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SCOTUS Allows Cuts of Millions in Research Grants · Bloomberg Law

0:02
Speaker 1: This is Bloomberg Law with June Grossel from Bloomberg Radio.
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Speaker 2: I ordered the end to all of the lawless diversity
0:11
Speaker 2: equity and inclusion nonsense policies across the government and all
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Speaker 2: across the private sector and the military.
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Speaker 1: President Donald Trump has tried to wipe out diversity, equity
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Speaker 1: and inclusion programs in the public and private sectors, and
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Speaker 1: early this year, the National Institutes of Health began terminating
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Speaker 1: thousands of medical research grants that don't align with the
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Speaker 1: president's policies. More than a dozen states researchers and research
0:42
Speaker 1: organizations filed a suit against the administration, saying the cuts
0:46
Speaker 1: would set back crucial research by years, if not decades.
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Speaker 1: They won at the district court level and at the
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Speaker 1: appellate level, but the Supreme Court, in a five to
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Speaker 1: four decision, sided with the Trumpet administration, clearing a way
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Speaker 1: for it to cut nearly eight hundred million dollars in
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Speaker 1: grants while legal battles over the funding play out in
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Speaker 1: the lower courts. Joining me is constitutional law professor David
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Speaker 1: super of Georgetown Law. David what kinds of grants were cut? Here?
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Speaker 3: The administration canceled thousands of grants the NIH had provided
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Speaker 3: for research on a wide range of topics. Ostensibly, these
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Speaker 3: grants were cut off because they related to diversity, equity,
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Speaker 3: and inclusion, or because they related to gender or gender
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Speaker 3: identity as understood by the administration. In fact, it took
1:49
Speaker 3: little more than having the word diversity or equity in
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Speaker 3: the name of the project to get it cut off.
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Speaker 3: Some projects that had nothing to do with race or
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Speaker 3: racial equity or racial inclusion were cut off, but the
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Speaker 3: district court found that disproportionately research into health problems that
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Speaker 3: affect people of color were target of this cutoff.
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Speaker 1: Federal Judge William Young, a Reagan appointee, said, following a
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Speaker 1: bench trial, this represents racial discrimination and discrimination against America's
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Speaker 1: LGBTQ community. I would be blind not to call it out.
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Speaker 3: Yes. He also found that the cutoffs showed remarkable and
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Speaker 3: sensitivity to the health problems affecting women.
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Speaker 1: In the past, have administrations cut off grants for you know,
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Speaker 1: arbitrary reasons or because they don't comply with the administration's objectives.
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Speaker 3: This is almost unheard of. Sure, if someone is taking
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Speaker 3: a grant and they're not doing the work, they get
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Speaker 3: cut off. But the notion we would have given this grant,
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Speaker 3: so we're simply going to cut it off is extraordinarily
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Speaker 3: wasteful in administrations at both parties in the past have
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Speaker 3: refrained from doing it.
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Speaker 1: Explain the Supreme Court's ruling, which was five to four.
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Speaker 3: The question came to the Supreme Court whether to stay
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Speaker 3: whether to suspend the order that the District Court judge
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Speaker 3: had issued. And the District Court judge did two things.
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Speaker 3: He struck down the policy guidance the administration based its
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Speaker 3: terminations on, and it struck down the terminations. It fell
3:37
Speaker 3: four justices, the three Liberals and the Chief Justice voted
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Speaker 3: to deny any interference with the District Court's order to
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Speaker 3: let the court order take effect. Four justices voted to
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Speaker 3: stay the entirety of the court order, and the fighting
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Speaker 3: vote was cast by Justice Barrett, who said that she
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Speaker 3: wanted to stay the resumption of funding, but would not
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Speaker 3: interfere with the finding that the policy guidance was illegal.
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Speaker 1: And what was the reasoning of the majority in allowing
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Speaker 1: the government to withhold the grant money.
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Speaker 3: Their reasoning was that anyone who'd had their grant cutoff
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Speaker 3: should have gone to the Court of Federal Claims, not
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Speaker 3: Federal district court, and that's the place that it is
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Speaker 3: proper to pursue deaths from the federal government.
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Speaker 1: Can you explain what the difference is between that part
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Speaker 1: of the decision and the part of the decision that
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Speaker 1: allowed the policy to go forward.
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Speaker 3: Yes. Justice Barrett held that the federal courts, federal district
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Speaker 3: courts are completely proper places to challenge the legality of
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Speaker 3: guidance that is issued by the administration. So if the
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Speaker 3: challenge is that this guidance is without solid legal basis,
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Speaker 3: that it's contrary to the federal government's legal obligations, that
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Speaker 3: a violate civil rights laws, those are proper claims to
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Speaker 3: bring in federal district court into get an injunction, she said.
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Speaker 3: But she said that if you actually want money, that
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Speaker 3: has to come from the Court of Federal Claims.
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Speaker 1: So that means that the challenges here would have to
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Speaker 1: go to two separate courts and bring two separate actions.
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Speaker 3: Yes, she said, there's precedent for that, and she asserted
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Speaker 3: that that was the result of Congress's passing the jurisdictional
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Speaker 3: statues they have and the Supreme Court's prior interpretations.
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Speaker 1: And do you think that's a correct interpretation.
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Speaker 3: No, I don't. The Court of Federal Claims is there
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Speaker 3: to handle a lot of routine matters where there's a
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Speaker 3: question about the quality of the paint job that was
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Speaker 3: done on a federal office building and the federal government's
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Speaker 3: refusing to pay, and the painting contractor wants to be paid.
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Speaker 3: There's a need for that. That's useful sort of thing,
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Speaker 3: But that's very different from a systematic violation of thousands
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Speaker 3: of contracts asserting a power that has never previously been recognized.
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Speaker 3: Those are the kinds of statutory and constitutional issues that
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Speaker 3: have long been the province of the general federal court system,
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Speaker 3: the district courts, and the circuit courts of appeal.
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Speaker 1: So can the groups here now that they have this
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Speaker 1: judgment from the Supreme Court about the policies, can they
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Speaker 1: now go to the Court of Federal Claims and ask
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Speaker 1: for the money?
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Speaker 3: If only it were that simple. This was not a
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Speaker 3: decision on the merits of those policies. It was simply
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Speaker 3: about how the litigation should proceed. And Justice Bart, joining
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Speaker 3: with the Chief Justice and the three Liberals, held that
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Speaker 3: the litigation can continue in the first Circuit Court of
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Speaker 3: Appeals about whether or not those policy documents are legal,
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Speaker 3: and if they are struck down again in that court,
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Speaker 3: the Trump administration could appeal back to the Supreme Court
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Speaker 3: on the merits. She indicated that there were some open
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Speaker 3: questions in her mind that would need to be resolved
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Speaker 3: before a final decision could be made about the legitimacy
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Speaker 3: of those policy documents, so she was only keeping the
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Speaker 3: litigation alive. She wasn't resolving it in the favor of
7:45
Speaker 3: the challengers.
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Speaker 1: And the majority found that the government would be irreparably
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Speaker 1: harmed if it had to pay out this money.
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Speaker 3: How so, yes, that's a particularly disturbing part of it.
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Speaker 3: They said that because because the recipients wouldn't be able
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Speaker 3: to repay the government if it was ultimately found that
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Speaker 3: the money was not owing, that the federal government shouldn't
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Speaker 3: have to pay out the money until after a final
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Speaker 3: judgment is issued, which, once appeals are accounted for, it
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Speaker 3: could take several years. This is treating the entire matter
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Speaker 3: as a debt collection issue rather than an issue of
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Speaker 3: democratic governance. It could be that at the end of
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Speaker 3: the day, the parties entitled to money will get some money,
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Speaker 3: but the research will long since it's been abandon the
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Speaker 3: employees long since it's been laid off. Many of the
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Speaker 3: nonprofits will have been bankrupted by the long delay. And
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Speaker 3: this is essentially saying that the federal government is too
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Speaker 3: big to comply rather than too big to fail. Too
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Speaker 3: big to comply because the size of the grants it
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Speaker 3: gives out and the importance of the grants it gives
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Speaker 3: out are such that the recipients don't have the money
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Speaker 3: to pay it back.
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Speaker 1: In April, the Supreme Court allowed the Trump administration to
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Speaker 1: cancel sixty five million dollars in teaching related grants, and
9:13
Speaker 1: in this case, Justice Neil Gorsich accused the trial judge
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Speaker 1: of defying the Supreme Court by not following that when
9:21
Speaker 1: this court issues a decision, it constitutes a precedent that
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Speaker 1: commands respect in lower courts. He also said recent federal
9:30
Speaker 1: judges rulings on immigration and removal of leaders of independent
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Speaker 1: agencies were also instances of what he said was judicial defiance.
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Speaker 1: But the Supreme Court rulings he's referring to are rulings
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Speaker 1: on the shadow docket, where there isn't full briefing or
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Speaker 1: oral arguments or decisions.
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Speaker 3: Sometimes, well, it's a very curious position. They're taking Most
9:58
Speaker 3: of the history of the Supreme Court. Court has been
10:01
Speaker 3: through formal consideration of cases, oral arguments, briefs, and thorough
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Speaker 3: opinions from the justices. Increasingly under the first Trump administration,
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Speaker 3: the bud administration, and now the Supreme Court is not
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Speaker 3: accepting full briefs, not listening to oral argument, not writing
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Speaker 3: full opinion, sometimes not writing any opinions at all. And
10:26
Speaker 3: what Justice Coursa you're saying is, even when the Supreme
10:30
Speaker 3: Court is issuing an emergency order, and even when it's
10:34
Speaker 3: not at all clear what the basis for that order is,
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Speaker 3: the lower court somehow must read the Supreme Court's mind.
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Speaker 3: If the Supreme Court wants lower courts to follow it,
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Speaker 3: it needs to tell them what it's doing.
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Speaker 1: Chief Justice Roberts joined the liberals in the case involving
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Speaker 1: the teaching related grants. And in this case, is that
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Speaker 1: surprising in any respect?
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Speaker 4: No.
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Speaker 3: Chief Justice Roberts has been very concerned about business client
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Speaker 3: and allowing businesses to function freely. And the federal government
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Speaker 3: that isn't bound to comply with its contract is very
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Speaker 3: bad for business. If I were a private business person,
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Speaker 3: I would be doing anything I could to avoid having
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Speaker 3: the contract with the federal government because the effect of
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Speaker 3: these decisions is that the contract isn't worth anything.
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Speaker 1: So, as we've discussed before, the Trump administration has prevailed
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Speaker 1: in a majority of its about twenty emergency applications to
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Speaker 1: the Supreme Court. Often you have the liberal justices dissenting,
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Speaker 1: and in this case, Justice Katanji Brown Jackson wrote a
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Speaker 1: solo blistering dissent where she repeated what she said before
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Speaker 1: about the Supreme Court favoring the Trump administration, and she
11:52
Speaker 1: referred to the comic strip Calvin and Hobbes, which features
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Speaker 1: a game of Calvin Ball, and she wrote, quote, Calvin
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Speaker 1: ball has only one rule. There are no fixed rules.
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Speaker 1: We seem to have two that one, and this administration
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Speaker 1: always wins. So no fixed rules and the administration always wins.
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Speaker 1: You can really sense the frustration in some of these
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Speaker 1: descents by the liberal justices, and Justice Jackson seems to
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Speaker 1: be getting more sort of brazen in her descents.
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Speaker 3: Well. She has, and it's not hard to understand why.
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Speaker 3: Throughout the country's history, contract has been a central part
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Speaker 3: of its law and the notion that the government above
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Speaker 3: all complies with its contracts. It's been central. We have
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Speaker 3: a new administration that doesn't want to, and rather than
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Speaker 3: bringing it to heal, this court has beending over backwards
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Speaker 3: to accommodate it. That certainly does look like favoritism.
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Speaker 1: Is there any other avenue that the organizations and the
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Speaker 1: states here can pursue if it would take too long
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Speaker 1: to go to the Court of Claims? Or is this
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Speaker 1: sort of the end of the grants?
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Speaker 3: They can go to the Court of Federal Claims. There
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Speaker 3: are significant obstacles to getting relief from that court. It's
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Speaker 3: a real court. People do win real judgments there. I
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Speaker 3: don't mean to disparage it in that way, but it's
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Speaker 3: going to be a very difficult way to proceed. Lots
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Speaker 3: of money that is owed probably will never be ordered
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Speaker 3: to be paid out of that court. And the result
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Speaker 3: of all of this is likely to be that many
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Speaker 3: of these programs are indeed disbanded.
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Speaker 1: What stands out to you in this decision.
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Speaker 3: This isn't really a liberal conservative thing. This is just
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Speaker 3: a rule of law thing. And if the government doesn't
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Speaker 3: have to keep its contracts, no one should do business
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Speaker 3: with it.
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Speaker 1: Always a pleasure, David, Thanks so much. That's Professor David
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Speaker 1: super of Georgetown Law. The Federal Trade Commission is suing
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Speaker 1: the operators of La Fitness over allegations that they make
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Speaker 1: it exceedingly difficult for customers to cancel gym memberships and
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Speaker 1: other related services offered in their clubs nationwide. The FTC
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Speaker 1: accuses Fitness International and its subsidiary of illegally charging consumers
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Speaker 1: hundreds of millions of dollars in unwanted recurring fees as
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Speaker 1: a result of the cumbersome cancelation process. The director of
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Speaker 1: the agency's Bureau of Consumer Protection said in a statement,
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Speaker 1: the FTC's complaint describes a scenario that too many Americans
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Speaker 1: have experienced a gym membership that seems impossible to cancel.
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Speaker 1: Jill Hill, the president of club operations at Fitness International,
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Speaker 1: said the FTC's allegations were without merit and that the
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Speaker 1: company was confident it would prevail in court, joining me
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Speaker 1: as Sean Collins, a partner at Straddling Sean, did this
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Speaker 1: suit surprise you?
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Speaker 4: I'm surprised that the FTC is bringing this lawsuit. And
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Speaker 4: the reason why I say that is so California back
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Speaker 4: in twenty eleven twenty twelve basically was the first state
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Speaker 4: to kind of recognize that you know what, if you
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Speaker 4: automatically start charging somebody's credit card every month, you should
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Speaker 4: probably make it easy for them to cancel, as opposed
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Speaker 4: to putting up a bunch of impediments than being able
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Speaker 4: to cancel. Ie, call somebody and then wait on the
15:27
Speaker 4: phone for thirty minutes until you get a hold of
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Speaker 4: a customer service representative, or fill out ten pieces of paperwork,
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Speaker 4: Because what the data suggests is that when a person
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Speaker 4: has to stay on the phone for thirty minutes to
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Speaker 4: cancel their membership or fill out ten pieces of paper
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Speaker 4: they just say, forget it. I don't have time to
15:43
Speaker 4: do that. I got to go pick up my kid,
15:44
Speaker 4: They got to get to work, and then they end
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Speaker 4: up being charged hundreds and hundreds of more dollars, unknowingly,
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Speaker 4: just because it was so difficult for them to cancel.
15:53
Speaker 4: So California back in twenty eleven amended their auto renew
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Speaker 4: statute to say, if person signs up online, you have
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Speaker 4: to offer them the same mechanism for cancelation that they
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Speaker 4: signed up for. Now, why was that important? That means
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Speaker 4: that if I clicked the button on my iPhone, if
16:13
Speaker 4: I click the button on my computer to sign up,
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Speaker 4: then I need to be able to click a button
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Speaker 4: on my iPhone, to click a button on my computer
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Speaker 4: to cancel just as easily as I signed up. Now.
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Speaker 4: The reason why I'm saying that is is I was
16:25
Speaker 4: really shocked that the FTC brought this lawsuit because the
16:28
Speaker 4: federal law, so section five of the FTC Act and
16:32
Speaker 4: ROSCA do not really have that same exacting level of
16:37
Speaker 4: specificity that California and New York, Florida. Oregon DC even
16:42
Speaker 4: has a similar mechanism now, and there's other states organ
16:46
Speaker 4: as well, whereby you have to offer the consumer the
16:50
Speaker 4: same ease of cancelation that it was for them to
16:53
Speaker 4: sign up. And so that's probably one of the reasons
16:57
Speaker 4: why I think it's one of the reasons why the
17:00
Speaker 4: LA Fitness is fighting it, amongst other reasons. But if
17:04
Speaker 4: you read the complaint, the complaint is kind of weird
17:07
Speaker 4: because they're saying, well, you made it really difficult for
17:09
Speaker 4: them to cancel. But then when you read the statutes
17:12
Speaker 4: that they're seeking relief under, they're basically saying section five
17:16
Speaker 4: of the FTC Act, and then count two is ROSCA,
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Speaker 4: and then count three they're saying you fail to provide
17:23
Speaker 4: simple cancelation mechanism. Federal law is not really specific on
17:27
Speaker 4: what simple cancelation mechanism mean. So like I say, in California,
17:31
Speaker 4: we say simple cancelation mechanism means that if I click
17:34
Speaker 4: the button to sign up, I should be able to
17:36
Speaker 4: click a button to cancel. There is no same standard,
17:39
Speaker 4: at least that's been articulated under federal law. So I
17:44
Speaker 4: suspect that what LA Fitness is doing is saying, well,
17:47
Speaker 4: we didn't violate federal law by requiring people to come
17:51
Speaker 4: in and cancel. Because the other thing about gym memberships
17:53
Speaker 4: is is most people sign up for the gym membership
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Speaker 4: by walking into the gym and filling a piece of
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Speaker 4: paper out. You don't do it on your iPhone, not
18:01
Speaker 4: most people. Now, a lot of people may be doing
18:03
Speaker 4: that nowadays. But for La Fitness, if I'm signing up
18:07
Speaker 4: for a gym membership, I usually have to walk into
18:09
Speaker 4: the gym, look at the gym, see if I like
18:11
Speaker 4: the gym, and then sit down with somebody to sign up. Now,
18:14
Speaker 4: I haven't seen the actual agreement for the sign up,
18:17
Speaker 4: but there may be disclosures in that agreement that say,
18:20
Speaker 4: if you want to cancel your membership. These are the
18:22
Speaker 4: things that you need to do.
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Speaker 1: So then do you think this lawsuit came as a
18:26
Speaker 1: surprise to La Fitness.
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Speaker 4: These lawsuits just don't happen overnight. The FTC didn't blindside
18:32
Speaker 4: La Fitness, and you know La Fitness woke up one
18:34
Speaker 4: morning they were big sued. Typically what happens is probably
18:38
Speaker 4: two years ago the FTC was probably getting a lot
18:41
Speaker 4: of complaints via the Better Business Bureau about people complaining
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Speaker 4: about having a hard time canceling their La Fitness memberships,
18:49
Speaker 4: and then they opened up an investigation. So they sent
18:51
Speaker 4: to a CID, which is a federal civil investigative demand
18:55
Speaker 4: to La Fitness saying, hey, everybody's complaining about having a
18:58
Speaker 4: hard time canceling your membership. What do you have to
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Speaker 4: say about this? And send us a bunch of documents
19:03
Speaker 4: so we can evaluate whether or not these are valid claims.
19:05
Speaker 4: Over the course of two years, they probably did this
19:08
Speaker 4: investigation and then their findings where yeah, you guys are
19:11
Speaker 4: making it really difficult for people to cancel their memberships,
19:15
Speaker 4: and we want you to pay them back. La Fitness
19:17
Speaker 4: probably said, well, no, we're not going to fan back
19:19
Speaker 4: because we didn't do anything wrong. We didn't violate the law,
19:22
Speaker 4: so they effectively challenged the FTC's findings, at which point,
19:25
Speaker 4: if you challenge the FTC's findings, the FTC reserves the
19:29
Speaker 4: right to file a lawsuit it gives you, which.
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Speaker 1: They certainly did. Here tell us what the suit of ledges.
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Speaker 4: So their core complaint is they're saying that La Fitness
19:38
Speaker 4: is intentionally making it hard for people to cancel their
19:41
Speaker 4: memberships to basically have the ability to continue charging them
19:45
Speaker 4: every month. And if you look at ROSCA, the third
19:48
Speaker 4: element of a ROSCA claim is is you have to
19:50
Speaker 4: give somebody a simple mechanism of cancelation. The problem is
19:54
Speaker 4: is there's never been any clear cut definition of what
19:58
Speaker 4: simple mechanism of cancelation. So La Fitness can say, well,
20:01
Speaker 4: a simple mechanism of cancelation is exactly what I put
20:04
Speaker 4: in their contract. You have to walk into the La
20:06
Speaker 4: Fitness gym with you're a member and tell people you
20:09
Speaker 4: want to cancel.
20:10
Speaker 1: And ROSCA is the Restore Online Shoppers Confidence Act, which
20:16
Speaker 1: was enacted almost fifteen years ago, so the complaint is
20:20
Speaker 1: specifically targeting this cancelation policy. You have to go to
20:24
Speaker 1: the gym's website and print out a form and either
20:28
Speaker 1: mail the form using registered or certified mail, or submitted
20:32
Speaker 1: in person to a specific manager with authorization to process it.
20:37
Speaker 1: And sometimes it's hard to find that manager, so it
20:40
Speaker 1: seems like it's more than just coming in person to cancel.
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Speaker 4: Correct. So that's certainly the allegation. But here's the fpc's challenge.
20:49
Speaker 4: So that could be four or five people that had
20:53
Speaker 4: that issue. But if that's not a universal thing, if
20:56
Speaker 4: that's just a problem there four or five people in
20:59
Speaker 4: southern California had at their particular gym, you're going to
21:02
Speaker 4: have a hard time proving that that was an institutional
21:05
Speaker 4: policy across all of the United States.
21:07
Speaker 1: And one of the things LA Fitness comes back with
21:10
Speaker 1: is that the FTC is relying on Roscoe and that
21:14
Speaker 1: was designed to address only online retail transactions. Is that
21:20
Speaker 1: a good defense.
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Speaker 4: It is a good defense because to your point, yeah,
21:25
Speaker 4: the Restore Online Shoppers Confidence Act is exactly that. It
21:29
Speaker 4: is a statute that was passed to protect online shoppers,
21:32
Speaker 4: people who are shopping. It's really an e commerce statue. Now,
21:37
Speaker 4: like I say, the reality of the situation with gyms
21:40
Speaker 4: is is even in this day and age, the majority
21:43
Speaker 4: of people sign up for their gym membership in person.
21:47
Speaker 4: So yes, there may be a certain subset of people
21:50
Speaker 4: who signed up for their gym membership online. And I
21:53
Speaker 4: don't know what LA Fitness, I don't know how their
21:56
Speaker 4: their gym membership works. I'm not a member at one
21:58
Speaker 4: of their gyms, but I suspect that they have two
22:01
Speaker 4: paths for joining the gym. You can either sign up
22:04
Speaker 4: online or you can sign up in person. If you
22:08
Speaker 4: sign up in person, they probably have a different set
22:11
Speaker 4: of requirements for cancelation than they do for the person
22:13
Speaker 4: that signs up online. So if you sign up online,
22:16
Speaker 4: they probably offer you the ability to cancel your membership online.
22:20
Speaker 4: If you sign up in person, they probably have this
22:22
Speaker 4: requirement that you have to come into the gym and
22:24
Speaker 4: cancel in person. And the reason why that probably exists
22:27
Speaker 4: is if the person signs up in person, they probably
22:31
Speaker 4: never created log in credentials, so the only way they
22:34
Speaker 4: would be able to cancel is if they walked into
22:36
Speaker 4: the gym to cancel, Whereas the person who signed up
22:40
Speaker 4: online probably had to create a user ID and a
22:43
Speaker 4: password to create their account, and so they now have
22:46
Speaker 4: the ability to log in online and cancel. So that's
22:49
Speaker 4: why at least based on my initial read of this lawsuit,
22:53
Speaker 4: I don't know that Rosta with fits for the business
22:57
Speaker 4: model of La Fitness, So that's going to be challenge
23:00
Speaker 4: for the FTC.
23:01
Speaker 1: Coming up next on the Bloomberg launch, I'll continue this
23:04
Speaker 1: conversation with Sean Collins, a partner at Straddling. This is
23:08
Speaker 1: actually the second suit brought by the Trump administration focused
23:12
Speaker 1: on overly onerous cancelation policies. The last suit was against Uber.
23:18
Speaker 1: I'm June Grosso. When you're listening to Bloomberg, the Federal
23:23
Speaker 1: Trade Commission is suing the operators of La Fitness over
23:27
Speaker 1: allegations that they make it exceedingly difficult for customers to
23:31
Speaker 1: cancel gym memberships. I've been talking to Sean Collins, a
23:35
Speaker 1: partner at Straddling, So, Sean, you discussed some of the
23:38
Speaker 1: problems the FTC may have to overcome in this suit.
23:42
Speaker 1: Why do you think they brought it?
23:44
Speaker 4: Well, they brought it because they probably have a critical,
23:47
Speaker 4: massive complaint, and I suspect that when they were doing
23:49
Speaker 4: their investigation, they noticed that this was pretty prevalent. People
23:53
Speaker 4: were having a hard time canceling their memberships, and so
23:57
Speaker 4: they're trying to advocate on behalf of consumers that hey,
24:02
Speaker 4: you need to offer them a more simple mechanism of cancelation.
24:06
Speaker 4: Like I say, their problem is is that there is
24:08
Speaker 4: not a federal statute that I think specifically speaks to
24:13
Speaker 4: the conduct that they are trying to address. You know,
24:16
Speaker 4: what's surprising is is you would think that California or
24:20
Speaker 4: New York, or DC or Florida would be bringing this
24:23
Speaker 4: case because, like I say, their specific state statutes, their
24:26
Speaker 4: autover new law statutes, speaks specifically to this conduct that
24:31
Speaker 4: they are referencing in this complaint. Now, I'm not trying
24:34
Speaker 4: to encourage these states, and I'm sure these states have
24:36
Speaker 4: already looked into this on their own, and I suspect
24:40
Speaker 4: that LA Fitness probably has created their business model whereby
24:45
Speaker 4: they're ensuring that they're compliant with each one of these states.
24:49
Speaker 4: But I mean the reality of the situation is is
24:51
Speaker 4: the federal law is not that great or not that developed,
24:55
Speaker 4: and I don't know if it's going to encompass the
24:58
Speaker 4: conduct that they are trying to pursue again La Fitness here,
25:01
Speaker 4: which is one of the reasons why LA Fitness is
25:03
Speaker 4: fighting the CAD.
25:04
Speaker 1: So I mean in April, the FGC sued Uber for
25:09
Speaker 1: making it too difficult for customers to cancel the subscription product.
25:14
Speaker 1: Uber one is that different from this.
25:18
Speaker 4: So it is different from the standpoint of Again, so
25:21
Speaker 4: we've always knew the only way I can have an
25:24
Speaker 4: Uber account is if I download the app on my phone.
25:27
Speaker 4: So I can't just go out into the street and
25:30
Speaker 4: flag down an Uber driver and say, hey, can you
25:32
Speaker 4: hand me a receipt and I'll pay you later, Like,
25:35
Speaker 4: I have to have an Uber app. So that is
25:38
Speaker 4: the type of business model that Roscoe was specifically designed for.
25:42
Speaker 4: So that case is going to be a lot more
25:44
Speaker 4: simple because again, I can't catch an Uber without the app.
25:46
Speaker 4: So I have to have a used IDA, I have
25:48
Speaker 4: to have a log in, I have to have a
25:50
Speaker 4: credit card attached to my account. And so in that
25:53
Speaker 4: particular case, and I haven't read that complaint, I don't
25:57
Speaker 4: know the facts and circumstances of that complaint. But if
26:01
Speaker 4: Uber is not allowing me the ability to cancel my
26:04
Speaker 4: app in a very simple manner, yeah, I mean I
26:09
Speaker 4: could potentially see that case from an FTC standpoint, Like
26:12
Speaker 4: I say, this one is just unique because there is
26:16
Speaker 4: still a critical mass of people who sign up for
26:19
Speaker 4: their gym memberships in person. They do not do it
26:22
Speaker 4: via their phone or their computer.
26:24
Speaker 1: I mean, I think everybody who's tried to cancel any
26:27
Speaker 1: kind of subscription can relate to this. Especially trying to
26:31
Speaker 1: cancel it online can be a mystifying process. And the
26:37
Speaker 1: Biden administration sued both Amazon and Adobe for allegedly making
26:43
Speaker 1: it too difficult to cancel subscriptions. Did anything happen with
26:46
Speaker 1: those lawsuits?
26:48
Speaker 4: So those lawsuits are still pending, I believe. But here's
26:52
Speaker 4: the problem that the federal government has. You know, you
26:55
Speaker 4: have the executive branch i e. The President, the FTC,
27:00
Speaker 4: the enforcement bodies in DC that want to pursue these laws.
27:05
Speaker 4: The problem is is the legislature is about three years
27:08
Speaker 4: behind them. So these laws need to be updated to
27:12
Speaker 4: capture the behavior effectively. These laws need to be updated
27:16
Speaker 4: to mirror New York and California's autover new Law Statute.
27:21
Speaker 4: Now that's challenge because obviously, in order to get federal legislation,
27:24
Speaker 4: you have to get fifty states, all fifty states to
27:26
Speaker 4: buy in. That's one of the reasons why you have
27:28
Speaker 4: not seen that update yet. And so to answer your
27:32
Speaker 4: question directly, is even though the Biden administration and other
27:36
Speaker 4: administrations have been pursuing these cases, their challenge is is
27:40
Speaker 4: their intentions do not match the current state of the
27:44
Speaker 4: federal law.
27:45
Speaker 1: And under the Biden administration, the FDC adopted a click
27:49
Speaker 1: to Cancel rule which would have made it easier for
27:53
Speaker 1: consumers to cancel subscriptions, but a federal appeals court blocked
27:58
Speaker 1: the proposed changes before before the rule was scheduled to
28:01
Speaker 1: go into effect last month.
28:04
Speaker 4: So I suspect what happened there, And again I haven't
28:07
Speaker 4: read that actual opinion, but one of the reasons why
28:09
Speaker 4: the federal court probably blocked it is because that's they're
28:13
Speaker 4: basically usurping the power of the legislature. So the executive
28:16
Speaker 4: branch doesn't have the ability to do that.
28:19
Speaker 1: I mean, the FTC in twenty twenty four said it
28:22
Speaker 1: receives about almost seventy complaints a day about recurring charges
28:28
Speaker 1: across you know, a range of businesses. I mean, is
28:31
Speaker 1: there any way to solve this?
28:34
Speaker 4: So the way to solve it is for the federal
28:38
Speaker 4: legislation to basically mirror either New York or California. So
28:43
Speaker 4: New York and California and other states have been able
28:45
Speaker 4: to address this problem because it's like, all right, all
28:48
Speaker 4: we got to do is go to our own state
28:49
Speaker 4: legislature and pass this law on behalf of the consumers
28:52
Speaker 4: in our states. And so if the federal government wants
28:57
Speaker 4: to address this gray area, because that's exactly what it is,
29:01
Speaker 4: and businesses recognize it, is all right. The federal statute
29:05
Speaker 4: is about five years behind all of the other states individually.
29:10
Speaker 4: And so to the extent that they're going to try
29:12
Speaker 4: to enforce these federal laws, I either STC Act, Section
29:15
Speaker 4: five of the FTC Act or ROSCA Restore Online Shoppers
29:18
Speaker 4: Confidence Act, if they're going to try to enforce it
29:21
Speaker 4: against us, it does not have the same bite or
29:25
Speaker 4: effect that the California and New York or the other
29:28
Speaker 4: various state laws have. Now, you made a point earlier
29:32
Speaker 4: that I think is worth addressing. So you were saying that, oh,
29:36
Speaker 4: you know, it's always sometimes very challenging to counsel the membership.
29:41
Speaker 4: Now that is a topic that has been ripe for debate.
29:45
Speaker 4: It's also one of the things that has been an
29:46
Speaker 4: impediment to passing a comprehensive federal statute. So the auto
29:53
Speaker 4: over new process is ripe for fraud. And what I
29:57
Speaker 4: mean by that is sometimes when consumers offer you the
30:02
Speaker 4: auto renew option, there are customers who get discounts when
30:06
Speaker 4: they sign up for the auto renew option. So basically,
30:08
Speaker 4: a customer will say, you know, if you sign up
30:11
Speaker 4: for our auto renew option, we'll give you a ten
30:13
Speaker 4: percent discount on your first purchase. Now, typically what happens,
30:17
Speaker 4: and I've seen the data for a lot of my clients,
30:20
Speaker 4: twenty to thirty percent of the people take that ten
30:22
Speaker 4: percent discount and then right after they order canceled. So
30:27
Speaker 4: if you think about that from a business standpoint, the
30:29
Speaker 4: business is losing money because they're offering you a ten
30:31
Speaker 4: percent sometimes twenty percent discount on your first order for
30:35
Speaker 4: you to sign up for the auto renew subscription, and
30:37
Speaker 4: then you cancel your subscription immediately. So if I have
30:40
Speaker 4: a ten dollars product and I give you a twenty
30:43
Speaker 4: percent discount, I'm losing two dollars on every transaction. So
30:48
Speaker 4: the compromise has always been and this was because I
30:52
Speaker 4: basically have tracked the California legislation all the way through
30:55
Speaker 4: the California state legislature dating back again to the early
30:58
Speaker 4: two thousands when they first started thinking about this, California
31:02
Speaker 4: basically said, all right, we recognize that businesses are kind
31:05
Speaker 4: of left exposed to potential fraud by customers. So what
31:09
Speaker 4: we're going to allow you to do is we're going
31:11
Speaker 4: to give you some grace to be able to save
31:13
Speaker 4: a consumer. Now what does it mean to save the consumer?
31:16
Speaker 4: That means that before you cancel, even if I'm offering
31:19
Speaker 4: you the online mechanism to cancel, so you can cancel
31:21
Speaker 4: on your phone just by clicking the button, or you
31:23
Speaker 4: can cancel on your computer by clicking the button, I'm
31:26
Speaker 4: going to give the business an opportunity to save this consumer.
31:29
Speaker 4: Meaning before you click cansel, I can ask you why
31:33
Speaker 4: are you canceling? And the price was too expensive? I
31:36
Speaker 4: didn't really like the product all that much, or you
31:40
Speaker 4: know what, I only needed this one time. I don't
31:42
Speaker 4: need it every month going into the future. And then
31:45
Speaker 4: you can basically have like three to four sometimes six
31:49
Speaker 4: slides where you're asking the consumer for data so that
31:53
Speaker 4: a you have the opportunity to upsell them because you
31:55
Speaker 4: can say, all right, well how about this If I
31:57
Speaker 4: give you another twenty percent discount for the next three months,
32:00
Speaker 4: will that keep you interested in the product, or maybe
32:03
Speaker 4: I'll give you these two other products for free with
32:05
Speaker 4: your next order. You're basically giving me the opportunity to
32:09
Speaker 4: upsell the consumer and save them and keep them on
32:12
Speaker 4: the subscription platform. Now, if they go through those five
32:15
Speaker 4: slides and they say, you know what, I appreciate the offers,
32:19
Speaker 4: still not interested in the product, quick cancel. That is
32:23
Speaker 4: completely legitimate. That's legitimate in California, New York, d c, Oregon, Florida,
32:28
Speaker 4: and at the federal level as well. And so I'm
32:32
Speaker 4: telling you that for contacts to say I know for
32:34
Speaker 4: a fact, Look, I'm not an LA Fitness member, but
32:37
Speaker 4: it is a standard operating procedure for any business that
32:40
Speaker 4: wants to be successful. Before somebody cancels, you want to
32:44
Speaker 4: ask them why are you canceling? So that's probably why
32:47
Speaker 4: LA Fitness set they're modeled up to say, Hey, you
32:49
Speaker 4: got to come in and talk to one of our managers,
32:52
Speaker 4: because that manager needs to know where did we sell
32:54
Speaker 4: as a business? Did you not like the equipment in
32:57
Speaker 4: our gyms? Did you not like how clean the gym's were,
33:01
Speaker 4: whether or not enough squad racks, whether or not enough barbells,
33:04
Speaker 4: whether or not enough dumbbells. Did you not like the
33:07
Speaker 4: hours that we offered you because that allows me to
33:09
Speaker 4: improve my business going forward. If I know why you're
33:12
Speaker 4: leaving me or was it.
33:14
Speaker 1: Just too hard to get yourself into the gym? Always
33:19
Speaker 1: my problem? Thanks so much, Sean. That's Sean Collins, a
33:22
Speaker 1: partner at Straddling And that's it for this edition of
33:25
Speaker 1: The Bloomberg Law Show. Remember you can always get the
33:28
Speaker 1: latest legal news on our Bloomberg Law Podcast. You can
33:31
Speaker 1: find them on Apple Podcasts, Spotify, and at www dot
33:35
Speaker 1: bloomberg dot com slash podcast slash Law, and remember to
33:39
Speaker 1: tune into The Bloomberg Law Show every weeknight at ten
33:43
Speaker 1: pm Wall Street Time. I'm June Grosso and you're listening
33:46
Speaker 1: to Bloomberg