Hello, and welcome to the Votes and Verdicts podcast, hosted by the Litigation and policy team at Bloomberg Intelligence, the investment research platform of Bloomberg LP. This podcast series examines the intersection of business policy and law, and today we'll be looking at the litigation and policy catalysts that we're watching in June and that we think.
Will impact companies across a number of different sectors.
My name is Elliot Stein. I'm a senior litigation analyst covering litigation in the financial sector, and I'll be your host for today June second, twenty twenty three. If you have any questions about any of the matters that we'll be talking about today, please don't hesitate to reach out to us at your convenience with questions. We're going to
be talking about a handful of sectors today. First, ding right, our senior healthcare policy analyst, will give us his post mortem on the debt ceiling drama, and he'll also talk about Medicaid renewals and what it means for health insurers. Matt Schuttenhelm, who covers TMT policy and litigation, will give us his thoughts on what AI regulation might look like in the US. And in Europe, and he'll also talk about an underappreciated potential legal threat to Uber and Lyft
in California. After that, Holly from who covers consumer and industrial policy and litigation, will give us a preview of p FASK of a p FASK contamination Bell Weather trial against three M that starts on June fifth, and she'll also discuss an upcoming appeals.
Court argument in buyer roundup litigation.
After that, genre our antitrust litigation grew, we'll talk about the FTC likely beginning formal review of the Pfizer's Siegen deal, and an antitrust class action against Apple over the company's app store practices. Nathan Dean, our senior financials policy analyst, will then analyze and discuss in the anticipated proposal by
financial regulators in the US to restrict banker bonuses. And I'll wrap up today's episode with some discussion of President Biden's student loan cancellation plan, which I expect the Supreme Court will strike down sometime in June. All of this research is available on the Bloomberg terminal under big and just a quick word about Bloomberg Intelligence for those who
don't know. We are the investment research platform on the Bloomberg terminal, providing in depth research on industries, companies, and markets and delivering key data frombi analysts in their given industries. So with that, let's get started with the content and let's bring you in, Dwayne, to talk about the debt ceilings. Sounds like we're basically at the finish line, just waiting for President Biden to sign it.
And at this point and by the time people listen to this and may already be signed, you've.
Been on top of the story for weeks, if not months now, and it sounds like it turned.
Out basically exactly as you predicted.
So maybe you know, come in, give us your post mortem thoughts on the deal and if there's anything in it that surprised you. And then I know you also want to talk about Medicaid renewals and how that might affect health insurers.
Yeah, so thanks Elliott, very glad. This is almost behind us, just waiting for the President to sign, which I assume they'll do so over the weekend. Overall, let's say that bill is largely in line with expectations we knew going into this exercise that I mean, death ceiling bill was unlikely and was merely a negotiating tactic by the administration when near the Republican House. Past bill was unlikely given the deep cuts to discretionary spending provisions relating to Medicaid
work requirements and some other things. We also knew at some point there'd be a partisan fight about spending or specifically tied to the annual appropriations process, So it was either when we look at the spending it was either now as part of the debt ceiling debate or later
as part of an appropriations fight. So the spending cut is probably something Democrats would have agreed to anyway, and by doing so now as part of the debt ceiling fight, they were able to blend some of the impact on the discretionary program side, which Republicans targeted by throwing in some IRS funding that was included in the Inflation Reduction Act that probably might not have been on the table
if we were going through the normal appropriations routes. The spending caps for two years are largely in line with previous budget battles. You recall that in twenty eleven, after the last major debt crisis, there was a deal, or at least because Congress can come up with spending cuts. There was a deal to cap spending for ten years, but Congress the preceding congresses later broke those caps through two year spending deals that ultimately blunted the impact of savings.
And as much as it ties the hands of Congress and buying for the next one year and a half, it gives the next president in the next Congress ability to determine their own spending levels. So Republicans would say that's good for them because if Trump wins, then they can do what they want or Trump or another Republican,
and the same goes for Democrats. I will say, though, that it was surprised that the automatic CR is in this bill, which basically says if there isn't a fiscal year funding agreement by October first, essentially we roll over the spending levels from the preceding year. It seems like both sides didn't have the stomach to go through another budget battle so soon, and so setting a CR if the funding bills aren't passed by the beginning of the fiscal year just says we're not dealing with any budget
fights for the remainder of this Congress. Now there will honestly be fights over the cuts to the different appropriations bills, but they'll at least figure those out. Have a lot of time to figure that out, so I think generally there's relief that it's done and we can focus on other issues. But I think there's a reality that this bill doesn't change the overall fiscal dynamics for the country
because Medicare, social Security weren't touched. The doors open to supplemental bills for defense and other spending that will likely drive down the overall savings from the bill, which CBO scored at one and a half trillion over ten years.
Now in terms of some of those other policy areas that we will be looking at, wanted to talk about Medicaid renewals because that's a pretty big deal right now, and just the five second background, The COVID funding bills from twenty twenty pretty much allowed states to pause their Medicaid eligibility processes in exchange for getting some increased federal funding for their healthcare programs. That process, or that's moratorium ended this year, so states have started to re up
their renewal process and management. Commentary going into this had been very nervous given the potential for a lot of medicaiding rollies to roll off of their health plans this year, but first quarter commentary suggests that the plans are a bit more positive in terms of the outlook for the near term, as redeterminations are going to be spread out over a twelve month period, so less of a headwind in twenty twenty three, slightly more of a headwind than
twenty twenty four. But this was all predicated on in losing coverage and picking up other types of insurance like ESI employer sponsored insurance or Obamacare, and also predicated on state administrative processes limiting the number of people getting kicked off who would otherwise be eligible for Medicaid. And this process started in April and May with about nineteen states so far, and the evidence is mixed, some higher than
expected terminations, some roughly in line. And as an example, there's evidence from one state where eighty percent of the people who lost coverage were dropped due to administrative reasons, not because they're not eligible, And so why do you help plans care about this? This impacts their top line. There's an expectation of who's going to remain eligible for Medicaid and who's going to shift over from Medicaid to
other plans. If we see higher than expected disenrollment and lower than expected enrollment and other types of coverage, that's going to I have a pretty significant impact in terms of the near term outlook for these health plans. So it's too soon to say ultimately what the impact is
going to be. We'll be keeping an eye on this as twenty two states began the process June first, and I think we'll be listening for some management commentary from their second second quarter earnings to provide some clues on whether their first quarter outlook has been changed by some of the activity on the ground so far. So we'll have a lot more to say about this as the process unfolds over the coming months. And with that, I'll turn it back to you.
Elliott, Great, thanks a lot.
Dwaine, all right, Matt, let's bring you in to talk about artificial intelligence. It seems like every other headline these days has.
To do with AI, and I think my favorite.
Story from this past week was about the lawyer who used AI to write illegal brief and the brief wound up containing citations to cases that were totally made up by the AI machine.
But you've been looking into what a regulatory framework might look like for.
AI, so you know, come in and tell us your thoughts on that, and then also tell us about this case in California, UH involving uber and list and why you think there might be an underappreciated risk.
Yeah, absolutely, Elliott thinks. So, yeah, yeah. Tamlin, Basin and I took an early look at what the regulatory risk facing artificial intelligence might look like, with Tamlin focusing on the EU, while I looked at the United States and on the on the EU side, it's there that we expect concrete developments. First. Tamlin outlines how the the AI Act in development there contemplates that that high risk systems would need to undergo an assessment and be registered before
they're released. And he believed is that that sort of the heavy handed approach that the EU is taken to
tech regulation could be replicated there. But but these obligations aren't likely to hit until late twenty twenty five, and he points out that that they're you know, it's early days still, and this is still in facing considerable negotiation and and so and I took a look on the US side on the Senate here held its first major hearing on a AI regulation last month, and what stood out was really the surprising level of optimism, the bipartisan
optimism for regulating AI. But but again, I'm I'm pretty skeptical that that optimism will translate to actual material limits in the US anytime soon. Given how quickly this technology is developing and how fast moving it is, Congress itself doesn't have any chance to keep up with regulating it. The only logical approach would be to create a new federal agency to track it and to constantly modify its regulations to address it. But the political hurdles to do
that I think are substantial. So for the near term, I think it's it should be good news for companies looking to develop this technology in the US. I don't really see concrete material regulation getting through the system anytime soon. And as you said, one other thing I wanted to touch on quickly in terms of a June catalyst for investors, and particularly for investors in Lyft. This impacts all gig economy companies, but particularly those that are have a big
focus in California. It's a big deal. And Lift is a company like that, and I think the market could be underappreciating what a sig significant risk this could be to the company. The issue concerned how the company's drivers are classified, whether they're employees or contractors. And three years ago, in twenty twenty, California voters passed an initiative. There was a big win for Lyft it said the company's drivers
are contractors. But quietly, a case challenging that that ballot initiative has been making its way through the California court system with sort of mixed results, and we're sort of at a showdown point for that case. The data circle on your calendar here is June fifteenth. Possible that slips to June twenty second, but that's the day that the California Supreme Court is due to tell us whether it's going to take up this case. That court denies ninety five percent of petitions of cases.
It's asked to take.
I think that the risk here is much higher. I think investors should be thinking more of forty percent risk that the court takes the case, and then that would be bad news for LIFT. That would significantly raise its risk because it won at the latest stage of the case. And so the fact that the California Supreme Court would be taking. It would signal considerable risk that they might be looking to change the result and potentially strike down
that voter initiative. Now, I think LIFT can actually prevail, So you know, I want a caution not to overreact if that happens on June fifteenth or June twenty second, But it could be a considerable risk if the court decides to take the case. With that, let me toss it back to you, Elliott.
Great, Thanks Matt. All Right, Holly, let's bring you in to talk mass TOWRT litigation. First, in three MP fast litigation, it sounds like we're reaching a critical milestone with a bell Weathered jury trial starting June fifth, and you've written that you think three M is a heavy underdog in that, and then you're also going to be watching an appeals court oral argument in buy er roundup litigation. So maybe come in tell us about both those cases and what you're going to be watching for.
Yep, thanks Elliott. So three M faces the first test trial in thousands of cases alleging p FAS contamination from fire fighting film. That case is scheduled to go to trial June fifth, before the South Carolina Federal Court judge presiding over the multi district litigation. It's expected to last five to six weeks and we expect a verdict by late July. The plaintiff is the City of Stuart, which alleges contamination from a fire rescue training facility and seeks
one hundred and five million. We've said this case could settle, but if it doesn't, we expect causation will be relatively easy to show and the issues will center more on what the correct measure of damages are. We expect more bell Weather trials and two h including the selection of personal injury cases for trial. And so there's been big news this morning, and there was big news yesterday. There was one hundred million dollars settlement announced related to City
of Rome's lawsuit against three M DuPont and others. And Dupon and Comores announced a one point two billion dollars settlement with what are authorities this morning they announced it. We said that, you know, we don't think that's the final tally because they're likely will be holdouts and there are significant lawsuits remaining, particularly in North Carolina. We haven't changed our estimate for three M based on this reported deal, we said three M could pay thirty to forty billion
total for pfast lawsuits. In litigation against fire over weed killer roundup, Buyer faces a crucial hearing before the Eleventh Circuit Court of Appeals on June thirteenth. Buyer still faces about forty thousand lawsuits over claims the weed killer causes cancer.
Buyer has argued failure to warren claims are barred or preempted by federal law, and twenty twenty two, Buyer lost its petition to this US Supreme Court to review a Ninth Circuit Court of Appeals rolling finding cleans were not preempted. But Bayer has been pursuing another appeal over similar issues in the Eleventh Circuit Court of Appeals. The original Eleventh Circuit Appeals panel before which Buyer argued this rejected Buyer's argument in July twenty twenty two, but Buyer files a
petition for the full panel to hear its appeal. What's called a petition for on bank review, and that was granted. And what's remarkable about that is those reviews are rarely granted and require a majority of judges on the panel to vote in favor of granting it oral arguments before
the full panels to be held June thirteenth. That was the important hearing we spoke about earlier, and we think, based on Buyers securing a full panel to review its case, it has enough votes to win the appeal, and if it wins at the Eleventh Circuit, that creates a circuit
split with the Ninth Circuit. A circuit split would make it likelier that the Supreme Court reviews Buyer's case if it petitions the Supreme Court for again for review, and in the meantime, Buyer has also also has another appeal pending in the Third Circuit Court of Appeals. With that, i'll turn it back to you, Elliott.
Great, Thanks Holly. All right, Jen Ree, let's bring you in to talk antitrust. Never a dull moment in antitrust. In the anti trust world these days, it seems like, you know, every day there's like major headlines that you have to react to. But you wrote that you think the FTC will begin anti trust review of the Peiser Siegen deal, you know, in mid June, and then you're also going to be watching hearing where Apple is trying to block class certification and litigation by customers.
Complaining about Apple's app store.
So come in and tell us about both those cases.
Sure, thanks, Elliott. Right, So, starting with the Peiser siege and deal, we absolutely expect the FTC to start an
in depth investigation with this acquisition. The companies had agreed to the deal in March for forty three billion dollars and they filed it with the FTC on May twelfth, and that May twelfth date triggered a thirty day on sort of pre look by the FDC, and after the thirty days expire, so sometime in mid June, they'll launch what are called issue what are called second requests, which
launches the investigation. And what this really means is that the timeline for the deal gets extended by at least eight months, and probably in this case a little bit
longer than that. And news often of an in depth investigation when it becomes public, has a tendency to negatively impact the stock of the seller Siege in here, but it may not in this case, because I think it's pretty widely expected that the FDC is going to take a hard look, and even if it does it, it usually bounces back because it is anticipated that a review is going to be opened up. Now, the thing here
on the ultimate outcome is really uncertain. We have an FTC today that's highly sensitive to any kind of consolidation at all in the pharma and biotech spaces. So in an effort to try to curb and slow that consolidation, they're taking novel approaches to these deals and adopting brand new theories of harm. So it's very difficult to anticipate what they're going to do. Because this pisor Sigen deal from an antitrust perspective, in my view, looks quite clean.
And do you consider how these deals historically have been analyzed, which is looking at sort of drug by drug competitive overlaps between the companies. Now, the two had one potential competitive overlap, but that has been eliminated because it was a Pfizer drug that it shared with Merk and it seeded all the rights to that drug to work, So
it kind of eliminated that one overlap. And you would expect this to get clearance, but we saw that the FTC just challenged a different deal, am Gen's potential acquisition of Horizon, both biotech companies, to try to stop that deal, and in that case, the companies also didn't have any competitive overlap, so the same thing could happen with Pfizer and Cigen, But again it's eight months or more down
the road from now. Now turned into a whole different matter Apple and its app store, Apple and Google as well, but I'm focusing today on an Apple case. It's been under threat for years now by anti trust legal challenges that come from various plaintiffs and plaintiffs groups, and so far Apple has mostly been successful in warding off outcomes that would significantly dent the revenues that obtains through its app store, through the sales of apps and in app purchases.
The particular suit I'm talking about today is a consumer action in which a group of consumers are trying to get class status right now, and they're seeking about ten billion, or at least up to ten billion in damages for what they say are alleged overpayments on apps and in app purchases that the developers passed on the big fee
Apple charges developers to the consumers. Now, ten billion is a lot, but we think Apple could probably settle for under five hundred million even if the consumers actually win class status, because after that they have a lot of hurdles down the road to actually prove their claims to prove liability under federal landing trust laws, given past rulings by the same judge and basically identical cases that we're ahead of this one and brought by different plaintiffs. So
the hearing on class status is in June. We expect a decision in the second half. And I should note that these consumers were already denied their efforts to certify a class in the first quarter of twenty twenty two, but they'll judge is letting them try again, and we think they probably cured the deficiencies that killed them the first time, and that they'll be able to move forward. If they don't get class status, the case will probably
just fall apart. If they get class datus, which is more likely, we think the cases will probably settle in twenty twenty four. So with that, back to you, Elliott.
Great, thanks a lot.
Jen.
All right, Nathan, let's bring you in to talk financials policy. Banker bonuses in particular. It's always a topic that garners a lot of interest from Bloomberg terminal clients for reasons that I think are obvious and it sounds like US regulators are signaling that they'll be proposing a rule to restrict banker bonuses. So maybe come in and tell us your thoughts on that.
Yeah, you know, if there's way to get great readership on the Bloomberg terminal, it's to have a headline with bankers bonuses and restrictions. And so what I want to do is tell a story of why this is actually coming about. So if you go back to Dodd Frank, you know, signed into law July twenty ten, there was a provision in there that says that the six US regulators, so this is the Federal Reserve, the SEC, the National Credit Union FAHFA, OCC, and the FDIC have to come
together and create a proposal restricting banker bonuses. And the Dodd Frank Act required that this thing would have to be put in place by July twenty first, twenty eleven, so this is one year. Well, the first draft of the proposal came out in April twenty eleven, and then the regulators sit on it, and they sat on it for five years. The second draft of the proposal came out in twenty sixteen, and again they sat on it, and here we are in twenty twenty three and we
have no proposal. Now, the regulators had always wanted to, at least a democratic or the Obama era regulators and the Biden era regulators had always wanted to go back and try and get this completed. And the reason why they hadn't is you have six regulatory agencies. It's not easy to write a five hundred and six hundred page
rule and get this over the finish line. However, now we have recent bank failures of Silicon Valley Bank, Signature Bank, and First Republic, and that has given political cover to these agencies to go forth and talk about trying to dust this rule off. Now the twenty sixteen rule, and I should note that what we anticipate coming out later this year is another proposal. It's not a finalized but it may use the twenty sixteen proposal as a base.
What it would do is for banks that are above fifty billion in assets, it would defer amounts over a certain time and a certain percentage. So if you're a named executive for one of the big banks, your deferral amount is essentially sixty percent of your bonus's to be deferred for four years and then there is another long term bonus requirement that's sixty percent over two years. Now
if you're a significant risk taker. And the way that it worked there is if you were a trader who had the ability to trade or expose more than point five percent of a bank's capital, or you received a third of the total compensation from incentives, then your deferral amount was fifty percent over four or two years, depending on how the bonus structure is. Now, that's what we're
working off of right now. The reason why we think this is going to come out in later this year is that the FDIC chairman and the vice chair from the Federal Reserve, this is Martin Gruenberg and Michael Barr, had both said that because of these recent regulatory bank failures, we should dust this off as a way to combat bad behavior. Martin Gruenberg actually said earlier this week that he anticipates this proposal coming out in four q Now there's two things with that. One, you need six agents
to sign off. Like I said before, it's not easy to do that, because it's easy to do this in principle. But each agency has its own jurisdiction, its own authority, its own clients, when I say clients, I mean the areas that they oversee, and so you know it's not going to be easy for them to do that. Secondly, by putting out a proposal, let's just say in November December of this year, it is going to be extremely difficult to get this done before the twenty twenty four
presidential election. You know, the quickest I've ever seen a proposal go from proposal to finalization is about nine months, and generally they don't propose things and finalize things within like the two months prior to the election. So if they were to do this certainly would be up for review by Congress if Republicans win the White House to presidency, the House and the Senate via the Congressional Review Act.
So this is more likely, in my opinion, of proposal that's coming out with the idea that we get finalized if Biden wins a second term. Now, the last thing I want to say about the proposal is obviously you know, this is something that the bankers aren't going to like, but it is something that non bank financials like hedge funds are going to like because this doesn't apply to them.
So if you're a banker, and you're sitting in Wall Street at the moment and the bank comes to you and says, right, fifty percent of your bonus is now going to defer four years if you take the train up to Connecticut and you go to a hedge fund that doesn't exist. So one of the aspects of this is that we do think that these large banks are going to have to pay more for talent, and they're also going to have to try and stave off talent fleeing for non banks that aren't impacted by that role.
But again, we'll find out more later this year if and when this proposal comes out, and Elliott, I'll turn it back to you.
Great, Thanks Nathan, that's super interesting. Okay.
Last, and I guess not least, I will talk about President Biden's student loan cancelation plan, which I expect the Supreme Court will strike down sometime this month. Just as a quick reminder, back in August, the administration announced a plan to forgive about five hundred billion dollars in student loans held by the federal government. Multiple lawsuits soon followed.
Most of those lawsuits were dismissed, but a couple of them succeeded and wound up making their way all the way to the US Supreme Court, where oral arguments were held this past February. One of the lawsuits in the Supreme Court was brought by six gop led states, including Missouri, and the second lawsuit was brought by a pair of individual borrowers. On the merits of the case, I think all six Conservative justices will say that the Biden administration
exceeded its statutory authority. The statute that was invoked to propose this plan is called the Heroes Act. It was passed shortly after nine to eleven, and the language of that statute refers to loan waivers and loan modifications during a national emergency, but it doesn't expressly provide for cancelation
or forgiveness. So I think, based on that language, the Conservative justices will invoke the Major Questions doctrine to conclude that Congress didn't give the administration power to cancel or forgive student debt under this statute. And then on top of that, the statute contemplates relief for barrowers whose position was worsened by a national emergency, but the Biden plan
really isn't tailored to such borrowers. Instead, it basically provides blanket relief without borrowers having to show that the COVID pandemic exacerbated their situation. So I think that's another reason the conservative justices will find that the Biden administration exceeded its statutory authority. But the more interesting issue in this case really has to do with stand and whether the plaintiffs in these cases were sufficiently injured to bring their case.
And I think this issue is actually a much closer call, but at the end of the day, I don't think it will save the Biden administration's plan. More specifically, I think the court will find that the state of Missouri is a proper plaintiff, and that's because you know, Missouri contends that it's state student loan servicer, which is called MOHILA.
The Missouri Higher Education Loan Authority would lose about forty four million dollars in annual revenue the under the Biden administration's plan, because MOHILA services loans that are held by the US government.
And that would be eligible for forgiveness.
But you know, interestingly enough, MOHILA itself did not sue, and that's sort of where the legal issue arises because the law generally frowns on third party claims, but I think in this case, the conservative justices will give the State of Missouri the benefit of the doubt. Because the state created Mohila, the state controls Mohila in many ways, and I think the court will find that Mohila is
considered part of the state of Missouri. So, assuming I'm right and the Supreme Court winds up striking down the plan, one of the biggest beneficiaries will be student loan servicer nell Net, since it's one of the few student loan servicers that still services federally held loans. Other servicers like Navviant and Sally May and Discover primarily service privately held loans, so they really wouldn't be harmed by the Biden administration's
forgiveness plan. And then just lastly, in terms of timing, you know, it's really impossible to say exactly which day the Supreme Court will rule, but we do expect it in June. The Supreme Court usually wraps up its decisions by the end of June before for the summer, and you know, I don't see any reason that that's going to change this year. So you know, stay tuned, we should get that decision sometime this month, and with that, I think we will wrap up this episode of Votes
and Verdicts. As always, thank you for listening, and as a reminder, you can find all of our research on the Bloomberg terminal at Big and we encourage you to reach out to us with any questions that you may have, and we also encourage you to listen to other episodes of Votes and Verdicts on whatever platform you like to get your favorite podcasts. So with that, thank you for listening and have a great day.