Speaker 1: This is Bloombird Law with June Brusso from Bloomberg Radio.
Speaker 1: All the speculation that Elon Musk is getting cold feet
Speaker 1: about acquiring Twitter comes from Musk himself, from his tweet
Speaker 1: last Friday that the deal was on hold, to his
Speaker 1: very tentative answer to the question at the All In
Speaker 1: summit in Miami on Monday, is this Twitter deal gonna
Speaker 1: get closed? Do you think the chances here? Well, I
Speaker 1: mean it really depends on a lot of factors here. Um,
Speaker 1: I'm still waiting for some sort of logical explanation for
Speaker 1: the number of sort of fake or spam accounts on Twitter. Um,
Speaker 1: and Twitter is refusing to tell us. And then a
Speaker 1: Musk attempt at some legal ease. You know, it's a
Speaker 1: material adverse, uh misstatement. You know, if if if they
Speaker 1: in fact have been um vociferously claiming less than five
Speaker 1: percent of Vega spam accounts, but in fact it is
Speaker 1: four or five times that number, of perhaps ten times
Speaker 1: that number. This is a big deal. Joining me to
Speaker 1: help pass through the latest from Musk is Eric Tallely,
Speaker 1: a professor at Columbia Law School. Eric Musk even made
Speaker 1: a comparison to buying a house with termites. Does it
Speaker 1: sound like he's trying to give some legal reasons for
Speaker 1: getting out of the deal. It sounds like it is.
Speaker 1: It sounds like he has been undergoing some coaching, possibly
Speaker 1: therapy by his lawyer. The grounds that he is now fighting,
Speaker 1: he's starting to invoke some formal legal terms that are
Speaker 1: part of the contract that he signed with Twitter related
Speaker 1: to what's known as a material adverse effect. Now, what
Speaker 1: this basically is, it's sort of an act of God
Speaker 1: type of provision that says, if something, you know, crazy happened,
Speaker 1: there is something that is really awrived from what we
Speaker 1: thought we were getting into, then the buyer or the
Speaker 1: seller can walk away. However, the usual has to these
Speaker 1: sorts of provisions is that they are hard to invoke,
Speaker 1: and if you're going to try to use one of them,
Speaker 1: you actually bear the burden of demonstrating that there was
Speaker 1: this incredible surprise that one would never have expected that
Speaker 1: now has materially undercut the value of this company. And there,
Speaker 1: I think that's going to be an incredibly difficult pill
Speaker 1: for Musket to surmount. The main thing that he is
Speaker 1: citing is that various securities disclosures, Twitter misstated the number
Speaker 1: of their bots. But if, first of all, if you
Speaker 1: actually read the disclosure, they say in a very lawyered
Speaker 1: way that you know, we've tried the best we can
Speaker 1: to determine how many of our accounts are bots and
Speaker 1: how many are not. And this is actually a really
Speaker 1: hard thing to figure out. We may not be getting
Speaker 1: it right. But what we've come up with with our
Speaker 1: sampling is that fewer than five percent. But just realized
Speaker 1: that we might be wrong, and it maybe is it
Speaker 1: the best way to measure there's something up and on
Speaker 1: the way that we've measured it. This does not strike
Speaker 1: me as the type of claim that is analogous to
Speaker 1: saying I hereby proclaimed that there are no termites in out.
Speaker 1: It's almost like proclaiming there might be termites. We haven't
Speaker 1: seen any. We looked, we had a particularly strategy for
Speaker 1: looking for him. We didn't see any, or we didn't
Speaker 1: see that many. But our strategy might be wrong. So
Speaker 1: you've got both a standard for a material adverse effect
Speaker 1: that is very very high, something that's going to have
Speaker 1: to be borne by him that he's going to try
Speaker 1: to make this argument in court, and a glaring alternative
Speaker 1: theory as to why he doesn't want to go through
Speaker 1: with this deal, which is the fact that the prices
Speaker 1: have fallen in the text sector since he signed up
Speaker 1: the deal at fifty four dollars and twenty cents, and
Speaker 1: he now has buyers remorse and therefore is looking anywhere
Speaker 1: to try to find an escape hatch to jump out of.
Speaker 1: But this one does not strike me as one that
Speaker 1: is going to be all that friendly for him. There
Speaker 1: was some talk about renegotiating the price when the house
Speaker 1: has termites, although according to Bloomberg sources, the deal is
Speaker 1: still on track as is. There's always a possibility of
Speaker 1: recutting the price of a deal, but it's always done
Speaker 1: in the shadow of what are the likely rights, duties,
Speaker 1: and obligations that the parties have if they don't. Based
Speaker 1: on this particular assertion by Musk, it seems like a
Speaker 1: notably weak case for him to be able to walk
Speaker 1: away from the deal, very low probability, and therefore, if
Speaker 1: everyone knows that he's bargaining not holding an ace in
Speaker 1: his hand, but holding a tool of club, he's not
Speaker 1: going to be able to bargain for very much. If
Speaker 1: the Twitter board is doing their job, Is any of
Speaker 1: this really surprising given that his approach to this deal
Speaker 1: has been unconventional from the start. But the one thing
Speaker 1: that is maybe a little surprising about his tactics is
Speaker 1: that he has ended up seizing upon something that looks
Speaker 1: like it is going to be a very difficult to
Speaker 1: engineer theory. The material ever's affect the argument very much
Speaker 1: is stacked against him, I would have thought, and in fact,
Speaker 1: I think it may well be the case that this
Speaker 1: strategy may shift if he continues to want to either
Speaker 1: get out of the deal or to go back to
Speaker 1: the bargaining table. Another aspect of this deal is that
Speaker 1: he could potentially walk away, or maybe only walk away
Speaker 1: and have to pay a billion dollars if the financings
Speaker 1: that the deal falls through, And there it seems like
Speaker 1: there might be more rooms for things to happen, particularly
Speaker 1: if the folks who have agreed to lend thirteen billion
Speaker 1: dollars into this deal get cold feet, either get cold
Speaker 1: feet by themselves, or get cold feet after having been
Speaker 1: encouraged to get cold feet from Elon buskinself. So I'm
Speaker 1: going to guess that if this melodrama continues to play out,
Speaker 1: it may end up shifting away from the Bot issue,
Speaker 1: which in my view is a bit of a side show,
Speaker 1: and this financing contingency may take more center stage. Former
Speaker 1: President Trump said, there's no way that Elon Musk will
Speaker 1: buy Twitter such a ridiculous price. Do you agree with that.
Speaker 1: It's seeming more and more unlikely that Musk is going
Speaker 1: to buy Twitter. Well, at last I checked, former President
Speaker 1: Trump had not been to law school. And one of
Speaker 1: the things that is considerable complication here is that Elon
Speaker 1: Musk has already entered into a contract in which he
Speaker 1: substantially obliges himself to make steps towards buying Twitter at
Speaker 1: a cash price that he's already stated. So the economics
Speaker 1: of this deal, I think are probably causing Elon Musk
Speaker 1: to think twice about whether he really has buyer's remorse here.
Speaker 1: Man I suspect he does, if for no other reason,
Speaker 1: because he ended up paying a price that was probably
Speaker 1: higher than it would have been had he just waited
Speaker 1: for a few more weeks. That having been said, the
Speaker 1: history books are filled with people who are buying companies
Speaker 1: who then get some buyer's remorse and try to get
Speaker 1: out of that. But the contracts that they've entered into
Speaker 1: make it either hard or impossible to get out of it.
Speaker 1: So one big factor here is trying to determine to
Speaker 1: what extent the deal that Must ended up entering into
Speaker 1: with Twitter is gonna end up tying his own hands
Speaker 1: later on or forcing a fairly difficult renegotiation with the
Speaker 1: Twitter board sitting on a fair amount of bargaining power.
Speaker 1: If you just sort of stare at the document itself,
Speaker 1: this is a document that looks what they say in
Speaker 1: the industry, relatively seller friendly the company that's selling itself,
Speaker 1: there aren't that many ways that Must can walk away. Now,
Speaker 1: there are some aspects to it that make it look
Speaker 1: like he could. Right. There's a termination fee that he
Speaker 1: would have to pay of a billion dollars if he
Speaker 1: were to walk away, But that's really only one of
Speaker 1: the provisions in the deal. And another one which is
Speaker 1: far more important, is a provision that's called a specific
Speaker 1: performance provision, and that's just legal ease for the either side.
Speaker 1: If the other side wants to try to back out,
Speaker 1: they can essentially force the party or get a court
Speaker 1: order forcing the to go forward. And that's a provision
Speaker 1: that's in this deal. It doesn't provide that many outs
Speaker 1: for Elon Musk. The one that it might help provide
Speaker 1: is if for some reason he's unable to secure financing
Speaker 1: for the deal, then that might allow that specific performance
Speaker 1: provision to fall away. So, you know, I think a
Speaker 1: lot of people are sort of thinking that the disclosure
Speaker 1: he made this weekend about you know, whether Twitter has
Speaker 1: more than five percent spots type or automaton type accounts
Speaker 1: was essentially trying to set the stage for possibly engineering
Speaker 1: a failing of the financing of the deal. Now that
Speaker 1: one itself is kind of complicated for at least two
Speaker 1: or three reasons. The first is there isn't a lot
Speaker 1: of financing left on this deal. It's still a fair
Speaker 1: amount of financing, but most of this deal always has
Speaker 1: been Elon must buying a bunch of stock of Twitter,
Speaker 1: and he's been conscripting a bunch of co investors to
Speaker 1: come on with him and actually reducing the amount of
Speaker 1: debt that he's pledging his Testla shares to help secure.
Speaker 1: So he's been actually reducing the debt that's part of
Speaker 1: this deal, and that's going to make it even harder
Speaker 1: to you know, engineer a situation where the lenders get
Speaker 1: cold feet and walk away. The second thing is that
Speaker 1: the provision that he's you know, evidently complaining about is
Speaker 1: something that has been in Twitter's disclosures for a long time.
Speaker 1: It's a heavily lawyered provision that says, by our account,
Speaker 1: we don't have more than five percent of these thoughts
Speaker 1: who are account holders, but realize that there are just
Speaker 1: a bunch of different ways to count this up in
Speaker 1: the hand, other ways of counting it up may differ.
Speaker 1: So it's a heavily lawyered disclosure, one that I don't
Speaker 1: think anyone would really rely on per se. And yet
Speaker 1: this seems to be the attack that Musk is taking,
Speaker 1: either so he can figure out a way to walk
Speaker 1: away himself or give his lenders a pretext to say
Speaker 1: we refuse to lend from here on end. But it
Speaker 1: looks relatively thin. It has a very pretext little aspect
Speaker 1: about it. Given what we've always known about Twitter, when
Speaker 1: would must be forced into specific performance and when would
Speaker 1: he be allowed to pay the billion dollar breakup fee?
Speaker 1: So if, for example, some of the things that were
Speaker 1: warranted or represented in the transaction didn't materialize, or if
Speaker 1: some of the structures that were part of the deal
Speaker 1: just couldn't come together, he might be able to walk
Speaker 1: away and pay this termination. See on the other hand,
Speaker 1: that termination is clearly subservient to this specific performance provisions.
Speaker 1: So a lot of people have sort of thought, oh,
Speaker 1: he always has this option just to walk away and
Speaker 1: pay at the excellent That's only true if the specific
Speaker 1: performance provision is not in play, and that provision turns
Speaker 1: out that you can draft them in a bunch of
Speaker 1: different ways, And a lot of these contracts have specific
Speaker 1: performance provisions. Some of them have more escape hatches than
Speaker 1: the others. By my read of this specific big performance division,
Speaker 1: the only real escape hatch is a failure of financing,
Speaker 1: and so the specific performance aspect of this contract is
Speaker 1: very much a strong hand that the Twitter board is
Speaker 1: going to be able to play. You know, the one
Speaker 1: thing that he might end up trying to do is
Speaker 1: to attempt to be active in engineering. A failure of
Speaker 1: financing essentially a you know, bring the dog to the homework,
Speaker 1: you know, put some dog food on the homework and
Speaker 1: has the dog eat it. But that raises a bunch
Speaker 1: of risks itself. It maybe that some of these lenders,
Speaker 1: maybe the whole reason they came along is that They
Speaker 1: just want to make sure that they stay in in
Speaker 1: Musk's good graces so that next time Twitter needs some financing,
Speaker 1: or next time SpaceX or the boring company needs to
Speaker 1: do some deals, they're going to be in his role
Speaker 1: of decks and they don't want to, you know, push
Speaker 1: him back, And so it might be that they'll play
Speaker 1: ball with possibly you know, sort of faking their way
Speaker 1: to a refusal to finance the deal. But that comes
Speaker 1: with risks as well. You know, those banks also have
Speaker 1: other clients that they want to maintain reputations for, and
Speaker 1: you know, when they come in to finance a deal
Speaker 1: and say, no, this financing is firm, do they cannibalize
Speaker 1: their own reputation by having a case in the past
Speaker 1: where they just change their mind willing nearly on the
Speaker 1: hest of an important client that causes them to lose
Speaker 1: credibility in the market. Possibly just as important is that
Speaker 1: if these third parties play an active role in trying
Speaker 1: to gin up kind of a fabricated case for why
Speaker 1: financing is impossible anymore, that could put them in some
Speaker 1: legal peril themselves for basically playing an active role in
Speaker 1: effectively helping someone else breach a contract. And so there
Speaker 1: is a little bit of exposure if you're too willing
Speaker 1: to play ball with the elon Musk, even if you
Speaker 1: really want to preserve those later potential fields. So where
Speaker 1: does this all add up the Twitter board. If they
Speaker 1: want to play our strong hand, they're going to be
Speaker 1: able to play a strong legally. They've got a very
Speaker 1: good position from which the bargain. On the other hand,
Speaker 1: you know, Musk is a guy who clearly has shown
Speaker 1: himself to be disruptive in all walks of life, including
Speaker 1: various other people out there who are his adoring fans
Speaker 1: and who might take it upon themselves to have a
Speaker 1: personal mission to you know, crash Twitter stock if things
Speaker 1: go poorly, and so that type of disruption is probably
Speaker 1: the main thing he's going to bring to the table
Speaker 1: of that potential for disruption. It isn't a legal claim.
Speaker 1: You know, Well, he's got a couple of windows of opportunity.
Speaker 1: Maybe they are relatively narrow, and most people, I think,
Speaker 1: don't sort of think that that's going to have much
Speaker 1: of an effect. But his broader sort of you know,
Speaker 1: social influence, you know, no doubt, could throw some turbulence
Speaker 1: into these negotiations. My sense probably what's going to end
Speaker 1: up happening is that they will go back and they
Speaker 1: will sort of consider whether there's a deal to be had.
Speaker 1: I don't think the Twitter board is going to give
Speaker 1: up much, if anything at all. Possibly there will be
Speaker 1: a small readjustment to price, simply so everyone could claim
Speaker 1: victory and walk away with their arms in the air.
Speaker 1: But I don't see this. I don't see this price
Speaker 1: migrating very far below the price. I mean, the Twitter
Speaker 1: board was forced into a green and musque, weren't they,
Speaker 1: I mean, do they want musk? Well, the irony of
Speaker 1: this is that they hadn't put up this poison pill
Speaker 1: before they finally reached an agreement to busk. And the
Speaker 1: usual reason that a board will put up a poison
Speaker 1: pill is to say, look, we're not going to allow
Speaker 1: this person to manipulate our shareholders into selling it too
Speaker 1: low of a price. So we're putting up the poison
Speaker 1: till so we can bargain for a better price so
Speaker 1: that this potential acquirer doesn't go around us and end
Speaker 1: up manipulating our shareholders. When they finally reached the deal,
Speaker 1: one of the things that a lot of people were
Speaker 1: surprised at including myself, is that the price that they
Speaker 1: reached didn't change at all from the very price that
Speaker 1: he offered them to begin with. And so there was
Speaker 1: almost a sense in which a lot of people were thinking, hey,
Speaker 1: Board of Directors, if you did the poison pills so
Speaker 1: that you could have a lot of bargaining power, you
Speaker 1: sure didn't seem to exercise very much when the same
Speaker 1: terms that he offered came out the other end of
Speaker 1: the bargaining. And so, weirdly enough, the twitter A board
Speaker 1: was already taking a little bit of heat for being
Speaker 1: too limp when it came to bargaining with Elon Musk.
Speaker 1: And now how fortunes have turned now that seemingly limp
Speaker 1: deal that they reached with him, that they didn't really
Speaker 1: extract that much more from him, is now looking like
Speaker 1: it was certainly a fortuitous, if not a genius move
Speaker 1: by the board. So there's almost a sense in which,
Speaker 1: you know, I think part of the you know, part
Speaker 1: of the board sort of fighting to reclaim their honor
Speaker 1: right that said, no, we we really engaged in heavy
Speaker 1: bargaining is going to probably push them to dig their
Speaker 1: heels in a little bit more than they might otherwise
Speaker 1: do do they have also fiduciary duties that they have
Speaker 1: this offer at and if they go much below that,
Speaker 1: are they for going their fiduciary duties to the shareholders. Yeah.
Speaker 1: Once a company has decided it's going to sell control
Speaker 1: to someone else, it is under a heightened form of
Speaker 1: fiduciary duties. It's sometimes called Revlon duties. It has to
Speaker 1: do with a famous case in involve Revalent back in
Speaker 1: the nineteen eighties. And when you are under those sort
Speaker 1: of heightened fiduciary obligations, you're under an obligation to take
Speaker 1: to only take steps that are going to reasonably maximize
Speaker 1: the benefit to your shareholders in the short term. So
Speaker 1: right now, if they're sitting as the board and they've
Speaker 1: got a fifty four offer that has been signed up,
Speaker 1: that is on the table, that doesn't have very many
Speaker 1: closing conditions associated with it, it's going to be really
Speaker 1: hard for the other side to get out of. If
Speaker 1: they end up sort of backing out of it, that
Speaker 1: could put the board itself into peril for not having
Speaker 1: a backup plan yet letting go of what is clearly
Speaker 1: now emerged as a relatively good offer better than anything
Speaker 1: else that twitters can have. If you kind of combine
Speaker 1: that with the fact that you know, in the days,
Speaker 1: you know, leading up to Musk's um suddenly getting cold feet,
Speaker 1: the senior executive riggs that at Twitter looked like a
Speaker 1: rotisserie oven. They were moving, they were moving out old
Speaker 1: ones and moving in new ones almost start only at
Speaker 1: the hest of trying to get this company ready for
Speaker 1: its take over by Elon Boston, some of the people
Speaker 1: that you know he was going to clearly butt heads with.
Speaker 1: So there's a sense in which now Twitter has effectively
Speaker 1: morphed itself enough into something that might even be damaged
Speaker 1: goods to anyone else who is going to buy the
Speaker 1: company later on. And I think that gives the board
Speaker 1: m an additional reason why they should fight right and
Speaker 1: not concede, because if they concede, it may not be
Speaker 1: very long before a plaintive attorney says, hey, what were
Speaker 1: you doing? You have this great deal signed up and
Speaker 1: now basically, you know, gave away the farm with no
Speaker 1: backup plan. What do you make of this? Elon Musk
Speaker 1: tweeting Twitter Legal just call to complain that I violated
Speaker 1: your nondisclosure agreement by revealing the box check sample sizes one. Yeah,
Speaker 1: so we don't actually know what's in the NBA because
Speaker 1: that's not been disclosed us. But there probably is an
Speaker 1: NBA that has to do with some aspects of the
Speaker 1: due diligence associated with the deal. So anytime you are
Speaker 1: buying a company, you usually want to do a fair
Speaker 1: amount of investigation on some of the aspects of what
Speaker 1: are inside the company. That's usually why these deals end
Speaker 1: up taking a fair amount of time, because the buyer
Speaker 1: is trying to satisfy themselves that they're getting something that's valuable.
Speaker 1: In this case, it appears that that musk not only
Speaker 1: didn't try to do a lot of that due diligence,
Speaker 1: but he also didn't extract a contractual warranty in the
Speaker 1: contract itself. A says you know, don't worry, we have
Speaker 1: at most five percent bought. You can't find that in
Speaker 1: the contract itself. That's one of the reasons why you
Speaker 1: know he's sort of you know, casting about the securities
Speaker 1: markets disclosures. So there's a sense in which you know,
Speaker 1: this dog ate my homework thing really is resonant. There's
Speaker 1: there's essentially nothing surprising in any of the disclosures, he
Speaker 1: talked about it. It was out there in plain sight
Speaker 1: for everyone to see. You know, there had even been
Speaker 1: a public dispute about the number of boss that members
Speaker 1: the Twitter hand, so you know it's he was suggesting
Speaker 1: he didn't bother doing his diligence of the deal, or
Speaker 1: he didn't intend to do any diligence on the deal.
Speaker 1: And he also didn't bake in any promises to the
Speaker 1: contrary in the contract. So it has a lot of
Speaker 1: the trappings of a fairly hastily entered into contract that
Speaker 1: was for cash, that didn't have too many contingencies in it.
Speaker 1: And now he's starting to feel like, oh wow, maybe
Speaker 1: I don't really want to go through with it, or
Speaker 1: maybe I can threaten to walk away and get a
Speaker 1: better price. In most universes, given the documents that I've seen,
Speaker 1: that that is a pretty speculative bet. But you know,
Speaker 1: who knows what to expect in the Elon Musk universe.
Speaker 1: We've already learned that it is somewhat of a parallel
Speaker 1: universe from the one everyone else of us lives in.
Speaker 1: Looking at the paperwork it's or looking at the deal,
Speaker 1: what do you think the chances are that he will
Speaker 1: actually buy Twitter. I think they are still pretty high.
Speaker 1: I think the specific performance aspect of it is going
Speaker 1: to play a fairly large role. Ultimately, it may take
Speaker 1: a while, and they may end up, you know, trying
Speaker 1: deciding to grease the wheels and having a light break
Speaker 1: in price. Much is going to turn on whether the
Speaker 1: lenders that are lined up to lend money for this
Speaker 1: acquisition themselves get cold beat. And if they do get
Speaker 1: cold beat, do they do so sort of honestly or
Speaker 1: do they do so in a somewhat of a managed
Speaker 1: and engineered way. If they do so and do so honestly,
Speaker 1: that's the only contingency I can see in which this
Speaker 1: deal doesn't end up closing. I think a lot of
Speaker 1: people out there sort of feel like it probably will
Speaker 1: end up closing. And I think this is all a
Speaker 1: big dance to see if he can get a slight
Speaker 1: price reduction. Thanks for being in the Bloomberg Law Show, Eric.
Speaker 1: That's professor Eric Tally of Columbia Law School. On Monday,
Speaker 1: the Supreme Court, by a vote of six to three,
Speaker 1: struck down another campaign finance law, adding to a line
Speaker 1: of rulings throwing out campaign finance restrictions. Republican Senator Ted
Speaker 1: Cruz had challenged the two fifty dollar cap on candidates
Speaker 1: using political contributions made after an election to recoup their
Speaker 1: personal campaign loans. The this vision was along ideological lines,
Speaker 1: and Chief Justice John Roberts wrote the majority opinion, finding
Speaker 1: that the provision burden's core political speech without furthering an
Speaker 1: anti corruption goal. Echoing what Roberts and Justice Amy Coney
Speaker 1: Barrett said during the oral arguments, there isn't a sufficient
Speaker 1: corruption anti corruption interests sort of up to two thousand,
Speaker 1: but then all of a sudden there is says that
Speaker 1: this doesn't enrich him personally because he's no better off
Speaker 1: than he was before. It's paying alone, not lining his pockets,
Speaker 1: but in a blistering descent. Justice Elena Kagan, writing for
Speaker 1: the liberal justices, said that it doesn't take a political
Speaker 1: genius to see the heightened risk of corruption from donations
Speaker 1: made after Accountada has won and can quote return the
Speaker 1: favor by a vote, a contract, and appointment. Here are
Speaker 1: Justices Kagan and Sonya. So to mayor, if I have
Speaker 1: a debt of ten thousand and dollars and somebody comes
Speaker 1: along and says you're doing such a good job. I'm
Speaker 1: going to read, I'm going to pay that debt off
Speaker 1: for you. Isn't that a financial benefits to me? Of
Speaker 1: course it's a gift. But you just said the magic
Speaker 1: words to make a contribution to the winner, not too
Speaker 1: a campaign and for instance, but for the pockets of
Speaker 1: the winner. My guest is Richard Brafald, a professor at
Speaker 1: Columbia Law School. So the court struck down another campaign
Speaker 1: finance rule. Are you surprised at all? Not at all,
Speaker 1: Both based on the oral argument, which pretty much telegraph
Speaker 1: where it was going to go, and more generally based
Speaker 1: on the court's philosophy of the last pen plus years,
Speaker 1: the court has been pretty hostile to campaign finance law.
Speaker 1: I don't think it broke any new ground in this case.
Speaker 1: It's kind of deepened the ground that was already there.
Speaker 1: Tell us about the rule that the court struck down, right,
Speaker 1: So this was a part of a m can findal
Speaker 1: law adopted about twenty years ago now which basically limited
Speaker 1: the ability of campaigns to repay loans that a candidate
Speaker 1: made today a campaign to pay for the election. So
Speaker 1: currently a candidate can spend as much money as he
Speaker 1: wants on an election, and the candidate can lend as
Speaker 1: much money as he wants to his own campaign and
Speaker 1: the campaign can pay him that. But the problem is
Speaker 1: that the campaign starts to pay him back with donations
Speaker 1: received after election day. So under the law, the campaign
Speaker 1: can repay the candidate only up to tun fifty dollars
Speaker 1: with donations that come in after election day. They can
Speaker 1: use any amount of money from donations that came in
Speaker 1: before election day, but only after tune with donations that
Speaker 1: came in after. The concern was that after election day
Speaker 1: the donor know who's who won, so it's more likely
Speaker 1: that the money is being given to influence the candidate.
Speaker 1: And if the money is being used to repay a
Speaker 1: loan to the candidate, in any ways, the money is
Speaker 1: almost like a gift to the candidate. The money is
Speaker 1: not going to be used actually for campaigning the election
Speaker 1: is over, it's going to be used to repay the candidate.
Speaker 1: So those are the two ideas behind having this special
Speaker 1: restriction on the use of post election donations to repay loans.
Speaker 1: To tell us about the reasoning, and the Chief Justices
Speaker 1: majority opinion for the Conservatives, So basically, the Chief Justice
Speaker 1: reiterated ideas he's put forward in the past that although
Speaker 1: some contribution restrictions can be upheld, they present the First
Speaker 1: Amendment problem because they make it harder for candidates to
Speaker 1: raise money. That this rule in particular was a problem
Speaker 1: because by creating the possibility of a limit on the
Speaker 1: repayment of a loan, it makes it less likely candidate
Speaker 1: will make the loan, which means will be less money
Speaker 1: for the candidates campaign. So he emphasized that there is
Speaker 1: a First Amendment Burton posed by this restriction on loaning payments,
Speaker 1: and then he basically dismissed the argument that there is
Speaker 1: any special corruption danger coming from post election contributions. In
Speaker 1: his view, the other rules dealing with contributions, the fact
Speaker 1: that no donor can give more than twenty nine dollars
Speaker 1: under federal contribution restrictions and that any contribution that is
Speaker 1: made will be disclosed, that those are enough to deal
Speaker 1: with the corruption problem. That the government failed to show
Speaker 1: that there's any special corruption problem from post election donations
Speaker 1: to repay a loan. The average person may not see
Speaker 1: this explain how the court sees campaign finance restrictions as
Speaker 1: violations of the First Amendment. In the fourth view, campaigning
Speaker 1: is speech. The spending of money to support a campaign
Speaker 1: is speech, and therefore the raising of money to support
Speaker 1: a campaign supports speech, supports the candidates speech, so that
Speaker 1: anything that burdens the ability of the candidate to campaign,
Speaker 1: to um to spend money in support of the candidates
Speaker 1: campaign raises a First Amendment problem. The Court has up
Speaker 1: held some restrictions. It has up held limits on the
Speaker 1: amount of money a donor can give directly to a
Speaker 1: candidates campaign because of the danger of what the court
Speaker 1: calls quick broke corruption and the courters that pulled disclosure requirements.
Speaker 1: But the Court has struck down any slimits on candidates spending,
Speaker 1: any limits by organizations that's the port of candidate, but
Speaker 1: don't literally give money to the candidate, and other kinds
Speaker 1: of restrictions in this area. And basically the Court said
Speaker 1: that if you can show that the donation really raises
Speaker 1: a serious danger of what the quirt calls quit pro
Speaker 1: quote corruption, you can limit it. But the Court basically
Speaker 1: says that other kinds of concerns the public has on
Speaker 1: equal amounts of money, or the fact that campaign contributions
Speaker 1: raised dangers of unequal influence or access that influence our
Speaker 1: access are not themselves something that Congress can regulate, only
Speaker 1: something that they call quit pro quote corrussion, which comes
Speaker 1: close to an outright bribe. Did Justice Keigan wrote a
Speaker 1: blistering dissent, saying the donors know as they paid him,
Speaker 1: so he will pay them well. She basically says that
Speaker 1: the special corruption potential for donation is given after the
Speaker 1: election is over, when the donor knows who the winner is,
Speaker 1: and it's going to be used to repay a loan
Speaker 1: made by the candidates, so it's going basically directly back
Speaker 1: to the candidate. She says that the special corruption potential
Speaker 1: there is self evident, that it's obvious that there's a
Speaker 1: real problem here, and then she actually goes and finds
Speaker 1: examples and basically news accounts as instances, I mean states
Speaker 1: in the past hasn't happened federally because the law is
Speaker 1: prohibited until now. The instances in the past where you
Speaker 1: have particularly sleazy situations of donors giving money to a
Speaker 1: candidates campaign after the election and then basically getting some
Speaker 1: kind of reward from that candidate a governor who is
Speaker 1: able to steer certain contracts in certain directions. She basically
Speaker 1: says that the potential for corruption here is obvious, that
Speaker 1: there's evidence is support it. And she also returns to
Speaker 1: the themes she's used in the past, which is and
Speaker 1: trying to figure out whether something really does present the
Speaker 1: Corrussian danger, you should defer to Congress. You should defer
Speaker 1: to the politicians. They have a better sense of whether
Speaker 1: something is likely to read a Corrussian problem than the Court,
Speaker 1: which is removed from the political sphere. And so again
Speaker 1: she has made these arguments in the past that the
Speaker 1: Congress is a better judge of what graces of corruption danger,
Speaker 1: that the Court is basically missing this and its willingness
Speaker 1: to strike down restrictions that serve interests in public confidence
Speaker 1: in government. Is campaign finance an issue that always divides
Speaker 1: the liberals and the conservatives? And if so, why it's
Speaker 1: certainly been true for about the last almost twenty years.
Speaker 1: Further in the past, I think it was more complicated,
Speaker 1: and you did have some judges, some of the Republican
Speaker 1: appointees in the past, famously Justice O'Connor, who had been
Speaker 1: an elected official. I think she was the last member
Speaker 1: the Supreme Court wod actually been an elected official. Sharing
Speaker 1: some some of the concerns that support campaign finance regulation.
Speaker 1: And you have had some liberals in the past worried
Speaker 1: about the potential for limiting the ability of nonprofits and
Speaker 1: independent groups of the campaign, but it really has solidified
Speaker 1: in the last twenty years along the conservative liberal divide.
Speaker 1: The conservatives are concerned that any kind of government regulation
Speaker 1: here will interfere with the free movement of the political process,
Speaker 1: and the liberals see that by giving a total green
Speaker 1: light to money that striking down campaign financed laws kind
Speaker 1: of has the potential to corrupt the political process. Ted
Speaker 1: Cruz engineered this legal dispute, and the Biden administration also
Speaker 1: argued that he lacked legal standing to challenge the provision.
Speaker 1: If the court had wanted to, could they have taken
Speaker 1: an off ramp here and just said he doesn't have
Speaker 1: standing here. Yeah. The argument was that he basically gave himself,
Speaker 1: just loaned just enough money to his campaign to make
Speaker 1: this a real dispute. Remember I said that the cap
Speaker 1: on the amount of money that could be refunded in
Speaker 1: post election contributions was two in fifty dollars. Well, he
Speaker 1: loaned his campaign tour in the sixty they repaid in
Speaker 1: the two fifty, so it was really about the remaining ten.
Speaker 1: So it really it did look as though it had
Speaker 1: been engineered to generate a case rather than be the
Speaker 1: source of any real problem. So that was that was
Speaker 1: argued and the court rejected. Interestingly, actually, Justice Kagan and
Speaker 1: her Descent didn't really go there. I think she was
Speaker 1: willing to defend the statute on the merits rather than
Speaker 1: just say that there was no standing. There's also another
Speaker 1: even more obscure question in the case, which is whether
Speaker 1: the All Britain and cruise came from the statute or
Speaker 1: from some implementing rags of the Federal Election Commission, including
Speaker 1: which which had put in a time deadline for the
Speaker 1: repayment of the loan and which was not actually in
Speaker 1: the statute. The Crews needed to challenge the statute to
Speaker 1: get what's called a special free judge court and a
Speaker 1: direct appeal to the Supreme Court, rather than go through
Speaker 1: the normal district court Court of Appeals court process, which
Speaker 1: he wouldn't have had it he was only challenging a regulation.
Speaker 1: So there were some kind of technical issues in the case,
Speaker 1: but in the end, I think the Descent really just
Speaker 1: went with the substance and and the majority also spent
Speaker 1: the little focusing majorities on the substn As you mentioned,
Speaker 1: this adds to a line of Supreme Court cases striking
Speaker 1: down campaign finance restrictions. The Chief even said this case
Speaker 1: was a logical progression in a series of cases. Tell
Speaker 1: us about some of them. Tell us about some of
Speaker 1: the ways the Supreme Court has cut back on campaign
Speaker 1: finance restrictions. Well, what's interesting a number of things interesting,
Speaker 1: but a couple of them is the way that the
Speaker 1: Court has in the Buckley decision, which is now almost
Speaker 1: fifty years old, forty or five years old, the Court
Speaker 1: to a sharp line between expenditure restrictions and contribution restrictions.
Speaker 1: Consistently is struck down expenditure restrictions except for the ones
Speaker 1: thing with corporations, which lasted until City the United ten
Speaker 1: years ago, and consistently upheld restrictions on contributions. What's been
Speaker 1: happening now is they now beginning to strike down some
Speaker 1: contribution restrictions as essentially unnecessary. So this decision invalidated a
Speaker 1: contribution restriction effectively, you know, restricting the use of donated
Speaker 1: contributions to repay a loan. Had nothing to do with spending.
Speaker 1: A few years ago, the court struck down a rule
Speaker 1: that have been in place really since the since Buckley,
Speaker 1: since the original Sattal Campaign for Men's Law, which limited
Speaker 1: the amount of money a donor could give in total
Speaker 1: to all candidates. So federal law restricts the amount of
Speaker 1: money a donor can give to one candidate on individual restriction,
Speaker 1: but there was also an aggregate cap on the amount
Speaker 1: of money wealthy donors could give to all candidates. That
Speaker 1: cap had been raised substantially in the McCain fine Goal
Speaker 1: law and has been adjusted for inflation. But the court
Speaker 1: in this case, which is called McCutchen, which is now
Speaker 1: about six years ago, so there was no justification for
Speaker 1: that that the only justification was the potential corruption of
Speaker 1: individual officials and the fact that a wealthy individual could
Speaker 1: give to a hundred officials so long as that those
Speaker 1: donations are under what is now the twcount there's no
Speaker 1: danger of corruption. And then in another case involving a
Speaker 1: public funding law that Arizona adopted law that basically allowed
Speaker 1: that allows the state that will authorize as the state
Speaker 1: to give money to candidates if candidates raise a certain
Speaker 1: amount of money and private donations uh, the state will
Speaker 1: give them public funds as a way of reducing the
Speaker 1: need to raise campaign contributions and maybe reducing the dependence
Speaker 1: on campaign contributions. The state also said that if the
Speaker 1: publicly funded candidate was facing a candidate who chose not
Speaker 1: to take public funds and as a result, was able
Speaker 1: to raise more private money, or is being the publicly
Speaker 1: funded candidate was also being hit hard by independent spending,
Speaker 1: the state would give that publicly funded candidate additional money.
Speaker 1: This didn't restrict any contributions to or expenditures by of
Speaker 1: the other candidates, but it basically said that we're gonna,
Speaker 1: in effect, helped maintain a fair fight for people who
Speaker 1: take public funding. The Core said that also has to
Speaker 1: go because that operated as a ways to discourage spending
Speaker 1: by candidates not taking public funding. So in some ways,
Speaker 1: what you're seeing is that they're expanding the notion of
Speaker 1: what constitutes a limit to address something which in that
Speaker 1: case wasn't a limit at all. It was a support
Speaker 1: for the speech of publicly funded candidates, but the court
Speaker 1: treated that as a limit on the privately funding candidates.
Speaker 1: And I'll give you one last one, which was part
Speaker 1: of the McCain fine Gold Law was something similar, which said,
Speaker 1: we have these campaign contribution restrictions, but that loss of
Speaker 1: it is a a candidate is faced with an opponent
Speaker 1: who is self funding to an unlimited amount, to a
Speaker 1: very high level. You remember the Supin Court and Buckley
Speaker 1: said that you cannot limit how much money candidate can
Speaker 1: can spend on his own campaign. Congress in two thousand
Speaker 1: and two Pastball basically saying that we're going to raise
Speaker 1: the contribution restrictions, the restrictions on contributions to candidates who
Speaker 1: are relying on contributions if they're being opposed by the
Speaker 1: candidate who is raising his own money to a very
Speaker 1: high level. The so called millionaires Amendment if your opponent
Speaker 1: a millionaire obviously wasn't really about millionaires themselves, but if
Speaker 1: you had a very wealthy opponent was spending a huge
Speaker 1: amount of his own money or her own money into
Speaker 1: her campaign, we would allow you to raise larger contributions
Speaker 1: than we normally would. And the court struck that down again.
Speaker 1: It was really in some ways the liberalization of the
Speaker 1: law for the candidate depending on on donations, but the
Speaker 1: court said that also operated to discourage the wealthy candidate
Speaker 1: from spending more money. So, um, it wasn't a limit
Speaker 1: on the wealthy candidate, but the court treated it is
Speaker 1: as like a limit on the wealthy candidate. So these
Speaker 1: decisions really, going back over the last decade or more,
Speaker 1: that decision, I think, with some late to thousands all
Speaker 1: kind of reflect this pattern of saying that he ben
Speaker 1: even cases in which candidates get more money, which was
Speaker 1: that case and the Arizona public funding case, or cases
Speaker 1: in which what we're really looking at is money that
Speaker 1: isn't really restricted, that we're looking at contribution restrictions rather
Speaker 1: than spending restrictions. The court has has invalidated all of
Speaker 1: those restrictions. The Supreme Court that upheld the bulk of
Speaker 1: the McCain fine Gold campaign finance law in two thousand
Speaker 1: three was a very different court. I just wonder if
Speaker 1: if they would do it now. Oh, these courts almost
Speaker 1: certainly would not. And I think one of the interesting
Speaker 1: things is, I mean, some of those restrictions remain in place.
Speaker 1: They're less effective because of other developments like the rise
Speaker 1: of independent spending, and Congress has changed the laws in
Speaker 1: some respects, but there were still in place restrictions on
Speaker 1: donations to political parties and so called soft money restrictions,
Speaker 1: as well as older restrictions like the limits on direct
Speaker 1: contributions to candidate. So there are some elements of the
Speaker 1: law they're still in place. But yeah, the current court
Speaker 1: that was a five four decision back in two thousand
Speaker 1: and three, so Connor wrote much of it, and she
Speaker 1: of course has left the court. And look, I mean
Speaker 1: the conservative majority is now. It seems very likely that
Speaker 1: if some of the elements of that case that came back,
Speaker 1: they would probably be struck down today. Thanks for your
Speaker 1: insights as always, rich that's Professor Richard Brifault of Columbia
Speaker 1: Law School, and that's it for this edition of The
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