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Trump's Impact on SCOTUS & Facebook Arguments · Bloomberg Law

0:03
Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
0:09
Speaker 1: There's been a lot of speculation that in a second term,
0:13
Speaker 1: Donald Trump could create a Supreme Court with a Trump
0:16
Speaker 1: appointed majority that could serve for decades. After all, Trump
0:21
Speaker 1: appointed three Supreme Court justices in his first term that
0:25
Speaker 1: gave the Court a super conservative majority. Joining me is
0:29
Speaker 1: constitutional law expert David super, a professor at Georgetown Law. David,
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Speaker 1: There's a lot of speculation that one or two of
0:39
Speaker 1: the oldest justices, the super conservatives actually seventy six year
0:44
Speaker 1: old Clarence Thomas and seventy four year old Samuel Alito,
0:48
Speaker 1: could retire and give Trump a chance to put younger
0:52
Speaker 1: conservatives on the court. Do you think that's likely.
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Speaker 2: I'm not sure that it is. They both show every
0:59
Speaker 2: sign of their jobs. Progressives don't like how they're doing
1:03
Speaker 2: their jobs, but their opinions remain sharp. When they choose
1:07
Speaker 2: to speak from the bench, they make sense, So I
1:11
Speaker 2: can certainly imagine them feeling like they want to keep
1:14
Speaker 2: doing this well.
1:15
Speaker 1: Thomas, The New York Times reported that he once told
1:18
Speaker 1: a former clerk that he intended to stay on the
1:21
Speaker 1: bench until twenty thirty four. The liberals made my life
1:25
Speaker 1: miserable for forty three years, and I'm going to make
1:27
Speaker 1: their lives miserable for forty three years. So we have
1:30
Speaker 1: some time yet before he considers retiring, I suppose. On
1:35
Speaker 1: the liberal side, there have also been renewed calls for
1:38
Speaker 1: seventy year old Justice Sonya Soto Mayord to retire before
1:43
Speaker 1: January so President Biden and the Democratic controlled Senate can
1:48
Speaker 1: quickly confirm a successor. I don't know about quickly, but
1:52
Speaker 1: that whole scenario seems unlikely to me.
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Speaker 2: Yeah, I can't imagine that she would do that, and
1:58
Speaker 2: I think it would be a foolish move. Try. There
2:00
Speaker 2: was talk about their good Marshal retiring after Jimmy Carter
2:06
Speaker 2: lost for reelection, and I think cooler heads prevailed there
2:10
Speaker 2: and recognized that that couldn't be done in a snap. Now.
2:14
Speaker 2: I can't imagine that Senator Mansion or Senator Cinema would
2:18
Speaker 2: be okay with this sort of a process at this point,
2:21
Speaker 2: and without them you can't do anything.
2:24
Speaker 1: As far as future judicial appointments, there have been reports
2:28
Speaker 1: that Trump complained about his first term appointees being too
2:33
Speaker 1: independent and not being loyal enough to him, and you know,
2:38
Speaker 1: reportedly has fallen out with the Federalist Society, which basically
2:42
Speaker 1: chose his judicial appointments during his first term. So what
2:46
Speaker 1: do you expect from Trump as far as future judicial appointments.
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Speaker 2: I think he's not especially focused personally on the courts.
2:56
Speaker 2: He's not a lawyer. He's never shown a lot of
2:59
Speaker 2: interest in it. So my suspicion is that he will
3:02
Speaker 2: go back to the federal of Society, perhaps not give
3:06
Speaker 2: them as celebrated and formal a role in the process,
3:09
Speaker 2: but that we will basically be getting more said sock judges.
3:13
Speaker 1: And more ideologues. It seems like even the judges that
3:16
Speaker 1: he did appoint were ideologues more than respected jurists.
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Speaker 2: He appointed arrange some of his appointments are splendid judges,
3:26
Speaker 2: some of them are skilled ideologs, and some of them
3:30
Speaker 2: are rather lost. I'm guessing the new round rule will
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Speaker 2: include some in each of those piles.
3:36
Speaker 1: Now, the Biden administration has taken positions in certain cases
3:41
Speaker 1: before the Supreme Court, and we can anticipate that the
3:45
Speaker 1: Trump administration has opposing views and will want to back
3:49
Speaker 1: out of those positions. How often does it happen that
3:53
Speaker 1: new administration changes positions in cases before the Court.
3:59
Speaker 2: It's become more more and more frequent over time. Once
4:03
Speaker 2: upon a time, it was considered shocking enough that the
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Speaker 2: Supreme Court would appoint a lawyer to argue the case
4:11
Speaker 2: as friend of the Court representing the position of the
4:15
Speaker 2: prior administration. These days, there's less of that. I think
4:19
Speaker 2: it is understood by the justices that this is what
4:23
Speaker 2: happens in a society where views on law have become
4:26
Speaker 2: very polarized.
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Speaker 1: So now some areas where there might be a change.
4:33
Speaker 1: Transgender rights is probably one of them. Now the transgender
4:37
Speaker 1: rights case arguments are scheduled for December fourth, so well
4:41
Speaker 1: before inauguration day. I mean, what happens in a.
4:45
Speaker 2: Case like that, Well, the Trump administration has a couple
4:49
Speaker 2: of options. One is that they can ask the court
4:54
Speaker 2: to reopen it to allow supplemental briefing. Whether the Court
4:58
Speaker 2: would be inclined to slow itself down to allow that
5:01
Speaker 2: is debatable. Second, they can simply declare that their allegiance
5:05
Speaker 2: are on the other side and rely on the briefs
5:08
Speaker 2: that we're opposing what the Biden administration advocated. They can
5:12
Speaker 2: also express the intent to take executive action to reverse
5:17
Speaker 2: federal regulations, but that can't be done instantly. The court
5:23
Speaker 2: could decide the case and let them take their own
5:26
Speaker 2: action through due course, or the court could suspend the
5:29
Speaker 2: case to give them time to act. Or the court
5:32
Speaker 2: could decide not to issue a ruling because it expects
5:36
Speaker 2: the issue to go away.
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Speaker 1: The federal government already argued a case over ghost guns
5:44
Speaker 1: to keep regulations for ghost guns on the books, so
5:48
Speaker 1: that's already been argued, fully briefed, and argued. Now it's
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Speaker 1: anticipated that the Trump administration might oppose those regulations. What
5:58
Speaker 1: happens there? Do they just pull their regulations or.
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Speaker 2: Well, you can't just pull the regulation. The Administrative Procedure
6:05
Speaker 2: Act and the Supreme Court have been very clear that
6:08
Speaker 2: you have to go through the same procedure to remove
6:11
Speaker 2: regulations that you did to create them. So it would
6:16
Speaker 2: take a certain amount of time, probably a year, even
6:19
Speaker 2: if they move very quickly to get rid of those regulations.
6:24
Speaker 2: This is a case where the conservative legal agenda has
6:28
Speaker 2: a somewhat ironic impact in that a year ago, the
6:32
Speaker 2: administration changing its views on how the statute should be
6:36
Speaker 2: interpreted would be entitled a considerable weight. But today, because
6:42
Speaker 2: the Supreme Court got rid of Chevron. The administration is
6:45
Speaker 2: not entiled to any difference anyway. So one can well
6:48
Speaker 2: imagine the Court saying, we really don't care if you've
6:50
Speaker 2: changed your position, really.
6:52
Speaker 1: Just ignoring Trump, the Trump administration. I mean, has the
6:55
Speaker 1: Court done that before.
6:56
Speaker 2: Well, we're very early in the post Chevron world. There
7:02
Speaker 2: always was deference. The administration's position mattered a great deal.
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Speaker 2: But the Court went at great lengths last spring to
7:10
Speaker 2: tell us that Congress did not intend administration views to
7:14
Speaker 2: get any special weight in interpreting laws. And on that basis,
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Speaker 2: one could well imagine the Court simply going ahead and
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Speaker 2: deciding the case and saying that the administration wants to
7:26
Speaker 2: go through the procedures to remove the regulations, they're free
7:30
Speaker 2: to do so. But what the administration might or might
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Speaker 2: not try to do or succeed in doing in the
7:35
Speaker 2: future doesn't stop the Court from deciding the case in
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Speaker 2: front of it.
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Speaker 1: Yeah, I'm wondering if, as you mentioned, we saw the
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Speaker 1: Chevron doctrine being thrown out and the Court's conservatives have
7:48
Speaker 1: been basically reining in federal agencies, do you think that
7:52
Speaker 1: we'll still see that kind of aggressive attack on regulatory
7:56
Speaker 1: agencies by the Court in a Trump administration which may
8:00
Speaker 1: be using agencies to affect some of these broad changes.
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Speaker 2: I think different justices will have a different view. Chief
8:10
Speaker 2: Justice Roberts has very little patients for sloppy, incompetent agency work,
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Speaker 2: whichever ideology the agency has, and when presented with dishonest
8:22
Speaker 2: or incompetent agency actions in the first Trump administration, did
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Speaker 2: not hesitate to strike it down, So I would expect
8:31
Speaker 2: he would be continued inclined to look closely at agencies
8:35
Speaker 2: and whether they're dotting their eyes and crossing their t's.
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Speaker 2: Some of the other justices probably will feel that a
8:44
Speaker 2: lower level of scrutiny should be applied to deregulatory actions
8:47
Speaker 2: than was applied to regulatory actions.
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Speaker 1: Some disputes coming up involve the EPA whether fights over
8:54
Speaker 1: certain clean air regulations can be heard by circuit courts.
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Speaker 1: I mean, what happens there. Does the Trump administration just
9:03
Speaker 1: pull those cases or how would they handle.
9:06
Speaker 2: Those That's harder to know because that's an issue of
9:11
Speaker 2: process that has implications that go far beyond the current
9:16
Speaker 2: or next administrations. So one could imagine that the Trump administration,
9:24
Speaker 2: although its view on the ultimate merits, may be different,
9:28
Speaker 2: might not feel that that's a high priority to expend
9:31
Speaker 2: its credibility with the Court by switching positions, and may
9:36
Speaker 2: see some benefit to staying out of it or not
9:40
Speaker 2: disrupting what the Biden administration did.
9:43
Speaker 1: Have you heard any rumors about who might be the
9:45
Speaker 1: solicitor General?
9:47
Speaker 2: I have not.
9:48
Speaker 1: I have not either, and I can't believe that because
9:50
Speaker 1: I've heard rumors about many other high level positions that
9:55
Speaker 1: will have to be filled.
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Speaker 2: I think that the new administration is going to want
10:00
Speaker 2: someone competent and credible, and so what you hear, at
10:05
Speaker 2: least what I hear about various other positions are people
10:09
Speaker 2: who may not be especially skilled or especially respected, but
10:14
Speaker 2: are very close with Trump circles and with the former president.
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Speaker 2: I would expect the new solicitor General would be an
10:23
Speaker 2: extremely conservative lawyer, but not necessarily someone who Trump knows.
10:27
Speaker 1: It's always a pleasure to talk to you, David, Thanks
10:29
Speaker 1: so much for being on the show. That's Professor David
10:32
Speaker 1: super of Georgetown Law. Metta's Facebook is trying to get
10:36
Speaker 1: out of a shareholder lawsuit accusing it of fraud for
10:40
Speaker 1: misleading investors about a known risk from the massive Cambridge
10:44
Speaker 1: Analytica data breach. In twenty fifteen, the justices seemed divided
10:49
Speaker 1: about how much information public companies must disclose about potential
10:53
Speaker 1: investment risks, including past events. It led to hypotheticals from
10:59
Speaker 1: Chief Justice John Roberts slip and fall case to Justice
11:03
Speaker 1: Samuel Alito's trash from space.
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Speaker 3: For example, if you're leaving my house and I say
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Speaker 3: you might slip on the steps, you wouldn't say, well,
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Speaker 3: that's never happened before. Your inference would be that has happened,
11:19
Speaker 3: and that's why I'm giving you the warning. And if
11:22
Speaker 3: there was a fire and it was caused by the
11:24
Speaker 3: fact that the factory was hit by a piece of
11:27
Speaker 3: space junk that fell out of the sky, the fact
11:31
Speaker 3: that that happened.
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Speaker 2: Doesn't really tell you much more about the probability that
11:35
Speaker 2: you're going to have another fire based on objects falling
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Speaker 2: out of space.
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Speaker 1: Joining me is securities law expert James Park, a professor
11:45
Speaker 1: at UCLA Law School, Jim tell Us about the shareholder's
11:50
Speaker 1: lawsuit at the heart of this case.
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Speaker 3: It's a securities class action brought under sec Rule ten
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Speaker 3: B five, which typically applies to misrepresentations material misrepresentations made
12:04
Speaker 3: by companies that relate to their securities. And so this
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Speaker 3: is a lawsuit class action brought on behalf of investors
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Speaker 3: of Facebook. Now it's meta course, but Facebook, as with
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Speaker 3: other public companies, issues periodic disclosures the form ten K
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Speaker 3: on a yearly basis. The ten ques, and these sec
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Speaker 3: disclosures typically have a lot of disclosures about risk which
12:34
Speaker 3: are required by the SEC And so the idea behind
12:37
Speaker 3: these risk disclosures is that your warning investors, this is
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Speaker 3: the risk of investing in Facebook stock. And one of
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Speaker 3: those risk disclosures basically said that there could be a
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Speaker 3: risk of unauthorized access to user data that could damage Facebook.
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Speaker 3: That was essentially what the risk is closure said. And
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Speaker 3: the reason why the planiffs are saying this is maturely
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Speaker 3: misleading is that at the time Facebook made this statement,
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Speaker 3: it knew about a fairly large breach by a political
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Speaker 3: consulting firm called Cambridge Analytica of user data. And so
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Speaker 3: what the plantiffs are arguing is that you said that
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Speaker 3: unauthorized access could be a risk when you knew there
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Speaker 3: was a very significant unauthorized access at the time you
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Speaker 3: issued that risk disclosure. That's essentially what the securities class
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Speaker 3: action is dependent on.
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Speaker 1: Outside of the validity of the issues here. The FTC's
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Speaker 1: investigation led to this record five billion dollars civil penalty
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Speaker 1: against Facebook, and Facebook reached a two hundred and seventy
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Speaker 1: five million dollar class action settlement with users over the
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Speaker 1: privacy breach last year. Why do you think this hasn't
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Speaker 1: been settled.
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Speaker 3: It's a good question, and I think that maybe one
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Speaker 3: reason is that Facebook is often facing securities class actions
14:13
Speaker 3: and it does not want to be perceived as a
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Speaker 3: company that settled lawsuits that arise out of disclosure violations.
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Speaker 3: They may believe they have a strong case with respect
14:27
Speaker 3: to this particular allegation. Their argument's not a material misstatement
14:31
Speaker 3: because you know, there's a risk of this happening. And
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Speaker 3: the argument, as I understand it, is that, Okay, they
14:37
Speaker 3: knew that there was a breach, they didn't know how
14:40
Speaker 3: big the impact would be on a huge company like Facebook,
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Speaker 3: And you know, I think that's essentially the argument is that, well,
14:48
Speaker 3: we knew that there had been a breach, but we
14:52
Speaker 3: didn't know it was going to result in this later
14:54
Speaker 3: penalty and all this reputational harm, and so our disclosure
14:58
Speaker 3: that there's this risk that and unauthorized actions could affect
15:02
Speaker 3: our market value was mostly accurate according to Facebook, and
15:05
Speaker 3: so I think they believe they have a good case here.
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Speaker 1: So let's talk about the argument. And there were a
15:12
Speaker 1: lot of strange hypotheticals thrown around. What were the concerns
15:15
Speaker 1: of the justices?
15:17
Speaker 3: I think one concern is that companies issue a lot
15:20
Speaker 3: of risk disclosures about many different things, and some of
15:25
Speaker 3: those things actually happen, you know, and so you might say, Okay,
15:29
Speaker 3: there's a risk of bad publicity, just generally media coverage,
15:34
Speaker 3: and you know, at the same time you issue this,
15:36
Speaker 3: there may be a lot of various events that are
15:39
Speaker 3: putting you in a bad life. And so I think,
15:42
Speaker 3: you know, one of the concerns that the justices are
15:45
Speaker 3: grappling with is that if we say there's liability in
15:50
Speaker 3: this case, so that mean that for almost every type
15:54
Speaker 3: of risk disclosure that is being issued, that a lawsuit
15:58
Speaker 3: could come up if you phrase things in the wrong way,
16:01
Speaker 3: if you know, there's something that happens relating to that risk,
16:06
Speaker 3: and so there may be too much liability there, and
16:09
Speaker 3: you know the effect of that may be that companies
16:11
Speaker 3: will just issue very very vague risk disclosures that don't
16:15
Speaker 3: say anything. They may not issue risk disclosures at all. Right,
16:19
Speaker 3: if I make you liable for a misleading risk disclosure,
16:24
Speaker 3: then maybe I won't issue that risk disclosure at all
16:27
Speaker 3: in the future. I think that's a concern, and I
16:29
Speaker 3: think they're also just concerned that the rule seems to
16:32
Speaker 3: be unclear here and it's tough for companies to navigate.
16:37
Speaker 3: You know, what you have to disclose and when you
16:39
Speaker 3: have to disclose it. And you know, there's a concern
16:42
Speaker 3: here that we don't want to create a general duty
16:44
Speaker 3: to update everything in these disclosures, because there's so much
16:50
Speaker 3: in any any SEC disclosure that it may be impossible
16:54
Speaker 3: to you know, constantly update every single aspect of it.
17:00
Speaker 1: Is the question how much to disclose of the past
17:04
Speaker 1: in the present, you know, if you don't think the
17:07
Speaker 1: past is going to affect the future. I mean, what's
17:10
Speaker 1: the exact issue.
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Speaker 3: I think what Facebook would say is these are primarily
17:15
Speaker 3: forward looking statements. They are predictions, and so they're not
17:19
Speaker 3: really meant to guarantee every single thing about past event.
17:24
Speaker 3: I think that they're saying that we're making no guarantee
17:28
Speaker 3: that there has been no unauthorized access to user accounts.
17:33
Speaker 3: And in fact, I think they would say, of course,
17:36
Speaker 3: of course there have been some abuses of Facebook privacy policies,
17:40
Speaker 3: and everyone would know that at the time the risk
17:43
Speaker 3: disclosure had been made. And I think Facebook is making
17:47
Speaker 3: a fairly subtle argument here, which was to say that
17:51
Speaker 3: it's true that we knew that there was an unauthorized
17:55
Speaker 3: access by Cambridge Analytica. What we didn't know is that
17:59
Speaker 3: it would affect our business so much. We had no
18:03
Speaker 3: way of knowing that, and essentially we have no way
18:07
Speaker 3: of essentially predicting the future. And essentially this risk disclosure,
18:12
Speaker 3: we disclosed this and we didn't know. We just didn't
18:16
Speaker 3: know that there was an event that would eventually cause
18:20
Speaker 3: significant economic damage to Facebook. We made no implicit representation
18:25
Speaker 3: about the past in this particular disclosure. It's more of
18:28
Speaker 3: a forward looking disclosure.
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Speaker 1: In this case a hypothetical from Justice Kagan. A lot
18:34
Speaker 1: of the justices kept coming back to it, and that
18:37
Speaker 1: is a company discloses a risk of fire but doesn't
18:41
Speaker 1: disclose that there had recently been a fire that destroyed
18:44
Speaker 1: fifty percent of the plant.
18:47
Speaker 3: Yes, that's a great hypothetical, and I think it pushes
18:50
Speaker 3: back upon sort of Facebook statement that these statements do
18:54
Speaker 3: not make implicit representations about past events, because implicit in
19:00
Speaker 3: the risk of a fire in a building is that
19:03
Speaker 3: the building is still there. I think that's one implicit recognition,
19:06
Speaker 3: and I think there's also a recognition that there's not
19:09
Speaker 3: a known high risk of the building burning down. And
19:13
Speaker 3: I think that investors will want to know if there's
19:16
Speaker 3: a very very high risk that the building is so
19:20
Speaker 3: unsafe that we know it's very likely that it would
19:24
Speaker 3: burn down. What she's arguing here is that, you know,
19:28
Speaker 3: we should be requiring companies when they make these risk
19:32
Speaker 3: disclosures to also speak completely and disclose risks that they
19:38
Speaker 3: know about that they can calculate with some reasonable assurance.
19:42
Speaker 3: And that's where Justice Kagan may come out at the
19:46
Speaker 3: end of the day.
19:47
Speaker 1: You mentioned before the regulations, and well, just as Kavanaugh said,
19:51
Speaker 1: why can't the SEC just write a rig? Why does
19:55
Speaker 1: the judiciary have to walk the plank on this and
19:57
Speaker 1: answer the question when the SEC could do it? And
20:00
Speaker 1: the Chief Justice and Justice Amy Coney Barrett seem to
20:04
Speaker 1: agree with that. I mean, why can't they SEC write
20:06
Speaker 1: a regulation?
20:08
Speaker 3: They could, but it's difficult to write good regulations, and
20:12
Speaker 3: I think that the more general the regulation is, the
20:16
Speaker 3: easier it is for the SCC. That's one reason the
20:19
Speaker 3: SEC is not adding more specificity. It's also easier though,
20:24
Speaker 3: I think for public companies, right, the more specific you
20:28
Speaker 3: write the regulations, and you know the company is going
20:31
Speaker 3: to have to dig out all of this specific information
20:34
Speaker 3: and that could be overly burdensome. And so sometimes corporations
20:38
Speaker 3: want fairly vague disclosure requirements that they have some discretion
20:44
Speaker 3: to comply with. And that's the whole idea behind principles
20:46
Speaker 3: based regulation, which a lot of you know, what you
20:50
Speaker 3: might think of as conservative individuals, have advocated for SEC regulation.
20:56
Speaker 3: But I think Justice Kavanaugh has a good point, which
20:59
Speaker 3: is that you know, if you are leaving this to
21:02
Speaker 3: lawsuits to define, then you know courts, which are not
21:06
Speaker 3: experts in these matters, have to make these very difficult,
21:09
Speaker 3: complicated determinations of what should be disclosed. It also give
21:14
Speaker 3: a sense of regulation by enforcement, where lawsuits are being
21:19
Speaker 3: used to regulate companies after the fact, and that's a
21:23
Speaker 3: running theme about both lawsuits by private litigants as well
21:28
Speaker 3: as lawsuits by the Securities and Exchange Commissions. So he
21:33
Speaker 3: asked a very good question, but I think that there
21:36
Speaker 3: are some pressures that make it difficult for the SEC
21:40
Speaker 3: to specify completely what the disclosures does look like. And
21:45
Speaker 3: so what we have is a very imperfect system where
21:49
Speaker 3: you know, these issues get fleshed out in lawsuits, and
21:53
Speaker 3: often the lawsuits are settled, so we never even actually
21:56
Speaker 3: resolved what was required. So, you know, the requirements of
22:01
Speaker 3: disclosure for public companies, there's not clear guidances. It's a
22:05
Speaker 3: lot of discretion, it's a lot of judgment that is
22:08
Speaker 3: required in order to craft good disclosures. And I think
22:13
Speaker 3: there's you know, some resentment by public corporations that you
22:18
Speaker 3: have private enforcers who have a monetary incentive to sue
22:22
Speaker 3: whenever they find something wrong in a company's disclosures. And
22:26
Speaker 3: you know, you have to pay a lot of money
22:27
Speaker 3: sometimes to settle these lawsuits because you don't want to
22:30
Speaker 3: risk them going to trial. Now, you know. One point
22:33
Speaker 3: I would add, though, is that in addition to this
22:35
Speaker 3: private class action, the SEC brought a case against Facebook
22:39
Speaker 3: for I believe essentially it's the same disclosure, and they
22:44
Speaker 3: alleged that they were materially misleading, and Facebook actually settled
22:48
Speaker 3: that case for one hundred million dollars. So this is
22:50
Speaker 3: not a lawsuit that was brought only by private planets.
22:54
Speaker 3: The SEC also has been asserting and pushing this particular
22:59
Speaker 3: theory as well.
23:00
Speaker 1: Coming up next, how might the Justice is rule here?
23:03
Speaker 1: This is Bloomberg. I've been talking to Professor James Park
23:07
Speaker 1: of UCLA Law School about oral arguments before the Supreme
23:11
Speaker 1: Court this week in Facebook's attempt to get out of
23:14
Speaker 1: a shareholder lawsuit accusing it of fraud for misleading investors
23:19
Speaker 1: about a known risk from the massive Cambridge Analytic data
23:23
Speaker 1: breach in twenty fifteen. Something that Justice Gorsech said resonated
23:28
Speaker 1: with me. He suggested that reasonable investors were well aware
23:32
Speaker 1: of the risk of data breaches at large companies, including
23:35
Speaker 1: by foreign governments.
23:37
Speaker 3: I think China probably has all of our FBI files,
23:40
Speaker 3: you know, I mean, data breaches are part of our
23:43
Speaker 3: lives these days. There are data breaches. But I think
23:47
Speaker 3: what the plaintiffs would say is that the Cambridge Analytical
23:49
Speaker 3: breach was an extraordinary one. I'm involving millions of different customers,
23:55
Speaker 3: and you know, I believe the data was used for
23:57
Speaker 3: political purposes. And you know, not every data breach results
24:03
Speaker 3: in a five billion dollar fine by the Federal Trade Commission.
24:06
Speaker 3: And so, you know, certainly we're generally aware there could
24:10
Speaker 3: be data breaches, but you could argue the investors assume
24:13
Speaker 3: most companies are managing them pretty well and they're not
24:17
Speaker 3: going to affect the stock price significantly, but this one did. Now,
24:21
Speaker 3: what Facebook is saying, though, is that, you know, we
24:25
Speaker 3: knew about the breach at the time we made this
24:27
Speaker 3: risk disclosure, but it wasn't quite clear it was going
24:31
Speaker 3: to have this big impact. That was still unclear, and
24:36
Speaker 3: you know, we warned about that risk, but we didn't know.
24:39
Speaker 3: We didn't know that the stock price would be affected
24:42
Speaker 3: as much as it ultimately was. When the scandal broke
24:45
Speaker 3: more widely and regulators reacted, and that, you know, it
24:50
Speaker 3: became something that hurt Facebook's reputation. That aspect of it
24:54
Speaker 3: we didn't know at the time the risk disclosure was issued.
24:57
Speaker 1: Do you have any feel from the oral organ about
25:00
Speaker 1: how they might rule.
25:03
Speaker 3: I think it'll be a very fact specific decision. I
25:06
Speaker 3: think that the court understands that this is a really,
25:12
Speaker 3: really hard issue and the Supreme Court is not qualified
25:17
Speaker 3: to write very detailed disclosure rules, and so I think
25:22
Speaker 3: they will try to limit the case to its fact.
25:26
Speaker 3: It's a tough one. It's really tough to predict which
25:29
Speaker 3: way they're going to go. I suspect maybe a majority
25:32
Speaker 3: will side with Facebook. You know that this is a
25:36
Speaker 3: case where sure they knew there was a breach, but
25:40
Speaker 3: they didn't know it would impact the company's business as
25:44
Speaker 3: much as it did, and therefore the risk disclosure was
25:48
Speaker 3: not materially misleading. Now, you know, if they had known
25:51
Speaker 3: about the breach and they knew that it was as
25:55
Speaker 3: impactful as it would be, then that would be a
25:58
Speaker 3: different story. Now it's possible, though, some of the justices
26:01
Speaker 3: will buy the plantif's response, you know, the planets. Basically
26:04
Speaker 3: their response is that, Okay, you must have known that,
26:07
Speaker 3: given the size of the breach, that it was going
26:10
Speaker 3: to really affect your reputation at the time you made
26:13
Speaker 3: that statement, and therefore the risk disclosure was misleading. What
26:17
Speaker 3: you should have done when you wrote the disclosure was acknowledged, Hey,
26:21
Speaker 3: we have this very very unprecedented significant reach of millions
26:26
Speaker 3: and millions of users of data. That's the disclosure you
26:29
Speaker 3: should have written. Now, that does seem to be kind
26:32
Speaker 3: of second guessing from the disclosure with twenty twenty hind
26:35
Speaker 3: sight and Facebook would say it's not fair for every
26:40
Speaker 3: single little disclosure in one hundred page document to potentially
26:45
Speaker 3: be second guests by a planif's attorney who has the
26:48
Speaker 3: incentive to question it. But I think it's going to
26:50
Speaker 3: be a close one. I think it could be a
26:52
Speaker 3: close one, and I think there could be some disagreement.
26:54
Speaker 3: But what I am confident of is it's going to
26:57
Speaker 3: be a fairly backed specific decision, a.
27:00
Speaker 1: Split between the conservatives and the liberals.
27:04
Speaker 3: Somewhat, although some of the conservatives I wasn't quite sure
27:09
Speaker 3: which way they were going. And you know, Justice Thomas
27:12
Speaker 3: starts out and ask some questions that I thought were
27:16
Speaker 3: leaning a little bit towards the plaintiffs. So it is
27:19
Speaker 3: it is a little bit hard to say, I'm you know,
27:22
Speaker 3: Justice Tavanaugh's question is more just about why are we
27:26
Speaker 3: even deciding this in the first place. I don't know
27:28
Speaker 3: what that means for how he would actually believe the
27:32
Speaker 3: case should come out. You know, I do think the
27:35
Speaker 3: liberal justices probably seem to be mostly sympathetic to the question.
27:40
Speaker 3: And you know, Justice Alito has thought a lot about
27:43
Speaker 3: these issues. He decided a few cases when he was
27:45
Speaker 3: on the Third Circuit decision on Burlington Cope factories that
27:51
Speaker 3: basically grappled with this duty of updating disclosures. So he's
27:55
Speaker 3: thought about this for many years. I tend to believe Alido,
28:00
Speaker 3: based on the Burlington Code Factory's decision, would be less
28:03
Speaker 3: inclined to say that those disclosures were misleading. But I
28:07
Speaker 3: could be wrong on that. It's hard for me to say,
28:10
Speaker 3: but I think you could see some coalescing that might
28:14
Speaker 3: break down under conservative and liberal sort of life.
28:18
Speaker 1: But you think that whatever decision, it'll be fact specific,
28:22
Speaker 1: so it won't have so much impact on other companies
28:25
Speaker 1: disclosures or am I overstating that.
28:27
Speaker 3: I think that's right, and even the defendants. Facebook's is
28:31
Speaker 3: very careful to stay that there will be some circumstances
28:36
Speaker 3: where a risk disclosure is misleading, like when you know
28:41
Speaker 3: for a certainty that the risk has actualized. My understanding
28:45
Speaker 3: of Facebook's position is that would be materially misleading, and
28:49
Speaker 3: so I think that is a situation you find quite
28:53
Speaker 3: often these days. That's a theory that's asserted a lot
28:56
Speaker 3: against companies. I think that they could write an decision
29:00
Speaker 3: where you could say in these circumstances, you knew that
29:05
Speaker 3: part of the risk can happen, but not all of
29:08
Speaker 3: the risks could happened. I think that might be what
29:11
Speaker 3: the Supreme Court could could do in this case if
29:14
Speaker 3: it wanted to rule in favor of Facebook, and that
29:18
Speaker 3: could affect though that could affect other cases because there
29:21
Speaker 3: may be other cases that are like that, and also
29:25
Speaker 3: there will often be the question of well, does our
29:27
Speaker 3: case fall into this back pattern or is it something else.
29:31
Speaker 3: So I think it could have a substantial effect on
29:35
Speaker 3: the way these cases are litigated, but I don't think
29:38
Speaker 3: it will completely immunize risk disclosures from scrutiny under Rule
29:44
Speaker 3: ten D five.
29:45
Speaker 1: Switching topics for just a moment, I do have a
29:48
Speaker 1: question for you about crypto and the sec The crypto industry,
29:54
Speaker 1: you know, poured millions of dollars into presidential and congressional races,
29:59
Speaker 1: and Donald Trump has said that on day one he's
30:02
Speaker 1: going to fire Gary Gensler. Do you see he has
30:07
Speaker 1: a lot of firing to do on day one. So
30:09
Speaker 1: do you think the crypto industry is going to benefit
30:13
Speaker 1: from Gensler's departure and Trump administration?
30:17
Speaker 3: I think so. I'm not sure how much they will benefit.
30:20
Speaker 3: It's not quite clear to me what the SEC will
30:23
Speaker 3: do even under a Trump administration. I'm not sure whether
30:28
Speaker 3: it's possible to write rules that would balance investor protection
30:35
Speaker 3: and what the crypto industry is seeking. Is it possible
30:39
Speaker 3: that the crypto industry could get some sort of broad
30:42
Speaker 3: community from the requirements of the SEC. Possibly. I think
30:47
Speaker 3: that would probably have to go through Congress, and the
30:52
Speaker 3: crypto industry has had a good amount of influence there.
30:55
Speaker 3: But you know, Congress is self interested, and if they
30:59
Speaker 3: were to path that sort of broad community from registration,
31:06
Speaker 3: if the crypto industry collapses, if a lot of investors
31:09
Speaker 3: lose a lot of money, they know exactly who to
31:12
Speaker 3: point it, and so I'm not sure politically that Congress
31:18
Speaker 3: will go in that direction. Could Trump appoint somebody who
31:24
Speaker 3: will lessen the SEC's enforcement. I think that's probably the
31:28
Speaker 3: most likely option there. It is difficult, though, I think
31:33
Speaker 3: for enforcement to justify completely dropping cases you know that
31:37
Speaker 3: are being litigated and are still being litigated against companies
31:41
Speaker 3: like coinbase, And if it takes that somewhat drastic step,
31:46
Speaker 3: then you know, we have someone to blame if investors
31:50
Speaker 3: lose a lot of money. So I'm not exactly sure
31:53
Speaker 3: what's going to happen on day one or the days
31:58
Speaker 3: afterwards with a prompt SCC, but certainly Trump will try
32:03
Speaker 3: to do some things that at least appear to be
32:06
Speaker 3: favorable to the crypto industry. But I also think he's
32:11
Speaker 3: going to engage in some self interested calculus, and he
32:16
Speaker 3: understands that he could be blamed if there are significant losses.
32:21
Speaker 3: I think he will balance those different things, and it'll
32:24
Speaker 3: be interesting to see what happens on day one and
32:27
Speaker 3: the days afterwards.
32:28
Speaker 1: There will certainly be a lot of things to watch.
32:31
Speaker 1: It's always great to have you on this show, Jim,
32:33
Speaker 1: thanks so much. That's Professor James Park of UCLA Law School.
32:38
Speaker 1: And that's it for this edition of the Bloomberg Law Podcast.
32:41
Speaker 1: Remember you can always get the latest legal news by
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Speaker 1: subscribing and listening to the show on Apple Podcasts, Spotify,
32:47
Speaker 1: and at Bloomberg dot com, Slash podcast, Slash Law. I'm
32:51
Speaker 1: June Grosso, and this is Bloomberg