This is Bloomberg Law with June Brusso from Bloomberg Radio.
Last year's Supreme Court decision barring universities from using race and admissions has left a lot of open questions about admissions policies that don't explicitly consider race but nonetheless affect
a school's racial composition. But on Tuesday, the Supreme Court decided not to step into the fray again, refusing to review a Virginia public high school's use of its admissions policies to achieve more socioeconomic diversity in the student body over the descents of Justices Samuel Alito and Clarence Thomas. Joining me is Audrey Anderson, head of the higher education practice at Bassbarian Simms. So, the high school here claimed
that its admissions standards were race neutral. Explain the policy change that led to this lawsuit.
Yeah, Jan, there was really no question but that the policy that the high school Thomas Jefferson are called TJ, was using before the change and after the change was race neutral all the time. But the change that happened was that for many years TJ had used a series of entrance tests, which were the major way that they
chose students. For admission to the high school, the students had to take something like four different tests, and the school board was looking at data and saw that the students who were going to TJ, who were selected for TJ were not racially diverse. There were not many black or Hispanic students. But also, in fact more importantly probably for the district, they came primarily from only eight of
the twenty six middle schools that TJ served. Also, the TJ population did not have very many low income students, so the district was something like twenty three percent students who qualified for free and price meals, and at TJ was something like one percent of students qualified for free
price meals. So the board wanted to see what they could do in order to make the population at TJ more diverse in a lot of different ways geographically, racially, socioeconomically, and then also on students who speak English as a second language. So the policy they put in place got
rid of the entrance exams. There was still one problem solving exercise students had to do, but the main change was that they allocated seats by middle school, so every middle school got a certain number of seats at TJ, so students were competing with their peers at their middle school primarily, and then after those seats were allocated, there were some seats left over for all applicants who had
not gotten in through their middle school process. And in addition to this problem solving exercise, they also looked at some factors, you know, teacher recommendations, grade point average, and they actually raised the grade point average that was necessary in order to apply from a three to zero to
a three point five. And then they also looked at what they called experiential factors, which were socioeconomic status, whether the student came from a family that spoke English as their first language, and whether their school was a school that had traditionally not sent a lot of students to teach.
So the changes did seem to though, have an effect on the racial composition of the student body. After they went into effect, the percentage of Asian American students dropped from offered admissions, dropped from seventy three percent of fifty four percent. The percentage of Black students grew from no more than two percent to eight percent, the percentage of Hispanic students grew from three percent to eleven percent, and the percentage of white students from eighteen percent to twenty
two percent. So it did have an effect on the racial composition of the student body.
Yes, and that can be expected. I don't really know in the demographics of the Falls Church area, but we know generally in the United States there's a lot of residential segregation, so people tend to live in neighborhoods by race. So anytime that you choose admissions policy that's going to equalize opportunity across a whole school district, you're likely to get more racial diversity than if you're only getting it
from some parts of the district. So by adopting a policy that said, hey, look what we're getting now is students only from these eight middle schools. Let's do something so that we get them from all the middle schools in the county, anyone would expect that that would give you greater racial diversity. It would more match the racial diversity of your district, rather than of just some neighborhoods.
The appeals court narrowly divided found the parents group had and established that the board adopted its race neutral policy with any discriminatory intent.
Is that the right standard?
Yes, I think that everybody agrees to that the right legal standard was used. I think that where the disagreement is is in how they applied and looked at that standard. So the biggest question, and the thing that Justice Alito took issue with, is one of the things that you look at when you're trying to figure out whether a policy that is rased neutral on its base, does it
nonetheless violate the equal protection clause? Because because it's racially discriminatory, one of the things you look at is did the policy have a disproportionate impact on one race rather than another? Because if it did, that's one piece of evidence that would show that there might have been racially discriminatory intent. You can't show that violates the equal protection clause just based on that, but that's one important piece of evidence.
So the question, though, is how do you determine whether a policy has a racially disproportionate effect. What Justice Alito says you have to do is you have to look at how did that racial group faire under the old policy, and now how do they fare under the new policy. What the Fourth Circuit said and what the school district says is that's the wrong way to look at it.
What you have to look at is when you've got two different policies that are both race neutral, you have to just look at the new policy and say, how do different racial groups fair under this new policy. Does this new policy put any barriers based on race? And the Court of Appeal said it doesn't, because even though the percentages of Asians went down under the new policy, Asians as a group, their applications were forty five percent of the application pool and they got fifty four percent
of the offers to attend TJ. So that would show that they're not being disproportionately affected based on their race under this new policy. That's the biggest thing that Justice Alito is upset about.
And Justice Thomas and Justice Thomas not a surprise because these two are justices who have been consistently anti affirmative action.
Right, And I think what's also underlying this and it comes out in the end of Justice Alito's opinion. And if you look at the district court opinion here the trial court judge who found that the policy was unconstitutional, he was very concerned that the school board was talking
about racial diversity at all. There is no evidence in the record that any school board member wanted to hurt Asian Americans with the new policy, that they had a goal of lessening the percentage of Asian Americans in the school there's in fact evidence saying that they were concerned that would look like or that they would be hurting Asian Americans, But there's lots of evidence saying that they wanted to increase the diversity. So I'm including diversity by race.
But Judge Hilton, the district court judge, said that just the discussion that they wanted to increase diversity by race infected the whole process, and he used that word infected, and Justice Alito uses the same kind of language that it infects things. So the question that some of us were really concerned about with this case is can a governmental body even consider the racial diversity? What the outcome will be of a racially neutral policy on the demographics
of something. Is it okay if a school board is saying, if we adopt this policy which is racially neutral, it's going to affect the demographics of our schools in this way? Can they do that now? At TJ As it turns out, actually for the policy that they adopted, they ran no racial statistics. They did not run a simulation of if we adopt this policy, the policy that it adopted, what
will the racial demographics of TJ look like. Their folks told them they could not run that simulation because there were two many questions about who would apply or I don't remember what they all were, but they said they couldn't run that. So the choice that was actually made by the school board was made without looking at what the racial demographics would be. Choices they voted down. There were racial simulations run for, but the choice they voted
for it approved. No racial simulation was done, which is also part of the evidence here that I think might have made some on the Supreme Court say, you know, even if we were interested in this, this is not really the right case for us to take.
What does it tell you that the Supreme Court turned this case away and at the beginning of the month the Court decided to allow West Point to continue using race as an admissions factor.
I think that the decisions made by the Court are actually quite different. You know, as we discussed, what they turned away at West Point was emergency relief on a completely undeveloped record. I think that the Court will still be very interested in the West Point case after it makes its way through the whole system. This case they've turned it away and now they will have no chance to review it. It is done, it is on the books.
I think that they're turning it away says that they're just not interested in taking it up so quickly after students for fair admissions, and they do want to allow this area of the law to what we say, percolate a little bit. But as I said, this record is not a great record for them to take. If there are some on the court that we know that there are, we know that Alito and Thomas are interested in this question.
If there are others who are interested in it on the court, this case I think does not have a great record for it because the policy actually adopted by the school district that's being challenged, they did not run any racial simulations for and because it is not only race neutral, it's completely race blind. They take all the names off of the applications and assign them numbers, so the people making the decisions can't even guess by students'
names what race they might be. So the lengths that the school district has gone to to make this really race blind, I think also is another factor that would make some on the Court say this isn't the right case for us to take up.
And just remind us what question is left open after the Harvard and North Carolina decisions.
Well, I mean, that's the other thing here. This, of course is K twelve, which is different than higher education. So there are a number of questions left open. One of the questions is a question that will be posed by the West Point case, which is are there other interests other than the educational benefits of diversity that the Court may find compelling enough to support the use of race.
And in the West Point case, the United States is saying that the military academies have a compelling interest supported by national defense goals that are compelling that support the use of race. But we also have to remember, and this has really gotten me thinking about this, the court in Harvard and North Carolina did not technically over rule Grutterer. It is still on the books that the benefits of
diversity in higher education, not K twelve, is a compelling interest. Now, they wrote the opinion in such a way that no college or university can use that interest in order to support the use of race. But if it's still on the books that it's a compelling interest. I think it makes it harder for someone to say it is constitutionally improper for a school board to even talk about what the racial composition of their school is going to be
when they use race neutral measures. I think that there are some on the Supreme Court and certainly some advocates who do believe that universities and K twelve schools should just not be able to look at consider what the racial demographics of their classes look like at all. That even to think about that violates the equal Protection Clause.
And if it's a compelling interest to have diversity, well then it's hard to say that you can't even see what your race neutral measures will do to achieve that goal.
So anti affirmative action groups are testing these restrictions in a lot of different ways. Are they making progress in any particular area or is it too soon?
You know, we know that they had the early cases against some law firms for internship programs that were limited to applicants based on their race, and they brought lawsuits and law firms change those programs to open them up
to people of all races. So I think that those are some victories, and I think that by just bringing those kinds of lawsuits, it has made institutions in all kinds of fields take a look at their programs to say, are our programs really open to everyone, regardless of their race. We need to make sure that, regardless of what the goals are of our program everybody has to be able
to have a place in them. And so I think that even if they haven't had a lot of legal victories yet, they have already made a lot of change in society for how entities are looking at these kinds of programs.
More of these cases certainly short. Thanks so much, Audrey. That's Audrey Anderson, head of the higher education practice at Bassbarian Simms. Coming up Mergermania. This is Bloomberg from Capital One's thirty five billion dollar plan to take over Discover Financial, Kroger's twenty four point six billion dollar acquisition of Albertson's to Disney, Fox and Warner's streaming deal. The question is always which deal will survive antitrust scrutiny by federal regulators
and which we'll go to court. And it appears the Federal Trade Commission and a group of states are poised to sue as soon as next week to block the tie up between Kroger's and Albertson's. According to Bloomberg sources, the scrutiny seems to come from the top. Remember back in July of twenty twenty one, President Joe Biden signed an executive order directing the federal government to aggressively enforce the nation's anti trust laws.
No more tolerance for abusive actions I monopolist, No more bad mergers that lead to mass layoffs, higher prices, fewer options for workers and consumers alike.
Joining me to discuss these deals is a leading antitrust expert, Harry First, a professor at.
NYU Law School.
Harry Capital One and Discover would form the largest US credit card issuer. And I've been reading many legal experts say this will reveal whether regulators are serious about policing consolidation in the financial sector.
Do you agree, Well, it shows that they're serious. Well, first of all, they have to examine this, so in that sense they'll be serious. There haven't been very many challenges, I guess to bank mergers. This really isn't a bank merger. Historically, Justice Department and any trust and forces have paid attention to payment systems, particularly to Visa and MasterCard. So I'm not sure test this is the right word. They're being
tested in many different areas. But what it may test is whether I think it's the Office of the Controller that has jurisdiction one of the banking regulators, and whether they will stop it because they've been fairly lacked themselves. But even if they don't, the Justice Department can still
step in. So yes, I think it will be a test to see how we're going to analyze this, And apparently, at least early views are somewhat split on how this is going to come out in terms of whether it will pass MUSTER after anti trust review.
Capital One is arguing that the deal will lead to more robust competition among credit card networks currently dominated as you mentioned by Visa and MasterCard, with American Express and Discover in the mix.
There is that a solid argument in this case.
This is an argument that often put forward and certainly has been put forward in a lot of cases. Please let us harm competition so that we can help it. It's sort of you have to draw on Vietnam experience when they said we had to destroy that village so we could save it. So the idea that we're going to end competition between these two firms so that there can be more competition is one that any trust people tend to look at skeptically. So the first question is
will it lessen competition? And before we get to whether, well it might lessen it in some ways but increase it in others, that's the skeptical argument for any trust, The first question is will it lessen competition at all? Now, this is in credit card issuance, given discovers rather small market share, so you don't get to the justification unless it's harmful in the first place. One thing that seems to me to be true about Discover. Discover has always
been sort of the map in some ways. I think we wouldn't have cash back credit cards if it weren't for Discover. So this was Discover's business model when Visa MasterCard weren't doing it. So they've been a sort of competitive upstart. Now how that's going to look to any trust enforcers at the moment, I'm not certain, but that's a little wrinkle in this particular case. Now, it may be that putting those two firms together doesn't in itself raise problems, although I think it probably will in the
card issuance market, but that's not the only market. So there are a lot of banks that issue cards, but there are only as you mentioned, four processing networks or really three Visa, MasterCard and Discover, which processes the credit card payments on the merchant side. And this may cause
some problems because Discover is an independent process. So I think the Justice Department is going to look at that in terms of payment systems, how it works for processors because merchants pay good money for this, and how this merger will affect that I think is going to be important.
I assume that.
The Office of the Controller of the Currency and the Federal Reserve looking at different things than the Justice Department is.
That's a great assumption. So the banking agencies are supposed to in some ways look at bank stability, convenience, and needs. This doesn't involve depositors because Discovery only has one bank outlet. I think, so, yes, they have some overall responsibility for public interests, but they do apply a competition standard, and one of the questions has always been whether they're applying maybe a more lenience standard. But then the Justice Department can come in and go to court and apply the
standard that's applied in all other industries. So that's one of the interesting wrinkles of this, is to see where the banking regulators will be. But then we may get to see where the Justice Department is if they approve the transaction. So there's a lot to be seen yet,
you know, in terms of how this will go. But it is a very big deal in dollar terms, and discoverers played an important competitive role, and what they had envisioned for the future, and what you know, capital one's vision for the future might be in all this, I think will be important once the government starts looking at those documents.
Okay, let's turn to the next possible Okay, antitrust problem. The Federal Trade Commission and a group of states are poised to sue as soon as next week to block the tie up between supermarket giants Kroger and Albertson.
According to Bloomberg source is.
The supermarkets here again saying that the deal is needed so that they can better compete with their bigger rivals Amazon and Walmart, and the FTC in the state attorneys general are concerned that it would lead to lower wages for workers, higher prices for groceries.
But Walmart and Amazon are rather big.
Well they are, of course, A lot of this depends on how you want to think about the market. Amazon's big, But do you consider online sales as being in the same market as grocery store sales? So if you don't, then you're talking whole foods. So that's one wrinkle of it. Walmart is very big, and sometimes in these supermarket mergers firms argue that shouldn't be in the market at all, But they probably look like number one in terms of retail sales of food in physical stores. Of course, they
also sell things lawn. Again another wrinkle of this that I think Kroger and Albertsons might pursue in litigation. But however we slice it. Do we slice food mergers, chop food mergers? However we slice the supermarket mergers. These are two of the biggest players. We haven't talked about the warehouse clubs, specifically Costco, which are often in any trust cases not included in supermarket mergers because they're business models
so sort of different. So if they aren't, then Kroger and Albertson's are number two in number three in the United States if you include Costco, it's two and four. But in any event, these are the major chains. Now, the idea that they need to consolidate so as to compete with Walmart is another version of we have to kill competition so that we can have competition. Because these
chains compete against each other. They are major players, and they compete presumable in many ways for sources, for private sorts of things, and if they say they have to get bigger, it seems factually to perhaps be problematic. So again, as I mentioned before, the first question is is it any competitive? Not what their justification is, So how is
it any competitive? Exactly? And even though they're big, a lot of times for supermarkets, enforcers look at local markets, sometimes very small markets, you know, three to five mile radius around stores, which is where most consumers do most of their shopping in most places. How's that I put in plenty of most. So if any of us say no, I don't do it that way, I say, well, other people do. But that's sort of the default way of
how it's looked at. So the discussion generally starts out with what are the geographic overlaps between these two chains? And then can that be cured? You know, so sell the overlapping stores. If you've got a safe way right near a Kroger or a Harris Tweeter Teeter, I would say Tweeter Harris.
Teeter, I'm not familiar with that.
Well in the DC area, these two chains are pretty big, so you know, sell some of the overlaps. So now you're not competitors, you don't you know, sell it to someone else, it will still be in competition. This has been going on since October of twenty twenty two, you know,
trying to figure this merger out. So I think a lot of the discussion has been what do we need to sell to satisfy the Federal Trade Commission and to satisfy state attorneys general, all of whom frankly are concerned about and should be concerned about high food prices and wages to labor. So talk about, you know, concerns and concerns for important segments of our economy. This is very important. So a lot of discussion over how many stores to divest and.
Harry in the discussions, how many stores have the companies agreed to divest.
Apparently there's an agreement now to invest four hundred sum stores to another chain. Called Pigley Wiggly. You always shop at Pickley Wiggly.
I definitely don't. But I know from a lot of the movies that I watch about the pin chain.
Oh, that's right. Seems to all be in southern movies in the nineteen fifties, yes.
And even some more recent movies.
So to divest it to them? And people have said, well, you know, if you need to put together your two chains, which are about five thousand stores, so that you can compete effectively, tell me how spinning off one hundred and nineties stores or four hundred stores will recreate effective competition, Because if you can't be effective, you're huge size. How
are those chains supposed to be effective? So the question whether you can cure competition defects by spinning off some of the overlapping stores then usually moves on to well, those divestitures have often been unsuccessful because the number of stores spun off are not enough to form a viable chain of stores, even if given to another operator. So this is probably what the discussion and argument has gone around.
And I gather from you know what you mentioned the Bloomberg source that they haven't come up with enough of a divested your plan, and there may not be a divestiture plan that would be satisfactory other than you know, you just can't merge. Now, there is one wrinkle that's really quite unusual and interesting in this is that two
state attorneys general have already filed suit. And normally the state's file suit under federal law for reasons that get to be too complicated to explain, but both of them have filed suit under state law in state court, and this is quite unusual and will be very interesting to see. So that's the state of Washington, state of Colorado. So those suits are already filed to stop the merger in some way. So the end of the story hasn't been written yet.
But I'm going to ask you about the end anyway. So let's assume that the suit is going to go forward. Which side has the better odds in court? Do you think it sounds like you think the government does.
I think the government does, but it's going to have to be careful about what the theory is, you know. I Mean, normally we talk about the number of stores and all that, but again, the usual markets that are looked at in supermarket mergers are very local. So the total number of stores. In some sense, the government usually does not focus on They very well might focus on the network generally in this merger, on the argument that these big networks, these big chains compete in ways that
are not localized. They haven't pushed this argument in the past. It's an important argument, you know, when we think about major tech platforms, when we think about competition today, it's you know, not localized geographically. So you know, I think the parties are not certainly not out of legal arguments if they choose to fight it. And there was apparently an upper limit on the number of stores divested before the parties could pull out. It was six hundred some stores.
So I think we should try to keep our eye on whether the deal will be killed, not so much directly but indirectly. But the bottom line is I've always found it hard to believe that the government will not oppose this. I think they'll come up with some theories for why it should be stopped, and I think ultimately they're probably going to be successful. But it isn't a laydown coming up.
The new streaming service proposed by Disney, Fox and Warner, this is Bloomberg. I've been talking to anti trust expert Harry First, a professor at NYU Law School, about several megadeals and whether they'll pass anti trust scrutiny.
So now we go from.
Credit cards and supermarkets to streaming sports. Right, The Justice Department plans to scrutinize the new streaming service proposed by Walt Disney, Fox and Warner Brothers over concerns it could harm consumers, media rivals, and sports leagues. City analysts estimate the venture would control about fifty five percent of UA sports rights by cost.
What about this, This is a fun one. We do need food, and apparently we do need credit cards, and apparently there are a lot of people who just need their sports all the time. I have to say, I don't put myself in that category. So here I'm not speaking as an interested consumer, just as sort of an observer, noting that a lot of anti trust action recently has involved entertainment of one sort or another, with video games or sports. And so now we're on the sports end.
And you know, as with many of these things, they become important to any trust enforces, particularly because there are a lot of zeros at the end of these deals. So I means Disney, Fox and Warner. They are major distributors of sports programming today, and if you put this all in a single streaming service, they would have a lot of current sports programming. It wouldn't have everything. Apparently
there's some people who watch the National Football League. I don't know, Taylor, I don't know, right, Yeah, so half of the NFL is on comcasts, NBC, Paramount Global, Amazon has rights to some games. So it's not a complete lock up, but it's it's a fair amount, and you don't want to forget that this Apparently this new service will have The Simpsons and The Bachelor, so there's going to be some entertainment programming. So the question with this, as with the others, the first question is so how
does it harm competition in what way? And here it's even less clear because although initial reports sort of sketched out with adventures, wasn't a sense that the exact terms may not be fully fleshed out. It's hard to say, And the Justice Department and is supposed to be saying they will review it, but it's not clear exactly what they have to review. So the big question is, well, you put all this together, but what's the issue. And
usually in these things. The issue involves exclusivities. So will this programming be available only on this app through this distribution channel or can it be distributed elsewhere through other channels so that it's not tied up? Now, apparently it's not supposed to be exclusive, so if your Fox, you can also maybe distributed elsewhere. But I'm a little skeptical about how that may work in practice or what the
joint venturer's incentives are. ESPN is supposed to be launching a streaming service.
Yes, Disney still plans to launch a streaming service of ESPN in about a year.
So where does that fit in?
Well, year is a long time, and so suppose they do. But they also have this platform. You know, what are their incentives? Who pays?
What?
Where do they make the most money? If you can get it all in one bundle and you're a viewer, you're really going to pay separately for an ESPN streaming channel. You know? How is that all about? How do the party's envision this is working? So will it be any competitive? The parties are going to argue, hey, we add a new service. Adding output is usually good. You know, there's a new service for consumers, and hey, consumers like having
a one stop shop. You know, they just sit there and watch hundreds of hours of Major League Baseball, National Basketball League, National Hockey League, NASCAR, College basketball, all in one place and never leave their basements. So what could be better? That's a rhetorical question.
I was going to answer that question right.
So that's an argument for this is a benefit to consumers. But the question is if they get control of monopoly, and the end is never beneficial to consumers. If they get enough control so that Fox and Disney and Warner really aren't distributing on other platforms, does the price of the streaming service start going up when they're not faced with competition from other services that don't offer this bundle?
And what about the suppliers of these programs? You know, of sports entertainment programming, who can they get bids from for their products?
You know?
Do they have lots of bidders or very few? So if you have fewer bidders, they get less for their rights, which means they pay whoever produces these things less. So you know, not clear how this will all go. And in some sense, if the pro competitive benefit is putting everything in a bundle, why does it have to be in a bundle. I mean, is it really that hard
to switch from ESPN to Fox? I don't know. That's what we like, competition for the different channels that different platforms, different apps, whatever you want to call them, can offer different product, not just the game itself, but different things different you know. However, they want to differentiate themselves to compete for customers, So there's a lot to find out about how they've structured it and how exclusive it is,
either on paper or financially. There are past cases in this industry where the Justice Department has not looked favorably on tie ups of distributors with rights to programming who are big in the distribution market. Those go back to the eighties. There was in fact litigation over one of them where this is way back in the early days
of what used to be called PayTV. Columbia Universe Versal, Paramount and Fox put together a service that would have all of their movies and it was going to be called Premiere and you know, consumer could get it all in one bundle and they would have those movies for exclusive window for nine months and other services could get it. Justice Apartment sued and one in court that that was a violation of the Shermanac. So there are you know, legal roadblocks to this, and you know, again we'll have
to see how here. This is a little more you know, uncertain what the terms are and you know, sort of see how the terms are crafted and what objections the Justice Department might have.
So Parry, is it just me?
We talk a lot about antitrust and it seems like there's one deal after the next that the Justice Department or the FTC is challenging or thinking of challenging. Is it just because the Biden administration is on a pro competitive bend.
Yeah, it is very interesting. I mean in the merger area, people have suggested that the rhetoric of the Biden administration will discourage firms from merging because they're so afraid of being challenged. You might wonder about that idea given all the mergers we're seeing. So we're seeing a lot of deals right now, and there are various reasons. Anti trust may be far down on the list, business reasons may
be higher up. But I think we're seeing it, as you know, the anti trust frame around it because the Biden administration has been serious, not only in its rhetoric but in bringing cases that investigating, so you know that continues, and you know there is an expectation that they're not just going to let things slide. So we do get these reports and there are lots of industries there. You know, there's acquisitions in the chip industry, there's energy mergers, a
lot of consolid the energy industry. I mean, you know, I don't know when they sleep.
Well, at least we'll have lots to talk about and I always enjoy our conversations. Harry, thanks so much. That's Professor Harry First of NYU Law School. And that's it for this edition of the Bloomberg Law Podcast. Remember you can always get the latest legal news by subscribing and listening to the show on Apple Podcasts, Spotify, and at Bloomberg dot com, slash podcast, Slash Law.
I'm June Grosso and this is Bloomberg