Bipartisanship at Supreme Court Arguments

Joining me is Andrew Rossman, a partner at Quinn Emmanuel who represented the winning seller in the case. So tell us about the deal, so my clients no fits. The private equity firm agreed to sell Deco Pack, a leading manufacturer of cake decorating solutions in the country in Minnesota, to another private equate firm called Coburger Company, and they started agreement first week of March, and you know, as the pandemic worsened, Coburg tried to get out of the

deal and we student Delaware to enforce it. Was there one legal question or primary doctrine involved in the case. Coburg raised several defenses, one of which is well known, which is a material adverse effect, and that was one of the things we argued about. Colberg asserted that the effects of the pandemic caused such a material change to the company that they should be able to get out of their obligation to buy it. That was one issue.

And you know, another issue was the Coburg allowed the financing for the deal to expire um actually precipitated in our view, uh cause of dispute with the lenders to make the financing go away UM. And they claimed then that without finding I think they can't close the deal.

And so, you know, one of the things that you know, maybe the opinion is the most significant for you know, a legal precedent is the prevention doctrine, which is the idea that you can't cause the condition to fail and then point to the failure of that condition as the reason to get out of your agreement. So did the judge find that the buyer didn't just see the deal collapsing,

but they tried to make the deal collapse exactly. Instead of trying to find solutions and use their best efforts to get the deal closed, they did the opposite, which is they found problems and created problems with the lenders and then use those as excuses to get out of the So what is your understanding now after this decision, of what the prevention doctrine stands for? So what the prevention doctrine stands for is the idea that you can't

create a problem. You can't manufacture a problem in your deal and then point to that problem as your exit from the deal. So in this case, they can't cause the financing to go away by creating a dispute with their lenders and then cross their arms and say we no longer have financings, therefore we don't have to close.

It's an issue that's come up before. Where in the famous case involving a merger of Huntsman and Hexion, where you know, one of the parties tried to get out of that deal by claiming that there would be an insolvency and therefore chased the lenders away. So was the dispute mostly on the facts of the case, where you arguing the facts of the case more or the law of the case. I think the facts of the case

were predominant here. The judge took an exhaustive review of the trial record, and you know was persuaded that my client at every step was doing the right thing, uh, and that Colberg at every step was trying to get out of its obligations. Now Colberg has to go through with the deal as originally agreed to. The judge ordered Colberg to close the deal on its original exactly. So

now here you were on the seller's side. But we talked before when you were on the buyer side in another deal where the judge allowed your client to walk away from the deal. So tell us first refresh our memory about that deal. Sure, I've been involved in several of these litigations, but two of them actually went to trial in the pandemic. One was a deal involving the sale of fifteen luxury hotel by a Korean company called

the A to Chinese and Sure called Ambang. In that case, we represented the buyer right and persuaded the court that it was not obligated to close the deal in the trial decision that came out towards the end of the year. So what made the difference besides you being on the winning side in these cases, what made the difference in the opposite conclusions? Well, thanks thanks for that, June. But the facts of every case and by themselves right. I think in both cases, two clients really were doing the

right thing all along. I think they acted in good faith, they met their obligations, and it was not the case for the other shot. So if you're the seller, we learned in the Maray case and that in the on Band case that you can't hide problems, got to disclose problems, and you've got to try to work through those. And you know, the same thing we learned in the Deco

pat case, which is you can't manufacture problems. So you know, I think the lesson to take away from both of those is that parties are expected to be forthright and expected to act in good faith, respect their obligations, and that you know, to me it was easy because both clients were doing the right thing. And the judge in the latest case said it was a victory for deal certainty. Do you think that's true even in light of the decision in the Marae case which allowed your client to

walk away from the deal. I think the judge was very careful to apply the law, and I think the law was applied consistently, but the facts were quite different, and you know, I take it as as you said, as a victory for deal certainty, I take it just as much as a victory for good faith, which is that you know, parties are expected to meet their obligations earnestly and to have exchanges with their counterparties that are candid.

So that's how I how I look at it, and I think the two decisions stand together well and um, you know, help provide good guidance, um for parties who are engaged in these transactions. Due to the pandemic, I imagine we're going to be seeing a lot of other cases on a large scale like this or on a smaller scale where people are trying to back out of

a deal. What will make the difference? Well, every as I've seen in all these and I think we've done you know, I've personally done six or eight of these cases at least. Um. Not all of them go to trial, but every case requires not just an examination of the facts, but a close, uh you know, close scrutiny of the contract itself. There are real differences in the contracts that

make a difference. So you know, in the case of uh, you know, Murray, we're talking about hotels um and the way that they were operated is quite dramatically different than we were talking about the cake decorating business UM. And how you know that manufacturing distribution business was operated is you know, obviously quite different in the pandemic. And then you've got to scrutinize their contract. So every case is

bespoke in that regard. And I say, the other thing we learned too is that UM, often it's not what you think, UH that is going to be the issue that's in dispute. So you know, parties, look, immediately, everyone thinks about m A UM as the you know, the main contract feature that determines whether or not you can exit a deal. UM. But both of these cases, what we spend time talking about m a E. They there were other issues that were just as prominent and more prominent.

And that's what I've seen throughout, which is that parties often focused on other deal requirements, other conditions UM. And it's it's those things that they're pulling apart to test whether whether a deal is closed or not. Do you think that contracts for deals going forward will contain, will be will be UM formulated differently because of what lawyers learned during the pandemic, are they're going to be different

clauses in there without questions. Um. So you know, we every time there is a financial crisis or there is a natural disaster. You know, you can you can look at what m A provisions are as, you know, sort of a history of the calamities of you know, the last century or so, because they keep adding new ones. So you know, now contracts, uh, you know, we'll make direct reference to COVID nineteen, um. You know or asked you know previous Lee obviously you know before two thousand nineteen,

you know, know when to do that. Um And and they'll be thinking more about, you know, all of these provisions as they get battle tests. So the judge in this case wrote that perhaps there's a greater need to celebrate the milestones of life amidst the tragedy of a pandemic, or perhaps humans simply have an insatiable desire for decorated cakes. How did the pandemic how did it hang over this trial? I mean, besides in the details that you're litigating, how

else did the pandemic have an effect? Well, it had an effective number of ways. Obviously in real time we're seeing the impact on the company and our thesis throughout. The company's thesis throughout, which was very much sustained, is that after a short term you know dip, people are going to get back to buying cakes. They may not get together in the same numbers they previously did, but you know, on on you know, Jimmy's fifth birthday, Jimmy is going to get a case. And you know that

very much proved to be true. As we all experienced in the pandemic, we just found different ways to celebrate um. And it also affected the way we tried the case. Uh. You know we uh initially we asked the judge to set us down for trial in two weeks so that we could be heard before the financing expired. And I think, you know, in a in a very I didn't like it at the time, but in a very sensible, humane decision, and the judge you know, felt like that was not

a practical thing to do in the pandemic. UM. And then you know, we went ahead and had an expedited trial, but on a more understandable schedule, uh. And we did everything remotely. You know, no one was in the room together. We did the trial remotely on zoom. We did all the depositions, on Zoom. It was quite a different experience it than we've had before for the lawyers, you know, as well as the participants in so trial. Lawyers like to be in court. But are you gonna miss when

the pandemic is hopefully behind us? Are you going to miss the convenience of zoom? Well, there there's something special about you know, being able to uh, you know, just walk down uh stairs in his house, you know, into the courtroom, so to speak. And you know, it saves a lot of wear and care on the travel. But I missed being in courtrooms. I missed being with my trial teams, at my clients. I missed, you know, having judges you know, frown at me in person or you know,

hopefully smile. I missed the human elements of of litigation very much. Thanks so much for being in the Bloomberg Laws show. Andy. That's Andrew Rossman, a partner at Quinn Emmanuel. As the Supreme Court waited into the War on drugs this week, there was an unusually lopsided set of litigants, so lopsided that the Court had to appoint an outside lawyer to argue to uphold the lawn issue. After the

Biden administration switch sides and back the defendant. The question was whether the lowest level drug offenders are eligible for retroactive relief under the First Step Act and can seek resentencing. Lawmakers from both parties, both conservative and liberal groups, and the Biden administration say Congress intended for the law to encompass low level offenders, but many of the justices sounded

skeptical that the statutory language would allow that interpretation. Kiara Justice as Stephen Bryer and Brett Kavanaugh, I mean, I think they were much too high. I understand that, but I can't get away from this statute. Why didn't Congress just say everyone who's been sentenced for crack offenses under eighty one is eligible for resentencing? Something simple like that. Joining me is Mark Ostler, a professor at the University

of St. Thomas School of Law who specializes in sentencing policy. So, Mark, tell us a little bit about the First Step Act. Sure, the First Step Act that was passed in it had a number of provisions. UM. It was it was created new metrics of data within the Bureau of Prisons UM and hand some reentry provisions. But one of the primary things that did was make retroactive prior law, the Fair Sentencing Act in and what that did was changed the

hundred to one ratio between powder and crack cocaine. In other words, in both the sentencing guidelines and the statutes that created manatory minimums, you were sentenced the same for five grams of crack because you were for five hundred grams of powder cocaine. This had really disparate impacts in terms of race. And I was a thorough prosecutor in the and Detroit. There were a lot of crack cases coming through that office, and of course it was all

or almost all black defendants in those cases. And in time that became noticed and in they changed the law, but they didn't make it retroactive. And that was a continuing problem because you had people who were sentenced under the old law who didn't have the advantage of the change and attitude and the adjustment that had been made, and that festered for a long time. Um you know,

the Obama administration wasn't able to fix it. And eventually there was a bipartisan movement in uh Congress that pushed for that change, among others, and it came through in the first step Act of that was signed by Donald Trump um notably the name indicated. It was supposed to be one of a series of bills, but it was the only one to get through. What is the issue in this case before the Supreme Court. Yeah, it's a

little bit complicated. But the original law, the mandatory minimum that regards crack and the number of other drugs, it's sets three different tiers. And you know, the top tier previously was over fifty grams of cracks for the top tier and over five grams of crack for the middle tier, and then the bottom tier was under five grams of cracks. And then those thresholds all went up under the Fair Sentence in Act. And that's what the First Step Act

made retroactive. And so in other words, people could go back and say, I want to be resentenced under the current law. And that meant that, let's say, if you had been sentenced under the top tier for you know, sixty grams of crack, now you're not mean that threshold,

and so they could be resent Now. The problem was that the First Step Act said explicitly that it applied to sentences in mentor minums that have been modified by the Fair Sentencing Act and The argument from the government under the Trump administration was that that meant that the top two tiers, which had been changed explicitly because the upper the threshold had been raised, that people who have been sentenced under those got relieved, but people for whom

they weren't charged with a threshold of over five grams of cracks, that they didn't have the benefit of this change. That's an argument that doesn't make much sense in terms of policy. Why you would give relief to people that were more culpable but not people who are less culpable.

But that's what is the heart of this is the Eleventh Circuit upheld the decision below that Mr Terry, the petitioner, did not have the ability to have his sentence reviewed under the First Step Act because he wasn't in those top two tiers, but rather was charged with no amount listed. On the date when the government's main brief in the case was due, the Biden administration informed the court that it was changing positions from the Trump administration and now

siding with the defendant in the case. So the court appointed an outside lawyer to argue the case against the defendant and the reduced sentence. Why did the Biden administration change positions at the last minute. I think that they had, Yeah, I think that they had pressure from reformers certainly that

they should do so. That there are a number of people, including myself, who had taken up these first step back cases pro bono and it had noticed the problems with them and frankly was inconsistent with the very bi person spirit that was behind the First Step Back in the first place. And you know, even before they had everybody on board at the o J with the incoming nominees, they did switch sides and the Supreme Court appointed someone to represent the other side, now that the d o

J had abandoned that position. So now at the Supreme Court arguments, was there a lot of discussion of the intent of the act or was it based more on the language the statutory language? Well, both things, and you know, the political set up for the for all of this

was underneath the arguments, of course. You know, one thing that fascinates me about this, especially in our current political climate, is that there was amaicust grief that was submitted in support of the first Step back, applying to Mr Terry, that was submitted by four Senators Durban Booker Grassley in Senator Mike Lee, Now, that's a pretty incredible lineup if you think about it. I mean, from one end of

the theological spectrum to the other. And it really reflects the Biparsan consensus that was behind the first step back in the first place. And you know, of course in that argument that justices were interested both in what the intent was, but also you know what injustices does this create and underneath it all is you look at what Mr Terry was sentenced to fifteen and a half years in prison for four grams of cracks. It's shocking and is something you know, I'll tell you. I'm talking to

you right now from downtown Minneapolis. I'm looking down over Nicolette Mall. I'm about a mile away from where Derek Chauvin, the police officer who killed George Floyd, is going to be sentenced shortly. And most people are saying that what he'll get for that cold blooded killing that America saw is going to be about fifteen years, and that that's the same as Mr Terry got for having the four grams of cracks. Some of the justices seemed sympathetic to

Terry's plight to his sentence being excessive. But for example, Justice Brier said, I can't get away from the statute. And even Justice Sonia Soto Mayor, who is considered one of the justices who is more sympathetic to criminal defendants, even she seemed to indicate that you just can't get

around the words of the statute. Yeah, and I'm hoping that you know, the argument will prevail in me that you know, what's in the statute is is modified and what you know, the parties and this is something that the Senator said was their intent was that that means something different than amended, because obviously Tier two and Tier three, the upper two tiers were specifically amended. But that also modifies that bottom tier by raising the level from five

grams to rams. I think it was and that is that's the pably the best argument going to the statutory language. I mean, one thing about about Justice Brier is that his history and sentencing is complicated. That it's it's one where he's been. He was on the Sentencing Commission that drafted the original sentencing guidelines that were mandatory that in the Booker decision. He argued that that there should they

should not be converted to being advisory. So he's somebody who has a complicated history with these issues, and the fact that you know he was sticking to the language of the statute is really in keeping with some of his prior churisprudence in this area. During the oral arguments, did any of the justices seem inclined to adopt that argument? It seemed that most of the justices thought the statutory language was a problem for Terry and wouldn't support a

retroactive interpretation. Yeah, and you know that of course reflects the circuit split that they were presented with. That four of the circuits had been on the side of the eleven circuit was that this new law did not apply to Mr Terry, and there were I believe two circuits had held that he would have, so, you know, the lay of the land was in favor of that that reading the statute. Were there any questions from the textualists on the court which which indicated which way they might go?

You know, I don't recall specifically if there were, but you know, even if you are a textualist that that question of is modified different than amend is something to take seriously. So will you explain the modify versus amend argument. Yeah, well, there's no question that if the statute had said amended, those portions that were amended, they would only apply to the top two tiers, because it's it changed explicitly the thresholds that had to be meant for them to apply

to enhancer cracks. And however, it did also modify even though it didn't expressly amend the bottom tire, it did modify or change that bottom tire because it was it was expanded basically from five to eight cramps. So that's you know, that's that's going to be the distinction that they'll be talking about in conference. I'm curious. I don't know if you know the answer to this. Terry is about to to be finished serving his sentence. So is it just that this case took that long to get

through the system. Well, there's a couple of things. He's on home confinement right now and he'll be done in September, I believe, uh, and it you know, it could be just this is the case that got up to the Supreme Court to resolve the issue. Um, you know, it's it's not moved h and you know the fact that he's on home confinement is a function of of the COVID pandemic, where under the Trump administration and a bit administration, many people who were towards the end of their sentence

are being switched over to home confinements. But well, you know, one thing is people will say, you know, that's we're talking about about three or four months, that that matters. You know, if you think back in your own life of the past three or four months, if they were just gone, you know, if you had been in prison for that period of time, that would matter. And too often we discount the value of time when it's a

smaller bottom time on top of the larger sentence. I have to say, this seems like such a technical argument. You know, you've got the sentencing guideline book that's inches thick, that is like a tax code at this point, and that's part of the problems. Part of the problem is is that complexity that tears and those things they become normative. You know, when we say that the that the right sentence for five grams of crack is five years, that

becomes normative. It sounds scientific, but that masks crazy realities. You know that someone for programs of crack got fifteen and a half years. That that's irrational. No one was being denied cracked by the fact that this one person who is selling is out of commission um, and yet we're taking on the societal costs of that imprisonment um. Yeah. So that complexity, that technicality of it um. Yeah, that does bar people from digging into it. But once we do,

we find that really ugly reality. When judges had more discretion, there was a problem with judges having discretion to people were upset that some judges were giving sentences that were

out of the ballpark. So where's the happy medium? Yeah, that's what's we're trying to find, is that happy medium between judges having so much discretion that bias comes into play and and you have incredibly disparate sentences, and where we don't have these mandatory laws that buying judges and create these frankly pretty ridiculous sentences as we suffer for Mr Terry in this case. You know, there's been a back and forth over decades between uniformity and discretion for judges.

It's like watching a ball roll back and forth in a cup, and at some point it's going to have to come between equilibrium in this case is a part of that. If the court decides against Mr Terry, does that just leave everything in place as it was before. It will leave everything else in place, so the other two tiers will be unaffected. Um, and you know, those people who are doing longer terms under this are going

to have to pursue other avenues, for example clemency. One would hope that if the Biden administration loses this case that there we action will be to identify those people like Mr Terry can let them out under the power of clemency. Thanks for being on the Bloomberg Law Show. That's Professor Mark Osler of the University of St. Thomas School of Law. I'm June Grosso and you're listening to Bloomberg