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