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Speaker 1: This is Bloomberg Law with June Grosso from Bloomberg Radio.

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Speaker 2: What a difference a day makes. On Thursday, President elect

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Speaker 2: Donald Trump appeared at the National Cathedral, sitting with every

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Speaker 2: other living president at the funeral for President Jimmy Carter.

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Speaker 3: Mister Trump, you appeared before this court today to conclude

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Speaker 3: this criminal proceeding by the imposition of sentence.

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Speaker 2: But on Friday he appeared virtually in a Manhattan courtroom

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Speaker 2: to be sentenced for his criminal conviction on thirty four

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Speaker 2: felon accounts in the hush money case. Trump addressed Judge

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Speaker 2: wanmer Shan for about six minutes, saying he did nothing

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Speaker 2: wrong and repeating familiar complaints about the case, the DA

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Speaker 2: and the weaponization of government.

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Speaker 4: I get indicted for business records.

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Speaker 2: Everybody should be so accurate.

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Speaker 5: It's been a political witch hunt.

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Speaker 2: It was done to damage my reputation so that I'd

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Speaker 2: lose the election, and obviously that didn't work. The judge

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Speaker 2: explained that he was giving Trump an unconditional discharge, a

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Speaker 2: rare sentence which carries no prison time or penalty because

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Speaker 2: of the extraordinary legal protections given to a president.

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Speaker 3: However, despite the extraordinary breath of those protections.

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Speaker 4: One power they do not provide is the power to

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Speaker 4: erase at ury verdict.

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Speaker 2: Trump had tried to delay the largely symbolic sentencing with

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Speaker 2: a series of rapid fire legal challenges, including one to

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Speaker 2: the Supreme Court, but they all failed, and now he'll

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Speaker 2: be the first convicted felon to take office as president

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Speaker 2: of the United States.

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Speaker 3: Therefore, at this time, I impose that sentence to cover

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Speaker 3: all thirty four accounts, sir, I wish he.

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Speaker 4: Got speed as you assumed second term in office.

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Speaker 2: Joining me is litigator Dave Ahrenberg, former Palm Beach County

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Speaker 2: state attorney. They've put this historic sentencing in context.

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Speaker 6: Trump cares about his legacy deeply, and this is going

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Speaker 6: to bother him, and that's why he wanted the Supreme

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Speaker 6: Court to intervene even before the sentencing happens. That's not

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Speaker 6: how any of this is supposed to work. The normal

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Speaker 6: procedure for any other criminal defendant is you wait till

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Speaker 6: after sentencing, then you appeal. But Trump wanted to be

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Speaker 6: treated differently this time. He was not, and it surprised

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Speaker 6: even Trump, especially when one of his appointees, Justice Amy

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Speaker 6: Cony Barrett, ruled with the liberals, along with Chief Justice Roberts,

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Speaker 6: to deny him his requests for an appeal and an

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Speaker 6: end to the sentencing, or at least a post moment

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Speaker 6: until twenty twenty nine. So Trump can still appeal, but

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Speaker 6: he's going to go into the White House as a

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Speaker 6: convicted felon.

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Speaker 2: I have to say, I was surprised that he got

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Speaker 2: four votes to stay the sentencing, even from this Supreme

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Speaker 2: Court that has been friendly to him of late. They

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Speaker 2: would have been extending they're already controversial grant of president

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Speaker 2: immunity from prosecution for official conduct to a president elect.

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Speaker 6: Well, there is some ground to say that the transition

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Speaker 6: period is something that is to be respected, where you

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Speaker 6: want to ensure that there's nothing that would interfere with

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Speaker 6: the president's transition. And here that was a consideration for

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Speaker 6: amy Cony Barrett and for Chief Justice Robberts. But they

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Speaker 6: said that because Judge Murshan said in advance that he

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Speaker 6: would not give Trump any penalty, meaning he's just going

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Speaker 6: to let him walk without even probation, then the level

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Speaker 6: of intrusion upon the power of the presidency and the

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Speaker 6: transition period is negligible. And because of that they let

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Speaker 6: it go. On. But had Judge Murshan not said in

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Speaker 6: advance that he would essentially let Trump walk, then I

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Speaker 6: do think the Supreme Court would have stepped in, and

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Speaker 6: I do think they would have put the cabash on

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Speaker 6: this sentencing. You can sort of read the writing on

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Speaker 6: the wall by their one page statement that addressed that

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Speaker 6: very issue. So for those of us who believe in

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Speaker 6: the rule of law, in equal justice under the law,

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Speaker 6: we praised Josh Marshan for being so shrewd, smart and

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Speaker 6: savvy to make that statement in advance. It was a

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Speaker 6: game changer.

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Speaker 2: Trump was treated differently from other defendants. This unconditional discharge

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Speaker 2: is rare. He was convicted on thirty four felonies and

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Speaker 2: didn't get any kind of punishment at all. Even the

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Speaker 2: delays in the sentencing. Everything was because he was in

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Speaker 2: this special position of running for president and now being

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Speaker 2: the president elect.

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Speaker 6: Totally. Trump supporters have said that there are two standards

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Speaker 6: of justice in this country, and they're not wrong, but

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Speaker 6: it's not in the way they think it is. It's

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Speaker 6: because Trump was treated better than any other criminal defendant.

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Speaker 6: The one time he was treated the same was just

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Speaker 6: now with the Supreme Court, and then it was five

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Speaker 6: to four. By the skin of their nose. Equal justice prevailed.

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Speaker 6: But Trump was treated differently. Number One, look at the

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Speaker 6: number of times he violated the Court's gag order ten

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Speaker 6: times given any real punishment. Think about how he was

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Speaker 6: treated from the beginning in this case. Now, you can

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Speaker 6: make the case that if he was not Donald Trump,

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Speaker 6: that he would never have been brought up on those

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Speaker 6: charges in New York. And actually you could debate that,

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Speaker 6: but as far as the DC election interference case, as

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Speaker 6: far as the Marlago Document's case, anyone would have been

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Speaker 6: charged with that, and other people had been charged with

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Speaker 6: those things. So Trump was treated better because the Supreme

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Speaker 6: Court stepped in, put his thumb on the scale and

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Speaker 6: said no, we're not going to let this case go

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Speaker 6: forward in DC. They knowingly delayed it so that he

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Speaker 6: could not be tried before the election. And then you

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Speaker 6: had Judge Cannon in South Florida, who was appointed by

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Speaker 6: Donald Trump, who dismissed the whole Marlago Document's case entirely

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Speaker 6: based on a strange legal theory that no other court

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Speaker 6: has even recognized relating to the constutionality of the Special Council.

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Speaker 6: So yes, I don't know how you can come up

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Speaker 6: to an explanation other than he was treated differently in

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Speaker 6: this system.

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Speaker 2: For the most part, Trump had argued to the Supreme

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Speaker 2: Court that allowing to send it to go forward would

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Speaker 2: be a distraction to his presidential transition, and that the

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Speaker 2: trial was tainted by evidence that would have been barred

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Speaker 2: under the new standard on presidential immunity they handed down

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Speaker 2: last July. Tell us about that five to four decision

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Speaker 2: turning Trump down.

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Speaker 6: The Court said that we can deal with the problems,

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Speaker 6: if any, in the New York trial after the sentencing,

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Speaker 6: because that's how it's normally supposed to be done. And

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Speaker 6: as far as the claim that going to New York,

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Speaker 6: appearing via zoom, having a one hour hearing and not

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Speaker 6: even receiving a sentence a penalty, other than you're free

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Speaker 6: to go. You're just a convicted felon from here on out.

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Speaker 6: That that does not intrude upon the powers of the presidency,

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Speaker 6: That doesn't even detract from your transition. It's an hour

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Speaker 6: out of your day. So we'll deal with this later. Now,

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Speaker 6: he may ultimately succeed in overturning the New York conviction

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Speaker 6: based on the immunity decision, but that would be down

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Speaker 6: the line. So essentially, the Court said, you may not

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Speaker 6: be wrong, mister President elect, but you're early.

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Speaker 2: Trump was unusually gracious about the Supreme Court's decision. He

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Speaker 2: said that I read it, and I thought it was

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Speaker 2: a fair decision. Actually, do you think he's looking ahead

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Speaker 2: to possible fields to the Supreme Court during the next

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Speaker 2: four years?

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Speaker 6: Definitely. Trump is transactional. He knows Supreme Court has unique

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Speaker 6: power in this country and doesn't want to upset them

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Speaker 6: in the way that he attacks other judges, especially when

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Speaker 6: you have the swing justices on the Supreme Court when

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Speaker 6: appointed by him, and the other Chief Justice Roberts, who

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Speaker 6: had been moving in his direction. He's the one, after all,

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Speaker 6: who wrote the immunity decision. So I don't think he

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Speaker 6: wanted to go after people who he would depend on

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Speaker 6: in the next four years to rule his way. He

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Speaker 6: was playing the long game here.

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Speaker 2: Going back to things that make him different from other defendants.

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Speaker 2: Trump called Justice Alito on his cell phone on Tuesday,

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Speaker 2: hours before his lawyers filed their request with the court

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Speaker 2: to ask him about a former clerk who's under consideration

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Speaker 2: for a job in the new administration. Alito says they

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Speaker 2: didn't discuss Trump's case, but many are saying that Alito

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Speaker 2: should have recused himself because of the appearance of impropriety,

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Speaker 2: even if it was just the future president of the

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Speaker 2: United States asking a Supreme Court justice about a job reference.

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Speaker 6: Well, the president doesn't check references for people who apply

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Speaker 6: to the White House. Is that where you're saying that

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Speaker 6: June that I'm saying that it's preposterous And it just

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Speaker 6: shows you why people have such a dim view of

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Speaker 6: the Supreme Court. When you have a Supreme Court justice

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Speaker 6: like Alito, who has flown the American flag upside down

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Speaker 6: his house. He blamed it on his wife, who has

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Speaker 6: flown the flag that the January sixth insurrectionists flew. When

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Speaker 6: you have someone who speaks to the president elect on

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Speaker 6: the day that a matter is filed with the court,

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Speaker 6: and even if they didn't specifically talk about that matter,

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Speaker 6: it is improper because Trump, as Michael Cohen said Hoffen,

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Speaker 6: talks like a mob boss where he doesn't go directly

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Speaker 6: to it. He talks around a subject. Alito knows what's

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Speaker 6: going on, and for him to say, oh, he was

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Speaker 6: just checking references, like doesn't he have someone underneath him

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Speaker 6: to do that. Doesn't he have like staff who could

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Speaker 6: do that. It just shows you how much the Supreme

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Speaker 6: Court needs ethics reform. And if Chief Justice Roberts won't

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Speaker 6: do it, then the reputation of the Supreme Court is

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Speaker 6: going to continue to be in the sewer.

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Speaker 2: I think we know from the many motions made in

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Speaker 2: this case, some of the arguments that will come up

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Speaker 2: on appeal. Does he have a chance on appeal?

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Speaker 6: Like I said, it's not crazy for him to say

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Speaker 6: that had he not been President Trump, then he would

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Speaker 6: never have been prosecuted for it. Alvin Bragg, when he

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Speaker 6: was running for DA had mentioned going after Trump, and

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Speaker 6: so prosecutors need to be careful when you campaign. Targeting

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Speaker 6: into it gives grist to that individual to then claim

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Speaker 6: it was a politically motivated prosecution. But keep in mind

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Speaker 6: that a jury found him guilty unanimously beyond a reasonable doubt.

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Speaker 6: The evidence was strong. Now, maybe because of the Supreme

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Speaker 6: Court's immunity decision, he'll get that case overturned. Because of

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Speaker 6: the admission into evidence of Hopepix and Madeline Westerhot, who

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Speaker 6: are two White House employees who testified on minor matters.

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Speaker 6: They were minor witnesses, but because they were included, it

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Speaker 6: violated the Supreme Court's immunity decision. I think it's harmless

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Speaker 6: error and they should just let the conviction stand. But

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Speaker 6: we'll see what the Supreme Court says.

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Speaker 2: Mind you, Trump walked down of the courtroom a convicted felon,

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Speaker 2: but he's not unlike other Americans. He's not going to

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Speaker 2: be looking for a job where they're going to be

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Speaker 2: asking him about his felony conviction. Is there any kind

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Speaker 2: of repercussions for him from this.

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Speaker 6: Well, he will, other than reputational damage, have to deal

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Speaker 6: with possibly losing the right to vote. That in Florida

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Speaker 6: happens when you are a convict. It's felon, and in

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Speaker 6: Florida you can rest assured that if that does happen,

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Speaker 6: then Governor Santis will step in and make sure that

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Speaker 6: his voting rights will be immediately restored. Yet another example

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Speaker 6: of comp being treated differently than everyone else. So even

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Speaker 6: though he walks free without any real repercussions, he has

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Speaker 6: to deal with the matter of history. His permanent record

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Speaker 6: will always reflect he's a fellon unless it's overturned on appeal.

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Speaker 6: And yeah, there are potential civil rights voting rights implication.

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Speaker 2: It's a saga that has not really ended yet. Thanks

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Speaker 2: so much, Dave. That's former Palm Beach County State Attorney

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Speaker 2: Dave Ehrenberg, coming up next on the Bloomberg Law Show.

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Speaker 2: The Supreme Court heard oral arguments on the TikTok band

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Speaker 2: today and it seems likely the justices will uphold the ban.

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Speaker 2: I'm June Grosso when you're listening to Bloomberg. The future

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Speaker 2: of the wildly popular social media platform TikTok rides on

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Speaker 2: the US Supreme Court. After the oral arguments on Friday,

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Speaker 2: its future looks cloudy. Under a federal law set to

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Speaker 2: take effect on January nineteenth, TikTok will be banned in

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Speaker 2: the US if it isn't so by its Chinese parent company.

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Speaker 2: The legal arguments pit national security against free speech, and

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Speaker 2: a majority of justice has suggested that national security concerns

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Speaker 2: override the free speech interests of the companies and content creators.

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Speaker 2: Here are Chief Justice John Roberts and Justice is Brett

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Speaker 2: Kavanaugh and Katanji Brown Jackson.

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Speaker 1: So are we supposed to ignore the fact that the

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Speaker 1: ultimate parent is in fact subject to doing intelligence work

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Speaker 1: for the Chinese government.

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Speaker 4: I think Congress and the President were concerned that China

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Speaker 4: was accessing information about millions of Americans, tens of millions

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Speaker 4: of Americans, including teenagers, people in their twenties, that they

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Speaker 4: would use that information over time developed spies to turn

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Speaker 4: people to blackmail people, people who a generation from now

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Speaker 4: will be working in the FBI or the CIA.

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Speaker 2: But why cann't Congress prohibit Americans from associating with certain

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Speaker 2: foreign organizations that have interests that are hostile to the

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Speaker 2: United States. In fact, it seemed like Justice Neil Gorsuch

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Speaker 2: was the only likely vote to strike down the law,

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Speaker 2: calling the government's defense of the band paternalistic and asking

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Speaker 2: why Congress couldn't just have required TikTok to post a disclaimer.

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Speaker 3: I mean, don't we normally assume that the best remedy

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Speaker 3: for problematic speech is counter speech? And TikTok says that

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Speaker 3: could even live with a disclaimer on its website, saying

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Speaker 3: this can be covertly manipulated by China.

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Speaker 2: Joining me is Matthew Shettenhelm, Bloomberg Intelligence litigation and government analyst. Matt,

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Speaker 2: you're at the oral argan. Was there one issue that

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Speaker 2: dominated that two and a half hours.

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Speaker 1: I didn't take away any one single issue other than

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Speaker 1: it looked a lot like the argument at the DC Circuit,

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Speaker 1: when a majority of the justices seemed inclined to defer

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Speaker 1: to Congress's decision on national security and really not that

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Speaker 1: concern that this was a major First Amendment problem for

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Speaker 1: a US company, and I think really focused on the

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Speaker 1: idea that, hey, this is regulating byte edance because it's

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Speaker 1: located in China, and so overall, there was a sense

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Speaker 1: that the justices weren't that concerned about a major change

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Speaker 1: in First Amendment law because of the unique setup here,

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Speaker 1: that this really was about regulating corporate structure, because of

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Speaker 1: the unique situation of this company.

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Speaker 2: Were there any justices who were simple to the idea

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Speaker 2: that the free speech rights of a one hundred and

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Speaker 2: seventy million Americans are going to be affected if this

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Speaker 2: platform shuts down.

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Speaker 1: Let me first say, I think Justice gorsicch I think

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Speaker 1: is the most likely vote for TikTok on this, and

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Speaker 1: he expressed a number of concerns, mostly about whether Congress

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Speaker 1: had tailored its response to this issue properly, whether they

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Speaker 1: are too disruptive to speech when they could have done

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Speaker 1: something that didn't need to go that far, and I

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Speaker 1: think he was most sympathetic to TikTok's view. Generally, I

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Speaker 1: think there were a number of justices knowing that this

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Speaker 1: decision is going to announce the law of the First

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Speaker 1: Amendment going forward, and they want to be careful about

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Speaker 1: how they write it. And I think because this case

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Speaker 1: involves both a concern about access to US data but

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Speaker 1: also concerns about propaganda, and that's where the First Amendment

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Speaker 1: concerns are sort of the large just where we're regulating

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Speaker 1: content of a message, and a number of justices express

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Speaker 1: concern about how do we address that. Should it be

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Speaker 1: strict scrutiny or should it be intermediate scrutiny. I think

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Speaker 1: they want to get the law right on that so

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Speaker 1: that they announced the First Amendment standard properly. But I

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Speaker 1: didn't read a lot of concern about ruling against the

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Speaker 1: US for that reason, and what kind.

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Speaker 2: Of scrutiny did the DC Circuit use in upholding the law?

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Speaker 1: So the DC Circuit said, we're going to assume we

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Speaker 1: need to apply strict scrutiny. We think it will pass

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Speaker 1: any standard. But they wrote their decision assuming they had

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Speaker 1: to apply the highest level of scrutiny strict scrutiny, and

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Speaker 1: they said the law passes that standard. Judge shrishn Avasen

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Speaker 1: wrote a concurrence and said, I would apply intermediate scrutiny.

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Speaker 1: I don't think we need to go to strict scrutiny

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Speaker 1: because this law focuses on on the data security, which

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Speaker 1: really doesn't raise First Amendment issues in the same way.

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Speaker 1: And so for that reason, we don't need to focus

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Speaker 1: on strict scrutiny. Let's do intermediate scrutiny. And this has

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Speaker 1: an important justification. That's enough. I think you'll see something

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Speaker 1: similar from the Supreme Court. Some justices probably will want

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Speaker 1: to apply strict scrutiny, some of them will say we

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Speaker 1: should apply intermediate scrutiny. Either way, it's hard to do

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Speaker 1: the math to get TikTok up to five justices on

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Speaker 1: its side.

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Speaker 2: In the congressional hearings and in the DC Circuit hearings,

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Speaker 2: there's been no evidence presented that China is using TikTok

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Speaker 2: to spy on Americans, or using Americans data or manipulating

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Speaker 2: the content where any of the justice is concerned about

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Speaker 2: this supposedly secret evidence.

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Speaker 1: Justice gorse Its raised that most directly, and I think

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Speaker 1: Chief Justice Roberts did mention it as well. And I

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Speaker 1: think there was some concern less to do with this case.

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Speaker 1: It didn't seem like it was going to be a

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Speaker 1: reason for the justices to overturn this decision, but it

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Speaker 1: was kind of a signal to Congress and to the

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Speaker 1: United States Justice Department. Maybe the secret law stuff where

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Speaker 1: you don't even let the other side see the evidence,

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Speaker 1: Let's not keep going down that road. I think Justice

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Speaker 1: Gorsicch at one point even said, Hey, this might be

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Speaker 1: something Congress should address that we don't start going down

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Speaker 1: the road of using secret evidence. But generally, I don't

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Speaker 1: think that was really driving the court in TikTok's favor.

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Speaker 1: I think there was an overall concern that you know,

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Speaker 1: the United States has stressed this is not about hard

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Speaker 1: evidence of China actually doing this. This is about avoiding

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Speaker 1: the risk of China potentially doing this. And TikTok can

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Speaker 1: continue to operate, it just needs to continue to operate

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Speaker 1: without an owner that's located in China, where this risk

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Speaker 1: is at its greatest.

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Speaker 2: And what about that that was mentioned as a possibility,

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Speaker 2: But as far as I understand, China won't sell or

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Speaker 2: won't sell its algorithm.

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Speaker 1: That's the big hang up. Potentially, the law gives TikTok

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Speaker 1: a path to continue operating if byte Dance is willing

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Speaker 1: to do a sale, but there's no indication so far

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Speaker 1: that byte Dance is willing to do that, and if

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Speaker 1: they won't, there really aren't many options. If China is

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Speaker 1: concerned about the sale of the algorithm, it's possible that

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Speaker 1: there's no path forward after January nineteenth because the company's

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Speaker 1: not willing to do a divestiture.

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Speaker 2: The idea of slapping a disclaimer on TikTok came up.

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Speaker 2: Did that go very far?

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Speaker 1: As I said, Justice Gorsch is most willing to rule

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Speaker 1: for TikTok and say, look, maybe you didn't tailor this

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Speaker 1: law as closely as you should have. Maybe you should

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Speaker 1: have considered things that were less disruptive. I think disclosure

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Speaker 1: would probably be on his list of things that Congress

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Speaker 1: should have looked at first, making them maybe put a

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Speaker 1: message on their screen that hey, there's a risk of

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Speaker 1: interference by China here, and the company pushed that message

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Speaker 1: a lot. I didn't see other than, as I said

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Speaker 1: Justice Gorsic, I didn't really see it catching on with

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Speaker 1: very many justices.

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Speaker 2: It is surprising to me that there wasn't more expression

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Speaker 2: of real concerns, real free speech First Amendment concerns, when

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Speaker 2: this would be the first time that Congress is shutting

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Speaker 2: down a platform for free speech.

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Speaker 7: Right.

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Speaker 1: There were excellent briefs files in this case, and a

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Speaker 1: number of them raised exactly the point that you're making

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Speaker 1: right now, that this is a novel application of US law,

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Speaker 1: that one hundred and seventy million users expressing themselves are

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Speaker 1: suddenly going to get knocked off this platform. Not suddenly,

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Speaker 1: I shouldn't say that it's not going to be a

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Speaker 1: sudden death, but it is disruptive to speech in a

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Speaker 1: way that US law has never done before. And so

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Speaker 1: there was a pretty compelling First Amendment argument to make.

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Speaker 1: It just didn't get a lot of traction when you

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Speaker 1: weigh the fact that Congress, on a bipartisan basis, said, look,

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Speaker 1: this is a national security risk we need to address.

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Speaker 1: Judges struggled to get in the middle of that because

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Speaker 1: they're not experts on national security, and so I think

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Speaker 1: they were hesitant to second guest Congress on that. I

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Speaker 1: think it's going to make them struggle to rule for TikTok.

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Speaker 2: Here, President elect Trump submitted a brief asking the court

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Speaker 2: to put it off until he comes in. There were

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Speaker 2: no constitutional arguments, but there were arguments about his being

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Speaker 2: a savvy businessman, who is the one who can solve

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Speaker 2: this right? So what about the possibility of the court

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Speaker 2: issuing a stay of the effective date?

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Speaker 1: That came up directly? I think Justice Kavanaugh at one

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Speaker 1: point asked about it, and I think the Solicitor General's

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Speaker 1: point was the only way to do that. As you said,

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Speaker 1: President Trump didn't address the legal standard to do that.

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Speaker 1: But the legal standard really runs to is TikTok likely

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Speaker 1: to win this case? And as we've talked about, TikTok

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Speaker 1: is not likely to win this case if you're applying

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Speaker 1: that legal standard. The test for issuing a stay of

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Speaker 1: a deadline that Congress set is not that President Trump

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Speaker 1: has a warm spot in his heart for a company

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Speaker 1: and would like it that way. It is whether the

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Speaker 1: company is likely to prevail because this violates the law.

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Speaker 1: And I don't see any way that five Supreme Court

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Speaker 1: justices are going to say that TikTok is likely to

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Speaker 1: succeed on that argument. So for that reason, a stay

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Speaker 1: doesn't really make sense. They don't issue stays just because

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Speaker 1: the next administration wishes Congress had set a different date.

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Speaker 2: If the court rules against TikTok, as we now expect

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Speaker 2: after these oral arguments, is there any hope for TikTok?

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Speaker 1: So it's going to get really interesting there because of

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Speaker 1: what President Trump has said. So, if I'm a company

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Speaker 1: that hosts TikTok and this law takes effect on January nineteenth,

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Speaker 1: I am very concerned about accruing substantial liability on that day.

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Speaker 1: The law subjects those companies to five thousand dollars per user,

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Speaker 1: and as we said, one hundred and seventy million users

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Speaker 1: in the United States. The math is astronomical in terms

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Speaker 1: of the potential liability for hosting TikTok on January nineteenth,

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Speaker 1: which is before President Trump takes office. So I think

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Speaker 1: there's real risk for those companies to continue hosting TikTok.

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Speaker 1: It's possible President Trump comes in and says, don't worry

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Speaker 1: about that law. I'm not going to enforce it. But

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Speaker 1: if you're a company facing the appruval of that much liability,

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Speaker 1: are you willing to take that chance? Are you willing

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Speaker 1: to potentially give him leverage over your company if he

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Speaker 1: wants to change his mind.

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Speaker 6: Do you want to.

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Speaker 1: Litigate over whether that would violate due process for him

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Speaker 1: to change his mind? I don't think so. That's a

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Speaker 1: big dollar amount. So the best path forward for TikTok

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Speaker 1: would be convincing Congress to reverse itself and maybe getting

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Speaker 1: President Trump to push that idea or some alternative have

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Speaker 1: Congress pass the new law. But short of that, it's

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Speaker 1: really hard to see a path.

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Speaker 2: It does look quite bleak for TikTok, and we should

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Speaker 2: get a decision on this from the Supreme Court next

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Speaker 2: week before the TikTok ban goes into effect on January nineteenth.

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Speaker 2: Thanks so much, Matt. That's Bloomberg Intelligence, litigation and government

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Speaker 2: analyst Matthew Shettenhelm, coming up next on the Bloomberg Lawn Show.

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Speaker 2: Nippon Steel and US Deal are suing the Biden administration

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Speaker 2: in a last ditch effort to save their merger. I'm

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Speaker 2: June Grosso and you're listening to Bloomberg. Nippon Steele is

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Speaker 2: standing firm on its plans to acquire US Steal, with

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Speaker 2: both companies suing the Biden administration this week in a

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Speaker 2: last ditch effort to save the fifteen billion dollar merger.

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Speaker 2: President Biden blocked the deal citing a risk to national security,

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Speaker 2: but the companies say the review by the Committee on

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Speaker 2: Foreign Investment in the United States was a sham and

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Speaker 2: that Biden blocked the deal for purely political reasons, that is,

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Speaker 2: to gain favor with union steel workers in Pennsylvania in

438
00:25:04,359 --> 00:25:08,360
Speaker 2: his re election bid. The President had announced his opposition

439
00:25:08,440 --> 00:25:12,720
Speaker 2: to the deal in March, before the Scyphius review even began,

440
00:25:13,080 --> 00:25:16,639
Speaker 2: and in April at the US Steel headquarters in Pittsburgh,

441
00:25:16,720 --> 00:25:19,760
Speaker 2: Biden made this promise to the union workers.

442
00:25:20,400 --> 00:25:23,480
Speaker 5: US still has been an iconic American company for more

443
00:25:23,520 --> 00:25:27,560
Speaker 5: than a century, and it should remain a totally American company,

444
00:25:30,720 --> 00:25:34,919
Speaker 5: American owned, American operated by American union steel workers, the

445
00:25:34,960 --> 00:25:37,479
Speaker 5: best of the world, and that's going to happen, I

446
00:25:37,520 --> 00:25:38,040
Speaker 5: promise you.

447
00:25:39,560 --> 00:25:43,080
Speaker 2: Joining me is John Kabilo, a Washington, DC attorney who

448
00:25:43,160 --> 00:25:49,120
Speaker 2: specializes in cross border transactions. John. Since nineteen ninety, only

449
00:25:49,160 --> 00:25:53,600
Speaker 2: eight other foreign transactions have been blocked by presidents, according

450
00:25:53,600 --> 00:25:58,720
Speaker 2: to the Congressional Research Service, and here President Biden reportedly

451
00:25:58,800 --> 00:26:02,600
Speaker 2: went against his top national security aids in blocking the

452
00:26:02,680 --> 00:26:06,480
Speaker 2: sale to a Japanese company, even though Japan is a

453
00:26:06,560 --> 00:26:10,920
Speaker 2: longstanding ally of our country.

454
00:26:09,920 --> 00:26:14,400
Speaker 7: Right, it is extraordinarily rare for a president to formally

455
00:26:14,440 --> 00:26:18,399
Speaker 7: block any investment via syfius. I think it's unprecedented that

456
00:26:18,480 --> 00:26:22,200
Speaker 7: a president would block a transaction like this, an investment

457
00:26:22,240 --> 00:26:26,000
Speaker 7: coming from an allied nation, a critical allied nation, and

458
00:26:26,040 --> 00:26:30,600
Speaker 7: in particular where there's no clear national security threat posed

459
00:26:30,640 --> 00:26:31,880
Speaker 7: by the investment.

460
00:26:32,440 --> 00:26:36,320
Speaker 2: I'm confused about what Biden says is a national security threat.

461
00:26:36,400 --> 00:26:38,960
Speaker 2: Is it a national security threat as you know, the

462
00:26:39,040 --> 00:26:41,320
Speaker 2: average person might see it, or is it a threat

463
00:26:41,359 --> 00:26:43,159
Speaker 2: to the domestic steel industry.

464
00:26:43,640 --> 00:26:46,639
Speaker 7: That's a great question, and part of that gets at

465
00:26:46,840 --> 00:26:50,600
Speaker 7: the evolution of pythias over the years. You know, ten, fifteen,

466
00:26:50,760 --> 00:26:53,760
Speaker 7: twenty years ago, things that were thought of as quote

467
00:26:53,840 --> 00:26:58,320
Speaker 7: unquote national security issues. That really was a limited set

468
00:26:58,359 --> 00:27:03,879
Speaker 7: of things, and it related to weapons, system and telecommunications

469
00:27:03,880 --> 00:27:08,880
Speaker 7: networks in big pretty clearly strategic assets in the United States.

470
00:27:08,920 --> 00:27:12,440
Speaker 7: It is true that the notion of national security has

471
00:27:12,680 --> 00:27:16,080
Speaker 7: expanded some over time, and now it includes things like

472
00:27:16,320 --> 00:27:20,320
Speaker 7: the personal data of US citizens. Certainly, software and things

473
00:27:20,359 --> 00:27:24,080
Speaker 7: like that have been lumped into this concept of things

474
00:27:24,080 --> 00:27:28,320
Speaker 7: that can cause national security concerns. Feel itself obviously is

475
00:27:28,600 --> 00:27:33,080
Speaker 7: useful to the military, but there's no evidence that in

476
00:27:33,119 --> 00:27:36,200
Speaker 7: this transaction, Knepon Steel was going to do anything other

477
00:27:36,280 --> 00:27:40,040
Speaker 7: than expand production in the United States and bring more

478
00:27:40,080 --> 00:27:44,280
Speaker 7: investment and frankly, better steelmaking technology into the United States.

479
00:27:44,440 --> 00:27:47,320
Speaker 7: So it's hard to say that there's any sort of

480
00:27:47,560 --> 00:27:51,919
Speaker 7: threat to steelmaking in the United States because of the transaction.

481
00:27:52,240 --> 00:27:54,800
Speaker 7: And ultimately it looks like it boils down to just

482
00:27:55,000 --> 00:27:58,880
Speaker 7: kind of a US centric notion that this company that's

483
00:27:58,880 --> 00:28:02,040
Speaker 7: an iconic company in the United States, it should be

484
00:28:02,119 --> 00:28:06,440
Speaker 7: owned by US persons and not owned by a foreign company.

485
00:28:06,680 --> 00:28:09,960
Speaker 7: And that's really not at all what Syphius was set

486
00:28:10,000 --> 00:28:12,080
Speaker 7: up to do. And so what we're looking at is

487
00:28:12,320 --> 00:28:15,640
Speaker 7: the President is sort of abusing his authorities under Sythius

488
00:28:15,680 --> 00:28:17,040
Speaker 7: to achieve a political.

489
00:28:16,680 --> 00:28:19,600
Speaker 2: Outcome that sort of echoes some of the claims the

490
00:28:19,640 --> 00:28:23,520
Speaker 2: steel companies are making in their lawsuit that argues that

491
00:28:23,640 --> 00:28:27,800
Speaker 2: Biden violated the Constitution in blocking the merger. Tell us

492
00:28:27,840 --> 00:28:29,000
Speaker 2: more about their arguments.

493
00:28:29,400 --> 00:28:32,800
Speaker 7: So SIPIUS is an authority, it's under the Defense Production

494
00:28:32,880 --> 00:28:35,800
Speaker 7: Act of nineteen fifty and its authorities were just expanded

495
00:28:35,840 --> 00:28:39,240
Speaker 7: recently in twenty eighteen. But really what the law says

496
00:28:39,440 --> 00:28:42,920
Speaker 7: is that first and foremost, the US is intended to

497
00:28:43,000 --> 00:28:47,880
Speaker 7: have an open investment environment that allows foreign direct investment

498
00:28:47,920 --> 00:28:51,120
Speaker 7: into the United States, and what Syphius is empowered to

499
00:28:51,160 --> 00:28:55,600
Speaker 7: do is review investments from foreign parties. Syphius has the

500
00:28:55,760 --> 00:29:00,640
Speaker 7: ability to approve those transactions, but if a transaction may

501
00:29:00,920 --> 00:29:04,320
Speaker 7: pose a threat to the US national security, then Sophius

502
00:29:04,400 --> 00:29:09,040
Speaker 7: can negotiate conditions and require an investor to comply with

503
00:29:09,080 --> 00:29:12,680
Speaker 7: whatever conditions it needs before it approves the transaction. Only

504
00:29:12,720 --> 00:29:16,440
Speaker 7: in the rarest of circumstances. If there's a threat that

505
00:29:16,560 --> 00:29:19,280
Speaker 7: is so great and Sifius can't find a way to

506
00:29:19,400 --> 00:29:21,800
Speaker 7: solve the threat, then it goes to the president, and

507
00:29:21,840 --> 00:29:24,880
Speaker 7: the president has the authority to block the transaction. With

508
00:29:25,000 --> 00:29:28,040
Speaker 7: that is background, what the lawsuit essentially is saying is

509
00:29:28,080 --> 00:29:32,240
Speaker 7: that the process and the requirements necessary for a president

510
00:29:32,280 --> 00:29:36,000
Speaker 7: to block the transaction were never followed. Before Sophius even

511
00:29:36,080 --> 00:29:40,400
Speaker 7: began to review the transaction, President Biden, vice President Harris,

512
00:29:40,440 --> 00:29:44,240
Speaker 7: and Secretary Yellen had already gone public saying that the

513
00:29:44,320 --> 00:29:47,480
Speaker 7: transaction should not go through, that US Steel needed to

514
00:29:47,520 --> 00:29:51,320
Speaker 7: remain domestically owned, and Biden even told the steel workers

515
00:29:51,320 --> 00:29:54,080
Speaker 7: that he guaranteed that the transaction was not going to

516
00:29:54,120 --> 00:29:57,240
Speaker 7: go through. And again, this is before the Sifius process

517
00:29:57,240 --> 00:30:00,560
Speaker 7: had started. I think fundamentally shows that they had no

518
00:30:00,680 --> 00:30:04,080
Speaker 7: intention of sort of looking at the facts or following

519
00:30:04,200 --> 00:30:07,880
Speaker 7: the requirements of the law. They had essentially looked at

520
00:30:07,880 --> 00:30:10,640
Speaker 7: the transaction and knew that it was a political hot

521
00:30:10,640 --> 00:30:14,080
Speaker 7: potato and we're currying favor with voters in a swing

522
00:30:14,120 --> 00:30:15,920
Speaker 7: state by saying, you know, we're never going to let

523
00:30:15,920 --> 00:30:19,560
Speaker 7: this go forward. But that's not what the law allows

524
00:30:19,600 --> 00:30:21,000
Speaker 7: the president to do.

525
00:30:21,040 --> 00:30:24,800
Speaker 2: The steel companies say that the Scythius panel sent a

526
00:30:24,880 --> 00:30:30,120
Speaker 2: seventeen page letter of security concerns Riddle with inaccuracies over

527
00:30:30,160 --> 00:30:33,160
Speaker 2: the Labor Day weekend and only gave them one business

528
00:30:33,200 --> 00:30:38,440
Speaker 2: day to respond, and they claimed that the scipious staff

529
00:30:38,480 --> 00:30:44,160
Speaker 2: were told not to offer counter proposals or engage in discussions. That,

530
00:30:44,320 --> 00:30:48,440
Speaker 2: on its face, if true, seems to support the steel

531
00:30:48,440 --> 00:30:49,960
Speaker 2: company's arguments.

532
00:30:50,440 --> 00:30:52,760
Speaker 7: I think that's right, and I think it's important to

533
00:30:52,920 --> 00:30:56,200
Speaker 7: draw out that distinction, which is that the President did

534
00:30:56,240 --> 00:30:59,560
Speaker 7: this to Knipon Steel and US Steel, and the President

535
00:30:59,600 --> 00:31:02,000
Speaker 7: also did the Pacifius itself. You know, I think the

536
00:31:02,040 --> 00:31:05,400
Speaker 7: career staff at Syphius. They are quite good at running

537
00:31:05,560 --> 00:31:09,440
Speaker 7: their process, and so when you see things like a

538
00:31:09,480 --> 00:31:14,760
Speaker 7: seventeen page letter that again allegedly was riddled with factual inaccuracies,

539
00:31:15,320 --> 00:31:17,280
Speaker 7: that's not the type of thing that you would ordinarily

540
00:31:17,280 --> 00:31:19,200
Speaker 7: see out of Pythias, and I think it would show

541
00:31:19,240 --> 00:31:22,000
Speaker 7: you that Siphius was being ordered to do something that

542
00:31:22,040 --> 00:31:25,680
Speaker 7: it really didn't have evidence or justification to do, and

543
00:31:25,720 --> 00:31:27,360
Speaker 7: so they were sort of put in a position where

544
00:31:27,360 --> 00:31:30,200
Speaker 7: they had to stretch to meet the directive from above.

545
00:31:30,960 --> 00:31:35,320
Speaker 2: Presidents have brought authority to determine what constitutes a national

546
00:31:35,400 --> 00:31:40,680
Speaker 2: security threat. Can the president's authority here be challenged successfully

547
00:31:40,720 --> 00:31:41,240
Speaker 2: in court?

548
00:31:42,080 --> 00:31:42,600
Speaker 6: This is the.

549
00:31:42,600 --> 00:31:45,880
Speaker 7: Novel issue here, which is, you know, courts historically for

550
00:31:46,000 --> 00:31:50,840
Speaker 7: centuries have deferred to the president on questions of national security,

551
00:31:51,000 --> 00:31:54,040
Speaker 7: you know, the substantive decision making regarding what counts as

552
00:31:54,080 --> 00:31:57,120
Speaker 7: a national security threat and what does not. So in

553
00:31:57,160 --> 00:31:59,400
Speaker 7: that regard, the president does have broad authorities and it's

554
00:31:59,440 --> 00:32:02,040
Speaker 7: hard to challenge them. But here, I think what the

555
00:32:02,080 --> 00:32:04,840
Speaker 7: parties are saying is that the process itself was still flawed.

556
00:32:04,880 --> 00:32:07,520
Speaker 7: They were denied their rights from the beginning, and ultimately

557
00:32:07,600 --> 00:32:10,560
Speaker 7: what the president was doing was not making a national

558
00:32:10,560 --> 00:32:13,360
Speaker 7: security determination. What the president was doing was making a

559
00:32:13,360 --> 00:32:17,400
Speaker 7: political determination. And so I think that's the really interesting issue,

560
00:32:17,600 --> 00:32:19,880
Speaker 7: at least in my mind, that the courts are going

561
00:32:19,920 --> 00:32:23,400
Speaker 7: to have to consider, is, you know, when a president

562
00:32:23,520 --> 00:32:28,240
Speaker 7: pretty clearly is engaged in political behavior but just claiming

563
00:32:28,320 --> 00:32:31,760
Speaker 7: that it's national security decision making, what degree of deference

564
00:32:31,800 --> 00:32:34,840
Speaker 7: does a court have to give the president in those situations?

565
00:32:34,880 --> 00:32:37,480
Speaker 7: And I think that's a nuanced and a novel question,

566
00:32:37,720 --> 00:32:40,000
Speaker 7: in one where I think the parties may have more

567
00:32:40,040 --> 00:32:43,080
Speaker 7: traction than if it were, you know, pretty clearly a

568
00:32:43,200 --> 00:32:47,440
Speaker 7: standard national security type decision that maybe the parties didn't

569
00:32:47,480 --> 00:32:49,480
Speaker 7: like or maybe they thought that the president was going

570
00:32:49,520 --> 00:32:52,000
Speaker 7: too far. But I don't even think there was really

571
00:32:52,080 --> 00:32:55,000
Speaker 7: much of an attempt to call this, you know, national security.

572
00:32:55,200 --> 00:32:59,080
Speaker 7: This was economic nationalism, This was election year politics, This

573
00:32:59,200 --> 00:33:02,360
Speaker 7: was all sorts of things, but it was not national security.

574
00:33:02,640 --> 00:33:06,520
Speaker 2: The companies here are basically making a due process argument.

575
00:33:07,080 --> 00:33:10,680
Speaker 2: And nearly a decade ago, there was a court challenge

576
00:33:10,760 --> 00:33:14,800
Speaker 2: to the Sifius review process and the president's authority over

577
00:33:15,360 --> 00:33:18,960
Speaker 2: foreign business deals that concerned a Chinese owned company, and

578
00:33:19,000 --> 00:33:22,640
Speaker 2: a federal appeals court ruled that the company's due process

579
00:33:22,720 --> 00:33:26,600
Speaker 2: rights were violated by the Scifius review, but still the

580
00:33:26,640 --> 00:33:30,800
Speaker 2: court didn't overturn President Barack Obama's order that the Chinese

581
00:33:30,880 --> 00:33:33,960
Speaker 2: company had to sell. Does that case have relevance here?

582
00:33:34,560 --> 00:33:34,760
Speaker 4: Right?

583
00:33:34,880 --> 00:33:37,560
Speaker 7: That was a little different. I think that case is

584
00:33:37,640 --> 00:33:41,600
Speaker 7: instructive in that, first of all, due process challenges can

585
00:33:41,680 --> 00:33:45,240
Speaker 7: be successful when the Syfius process itself is corrupted. And

586
00:33:45,320 --> 00:33:49,040
Speaker 7: so in that case, Fifius pursued an action against a

587
00:33:49,120 --> 00:33:52,760
Speaker 7: Chinese acquirer of wind farms that were next to military

588
00:33:52,760 --> 00:33:56,000
Speaker 7: airspace that was used to train unman burial vehicles, and

589
00:33:56,600 --> 00:33:59,680
Speaker 7: Sifias issued an interim ortar very early in the process.

590
00:34:00,280 --> 00:34:04,280
Speaker 7: They ordered the deconstruction of windmills, they ordered that the

591
00:34:04,360 --> 00:34:07,680
Speaker 7: acquirer not access to property, They ordered all sorts of

592
00:34:07,720 --> 00:34:10,759
Speaker 7: extremely onerous things. And what the parties argued there was

593
00:34:10,800 --> 00:34:14,440
Speaker 7: that essentially the order from Syphius was so onerous that

594
00:34:14,520 --> 00:34:18,280
Speaker 7: it was equivalent to blocking the transaction, and really only

595
00:34:18,400 --> 00:34:20,360
Speaker 7: the President of the United States has the authority to

596
00:34:20,360 --> 00:34:23,600
Speaker 7: block a transaction. And so I think there they got

597
00:34:23,600 --> 00:34:26,040
Speaker 7: a lot of traction on that angle, which was that

598
00:34:26,320 --> 00:34:29,239
Speaker 7: there are limitations to what Syphius as a committee can do.

599
00:34:29,600 --> 00:34:32,440
Speaker 7: And then additionally they got some traction on the notion

600
00:34:32,520 --> 00:34:36,440
Speaker 7: that SPHIUS does have to provide some information about its

601
00:34:36,480 --> 00:34:39,680
Speaker 7: decision making process when it's going to take an adverse

602
00:34:39,719 --> 00:34:43,080
Speaker 7: action against the party. And then again when that process

603
00:34:43,239 --> 00:34:46,080
Speaker 7: was rerun and when the decision was in Obama's hands,

604
00:34:46,320 --> 00:34:51,120
Speaker 7: there was not a substantive way to challenge a president's

605
00:34:51,120 --> 00:34:54,839
Speaker 7: decision on national security grounds. But the parties did make

606
00:34:54,880 --> 00:34:57,359
Speaker 7: a lot of progress on the procedural violations.

607
00:34:57,600 --> 00:35:00,400
Speaker 2: So do you think it's possible that a court would

608
00:35:01,080 --> 00:35:03,040
Speaker 2: order another review by Ciphius here?

609
00:35:03,400 --> 00:35:05,440
Speaker 7: Yeah, I think it's possible that a court would order

610
00:35:05,520 --> 00:35:09,360
Speaker 7: another review. It's clear that the process was corrupted from

611
00:35:09,480 --> 00:35:12,840
Speaker 7: even before day one, and so in that regard, whatever

612
00:35:12,960 --> 00:35:16,719
Speaker 7: sort of the maximal remedy for due process violations is,

613
00:35:17,040 --> 00:35:19,480
Speaker 7: any court should provide that remedy, you know. And then

614
00:35:19,640 --> 00:35:22,520
Speaker 7: I think the next question, which is, Okay, there's going

615
00:35:22,560 --> 00:35:25,240
Speaker 7: to be a new administration in town. The next president

616
00:35:25,280 --> 00:35:28,880
Speaker 7: has come out against this transaction. What happens there? And

617
00:35:29,120 --> 00:35:31,400
Speaker 7: this is just sort of crystal ball talk here, but

618
00:35:31,640 --> 00:35:34,319
Speaker 7: I do think that the parties are presented with an

619
00:35:34,320 --> 00:35:37,719
Speaker 7: opportunity to actually reach some kind of a deal with

620
00:35:37,760 --> 00:35:39,840
Speaker 7: the new administration. When you look at all of the

621
00:35:39,880 --> 00:35:43,959
Speaker 7: commitments that Nipon Steel was willing to make to get

622
00:35:43,960 --> 00:35:47,760
Speaker 7: the deal done. I think ultimately that transaction was really

623
00:35:47,760 --> 00:35:50,960
Speaker 7: really good for the steel workers and for US steel,

624
00:35:51,560 --> 00:35:55,960
Speaker 7: and for our domestic steel industry and for our supply

625
00:35:56,080 --> 00:35:59,759
Speaker 7: chain security. I think that the parties may well be

626
00:35:59,800 --> 00:36:02,799
Speaker 7: able to make a compelling pitch to the next administration

627
00:36:03,000 --> 00:36:04,640
Speaker 7: and find a way to get a deal done the

628
00:36:04,680 --> 00:36:07,000
Speaker 7: next administration, you know. I think they pride themselves in

629
00:36:07,080 --> 00:36:09,439
Speaker 7: finding ways to get deals done, and I think when

630
00:36:09,440 --> 00:36:11,719
Speaker 7: they look at what's being offered, they may find something

631
00:36:11,840 --> 00:36:12,800
Speaker 7: very compelling.

632
00:36:12,440 --> 00:36:16,280
Speaker 2: At that and if all else fails, might assert petition

633
00:36:16,400 --> 00:36:18,000
Speaker 2: to the Supreme Court be ahead.

634
00:36:18,440 --> 00:36:21,360
Speaker 7: There are some novel legal questions here that I would

635
00:36:21,360 --> 00:36:23,560
Speaker 7: love to see in the hands of the Supreme Court,

636
00:36:23,800 --> 00:36:28,000
Speaker 7: because I think it's really critical, really really critical, not

637
00:36:28,200 --> 00:36:32,280
Speaker 7: just for the scipious process and not just for transaction parties,

638
00:36:32,320 --> 00:36:34,920
Speaker 7: but I really think for everyone. It's important that we

639
00:36:35,000 --> 00:36:37,759
Speaker 7: come up with some idea that no president can just

640
00:36:37,920 --> 00:36:40,759
Speaker 7: you know, wave a wand and call something national security

641
00:36:40,960 --> 00:36:43,799
Speaker 7: and then be exempt from all scrutiny. More and more

642
00:36:43,840 --> 00:36:46,880
Speaker 7: things are being called national security, and at some point

643
00:36:47,200 --> 00:36:48,759
Speaker 7: we have to have some guardrails.

644
00:36:48,960 --> 00:36:50,920
Speaker 2: Thanks so much for joining me on the show. John.

645
00:36:51,239 --> 00:36:56,160
Speaker 2: That's John Kabilo, who specializes in cross border transactions. And

646
00:36:56,200 --> 00:36:58,360
Speaker 2: that's it for this edition of The Bloomberg Law Show.

647
00:36:58,680 --> 00:37:01,000
Speaker 2: Remember you can always get the LA legal news on

648
00:37:01,080 --> 00:37:05,360
Speaker 2: our Bloomberg Law podcasts. You can find them on Apple Podcasts, Spotify,

649
00:37:05,560 --> 00:37:10,600
Speaker 2: and at www dot Bloomberg dot com slash podcast Slash Law,

650
00:37:11,000 --> 00:37:13,560
Speaker 2: And remember to tune into The Bloomberg Law Show every

651
00:37:13,640 --> 00:37:17,560
Speaker 2: weeknight at ten pm Wall Street Time. I'm June Grosso

652
00:37:17,680 --> 00:37:19,279
Speaker 2: and you're listening to Bloomberg