen at this point dozens of
6:42
Speaker 2: documents in which Kroger and Albertsons refer to each other
6:45
Speaker 2: as either their primary competitor or their biggest competitor. And
6:49
Speaker 2: while they do look at Walmart for some pricing, it's
6:52
Speaker 2: pretty clear that they are very, very focused on the
6:55
Speaker 2: other traditional supermarkets.
6:57
Speaker 1: There was testimony at the trial about the company that
7:01
Speaker 1: would buy almost six hundred of the divested stores from
7:06
Speaker 1: Kroger and Albertson's CNS Grocery Wholesale.
7:10
Speaker 2: So in order to get the deal through, the companies
7:12
Speaker 2: knew that they competed directly in a lot of areas,
7:15
Speaker 2: and so they offered to sell five hundred and seventy
7:18
Speaker 2: nine stores to a company called CNS Grocery Coolesalers. So
7:21
Speaker 2: CNS is primarily a grocery holesaler. That means that they
7:26
Speaker 2: fiber products from the consumer packaged goods or from the farmers.
7:31
Speaker 2: They keep them in the warehouse, and then when the
7:33
Speaker 2: supermarket needs to stocket shelves, it orders from them and
7:36
Speaker 2: they send a truck to the serper market with all
7:39
Speaker 2: of the goods. So a lot of the bigger supermarkets
7:42
Speaker 2: like Kroger and Overritson sort of do this warehousing and
7:45
Speaker 2: distribution themselves, with smaller grocery chains to use wholesalers like CNS. So,
7:50
Speaker 2: as I said, CNS is primarily a wholesaler. It does
7:53
Speaker 2: operate twenty three grocery stores in upstate New York and Wisconsin,
7:57
Speaker 2: so buying five hundred and seventy nine stores would be
8:01
Speaker 2: like quite a significant change for this company, and they
8:05
Speaker 2: argue that they are really excited about this possibility, that
8:09
Speaker 2: they would really like to sort of diversify their company
8:12
Speaker 2: beyond just being a whole baler, and that it sort
8:14
Speaker 2: of makes sense for them, since they are so involved
8:17
Speaker 2: in groceries, to pick up grocery retailing. But the FEC
8:20
Speaker 2: argues that this is putting a lot of the risk
8:22
Speaker 2: onto consumers because if this divestiture package were to fail
8:26
Speaker 2: all of a sudden, there's not going to be as
8:28
Speaker 2: much grocery competition and a lot of places around the country,
8:32
Speaker 2: consumers would only have the option of the combined Kroger
8:35
Speaker 2: and Operts them.
8:36
Speaker 1: And CNS doesn't have a great record of keeping supermarkets
8:40
Speaker 1: that they buy.
8:41
Speaker 2: Yes, so historically, as I mentioned, CNS has played a
8:46
Speaker 2: little bit in the retail business. But what they would
8:48
Speaker 2: do is they would buy a couple grocery stores, primarily
8:51
Speaker 2: from other companies that were already their customers, and then
8:56
Speaker 2: they would keep them for a while and then sort
8:57
Speaker 2: of sell them off or sell them back to somebody else.
9:01
Speaker 2: So there was a period in time in the early
9:04
Speaker 2: mid two thousands when they had a couple hundred stores,
9:07
Speaker 2: but by twenty twelve they had completely exited the retail
9:10
Speaker 2: grocery industry. So for a long time they operated no
9:13
Speaker 2: grocery stores whatsoever. In about twenty twenty one, they sort
9:16
Speaker 2: of decided to get back into the retail business, and
9:19
Speaker 2: that's when they started acquiring a couple more stores, And
9:22
Speaker 2: as I said, they now operate just twenty three of
9:24
Speaker 2: them only in these two places in the country. Even
9:27
Speaker 2: though they are a big distributor, they also don't have
9:31
Speaker 2: any even of their distribution business in some areas of
9:34
Speaker 2: the country where they would be buying stores, So they
9:36
Speaker 2: don't do a lot of work right now in southern California,
9:40
Speaker 2: where they would be buying something like ninety something stores,
9:43
Speaker 2: and they don't do any real business in Colorado right now,
9:46
Speaker 2: where again they would be buying ninety something stores and
9:49
Speaker 2: taking over sort of the Safe Way brand in Colorado only.
9:54
Speaker 1: And this hearing is just to allow a judge to
9:57
Speaker 1: decide whether or not to issue a preliminary injunction against
10:02
Speaker 1: the deal.
10:03
Speaker 2: Yeah, so technically this is a preliminary injunction hearing. The
10:06
Speaker 2: judge is going to decide whether it's to block the
10:09
Speaker 2: deal from going through while the FTC move forward with
10:13
Speaker 2: a proceeding in it's in house court. The companies have
10:15
Speaker 2: already said that if the judge blocks the deal here,
10:18
Speaker 2: they're probably going to abandon because the deal has already
10:21
Speaker 2: now been pending for two years and they can't really
10:24
Speaker 2: keep waiting given all of the financing and things that
10:26
Speaker 2: are up in the air with this merger. So if
10:28
Speaker 2: she ends up ruling against them, they'll abandon the deal
10:31
Speaker 2: and sort of move forward with a new strategy.
10:34
Speaker 1: Do you know what other kinds of witnesses are going
10:37
Speaker 1: to testify?
10:38
Speaker 2: Yeah, we are almost done with the FTC's case, So
10:41
Speaker 2: we've heard from a lot of Koger and Albertson's sort
10:44
Speaker 2: of mid level managers in the various regions. We've heard
10:47
Speaker 2: actually a lot from various union officials because one of
10:51
Speaker 2: the interesting things about this case is the FTC has
10:54
Speaker 2: argued that it would produce competition for unionized labor because
10:58
Speaker 2: both Kroger and Albertsons have arge unionized work courses all
11:01
Speaker 2: of the people who work in the stores, and they
11:05
Speaker 2: argue that eliminating the competition between Kroger and Albertson's would
11:08
Speaker 2: lead to lower wages for their workers. The SEC is
11:11
Speaker 2: expected to finish up probably tomorrow morning, and then we're
11:14
Speaker 2: going to hear from the Kroger CEO and the Robertson CEO,
11:19
Speaker 2: who are going to talk a lot about, you know,
11:20
Speaker 2: why they want to steal some forward.
11:23
Speaker 1: It's very interesting because you have two of the issues
11:28
Speaker 1: in the presidential campaign, inflation and union jobs.
11:32
Speaker 2: The Harris campaign has already said that they oppose this merger,
11:35
Speaker 2: So we will see what happens.
11:38
Speaker 1: Thanks so much, Leah. That's Bloomberg Ante Trust reporter Leah Nylen.
11:42
Speaker 1: Coming up next on the Bloomberg Launch Show. Texas is
11:45
Speaker 1: making a long shot bid to become a business law
11:49
Speaker 1: center with a little help from Elon Musk i'm June Grosso.
11:53
Speaker 1: When you're listening to Bloomberg, there's no doubt that in
11:56
Speaker 1: the tiny state of Delaware is the world's per i'm
12:00
Speaker 1: ain in business court. The Delaware Court of Chancery, Delaware
12:04
Speaker 1: is the legal address for nearly three hundred thousand businesses
12:08
Speaker 1: like GM, Walmart and Goldman Sachs, and in a two
12:12
Speaker 1: century old commercial court, sits one chancellor, six vice chancellors,
12:18
Speaker 1: and three magistrates, considered the best judges in the business
12:22
Speaker 1: of judging business cases. Now into this picture comes an
12:27
Speaker 1: unlikely challenge from Texas. It's launching its own version of
12:33
Speaker 1: a business court without a designated courthouse or even designated courtrooms.
12:39
Speaker 1: Joining me is Bloomberg Texas legal reporter Madelin Meckelberg, who's
12:43
Speaker 1: investigated Texas's bid to become a business court hub. Madelin
12:49
Speaker 1: start by telling us about the Delaware Chancery Court.
12:52
Speaker 3: I think there is no question that the Chancery court
12:55
Speaker 3: is the pre eminent business court. And although it's the
13:00
Speaker 3: state and a small state court, it has global implications
13:05
Speaker 3: because so many businesses are incorporated in Delaware and have
13:10
Speaker 3: it set up so that litigation like shareholder actions go
13:14
Speaker 3: through the Chancery Court. There are decades and decades of
13:18
Speaker 3: precedent out of that court on really crucial business law cases,
13:23
Speaker 3: and those decisions, given the stature of this court, those
13:26
Speaker 3: decisions have impact felt across the whole country. I was
13:30
Speaker 3: speaking to a law professor at the University of Texas
13:33
Speaker 3: for this story, and he told me, is you're taking
13:35
Speaker 3: corporate law classes anywhere in the country. You're learning about
13:39
Speaker 3: Delaware law, whether you plan to practice in that court
13:42
Speaker 3: or not, because of the significance of the decisions that
13:45
Speaker 3: are coming out of the Chancery Court there, and.
13:48
Speaker 1: Also the court's ten officials. You know, the judges are
13:53
Speaker 1: experts in business law.
13:55
Speaker 3: That's exactly right. The idea is that these are people
13:59
Speaker 3: who come from really high profile corporate litigation practices already,
14:04
Speaker 3: they have a ton of experience and knowledge in this space,
14:07
Speaker 3: and they're appointed to serve twelve year terms in the court,
14:11
Speaker 3: and so they're really steeped in current issues of the day,
14:15
Speaker 3: and they have a reputation of being some of the
14:18
Speaker 3: top legal minds in the country.
14:20
Speaker 1: Now, Texas has made a concerted effort to attract businesses.
14:24
Speaker 1: Abbot is promoting the Texas miracle. What is that.
14:29
Speaker 2: That's a great question.
14:30
Speaker 3: Definitely, Texas has been working for a long time now
14:33
Speaker 3: to cementous reputation as a really business friendly state. I
14:37
Speaker 3: think the number changes, but there's something like fifty fortune
14:40
Speaker 3: five hundred companies that are headquartered here. But what Texas
14:44
Speaker 3: and Governor Abbott is talking about there is this idea
14:47
Speaker 3: that businesses can come to Texas and experience lower taxes,
14:51
Speaker 3: they can experience a really robust workforce. There's tons of
14:56
Speaker 3: physical space. Texas is a gin normalis state. So if
14:59
Speaker 3: you're looking for somewhere to set up a business, set
15:01
Speaker 3: up an operation, chances are we've got the land for
15:04
Speaker 3: you here. I think we're also have a reputation of
15:07
Speaker 3: having business friendly lawmakers who really are attuned to the
15:11
Speaker 3: issues of businesses and have shown a willingness to listen
15:14
Speaker 3: to what they're looking for when it comes to crafting
15:17
Speaker 3: regulations for the state. And so Abbott has been looking
15:20
Speaker 3: for ways to kind of expand on this reputation, add
15:25
Speaker 3: more to the arsenal things that Texas uses when it's
15:27
Speaker 3: trying to recruit companies to come to the states. And
15:30
Speaker 3: that's why we're chatting today. The latest development in that
15:33
Speaker 3: effort is the establishment of dedicated business courts here in Texas.
15:37
Speaker 1: Are they trying to become the next Delaware? Are they
15:41
Speaker 1: trying to directly compete with Delaware?
15:43
Speaker 3: So not necessarily, Texas is not the first state to
15:47
Speaker 3: attempt to create business courts. There's maybe twenty two other
15:51
Speaker 3: states that have some former fashion of specialty courts, and
15:55
Speaker 3: so on paper, the reason to pursue these courts is
15:59
Speaker 3: to set orate business cases from the regular docket, because
16:03
Speaker 3: right now a really complicated contract dispute or shareholder lawsuit
16:07
Speaker 3: is going to be decided alongside personal injury cases and
16:11
Speaker 3: family law disputes in state courts across Texas. And so
16:15
Speaker 3: what they're trying to do here is to create a
16:17
Speaker 3: similar system to Delaware, where you have specialty judges who
16:21
Speaker 3: have experience in business and corporate litigation who can help
16:24
Speaker 3: speed resolution of some of these cases that can tend
16:27
Speaker 3: to get stuck in the dockets. But I think, for
16:29
Speaker 3: reasons I'm sure we're going to talk about more, I
16:32
Speaker 3: think Texas's reputation just as a business friendly state, some
16:36
Speaker 3: of our more famous business residents here, it kind of
16:39
Speaker 3: gives Texas a bigger opportunity to go against Delaware, and
16:43
Speaker 3: so whether they're trying to or not, the way that
16:45
Speaker 3: the situation is playing out right now is that everyone's
16:48
Speaker 3: looking at Texas as maybe not a direct challenger to Delaware,
16:52
Speaker 3: but certainly an alternative to Delaware that could eventually kind
16:56
Speaker 3: of develop a similar reputation as a place to bring
16:59
Speaker 3: these kinds of.
17:00
Speaker 1: I think you are referencing perhaps Elon Musk, who I'm
17:04
Speaker 1: sure feels he's had a terrible time in the Delaware
17:08
Speaker 1: Chancery court and has been promoting Texas.
17:12
Speaker 3: That's exactly right. Elon Musk decided to shift the incorporation
17:16
Speaker 3: of Tesla and SpaceX to Texas. I think the final
17:20
Speaker 3: straw for him was when a judge in Delaware's Chancery
17:22
Speaker 3: court struck down his massive, massive fifty six billion dollar
17:26
Speaker 3: pay package that was approved by Tesla shareholders, and he said, guys,
17:31
Speaker 3: I'm going to Texas. He has a long history here
17:34
Speaker 3: of having his physical headquarters and office spaces here, but
17:38
Speaker 3: by moving the legal home of these companies here, he's
17:41
Speaker 3: kind of ensuring that these future spats involving shareholders and
17:45
Speaker 3: specifics of the business are going to be resolved in
17:48
Speaker 3: courts in Texas. Now, he hasn't said that he was
17:51
Speaker 3: coming here to specifically experience the business courts that we're
17:55
Speaker 3: setting up, but it's just the timing of it. He
17:58
Speaker 3: announced the decisions a few months ago, and Texas business
18:00
Speaker 3: courts just started operating this past weekend. So whether he
18:05
Speaker 3: wants to or not, I think he's going to be
18:06
Speaker 3: one of the early and most high profile cases that
18:09
Speaker 3: those courts see.
18:11
Speaker 1: So Chevron moved from California after one hundred and forty
18:15
Speaker 1: five years, you know, it was having problems with California's
18:21
Speaker 1: environmental policies and regulations. Are a lot of the corporations
18:27
Speaker 1: moving there trying to escape from states that are not
18:31
Speaker 1: as business friendly and going to Texas, which seems to
18:34
Speaker 1: have open arms out for business.
18:37
Speaker 3: I think that's certainly a factor for a lot of
18:39
Speaker 3: businesses that decide to come here. It's hard to imagine
18:42
Speaker 3: that being the only factor that they would make that
18:45
Speaker 3: decision based on, but certainly I think that's part of
18:48
Speaker 3: the idea of this Texas miracle, and part of the
18:51
Speaker 3: arsenal tools that Abbott uses to recruit businesses is this
18:55
Speaker 3: idea that yes, we are business friendly, we have business
18:58
Speaker 3: friendly judges here, and we have regulations that are friendly
19:03
Speaker 3: to business. Kind of all of the above, and I
19:05
Speaker 3: think that we're going to see a similar dynamic play
19:07
Speaker 3: out with these business courts where the judges in Texas
19:11
Speaker 3: are appointed by Abbot. I think a lot of people assume,
19:15
Speaker 3: probably correctly, that the judges share his similar ideology when
19:19
Speaker 3: it comes to business and when it comes to applying
19:21
Speaker 3: law in a maybe more conservative fashion. And so I
19:24
Speaker 3: think these courts will be an extension of what we've
19:28
Speaker 3: seen when it comes to presenting Texas as an alternative
19:31
Speaker 3: to some of these areas like California that are known
19:34
Speaker 3: for their more liberal policies.
19:36
Speaker 1: Let's say Governor Abbot said the judges have a litany
19:40
Speaker 1: of experience in streamlining resolutions of business disputes. Do they?
19:45
Speaker 1: I mean, it doesn't seem like you can really compare
19:48
Speaker 1: the judges in Texas to the judges in Delaware.
19:52
Speaker 3: Definitely not. I mean Delaware's judges. This court has decades
19:56
Speaker 3: and decades of precedent. They serve for twelve year terms.
20:00
Speaker 3: This Business Court is, as we're speaking today, about two
20:03
Speaker 3: to three days old. So I think it really remains
20:06
Speaker 3: to be seen how they're going to handle these cases.
20:10
Speaker 3: Judges yappoints were required to have ten years of experience
20:13
Speaker 3: in either complex corporate litigation or as a judge in Texas,
20:18
Speaker 3: So they definitely do have experience in this space, but
20:22
Speaker 3: none of them, as far as I'm aware, have experience
20:25
Speaker 3: as a judge in this kind of setting of handling
20:28
Speaker 3: these specific disputes in a business court setting. So I
20:30
Speaker 3: think it's going to be one of the things people
20:32
Speaker 3: are watching for is how quickly they can take a
20:35
Speaker 3: case from filing to resolution.
20:38
Speaker 1: And also Texas courts in a lot of instances are
20:41
Speaker 1: going to have to follow Delaware law because that's the
20:43
Speaker 1: only law on some of these issues.
20:46
Speaker 3: That's right. I mean, these are state courts, and so
20:49
Speaker 3: they're going to be referring to Texas corporate law in
20:52
Speaker 3: a lot of fashions. And so we do have precedent
20:55
Speaker 3: in terms of how corporate law has been applied in
20:58
Speaker 3: cases in the past, just in a re Daduller's state
21:00
Speaker 3: court room. But a lot of those applications we've seen
21:03
Speaker 3: previously are based on Delaware case law. That's kind of
21:06
Speaker 3: what I was saying earlier, this idea that the power
21:08
Speaker 3: of Delaware chancery court is these huge decisions that have
21:12
Speaker 3: significance that are being applied in other cases, and I
21:15
Speaker 3: don't think that's an exception here. I think what's different
21:18
Speaker 3: is perhaps how these judges might apply or interpret those
21:22
Speaker 3: statutes when it comes to specific cases. I think that's
21:25
Speaker 3: another thing that remains to be seen, is how far
21:28
Speaker 3: they'll be willing to deviate from what's kind of standard
21:31
Speaker 3: and expected in this space.
21:34
Speaker 1: Madlin, As you pointed out in your story, the terms
21:38
Speaker 1: are only for two years the judges terms, so that
21:41
Speaker 1: means that they may be leaving in the middle of
21:44
Speaker 1: a case. I mean, we all know how long legal
21:47
Speaker 1: cases take, yes.
21:50
Speaker 3: And basically all the lawyers I spoke to for this
21:53
Speaker 3: story said that would be amazing to have a case
21:55
Speaker 3: that wraps up in two years or less. But I
21:57
Speaker 3: think that's another thing that is Again, a lot of
22:00
Speaker 3: the conversation right now is a wait and see. It's
22:03
Speaker 3: hard to really understand how these courts are going to
22:05
Speaker 3: work until we see them start taking cases and start
22:09
Speaker 3: getting to that period where there might be turnover. Because
22:12
Speaker 3: the way that they've been set up under state law
22:15
Speaker 3: is that the judges can be reappointed to terms following this,
22:18
Speaker 3: so it's possible that the judges we have now their
22:21
Speaker 3: two years are up, how it renews them asks them
22:24
Speaker 3: to come back for two more years. But we just
22:26
Speaker 3: really don't know how it's going to work at best point,
22:29
Speaker 3: if that's something that's going to be understood to come
22:31
Speaker 3: for these judges or what. But as it stands right now,
22:34
Speaker 3: two years is definitely a short term. I think I
22:37
Speaker 3: mentioned Delaware judges serve for twelve years, and so that's
22:40
Speaker 3: one of the big differences between our system here and
22:43
Speaker 3: what they have in the Chancery Court.
22:45
Speaker 1: So they've been planning for more than a year. Are
22:49
Speaker 1: the courts located in one central building like in Delaware.
22:53
Speaker 3: No, that's another thing. Texas is a huge state and
22:57
Speaker 3: they're technically are I believe, eleven divisions that they hope
23:01
Speaker 3: someday will exist for the business Court. But what they've
23:04
Speaker 3: decided to do is start small. So they're opening five
23:07
Speaker 3: divisions over the biggest cities in the state, and that's Austin, Dallas,
23:12
Speaker 3: Fort Worth, Houston, and San Antonio. And that was one
23:17
Speaker 3: of the things we've been watching as this September first
23:19
Speaker 3: deadline for the courts to start operating has snuck up
23:23
Speaker 3: is where are these courts going to be located, how
23:25
Speaker 3: are they going to handle filings? Is it going to
23:27
Speaker 3: be electronic? A lot of those questions were unanswered, and
23:30
Speaker 3: even up until a few weeks before the courts were
23:33
Speaker 3: supposed to open, we were told they were still looking
23:36
Speaker 3: for leases for courtrooms within those different divisions, but they
23:40
Speaker 3: decided to kind of abandon that effort for now to
23:43
Speaker 3: find permanent physical space and judges will have offices within
23:47
Speaker 3: their division, but when they need a courtroom, the plan
23:50
Speaker 3: right now is to use available existing infrastructure from other
23:54
Speaker 3: state courts.
23:55
Speaker 1: What's the timeframe for determining whether or not this is
24:00
Speaker 1: a success. I mean it feels like they're opening without
24:03
Speaker 1: even having everything in place.
24:05
Speaker 3: It's brand new. I think it's going to be a
24:07
Speaker 3: few years before we really understand whether this was a
24:10
Speaker 3: successful experiment. I think an early first test is going
24:14
Speaker 3: to be, you know, can they take a case from
24:17
Speaker 3: start to finish? I think that sounds like a really
24:20
Speaker 3: low bar, but creating a completely new court system, almost
24:24
Speaker 3: from scratch, is a huge undertaking. The court themselves kind
24:27
Speaker 3: of told us that just because September first came on
24:30
Speaker 3: the calendar doesn't mean no preparations are finished, there's still
24:33
Speaker 3: a lot of work to do. They're still hiring staff,
24:36
Speaker 3: so it's not like what we're seeing today is what
24:38
Speaker 3: the courts are going to be looking like one year
24:40
Speaker 3: from now. They're still building up their internal infrastructure.
24:44
Speaker 2: So I think it's going to take at least two
24:46
Speaker 2: years for.
24:46
Speaker 3: A full judge's term to really understand kind of what
24:50
Speaker 3: the potential is for these courts. And then I think
24:53
Speaker 3: another big question is going to be whether Texas leaders
24:57
Speaker 3: see this as a worthwhile investment to continue put in
25:00
Speaker 3: money and resources towards growing these courts and supporting the
25:03
Speaker 3: existing courts they have.
25:06
Speaker 1: This is certainly an ambitious project that Texas is taking on,
25:11
Speaker 1: and I know you'll keep following and let us know
25:14
Speaker 1: how it's going. Thanks so much, Madeline. That's Madeline Meckelberg,
25:19
Speaker 1: Bloomberg Texas Legal Reporter, coming up next on the Bloomberg
25:22
Speaker 1: Launch Show. It was a busy summer for the Supreme
25:26
Speaker 1: Court as the justices had to handle what could be
25:29
Speaker 1: a record number of summer emergency applications. I'm Jim Grosso
25:34
Speaker 1: and you're listening to Bloomberg. In just about a month,
25:38
Speaker 1: the Supreme Court Justices will begin their new term on
25:41
Speaker 1: the first Monday in October. They left the Supreme Court
25:44
Speaker 1: for their summer vacation on July first, but the summer
25:48
Speaker 1: has been relatively busy for them. They've decided eleven emergency
25:52
Speaker 1: applications and they're on track to perhaps triple that before
25:56
Speaker 1: the new term starts. Why all these summer emergencies the
26:00
Speaker 1: applications here to explain is Bloomberg Law. Supreme Court reporter
26:04
Speaker 1: Lydia Wheeler. We used to hear about the emergency docket,
26:08
Speaker 1: the shadow docket in reference to death penalty cases. What
26:12
Speaker 1: kinds of cases are we seeing now?
26:15
Speaker 4: You're completely right. So the emergency docket, or what legal
26:18
Speaker 4: scholars are calling the shadow docket, was once primarily used
26:22
Speaker 4: for these last minute day requests and death penalty cases.
26:25
Speaker 4: As you mentioned, you know, basically death row inmates were
26:28
Speaker 4: coming to the court and saying, hey, stop my execution
26:31
Speaker 4: while I fight for a new sentence in court. Now
26:34
Speaker 4: the requests cover a much broader scope of issues I'm
26:37
Speaker 4: talking about. Now we're seeing often hot button issues like abortion,
26:42
Speaker 4: voting rights, even the power of federal regulators, you know,
26:45
Speaker 4: issues that are really dividing the nation. Politically, those are
26:48
Speaker 4: what's coming to the court on this emergency docket.
26:52
Speaker 1: Explain how the shadow docket is different from the merits
26:57
Speaker 1: docket in other words, you know, the truncated pers for
27:00
Speaker 1: filing briefs, et cetera.
27:02
Speaker 4: Right, So, the shadow docket is the name that legal
27:05
Speaker 4: scholars use when referring to the emergency docket, and they
27:09
Speaker 4: call it that because the court decides these requests through
27:13
Speaker 4: a truncated process without full briefing or oral arguments. The
27:17
Speaker 4: decisions are orders that are usually only a sentence long,
27:22
Speaker 4: and we never know kind of when they're going to
27:25
Speaker 4: come out. It's not like on a specific decision day.
27:28
Speaker 4: So there's that right now. They're happening over the summer
27:30
Speaker 4: when the court isn't even in its normal session, and
27:33
Speaker 4: unless there's a notable concurrence or a dissent, there's usually
27:38
Speaker 4: very little insight into the court's reasoning for why they're
27:41
Speaker 4: either blocking something or letting something take effect. We don't
27:45
Speaker 4: know what the vote count is. Usually you know which
27:48
Speaker 4: justices decided, you know for which side, So there's very
27:52
Speaker 4: little information, which is why you know, one legal scholar
27:55
Speaker 4: kind of coins the name shadow docket and why that
27:58
Speaker 4: term has kind of.
27:58
Speaker 1: Taken off, So now tell us about some of the
28:01
Speaker 1: decisions on the shadow doget that the Court has made
28:05
Speaker 1: this summer.
28:06
Speaker 4: Right, So, the Court recently rejected the Biden administration's requests
28:10
Speaker 4: to reinstate the Education Department's new rules that protect transgender
28:15
Speaker 4: students from discrimination in school nationwide. That was actually a
28:19
Speaker 4: rare one where we saw a partial dissent from four justices. Actually,
28:24
Speaker 4: Conservative Justice Neil Gorsitch joined the liberals, which is Justice
28:28
Speaker 4: so to Mayor Justice Pagan and Justice Jackson in saying
28:31
Speaker 4: that they would have let those rules take effects. Last week,
28:35
Speaker 4: we also saw the justices allow Arizona to enforce part
28:40
Speaker 4: of a state election law that will require voters to
28:43
Speaker 4: show proof of citizenship to vote. And it's unclear if
28:47
Speaker 4: that will again be blocked or if that will be
28:49
Speaker 4: a requirement likely during the twenty twenty four presidential elections.
28:55
Speaker 1: Lydia, we're watching to see whether the Court is going
28:59
Speaker 1: town decision or when the Court is going to hand
29:02
Speaker 1: down decisions in several different cases. Tell us the ones
29:05
Speaker 1: that we're waiting for.
29:07
Speaker 4: They still have more than a dozen applications still pending.
29:11
Speaker 4: I think at this point we're up to fifteen or
29:13
Speaker 4: sixteen now. You know, legal scholars told me they're really
29:16
Speaker 4: on track to triple the number of cases that they
29:19
Speaker 4: decide on the shadow dock at fifth summer. I'm personally
29:22
Speaker 4: waiting for one right now that has to do with
29:25
Speaker 4: family planning funding in Oklahoma. These are dollars that AHHS
29:30
Speaker 4: stripped from the state of Oklahoma because the state wouldn't
29:33
Speaker 4: agree to force its healthcare providers to offer abortion referrals.
29:38
Speaker 4: They said that that is a violation of their new
29:40
Speaker 4: abortion van well, a near total abortion ban that took
29:44
Speaker 4: effect after the Supreme Court two terms ago in twenty
29:47
Speaker 4: twenty two overturned the constitutional right to abortion and left
29:52
Speaker 4: that up to the state beside. You know, Georgetown law
29:55
Speaker 4: professor Steve Vladdock, he has been tracking these requests and
29:59
Speaker 4: he actually shared his data with us. You know, he
30:01
Speaker 4: said that the Court is on track to blow previous
30:04
Speaker 4: summers out of the water when it comes to the
30:07
Speaker 4: number of emergency actions that it's taking. You know, he
30:10
Speaker 4: said that that even includes the first summer of the
30:13
Speaker 4: COVID nineteen pandemic, when there were actual true emergencies that
30:18
Speaker 4: the Court was being asked to act on.
30:20
Speaker 1: You can understand why during COVID there was an optic
30:24
Speaker 1: in these applications, but why so many more emergency applications
30:29
Speaker 1: these days?
30:30
Speaker 4: Right, So this is actually something that the justices themselves
30:33
Speaker 4: have spoken to, and Justice Elena Kagan is really someone
30:37
Speaker 4: who kind of gave us the first understanding of why
30:40
Speaker 4: this is happening. You know, she said that, you know,
30:44
Speaker 4: in granting a number of these emergency requests that were
30:47
Speaker 4: brought to the Court during the Trump administration years ago,
30:50
Speaker 4: she said that the Court really encouraged people to kind
30:53
Speaker 4: of keep bringing these kinds of petitions for emergency relief.
30:57
Speaker 4: And so the Court basically kind of sent the signal like, hey,
31:01
Speaker 4: we're now open to these kind of requests. And now
31:04
Speaker 4: what we're seeing is we're really seeing a lot of
31:06
Speaker 4: these requests come from Republican led states and also industry
31:11
Speaker 4: groups that are looking to block Biden administration policies. Now,
31:16
Speaker 4: the concern here is that the Court, in acting so
31:19
Speaker 4: many times on these requests, that they're changing kind of
31:23
Speaker 4: what's considered a true emergency, and legal scholars that I
31:27
Speaker 4: spoke to actually so that that further undermines the Court's credibility.
31:31
Speaker 4: And you know, we know that the Court right now
31:33
Speaker 4: has very low public approval ratings due to their ongoing
31:38
Speaker 4: ethics issues and controversies, and also that of controversial decisions
31:43
Speaker 4: that the Court keeps releasing that are really split along
31:46
Speaker 4: ideological lines. You know, I'm thinking about last term the
31:50
Speaker 4: Court's decision on presidential immunity and also their decision to
31:54
Speaker 4: overturn the federal ban on bump stocks, which are those
31:57
Speaker 4: devices that allow guns to fire like machine gun.
32:00
Speaker 1: Are the justices complaining because they have to work during
32:03
Speaker 1: the summer more now, or are they complaining for other reasons?
32:07
Speaker 4: You know, they actually, oh, several of them have come
32:09
Speaker 4: out in public appearances and like lavent it that like,
32:12
Speaker 4: oh my gosh, this is way busier, you know. Justice
32:15
Speaker 4: Soda Mayor recently said, like I'm tired. You know, We're
32:18
Speaker 4: not used to working around the clock like this. And
32:21
Speaker 4: the number of requests that they're getting is a lot,
32:24
Speaker 4: you know. Justice Kavanaugh also said that it's challenging, you know,
32:28
Speaker 4: because the number of emergency applications that they're getting takes
32:31
Speaker 4: time away from the Court's merits docket. And now the
32:35
Speaker 4: merits docket is actually what they refer to as the
32:38
Speaker 4: normal process for the court, you know, hearing a case
32:41
Speaker 4: and deciding it. That happens during the course of their
32:44
Speaker 4: normal term, which begins the first Monday in October and
32:48
Speaker 4: traditionally runs until the end of June. Now they can
32:51
Speaker 4: go a little longer than that. We saw that unusually
32:53
Speaker 4: happy this summer where they ran into the first.
32:56
Speaker 2: Day of July.
32:57
Speaker 4: But usually they like to wrap everything up Spanda June
33:00
Speaker 4: and then they get a couple of months break with
33:02
Speaker 4: the occasional emergency request. But now they're just it seems
33:05
Speaker 4: like there's this flurry of activity, you know. Justice Clarence
33:09
Speaker 4: Thomas also commented on this. He said that the emergency
33:13
Speaker 4: process really short circuits the court's normal process for hearing disputes,
33:18
Speaker 4: and he said that it's not a quote thorough way
33:21
Speaker 4: of dealing with these issues. But Justice Kavanaugh and Justice
33:24
Speaker 4: Thomas really didn't offer any sort of solution. At least,
33:27
Speaker 4: nothing publicly was said about what the Court should be doing.
33:29
Speaker 4: As I mentioned, you know, Justice Kagan was really the
33:32
Speaker 4: only one who came kind of closest to that when
33:35
Speaker 4: she said, you know, hey, this phenomenon is kind of
33:37
Speaker 4: caused by us. We're granting these opinions and we're sending
33:41
Speaker 4: the signal that we're open to this kind of decision
33:44
Speaker 4: making and hey, send your stuff our way. So that
33:47
Speaker 4: seems to signal to me that like, one way that
33:49
Speaker 4: the Court could kind of avoid doing this, which we
33:52
Speaker 4: saw them do in past terms, is to take cases
33:54
Speaker 4: that come in on the emergency docket and move them
33:57
Speaker 4: over to the merits docket. The Court definitely has the
34:00
Speaker 4: power to do that.
34:01
Speaker 1: Yes, Justice Kagan is definitely the most outspoken or it
34:05
Speaker 1: reveals the most of the justices, it seems. And also
34:09
Speaker 1: she talked about, and you know, the Supreme Court has
34:12
Speaker 1: during oral arguments talked about how lower courts it's a
34:15
Speaker 1: problem that they're issuing these nationwide injunctions, but no one
34:18
Speaker 1: has done anything about this. So she said that they
34:22
Speaker 1: have to intervene then, right.
34:24
Speaker 4: That's so she said, sometimes like where we have to
34:26
Speaker 4: step in because as you mentioned, right, lower courts are
34:29
Speaker 4: you know, they'll get a dispute that comes to them.
34:31
Speaker 4: Instead of just blocking some sort of policy that impacts
34:36
Speaker 4: the party that's before them, these courts are taking it
34:39
Speaker 4: upon themselves to block a policy for the entire nation,
34:42
Speaker 4: to make it so that no one has to follow,
34:45
Speaker 4: you know, the new policy or new rules that the
34:46
Speaker 4: fide administration has put in place, or an administration has
34:50
Speaker 4: put in place. You know, this is not just a
34:52
Speaker 4: Republican tactic, I should say, you know that this has
34:54
Speaker 4: also been something that democratic state attorneys general have also pursued,
34:59
Speaker 4: you know, bringing these challenges against the administration and challenging
35:04
Speaker 4: those So not necessarily just something that red states are doing,
35:07
Speaker 4: but off the blue states have done in the past
35:09
Speaker 4: as well. But yeah, she said that, you know, sometimes
35:11
Speaker 4: we have to step in like there's no other choice.
35:14
Speaker 1: Are they expecting or are legal scholars expecting to see
35:18
Speaker 1: election cases on the shadow docket?
35:21
Speaker 4: Yeah, that's definitely something that could come as we get
35:24
Speaker 4: closer to the election, to see more of these disputes.
35:27
Speaker 4: That's something we're expecting to see that I would expect
35:30
Speaker 4: over the next several weeks maybe to see those coming
35:33
Speaker 4: to the court and definitely, you know, as they start
35:35
Speaker 4: at the beginning of their term, it's going to be
35:38
Speaker 4: very busy, lots to watch out for. So yeah, I guess,
35:41
Speaker 4: you know, stay tuned because there's definitely more to come
35:43
Speaker 4: in the shadow docket. This isn't an area where they
35:45
Speaker 4: are slowing, you know, the number of requests that are
35:48
Speaker 4: coming to them. They seem to be popping into my inbox,
35:51
Speaker 4: you know, from the Court's press office almost every day.
35:54
Speaker 4: So a lot of activity.
35:55
Speaker 1: And it was interesting. You talked to University of Virginia
35:59
Speaker 1: law prefer Yes who said that increasingly state attorneys and
36:04
Speaker 1: state solicitor generals are challenging federal laws in the courts.
36:10
Speaker 4: They are, Yeah, this is in kind of a new tactic.
36:12
Speaker 4: I talked with legal scholars who said that state attorneys
36:15
Speaker 4: generals and solicitor generals those are the attorneys that represent
36:19
Speaker 4: the states and their challenge before the Supreme Court. That
36:21
Speaker 4: they are really kind of acting like normal litigans now
36:25
Speaker 4: more so than ever, and that they're bringing these big
36:27
Speaker 4: actions and challenging the administration. You know. And what's interesting
36:31
Speaker 4: is I've done reporting in the past where you kind
36:33
Speaker 4: of do a lot of venue shopping, a lot of
36:35
Speaker 4: forum shopping, where they seek out particular parties they all
36:39
Speaker 4: kind of ban together in multi state litigation sometimes and
36:43
Speaker 4: they seek out their preferred court to file these challenges
36:46
Speaker 4: and to try to get a judge that will most
36:49
Speaker 4: likely rule in their favor. And sometimes there'll be different
36:53
Speaker 4: groups of states. You know, a couple of states will
36:55
Speaker 4: file in like Oklahoma, and a couple of states will
36:57
Speaker 4: file somewhere else. So it's like multiple challenges. We often
37:01
Speaker 4: see with these cases of national importance and challenges to
37:06
Speaker 4: administration policies. You'll see a tactic is to kind of
37:09
Speaker 4: the states try their hands in different courts and so
37:12
Speaker 4: you'll get competing rulings, and that often will make an
37:17
Speaker 4: issue more enticing for the Supreme Court. When lower courts
37:20
Speaker 4: have ruled in different ways on the same issue, and
37:23
Speaker 4: you have a split in the decision, meaning one court
37:26
Speaker 4: rules one way and another court rules another way, it
37:29
Speaker 4: almost forces the Supreme Court to kind of be the
37:31
Speaker 4: decider and step in and settle it.
37:33
Speaker 1: And that filing in two different jurisdictions and getting two
37:37
Speaker 1: different results is what Republican ags did in attacking Joe
37:41
Speaker 1: Biden's latest push to reduce student loan bills. And just
37:46
Speaker 1: last week, the Supreme Court turned down the Biden administration's
37:49
Speaker 1: request to lift a pause that one of the federal
37:53
Speaker 1: appeals courts imposed on the program. So that's a perfect
37:57
Speaker 1: example of what you were saying, Lydia, Thanks so much,
38:00
Speaker 1: so much. That's Bloomberg law. Supreme court reporter Lydia Wheeler.
38:04
Speaker 1: And that's it for this edition of the Bloomberg Law Podcast.
38:07
Speaker 1: Remember you can always get the latest legal news by
38:09
Speaker 1: subscribing and listening to the show on Apple Podcasts, Spotify,
38:13
Speaker 1: and at Bloomberg dot com, slash podcast, slash Law. I'm
38:17
Speaker 1: June Grosso, and this is Bloomberg