Speaker 1: Hello, and welcome to the Votes and Verdicts podcast, hosted
Speaker 1: by the Litigation and Policy team at Bloomberg Intelligence, the
Speaker 1: investment research platform of Bloomberg LP. This podcast series examines
Speaker 1: the intersection of business policy and law, and today we'll
Speaker 1: be looking at the litigation and policy catalysts that we're
Speaker 1: watching in May twenty twenty four and that we think
Speaker 1: will impact companies across a number of different sectors. My
Speaker 1: name's Elliott Stein. I'm a senior litigation analyst covering litigation
Speaker 1: in the financial sector, and I'll be your host for
Speaker 1: today May second, twenty twenty four. If you have any
Speaker 1: questions about any of the matters that we'll be talking
Speaker 1: about on this episode, please do not hesitate to reach
Speaker 1: out to us at your convenience with your question. All right,
Speaker 1: So we'll be discussing a handful of sectors today. First,
Speaker 1: we'll start with a few antitrust matters. Our antitrust analyst
Speaker 1: Jenrie is listening to closing arguments in the DOJ versus
Speaker 1: Google Search case, but in her place, our colleague Justin
Speaker 1: Teresi will update us on that case, as well as
Speaker 1: a potential DOJ action against Live Nation and a key
Speaker 1: hearing in Epic versus Apple over app store rules. After that,
Speaker 1: I'll talk about a few cases in the financials sector
Speaker 1: that I'm watching, including a case against BNP Pariba and
Speaker 1: Society General alleging violations of sanctions on Cuba. I'll also
Speaker 1: talk about a case against BNP accusing it of aiding
Speaker 1: genocide in Sudan, and I'll also talk about what I
Speaker 1: expect to happen in litigation challenging the CFPB's rule capping
Speaker 1: credit card late fees. Well then bringing Nathan Dean, our
Speaker 1: financials policy analyst in Washington, DC, and Nasan will talk
Speaker 1: about possible regulatory action terrain in executive compensation for bankers,
Speaker 1: and he'll also talk about the impact of the DEA's
Speaker 1: anticipated move to replassify marijuana as a Schedule three drug
Speaker 1: instead of Schedule one. After that, Matt Schuttenhelm, our TMT
Speaker 1: litigation and policy analysts, will discuss the Supreme Court rule
Speaker 1: in that is anticipated to limit judicial deference to regulators,
Speaker 1: and Matt will also update us on important litigation in
Speaker 1: California's Supreme Court that could affect Lyft and Uber, and
Speaker 1: last but not least, our healthcare policy analyst Dwyane Wright
Speaker 1: will discuss congressional hearings on May one that focused on
Speaker 1: United Health's sprawling portfolio and the Change Healthcare cyber attack
Speaker 1: in particular. All of this research, of course, is available
Speaker 1: on the Bloomberg term at BI go And just a
Speaker 1: quick word about Bloomberg Intelligence for those who don't know.
Speaker 1: We are the investment research platform on the Bloomberg terminal,
Speaker 1: providing in depth research on industries, companies, and markets and
Speaker 1: delivering key data from BI analysts in their given industries.
Speaker 1: All right, so it's all that. Let's get started with
Speaker 1: the content justin let's bring you in big shoes today
Speaker 1: to fill filling it for our antitrust guru gen Read.
Speaker 1: But I know you are up to the task, So
Speaker 1: let's start with Live Nation. There seem to be rumors
Speaker 1: going around that Live Nation is going to be the
Speaker 1: focus of a lawsuit by the Justice Department. But my
Speaker 1: question to you is it wasn't this resolved a few
Speaker 1: years back?
Speaker 2: Hi Elliott, You're right, huge shoes to fill, but glad
Speaker 2: to take a take an effort to do that today
Speaker 2: on behalf of jen So yeah, you know, nothing's ever final.
Speaker 2: It seems like in this particular area, and there's never
Speaker 2: a dull moment. We're hearing that DOJ might move to
Speaker 2: file a monopolization suit against Live Nations this month, and
Speaker 2: whether the deliberations on whether or not they choose to
Speaker 2: do so are certainly confidential, but several news reports have
Speaker 2: been stating that it's likely to happen this month in May,
Speaker 2: and this aligns with our expectations given what we do
Speaker 2: know about this investigation. But to your point, Elliott, you're right,
Speaker 2: Live Nation entered consent orders with DOJ both in twenty
Speaker 2: ten and twenty nineteen related to its acquisition of ticket
Speaker 2: Master and otherwise other anticompetitive contact that was alleged in
Speaker 2: violation of antitrust laws. So what's being what's happening now
Speaker 2: is that it's being alleged, or we anticipate it will
Speaker 2: be alleged that there's been violations of those consent orders,
Speaker 2: and if those are proven, there could be a fine.
Speaker 2: But the main risk here to Live Nation if this
Speaker 2: does happen is it will be an effort by DOJ,
Speaker 2: we think, to break up the company, and at least
Speaker 2: in doing so, they'll probably move for a sale of
Speaker 2: Ticketmaster away from the rest of Live Nation's assets. So
Speaker 2: those issues are arising from the dominance that Live Nation
Speaker 2: has in a number of areas as an entertainment business
Speaker 2: and the alleged tying of its services together to block
Speaker 2: out some rivals from participating in that sphere. So Live
Speaker 2: Nation itself has four distinct businesses, a ticketing arm that
Speaker 2: we all know as Ticketmaster, a concert promotion business and
Speaker 2: division that owns or manages venues, along with an artist
Speaker 2: management business. When Live Nation acquired Ticketmaster, it promised not
Speaker 2: to tie its products together or to seek to force
Speaker 2: any venues to use Ticketmaster for ticketing services, But in
Speaker 2: twenty nineteen it was found that Live Nation did just that,
Speaker 2: essentially bullying venues into using Ticketmaster or otherwise facing a
Speaker 2: boycott Bylive Nation with respect to the other lines of businesses,
Speaker 2: which include events and artists tours, effectively shutting them out
Speaker 2: of that concert space altogether. Even though Live Nation signed
Speaker 2: a DJ order prohibiting this conduct, According to venues and
Speaker 2: many others in the industry, Live Nation just hasn't abided
Speaker 2: by the terms. It's also accused of locking out other
Speaker 2: ticket service by entering long term exclusive agreements with venues
Speaker 2: and artists. Exclusive agreements can violate antitrust laws if they
Speaker 2: foreclose rivals from a substantial share of access. So I
Speaker 2: think DOJ can bring a suit that they'll be very
Speaker 2: fairly straightforward at this point and very strong with a
Speaker 2: good success, with a good chance of success on liability.
Speaker 2: A divestiture orders like telling Type Live Nation that it
Speaker 2: needs to basically sell off it ticke a master line
Speaker 2: is rare and it certainly asks a lot of a judge.
Speaker 2: But we think if there's any case in which DOJ
Speaker 2: might win one of these orders, it's got to be
Speaker 2: this one. So moving on to Epic versus Apple, So
Speaker 2: this gave it been going on for a long time now.
Speaker 2: Epic's been battling Apple for years over Apple's policies with
Speaker 2: respect to how it operates the App Store. Epic objects
Speaker 2: the commission fees Apple collects from developers with paid for
Speaker 2: apps and the requirement that Apple and the requirement that
Speaker 2: they have to use Apple's payment services in the app
Speaker 2: store itself. Epic also objects to Apple's walled GOP model,
Speaker 2: which prohibits it prohibits any distribution of apps on iOS
Speaker 2: devices other than through the App Store. Epic lost the
Speaker 2: trial and on appeal to Apple on all antitrust claims
Speaker 2: with federal and state, but the judge had the Apple's
Speaker 2: anti steering rules violated a California unfair business practices law.
Speaker 2: These rules essentially banned developers from communicating with users that
Speaker 2: they can buy the app or make in app purchases
Speaker 2: more cheaply on a developer's website instead of getting it
Speaker 2: through the App store itself. The judge in that case
Speaker 2: and joined Apples anti steering rules for both parties thought
Speaker 2: Supreme Court review and were denied at that time. So
Speaker 2: this could have been a pretty huge hit to Apple's
Speaker 2: resource revenues. But when it complied with the injunction, what
Speaker 2: it did with it altered its rule to allow developers
Speaker 2: to it alters. It altered its rule to allow developers
Speaker 2: to steer, but added twelve percent and twenty seven percent
Speaker 2: fees for any app sales made outside of the App
Speaker 2: Store via the developer's websites. That's thus preserving its App
Speaker 2: store revenues. This technically didn't violate the order itself, but
Speaker 2: it certainly violated the spirit of the order and makes
Speaker 2: it so the developers really can't lower their prices for
Speaker 2: consumers epics challenge Apple's compliance, and the judge agreed as
Speaker 2: a preliminary matter that Apple's compliance plan does in fact
Speaker 2: violate the spirit of the order. She's holding. A hearing
Speaker 2: on this issue on may A's probably will go a
Speaker 2: few days longer if needed. We believe Apple will have
Speaker 2: to come up with a new plan to comply with
Speaker 2: the injunctions that involves lowering fees charged developers for these purchases.
Speaker 2: Fairly quick decision on this one is expected, possibly within
Speaker 2: days after the hearing, and last, but definitely not least,
Speaker 2: moving on to Google's antitrust issues, DUJ and a group
Speaker 2: of states sued Google in fourth quarter of twenty twenty
Speaker 2: from monopolistic conduct with respect to search and certain search advertising.
Speaker 2: A trial on liability was held last September, and closing
Speaker 2: arguments are being held today and tomorrow. The decision is
Speaker 2: likely to be issued sometime in the second half, and
Speaker 2: we lean toward DOJ winning on this one. The primary
Speaker 2: allegation is that Google blocked out search engine competitors like
Speaker 2: Bing and Duck dust Go by paying off third parties
Speaker 2: to install Google Search as a default search engine pretty
Speaker 2: much wherever a search engine is needed. So, for instance,
Speaker 2: if Apple and Mozilla, it paid Apple and Mozilla to
Speaker 2: install Google Search and Safari and Firefox browsers, and it
Speaker 2: paid OEMs like Samsung to sell Android phones with the
Speaker 2: Google Search app pre installed and also set as default
Speaker 2: default elsewhere, these payments amounted to well over twenty billion
Speaker 2: dollars a year. We leaned toward DJ winning this one
Speaker 2: as well, because the agency presents a pretty strong evidence
Speaker 2: at trials about how sticky and imported default search position
Speaker 2: is and also the agreements that prevented Being and others
Speaker 2: from developing into The agreements that involved prevented Being and
Speaker 2: other search engines from developing it to better search engines
Speaker 2: because they lacked the volume of search is necessary to
Speaker 2: gather the data needed to improve. So that's a roundup
Speaker 2: of what we have our anti trust cases here looking
Speaker 2: forward to May.
Speaker 1: Hey, so justin just on the DOJ versus Google case.
Speaker 1: You know, so what happens next if Google indeed does
Speaker 1: lose on liability based on you know, following the closing
Speaker 1: arguments this week.
Speaker 2: Yeah, that's a that's a great question, elliot. If Google
Speaker 2: does lose on liability, there's going to be a second,
Speaker 2: separate hearing on the remedy itself. So there's a few
Speaker 2: different options at play here, which can include a prohibition
Speaker 2: on paying third parties for the default search position, or
Speaker 2: a forced sharing of search data which would theoretically help
Speaker 2: other search engines get a little bit better than they
Speaker 2: are now. So it's also possible choice screen. It's possible
Speaker 2: possibly could be choice screens for new phones and computers
Speaker 2: that has been done on the EU, or a combination
Speaker 2: of any of these measures. DJ might seek a breakup
Speaker 2: of the company, but we doubt that would be ordered
Speaker 2: at this point, so we'd expect the decision in the
Speaker 2: liability phase second half of this year, and if needed,
Speaker 2: probably going to be hearing on a remedy late in
Speaker 2: the year at a decision in the first half of
Speaker 2: twenty five.
Speaker 1: Great, all right, thanks justin all right, I will jump
Speaker 1: in here and talk about a few cases that I'm
Speaker 1: watching in the financial sector. There's actually quite a bit
Speaker 1: going on in May. I'll start with litigation challenging the
Speaker 1: cfpp's credit card late fee rule. For those who don't
Speaker 1: follow this issue closely, the CFPB is the consumer Financial
Speaker 1: Protection Bureau that is the main regulator for the consumer
Speaker 1: finance sector. In March, the agency issued a rule that
Speaker 1: would effectively reduce the typical late fee that credit card
Speaker 1: issuers charge from thirty two dollars down to eight dollars.
Speaker 1: That would eliminate roughly ten billion dollars in credit card
Speaker 1: late fees for credit card issuers with at least one
Speaker 1: million open head accounts. Morgan City Bank America and this
Speaker 1: is important because the rule has an effective date of
Speaker 1: May fourteenth, and credit card issuers want to avoid the
Speaker 1: costs of complying with the rule if the rule is
Speaker 1: indeed going to be struck down by the courts. So
Speaker 1: based on developments this week, it looks like the trial
Speaker 1: court in the case will rule on a preliminary injunction
Speaker 1: motion by May tense, and we think the trial court
Speaker 1: is likely to grant that motion, and even if it doesn't,
Speaker 1: we think the Fifth Circuit Court of Appeals will put
Speaker 1: the rule on hold while the appeals court reviews the
Speaker 1: trial court's decision on that motion. Ultimately, we think the
Speaker 1: bank trade groups have compelling arguments and a friendly judicial
Speaker 1: environment for striking down the rule entirely, but as an
Speaker 1: immediate catalyst, look for the rule to be put on
Speaker 1: hold by the May fourteenth effective date. All right, let
Speaker 1: me now turn to some company specific cases that I'm
Speaker 1: watching this month. Just yesterday on May first, French Banks BNP,
Speaker 1: Pariba and Society General. We're in an appeals court to
Speaker 1: argue for preserving dismissal of a case against them used
Speaker 1: them of violating US sanctions on Cuba. Under US law, anyone,
Speaker 1: including non US entities, that knowingly traffic in property that
Speaker 1: was confiscated by the Cuban government honor after January first,
Speaker 1: nineteen fifty nine, when the Fidel Castro's revolution started, those
Speaker 1: companies can be held liable for money damages to a
Speaker 1: US national who owns the claim to such property. The
Speaker 1: suits here were filed by family members of the former
Speaker 1: owners of a pair of Cuban banks that were seized
Speaker 1: by Castro's government in nineteen sixty. In terms of what's
Speaker 1: at stake, we think about three billion dollars could be
Speaker 1: an issue here, based on the value of the seized
Speaker 1: banks in the value in nineteen sixty of the seised banks,
Speaker 1: plus interest that has compounded since then. BNP and SoC
Speaker 1: Gen one dismissal of this case in the trial court
Speaker 1: and based on oral arguments in the appeals court yesterday.
Speaker 1: We don't expect the cases to be revived. The banks
Speaker 1: of Good arguments that they didn't know that their transactions
Speaker 1: with the Cuban National Bank were linked to confiscated assets,
Speaker 1: and claims that issue in the case were likely brought
Speaker 1: too late, so we expect the ruling by the appeals
Speaker 1: court sometime in the second half of twenty twenty four.
Speaker 1: And again we think the banks are well positioned to win,
Speaker 1: all right. Sticking with French banks. Let me turn to
Speaker 1: another case, this one also involving BNP Pariba. This case
Speaker 1: is a proposed class action by potentially twenty five thousand
Speaker 1: victims of genocide by the Government of Sudan, who accused
Speaker 1: BNP of aiding and abetting the Sudanese government between nineteen
Speaker 1: ninety seven and twenty eleven when the alleged genocide took place.
Speaker 1: So last month, the trial court denied BNP's motion for
Speaker 1: summary judgment, which would have ended the case without a
Speaker 1: t trial. So BNP can still try to undermine the
Speaker 1: case by denying plaintiffs' class certification, and that's what we'll
Speaker 1: be watching for this month, as there's a hearing on
Speaker 1: class certification on May seven. We think BNP is a
Speaker 1: slight favorite. We give it about a sixty percent chance
Speaker 1: to defeat class certification since the case poses a lot
Speaker 1: of individualized issues that make it unsuitable for class status.
Speaker 1: Those issues include things like, you know, many different types
Speaker 1: of injuries suffered by the reported class, as well as
Speaker 1: who caused the injuries and how and where the injuries
Speaker 1: were incurred. So if BNP does beat class certification, the
Speaker 1: case will effectively be over since individual plaintiffs are unlikely
Speaker 1: to pursue claims on their own, you know, given the
Speaker 1: costs that are attendant to bringing lawsuits. If BNP loses
Speaker 1: on class certification, however, then with I think the most
Speaker 1: likely outcome is that the case settles, and predicting a
Speaker 1: settlement amount is a little difficult at this point. As
Speaker 1: one comparable, there was a one point two five billion
Speaker 1: dollar Holocaust settlement by Swiss banks in nineteen ninety eight,
Speaker 1: and by our calculations, that would extraperate to roughly a
Speaker 1: seventy million dollars settlement for BNP in this case, just
Speaker 1: based on the number of potential class members. But you know,
Speaker 1: we can't rule out a settlement that's higher than that,
Speaker 1: potentially for several hundred million dollars. And then just lastly,
Speaker 1: the last case I want to talk about. I'll be
Speaker 1: watching Appellet oral arguments on May eighth in a four
Speaker 1: billion dollar Credit Swiez whistleblower case allegend tax evasion. In
Speaker 1: the interest of time, because I think I've spoken too
Speaker 1: long already, I won't go into detail about that case,
Speaker 1: but I do think Credit Sweese, which of course is
Speaker 1: now owned by UBS, is likely to win in that case.
Speaker 1: But I should note that the the US government separately
Speaker 1: is probing the bank for potential tax evasion violations as well,
Speaker 1: and so the possibility of fines lingers related to that,
Speaker 1: though I don't think that such fines would be more
Speaker 1: than about two hundred million dollars. So a lot to
Speaker 1: watch in the financial sector. I'm going to stop now,
Speaker 1: but let's stay on financials and bringing Nathan Dean to
Speaker 1: talk financials policy. Nathan. We saw news reports this week
Speaker 1: that the OCC and the FDIC are in the final
Speaker 1: stages of releasing their proposal on executive compensation for bankers.
Speaker 1: I don't know I should bankers be concerned that their
Speaker 1: pay is now going to be restricted or deferred in
Speaker 1: some way. Not yet. Not yet.
Speaker 3: That's the answer is not yet, and so what So
Speaker 3: there's two things to note here. One is what the
Speaker 3: Bloomberg News reports are saying, and they are saying that
Speaker 3: the OCC the Office of the Control of their Currency
Speaker 3: and the FDIC will propose sometime in the next few
Speaker 3: months an updated version of a twenty sixteen propose that
Speaker 3: goes back to twenty ten's Dodd Frank. You are fourteen
Speaker 3: years after Dodd Frank and this proposal still hasn't been
Speaker 3: decided upon. Now, what this proposal does, and I'm just
Speaker 3: gonna use the twenty sixteen as a foundation, is that
Speaker 3: if you're at a bank and it's above fifty billion
Speaker 3: in assets, and you're either a named executive so think
Speaker 3: C suite, or maybe the top fifty individuals of a bank,
Speaker 3: or a significant risk taker, and those ideally are the
Speaker 3: traders that have a decent amount of ability to trade,
Speaker 3: You're gonna see your bonus to have a deferral amount
Speaker 3: in a deferral period. So if you have a short
Speaker 3: term bonus, it could be deferred somewhere between three to
Speaker 3: four years, and it could be you know, forty to
Speaker 3: sixty percent of your variable compensation defer that amount. If
Speaker 3: you have a long term bonus, you know that the
Speaker 3: deferral per periods ironically are a little bit smaller, just
Speaker 3: one to two years, and that could be forty to
Speaker 3: fifty percent of that amount. So we're gonna wait and
Speaker 3: see if this gets updated. But the OCC and the
Speaker 3: FDA are putting this out because we think this is
Speaker 3: a political exercise and that bankers actually don't need to
Speaker 3: be concerned about this for all. So the way this
Speaker 3: bonus works, or sorry, this proposal works, is that it's
Speaker 3: actually a six agency proposal. So it's the OCC and
Speaker 3: the FDIC, but it's also the FED, the SEC, the FHFA,
Speaker 3: and the NCUA, the National Credit Union Administration, and you
Speaker 3: need all six of them to agree on the same proposal.
Speaker 3: So what happens if the OCC and the FDIC move
Speaker 3: out and the FED, because Jerome Paula has already said
Speaker 3: this year, this isn't really on their radar, doesn't do anything. Well,
Speaker 3: you get regulatory arbitrage, and we don't think that any
Speaker 3: of the regulators want to go forward with that, because
Speaker 3: then you're going to get into a situation where certain
Speaker 3: bankers that certain banks would be covered, but other bankers,
Speaker 3: potentially at the same bank would not be covered. And
Speaker 3: then you would have bankers saying, well, why do I
Speaker 3: need to report to the OCC overseen entity of Bank
Speaker 3: of Let's just say Bank of America. I want to
Speaker 3: be overseen by the FED portion of Bank of America,
Speaker 3: and it would just get very MESSI So the reason
Speaker 3: why the OCC and the FDAC are doing this is
Speaker 3: because progressive pressure from Capitol Hill has been on them
Speaker 3: for the last two years, and then specifically in the
Speaker 3: FDIC Chairman Martin Gruenberg's case, he's been telling folks in
Speaker 3: the House Financial Services Committee that this proposal is coming,
Speaker 3: it's coming, it's coming by the end of twenty twenty three.
Speaker 3: It hasn't and it's unlikely to do so. So I
Speaker 3: think the FDIC and the OCC are saying, you know what,
Speaker 3: we're tired of waiting for the FED. We're just going
Speaker 3: to put it out there and maybe put some pressure
Speaker 3: on the FED. Now, what will happen is well, that
Speaker 3: really depends if President Biden wins reelection. If he wins reelection,
Speaker 3: you could potentially see the regulators have another go at
Speaker 3: this in twenty twenty five. But even then, you know,
Speaker 3: a lot of folks think that the reason why six
Speaker 3: agencies have to agree, that's somewhat of a poison pill
Speaker 3: type aspect. So you know, we'll see if it actually
Speaker 3: gets done or not. But if you're a banker, I
Speaker 3: don't think you need to be too concerned about it
Speaker 3: at all for the next few years. Now, moving over
Speaker 3: to marijuana reschedulization, if you trade in marijuana equities, you
Speaker 3: know exactly what I'm referring to. These marijuana equities have
Speaker 3: hot sauces. I describe them anything that happens in Washington.
Speaker 3: These equities go up fifteen to twenty percent. Sometimes they
Speaker 3: decline fifteen to twenty percent. And we saw that happen
Speaker 3: earlier this week when the Associated Press, followed up by
Speaker 3: Bloomberg News, reported that the DEA will release a proposal
Speaker 3: in the near future shifting marijuana status from a Schedule
Speaker 3: one drug to a Scheduled three drug. So Schedule one
Speaker 3: drug today is something like heroin or cocaine. Moving it
Speaker 3: to Schedule three puts it on par with tile and
Speaker 3: all with codeine, for example. Now, this really only has
Speaker 3: one major impact on marijuana equities Remember, marijuana is still
Speaker 3: federally illegal. It is not a legal drug at the
Speaker 3: federal status. So despite the fact that there are thirty
Speaker 3: eight thirty nine states and entities out there that have
Speaker 3: decriminalized marijuana, it's still federally illegal and we don't anticipate
Speaker 3: that changing anytime soon. But moving it from Schedule one
Speaker 3: to Schedule three invokes something known as to eighty e
Speaker 3: tax relief, specifically for these marijuana equities. Generally, the tax
Speaker 3: rate for these entities will go from around forty percent
Speaker 3: down to somewhere five to seven eight percent. We have
Speaker 3: research that my colleague Andrew Silverman has on that we
Speaker 3: could get you if you have any questions on that. Now,
Speaker 3: the problem is is that they have announced they've made
Speaker 3: this announcement, and these marijuana equities moved up. In fact,
Speaker 3: the etfmsos went up twenty five percent at one point
Speaker 3: before it was halted. But now what, Well, they've made
Speaker 3: this announcement, there's going to be a proposal, and that
Speaker 3: proposal has to go through the Administrative Procedures Act. And
Speaker 3: so our view is is that if the proposal is released,
Speaker 3: say in the next few weeks, and that's a big
Speaker 3: if because it could be another month or two until
Speaker 3: it comes out. But if it's released in the next
Speaker 3: few weeks, it's feasible that the Biden administration can finalize
Speaker 3: this by the end of the year. However, any blips
Speaker 3: on the process, any delay or anything like that, you're
Speaker 3: looking at twenty twenty five, if not later. So if
Speaker 3: you're trying to calculate the tax rates of these marijuana equities,
Speaker 3: more likely than not you're going to be looking at
Speaker 3: tail in a twenty twenty five before that actually comes
Speaker 3: into effect. But we'll see, still a lot of stuff
Speaker 3: to happen on the horizon then, Elliott, I'll pass it
Speaker 3: back to you.
Speaker 1: Thanks, Thanks, Nathan, And I think I saw also that
Speaker 1: you know there are groups out there potentially planning to
Speaker 1: sue once you know the rules are finalized, which which
Speaker 1: is a good segue to bring in Matt settin Hell
Speaker 1: for discussion of Supreme Court cases concerning judicial deference to regulators. Matt,
Speaker 1: why don't you come in Supreme Court is considering limits
Speaker 1: on judicial deference to regulators. You know there were a
Speaker 1: couple there are a couple cases that we're waiting rulings on.
Speaker 1: I believe can you give us a high level explanation
Speaker 1: for why this matters to companies.
Speaker 4: Yeah, it's it's easy to get in the weeds of this,
Speaker 4: but from from a high level perspective, why this matters
Speaker 4: to investors is that a whole lot of US regulation
Speaker 4: over the last forty years has come not because Congress
Speaker 4: told an agency to regulate something directly, but because the
Speaker 4: agency is interpreting a statute that is uncertain. And so
Speaker 4: when you when you hear people talk about deference in
Speaker 4: this setting, it just means that the alphabet soup of
Speaker 4: regulators here, FAA, EPA, FCC is interpreting the federal law
Speaker 4: to say how far does it reach? And the courts,
Speaker 4: who aren't expert in each area don't get to say
Speaker 4: what's best. They defer to the agency as long as
Speaker 4: their readings are, you know, are reasonable. But all that's
Speaker 4: changing now, and it's changing fast. We saw the Court
Speaker 4: announced the major Questions doctrine that already said that agencies
Speaker 4: don't get to make that judgment anymore for anything that's major.
Speaker 4: We just don't really know what is major and what isn't.
Speaker 4: But now that the case teed up for the court
Speaker 4: at this moment is whether that even on non major questions,
Speaker 4: whether an agency should still get to make that call.
Speaker 4: The court is has teed up whether it should throw
Speaker 4: out the entire doctrine, and it hurt a case about
Speaker 4: what's known as Chevron deference, actually two cases in January,
Speaker 4: and we're waiting for those decisions.
Speaker 1: Now, some Matt what industries might be impacted?
Speaker 4: Yeah, so it's really any US industry where regulation is
Speaker 4: driven by agency interpretation of federal statutes. So we have
Speaker 4: a report on the terminal, collecting our research across our team,
Speaker 4: across many sectors. So we're talking financials, we're talking technology, telecom, healthcare, industrials,
Speaker 4: and they even sector regulation. You saw recently the FTC's
Speaker 4: attempt to ban non compete clauses that turns on a
Speaker 4: claim of deference, and in most cases this, you know,
Speaker 4: ending deference or at least curtailing it will result in
Speaker 4: a much lighter touch playing field for industries because the
Speaker 4: regulators will be limited in how far they can stretch
Speaker 4: federal law. Only Congress could then change that, and we
Speaker 4: think Congress rarely will be able to build up enough
Speaker 4: consensus to do that.
Speaker 1: I see, and when do you expect this concorde to
Speaker 1: rule and what do you expected to do?
Speaker 4: Yeah, So these cases were argued in January, and when
Speaker 4: you look at the other cases that were argued in January,
Speaker 4: four of the eight have already been decided. So we
Speaker 4: are literally, you know, we're at a point where it
Speaker 4: could come any Supreme Court decision day that the Court
Speaker 4: tries to get all of its decisions issued by the
Speaker 4: end of June. So May and June are are strong
Speaker 4: candidates to see this decision. And when you look at
Speaker 4: the briefing, when you look at the oral argument in January,
Speaker 4: this difference doctrine is in substantial trouble. You know, it's
Speaker 4: possible that the Court doesn't go all the way to
Speaker 4: throw the entire thing out, but even if it doesn't
Speaker 4: do that, I think it's going to curtail the doctrine
Speaker 4: even more than it's already been narrowed. So I think
Speaker 4: it should be a positive sign for a number of
Speaker 4: industries and companies when the Court releases this decision.
Speaker 1: And that just switching gears a little. I know there
Speaker 1: was an important development and a key case for Lift
Speaker 1: and Uber and that could be significant this month. Do
Speaker 1: you want to touch on.
Speaker 4: Yeah, sort of a surprising development that came in yesterday,
Speaker 4: that really important case in the California Supreme Court. The
Speaker 4: court scheduled arguments for May twenty first, So that's a
Speaker 4: date where circular circling on your calendar. This is about
Speaker 4: whether their drivers are going to be classified as contractors
Speaker 4: or as employees. The voters in two thousand past an
Speaker 4: initiative Proposition twenty two in twenty twenty to classify those
Speaker 4: drivers as independent contractors, but a court, a lower court
Speaker 4: struck it down and said only the legislature can do that,
Speaker 4: voters can't do that. That decision was appealed to an
Speaker 4: appeals court who reversed it and upheld the proposition, and
Speaker 4: now the Supreme Court is reviewing that decision. And so
Speaker 4: the stakes are really high here for Lyft and Uber
Speaker 4: because you know, if they must treat their drivers as employees,
Speaker 4: if this proposition goes away, their costs sore you know,
Speaker 4: thousands of dollars per year per driver, and that math
Speaker 4: adds up really quickly, basically forces business model changes. So
Speaker 4: the Supreme Court could have left a you know, proposition
Speaker 4: twenty two in place by denying review, and the fact
Speaker 4: that they took this case at all, is has to
Speaker 4: be a bad sign, and o'minous sign for Liftenuber when
Speaker 4: I look at the law, though, I think they have
Speaker 4: the stronger argument. I think this appeals court was correct
Speaker 4: to overturn the lower court and that the proposition should
Speaker 4: be upheld. So I think more likely than not they
Speaker 4: can win this. But I would be very nervous if
Speaker 4: I were them going into this May twenty first argument,
Speaker 4: and that's going to be the best chance to see
Speaker 4: how the court's thinking about it. They're ruling by law
Speaker 4: has to be issued ninety d eight with in ninety
Speaker 4: days after that, so we should see a final word
Speaker 4: from California's High Court in July or August, and with that,
Speaker 4: I'll toss it back to you.
Speaker 1: Great, thanks, Matt. That's interesting. I didn't know that by
Speaker 1: law they had to issue it ruined within ninety days.
Speaker 1: It's pretty unusual, and it'd be nice if a lot
Speaker 1: of courts had something like that.
Speaker 4: Absolutely all right.
Speaker 1: Last, but not least, Dwayne, let's bring you in to
Speaker 1: talk healthcare. United Health CEO Andrew Whitty testified before House
Speaker 1: and Senate committees on May first, concerning, among other things,
Speaker 1: the insurer's response to the Change Healthcare hack. Leading up
Speaker 1: to those hearings, you wrote that lawmakers wouldn't just focus
Speaker 1: on the cyber attack, but you know, you said that
Speaker 1: United Health's entire portfolio would be fair game for question.
Speaker 1: And how did that play out in terms of its
Speaker 1: Medicare advantage business, its physician acquisition strategy, and things like that.
Speaker 5: Yeah, so it played out as many of us expected.
Speaker 5: United Health, as many of the committee members noted, it's
Speaker 5: no longer a just a health insurance company. It's a payer,
Speaker 5: it's a pharmacy benefit manager, It owns physicians, it has
Speaker 5: a home health care company, and they're looking to add
Speaker 5: to that, which is on pause by the DOJ, by
Speaker 5: the way, and all of these things could grow over time.
Speaker 5: In our note, we highlight the incremental steps United Health
Speaker 5: has taken over the last twenty twenty five years to
Speaker 5: get here, and which has ultimately contributed to what is
Speaker 5: now a company that brings in four hundred billion dollars
Speaker 5: or is expected to bring in four hundred billion dollars
Speaker 5: in revenue in twenty twenty four. So, while Change Healthcare
Speaker 5: may have been the link in the chain that contributed
Speaker 5: to much of the disruption and the healthcare system in
Speaker 5: terms of providers getting paid a prior authorization getting approved
Speaker 5: or not. It highlighted and shined the light on how
Speaker 5: the United Healthcare empire is so sprawling, and that even
Speaker 5: some part of its structure, which has nothing to do
Speaker 5: with the clearinghouse you ended up getting put under the
Speaker 5: microscope now Change, which United Healthcare acquired in twenty twenty two,
Speaker 5: it will have the destruction will have an impact on
Speaker 5: United health For the company's earnings call earlier this month
Speaker 5: highlighted that it expects about one point six billion a
Speaker 5: one point six billion dollars hit to its revenue this year.
Speaker 5: That could rise if there's litigation, But again in terms
Speaker 5: of the direct impact on the company, one point six billion,
Speaker 5: this small share of their revenue. I will add that
Speaker 5: some of the other companies in the space that may
Speaker 5: relied on parts or un Change for part of its
Speaker 5: claims processing services, they did note that there was some
Speaker 5: disruption and they've held off on or they've built their
Speaker 5: reserves to account for claims and payments that may have
Speaker 5: been delayed as a result of the challenges would change.
Speaker 5: So overall, the hearing went as expected in terms of
Speaker 5: really looking at not just one piece of United but
Speaker 5: the entire the entire business.
Speaker 1: And what do you think happens next? You know, do
Speaker 1: you think Congress might step in and pass legislation affecting
Speaker 1: United Health various business units. Do you think the level
Speaker 1: of concern over how big United Health is will fade
Speaker 1: over time?
Speaker 5: I think we'll see Congress talk about a number of
Speaker 5: different things it can do in reaction to the hack,
Speaker 5: but I'm skeptical it ultimately leads to anything at this point.
Speaker 5: Some examples Buddy Carter, the Republican on the Energy and
Speaker 5: Commerce Committee, which also held the hearing yesterday, He, among others, well,
Speaker 5: he said he was going to do something about the
Speaker 5: vertical integration of the company, and lots of committee members
Speaker 5: on the Senate Finance and Energy and Commerce mentioned that
Speaker 5: what that is is anybody's guests as it relates to
Speaker 5: vertical integration and how these companies make acquisitions. I think
Speaker 5: any kind of effort for lawmakers to step in is
Speaker 5: going to highlight the tension between the free market crowd
Speaker 5: and the government intervention wings of Congress. And you look
Speaker 5: at Elizabeth Warren who brought up Medicare advantage and potential
Speaker 5: MA over payments. United is the big dog in the
Speaker 5: MA world, nine million members. It's about twenty five percent
Speaker 5: of the overall population. MA was about one hundred was
Speaker 5: part of the one hundred and thirty billion in revenue
Speaker 5: fordic it's Medicare retirement segment, So looking at that bigger picture,
Speaker 5: that's about forty six percent of its total revenue. But
Speaker 5: a lot of what the complaints are about United and
Speaker 5: other health plans in general about their coding and billing practices.
Speaker 5: This has been known for a while and Congress hasn't
Speaker 5: done much, so I'm skeptical though all of a sudden
Speaker 5: decide to legislate in this area. And it was talk
Speaker 5: about enhanced or minimum cybersecurity standards in the space from
Speaker 5: a Senator Warner on the Finance Committee, as well as Widen,
Speaker 5: the Finance Committee chairman. And what that is above and
Speaker 5: beyond what companies might be doing already remains to be seen.
Speaker 5: So I think this generates a lot of talk about
Speaker 5: how Congress could move forward the calendar this year. The
Speaker 5: differing views and just the challenges of passing anything in
Speaker 5: Congress make it unlikely we'll see something even in the
Speaker 5: lame Duck. I believe so. I expect this conversation to
Speaker 5: carry over into the new Congress and potentially new president.
Speaker 1: Got it. Thanks Wayne. All Right with that, I think
Speaker 1: we will wrap up this episode of Votes and Verdicts
Speaker 1: as you can see a lot of interesting things to
Speaker 1: watch in May. As always, thank you for listening, and
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