WEBVTT - Could a Lie on a Dating Website Violate the Law? 0:00:00.560 --> 0:00:05.360 This is Bloomberg Law with June Grassoe from Bloomberg Radio. 0:00:07.840 --> 0:00:10.520 For the first time, the Supreme Court heard arguments this 0:00:10.560 --> 0:00:14.520 week challenging a broad interpretation of the nation's only major 0:00:14.560 --> 0:00:18.240 anti hacking law, and many of the justice is question 0:00:18.320 --> 0:00:22.360 the innocuous acts the law could criminalize. Here are justice Is, 0:00:22.480 --> 0:00:26.680 Samuel Alito, Elena Kagan, and Stephen Bryer. Take the example 0:00:26.880 --> 0:00:30.920 of the person who puts who lies about weight on 0:00:31.040 --> 0:00:33.640 a dating website. How would that be a violation of 0:00:33.680 --> 0:00:38.600 this statute? An employee checking Instagram and work? How is 0:00:38.680 --> 0:00:44.920 that obtaining or altering information? Your employer told you, Mr Jones, 0:00:45.320 --> 0:00:48.519 you work for me. Here is a PC. You will 0:00:48.560 --> 0:00:50.959 get all kinds of emails in this PC. You are 0:00:51.120 --> 0:00:54.520 never to use this email for a personal purpose. Joining 0:00:54.560 --> 0:00:56.760 me is David Thaw, a professor at the University of 0:00:56.800 --> 0:01:00.600 Pittsburgh Law School. David the case before the word involved 0:01:00.600 --> 0:01:03.720 a police officer who was convicted under the Computer Fraud 0:01:03.720 --> 0:01:06.200 and Abuse Act for taking a bribe to look up 0:01:06.240 --> 0:01:09.440 a license plate in the police database. What was the 0:01:09.480 --> 0:01:13.440 basic issue confronting the justices here? This is an issue 0:01:13.600 --> 0:01:18.080 that has been circulating around for a couple of decades. 0:01:18.400 --> 0:01:23.040 In various forms, and on its surface, it sounds very simple, 0:01:23.480 --> 0:01:27.200 which is, when someone who's using a computer that they 0:01:27.240 --> 0:01:30.680 have access to does something on that computer that they're 0:01:30.720 --> 0:01:34.720 not supposed to do but they're technologically able to do, 0:01:35.120 --> 0:01:38.920 is that a violation of the Federal Anti Hacking Statute, 0:01:39.000 --> 0:01:44.520 which prohibits not just unauthorized access but exceeding your authorized access. 0:01:44.560 --> 0:01:46.920 So on its face, it sounds like, if you do 0:01:47.040 --> 0:01:50.880 something that you're not supposed to do, you are exceeding 0:01:50.920 --> 0:01:55.360 your authorized access. The problem is that, in practice, with 0:01:55.480 --> 0:02:00.480 modern computing and information systems, what your quote not supposed 0:02:00.520 --> 0:02:05.680 to do unquote is a much more complex question than 0:02:05.880 --> 0:02:09.560 simply are you allowed to access a given file on 0:02:09.639 --> 0:02:13.040 a computer, which was quite literally what the United States 0:02:13.040 --> 0:02:17.320 Congress was talking about in six when it adopted the 0:02:17.360 --> 0:02:20.720 current version of the statute. That's in questions. What we're 0:02:20.760 --> 0:02:26.000 dealing with today are questions about complex sets of agreements 0:02:26.040 --> 0:02:29.960 and policies and contracts and many other things, even sometimes 0:02:30.040 --> 0:02:33.440 verbal instructions, for example, from an employer to an employee 0:02:33.840 --> 0:02:37.160 regarding what a person can and can't do with a 0:02:37.200 --> 0:02:40.440 computational device that they may carry around with them at 0:02:40.440 --> 0:02:43.360 all times in use for multiple purposes. Some of the 0:02:43.480 --> 0:02:48.880 justices gave scenarios everyday life scenarios like lying about your 0:02:48.880 --> 0:02:52.880 weight on a dating app or browsing Instagram on a 0:02:52.960 --> 0:02:57.000 work computer. What were their concerns so they're getting at 0:02:57.040 --> 0:03:00.240 this complexity. A number of those questions were to acted 0:03:00.320 --> 0:03:03.200 at the government. And what I think the justices were 0:03:03.200 --> 0:03:05.480 trying to push it is the question of saying, well, 0:03:05.480 --> 0:03:08.480 wait a minute, isn't the way you want us the 0:03:08.520 --> 0:03:13.360 court to interpret exceeds authorized access? Isn't that a whole 0:03:13.360 --> 0:03:17.200 lot more than just you're doing something that clearly, obviously 0:03:17.240 --> 0:03:20.360 you're not supposed to. Clearly, obviously you're not supposed to 0:03:20.360 --> 0:03:23.520 go into the file on the machine that is not 0:03:23.840 --> 0:03:27.760 for you. Aren't you now getting into things where a 0:03:28.000 --> 0:03:33.760 private entity can criminalize activities by writing a contract, where 0:03:33.840 --> 0:03:36.880 a dating app could make it criminal. Think about that. 0:03:36.960 --> 0:03:40.560 Make it a federal time to lie about your weight 0:03:40.880 --> 0:03:44.800 for the purpose of getting access to another user's profile, 0:03:44.880 --> 0:03:47.960 or lie about your age. Making that the subject of 0:03:48.560 --> 0:03:54.720 federal criminal law is an incredible expansion beyond what Congress 0:03:54.760 --> 0:03:58.440 originally contemplated. And that's what the Justice's line of questioning 0:03:58.480 --> 0:04:01.720 was getting. It seems like Justice scourse, it's narrowed in 0:04:01.800 --> 0:04:04.920 on that. He said that this risks making a federal 0:04:05.000 --> 0:04:09.200 criminal of all of us, and he called the case 0:04:09.280 --> 0:04:11.480 the latest in a long line of cases where the 0:04:11.520 --> 0:04:15.600 government has sought to expand federal criminal jurisdiction. Do you 0:04:15.640 --> 0:04:19.600 see that as the government trying to expand federal criminal jurisdiction. 0:04:20.040 --> 0:04:22.240 I can't speak to the government's motives, And it's actually 0:04:22.279 --> 0:04:26.039 very difficult really for anyone to speak to the government's motives, 0:04:26.080 --> 0:04:31.200 because governments don't have motives in that kind of sort 0:04:31.240 --> 0:04:34.760 of a linear, continuous sense that we think of. Our 0:04:34.800 --> 0:04:38.560 Congress changes every two years, our executive changes no less 0:04:38.560 --> 0:04:42.120 than every eight years, and the arc of cases that 0:04:42.240 --> 0:04:45.719 Justice course it was describing was over the course of 0:04:45.760 --> 0:04:49.719 a couple of decades. But the point still remains that 0:04:49.800 --> 0:04:53.000 even if there isn't necessarily motive there, there has been 0:04:53.040 --> 0:04:55.880 a trend in a direction. What I think he was 0:04:56.000 --> 0:04:59.080 probably getting at with less about motive and more about 0:04:59.080 --> 0:05:02.799 the building of an inertia, of an expansion of various 0:05:02.839 --> 0:05:09.599 federal criminal statutes that are used in prosecuting what more, traditionally, 0:05:10.040 --> 0:05:12.960 under our federalist constitution would be thought of as the 0:05:13.000 --> 0:05:17.160 province of the states to criminalize, and he and several 0:05:17.200 --> 0:05:20.719 of the other justices asked questions about that about doesn't 0:05:20.800 --> 0:05:25.600 state law also criminalize this. My colleague, Professor Orn Kerr 0:05:25.680 --> 0:05:29.640 from the University of California at Berkeley, in his Amicust brief, 0:05:29.839 --> 0:05:33.400 he talked about the fact that there are other state 0:05:33.480 --> 0:05:38.680 laws that criminalize some of these activities and the federal 0:05:38.760 --> 0:05:43.919 criminal power. Many courts over the decades and centuries of 0:05:43.960 --> 0:05:48.239 the United States have looked at as something that should 0:05:48.320 --> 0:05:52.320 be used for its very specific purpose as outlined in 0:05:52.360 --> 0:05:57.039 the Constitution, not as something that is sort of a 0:05:57.120 --> 0:06:01.440 catch all for when the states overlook something. My colleague, 0:06:01.440 --> 0:06:05.120 Professor Oren Kerr, from the University of California at Berkeley, 0:06:05.279 --> 0:06:08.880 in his Amaricust brief, he talked about the fact that 0:06:08.920 --> 0:06:13.000 there are other state laws that criminalize some of these 0:06:13.040 --> 0:06:19.359 activities and the federal criminal power. Many courts over the 0:06:19.520 --> 0:06:23.000 decades and centuries of the United States have looked at 0:06:23.040 --> 0:06:27.760 as something that should be used for its very specific 0:06:27.920 --> 0:06:33.280 purpose as outlined in the Constitution, not as something that 0:06:33.520 --> 0:06:36.159 is sort of a catch all for when the states 0:06:36.279 --> 0:06:42.040 overlook something. Now, it's important to note here that this 0:06:42.160 --> 0:06:47.360 observation is not one necessarily of malintent, in fact, almost 0:06:47.360 --> 0:06:52.080 certainly not anything other than good faith. One of the 0:06:52.160 --> 0:06:57.279 reasons that federal criminal prosecutions are often brought is because 0:06:57.440 --> 0:07:02.120 federal investigative agencies and really have far more resources and 0:07:02.240 --> 0:07:05.960 far more ability to coordinate, and in the case of 0:07:06.160 --> 0:07:11.960 investigating computer crimes, for example, those resources and interstate coordination 0:07:12.040 --> 0:07:16.000 can be key in successfully being able to not just investigate, 0:07:16.480 --> 0:07:22.120 but collect adequate evidence, apprehend and convict someone who has 0:07:22.160 --> 0:07:26.920 perpetrated a crime. So what I would suggest leads to 0:07:27.000 --> 0:07:29.920 this observation again, which I think justice course is correct 0:07:29.960 --> 0:07:33.600 that there has been a trend in that direction. But 0:07:33.680 --> 0:07:35.400 what leads to it, I think is just a good 0:07:35.520 --> 0:07:38.560 faith effort on the part of law enforcement to try 0:07:38.560 --> 0:07:41.880 and marshal whatever resources they can to deal with an 0:07:41.880 --> 0:07:47.000 incredibly growing problem. And I think what you saw from 0:07:47.040 --> 0:07:52.840 justice across almost the entire bench was a concern that 0:07:53.080 --> 0:07:58.440 the federal government doesn't have plenary police power, and the 0:07:58.520 --> 0:08:02.600 Court was expressing con turn that if there aren't some 0:08:02.760 --> 0:08:09.600 limits in that regard, then those federalist protections, the separation 0:08:09.640 --> 0:08:12.000 of the power between the federal government and the state 0:08:12.040 --> 0:08:16.280 governments will start to erupt. And there have been cases 0:08:16.440 --> 0:08:21.520 where the federal government has prosecuted people under this statute 0:08:21.600 --> 0:08:25.360 where it seemed a little bit stretched, For example, the 0:08:25.400 --> 0:08:30.280 infamous case of Aaron Swartz. There have been a number 0:08:30.320 --> 0:08:32.320 the Aaron Sports case. I think one of the things 0:08:32.320 --> 0:08:35.400 that we're missing in the air in Sports case, and 0:08:35.600 --> 0:08:37.480 this is one of the reasons why it's not the 0:08:37.480 --> 0:08:44.040 example I most commonly uses. We didn't have a full prosecution, trial, verdict, 0:08:44.720 --> 0:08:47.760 and full set of appeals, and that takes some of 0:08:47.760 --> 0:08:51.360 the story away. If you look at a case like 0:08:51.640 --> 0:08:55.360 the at least within computer crime circles, equally infamous case 0:08:55.679 --> 0:09:02.079 of Lori Drew or the case of Mr Ahernheimer, also 0:09:02.120 --> 0:09:06.920 known by his hacker handle of Weaves, those two cases 0:09:07.720 --> 0:09:12.280 illustrate the same type and set of concerns and have 0:09:12.440 --> 0:09:15.880 a fully developed record we can look at. In Lori 0:09:16.080 --> 0:09:20.040 Drew's case, not the judge entered a finding is not 0:09:20.120 --> 0:09:25.120 guilty after the trial was concluded. That's really uncommon, and 0:09:25.520 --> 0:09:29.520 it was done in part because of this issue that 0:09:29.600 --> 0:09:33.200 we're talking about, that the platform in the mid two 0:09:33.240 --> 0:09:38.120 thousands of my Space could not arbitrarily right into its 0:09:38.200 --> 0:09:44.320 contract terms about what content users would put on the 0:09:44.360 --> 0:09:50.920 website and thereby criminalized the activities. There's a concept in 0:09:50.960 --> 0:09:53.920 the law that you have noticed at the time of 0:09:53.960 --> 0:09:57.720 what is and is not criminal, and the Justice has 0:09:57.760 --> 0:09:59.840 talked a lot about this and the fact that allow 0:10:00.040 --> 0:10:04.640 in these private contracts to criminalize some activities and not 0:10:04.800 --> 0:10:09.600 others as a function of the contract rather than something 0:10:09.640 --> 0:10:12.520 that can be figured out clearly from the law itself, 0:10:13.200 --> 0:10:17.000 doesn't put people on notice. And there's a similar problem 0:10:17.000 --> 0:10:20.520 in the case of Mr Ahernheimer Um And in that 0:10:20.559 --> 0:10:24.880 particular case, there's uh. I think a number of scholars, 0:10:24.920 --> 0:10:32.240 myself included, who viewed that the aggrieved parties went, shall 0:10:32.280 --> 0:10:37.479 we say, searching for a favorable prosecutor until they found one, 0:10:37.960 --> 0:10:40.600 and that was in large part why the Third Circuit 0:10:40.600 --> 0:10:44.960 Court of Appeals ultimately ended up rejecting the conviction on 0:10:45.000 --> 0:10:49.280 the unusual grounds that venue was improper. Do you think 0:10:49.320 --> 0:10:53.559 the potential fallout from a broad reading of this law 0:10:53.840 --> 0:10:58.080 is being exaggerated or are there implications for example, for 0:10:58.600 --> 0:11:04.520 cybersecurity research and other areas that we don't think about normally. Yeah, 0:11:04.520 --> 0:11:06.520 there's an excellent question. I think it's one of the 0:11:06.559 --> 0:11:09.679 core questions that we have to deal with given the 0:11:09.760 --> 0:11:14.160 current wording of the statute and the degree to which 0:11:14.280 --> 0:11:17.400 the circuit Courts of Appeal has somewhat split on this question. 0:11:17.760 --> 0:11:21.840 It certainly is not an exaggeration in the context of 0:11:22.080 --> 0:11:26.760 can either criminal prosecutions or the civil analog they remember 0:11:26.760 --> 0:11:29.199 there is in the in the Justice has talked about 0:11:29.200 --> 0:11:33.400 this in there, or there is a civil cause of 0:11:33.440 --> 0:11:36.640 action that a private party can bring. And that actually 0:11:36.640 --> 0:11:40.520 happened in an employer employee case in the Middle District 0:11:40.520 --> 0:11:42.559 of Florida, I think in the late two thousands of 0:11:42.880 --> 0:11:46.480 It might have been early, and it involves somebody using 0:11:46.679 --> 0:11:49.800 Facebook too much at work, and the action was nothing 0:11:49.840 --> 0:11:53.040 more than a retaliatory action against someone who had filed 0:11:53.040 --> 0:11:57.319 an equal opportunity grievance against their employer. The court struck 0:11:57.360 --> 0:12:00.760 it down. It sought for what it was, but it illustrated, 0:12:00.760 --> 0:12:03.120 and I've written in an article about this stat it 0:12:03.240 --> 0:12:07.160 illustrated much like the Lori Drew case, which Professor Kerr 0:12:07.200 --> 0:12:12.520 was involved in, and the Arnheimer case. It illustrates the 0:12:12.559 --> 0:12:16.440 ways in which an expansive reading of the statute can 0:12:16.480 --> 0:12:20.000 be used to criminalize things which might or might not 0:12:20.200 --> 0:12:24.280 otherwise be criminal, but aren't criminal as a function of 0:12:24.360 --> 0:12:27.560 potentially violating in terms of a contract. What ms RU 0:12:27.720 --> 0:12:32.880 did terrorizing a child, that certainly I think should be 0:12:32.960 --> 0:12:35.319 and is criminal under the statutes that I believe that 0:12:35.400 --> 0:12:38.280 jurisdiction was was Missouri, where the child lived at the time, 0:12:38.840 --> 0:12:42.920 But she wasn't prosecuted under Missouri state law. She's prosecuted 0:12:43.000 --> 0:12:45.000 under a federal statute not designed for that purpose. And 0:12:45.160 --> 0:12:46.760 Justice has talked about that a lot in the Van 0:12:46.840 --> 0:12:49.920 Buren case yesterday. So I think that in the context 0:12:49.960 --> 0:12:53.920 of overbroad prosecutions, yes in the context of security research, 0:12:54.160 --> 0:12:56.200 I think the answer is we just don't know enough yet. 0:12:56.640 --> 0:12:58.240 And I think part of the reason we don't know 0:12:58.360 --> 0:13:01.760 enough is we just don't have enough cases to see 0:13:01.760 --> 0:13:06.080 how courts would confront that and whether courts would say 0:13:06.240 --> 0:13:10.520 this clearly is not what Congress was talking about, and 0:13:10.600 --> 0:13:13.640 they're questioning. Most of the justices seemed critical of what 0:13:13.720 --> 0:13:17.439 a broad reading of this statute might lead to. How 0:13:17.440 --> 0:13:19.520 do you think they'll come out? And it's always hard 0:13:19.559 --> 0:13:22.439 to read the tea leaves with the United States Supreme Court, 0:13:22.720 --> 0:13:25.760 but I did not hear a bench that was very 0:13:25.840 --> 0:13:29.600 favorable to the government's position, and I think that that's correct. 0:13:29.840 --> 0:13:34.480 From the particular disposition of this case. It's not often 0:13:34.880 --> 0:13:37.480 that when I hear oral argument for a case, I 0:13:37.520 --> 0:13:42.120 find myself more persuaded by the justices questioning than I 0:13:42.160 --> 0:13:46.199 was by the briefs and oral argument by counsel for 0:13:46.280 --> 0:13:49.280 the parties. But the justice is questioning on the point 0:13:49.320 --> 0:13:52.920 of whether the activity in question was properly criminalized by 0:13:53.080 --> 0:13:57.120 a broad reading of a federal statute or by the states, 0:13:57.200 --> 0:14:00.960 which clearly have the power to make the act otherwise criminal. 0:14:01.040 --> 0:14:03.640 In this case, I think it was otherwise criminal in Georgia. 0:14:03.960 --> 0:14:07.280 That was a very compelling argument, and it also fits 0:14:07.360 --> 0:14:10.280 nicely with what we call the rule of lenity, which 0:14:10.400 --> 0:14:13.760 is an assumption in criminal law that when there is 0:14:13.880 --> 0:14:18.920 ambiguity in a statute is construed in favor of the 0:14:18.960 --> 0:14:22.400 criminal defendant. Because we want to do everything possible to 0:14:22.440 --> 0:14:26.200 give people notice of what the government is telling them 0:14:26.240 --> 0:14:29.120 not to do by the commands and the criminal law. 0:14:29.240 --> 0:14:32.720 So something is ambiguous, we say, well, the Congress should 0:14:32.760 --> 0:14:35.400 be more clear. And I think that's the direction that 0:14:35.480 --> 0:14:39.800 the Justices seemed to be leaning. Was Congress has ample 0:14:39.880 --> 0:14:43.440 opportunity to make this more clear. If they really wanted 0:14:43.520 --> 0:14:46.560 to be this broad, that would be my guess that 0:14:46.680 --> 0:14:48.960 this is not a court that's going to be favorable 0:14:49.000 --> 0:14:51.680 to the government's expensive reading where they're going to come 0:14:51.720 --> 0:14:55.880 out on the reasoning. I think we got a sense 0:14:55.920 --> 0:14:58.800 of how some of the individual justices are approaching it, 0:14:58.840 --> 0:15:01.600 but I did not see an census building on the 0:15:01.720 --> 0:15:06.800 reasoning for why an expansive interpretation of that particular clause 0:15:07.120 --> 0:15:09.080 of the statute is appropriate. So I think it'll be 0:15:09.120 --> 0:15:11.440 real interesting to see how the opinions themselves come down. 0:15:11.440 --> 0:15:14.520 But I don't see five votes for the government's position. 0:15:14.760 --> 0:15:17.040 I'm not even entirely sure I see three votes for 0:15:17.080 --> 0:15:20.280 the government's position. Thanks David. That's David Thaw of the 0:15:20.400 --> 0:15:25.440 University of Pittsburgh Law School. Near A Global Asset investment 0:15:25.480 --> 0:15:29.000 company has successfully next to five point eight billion dollar 0:15:29.120 --> 0:15:34.080 purchase of fifteen luxury US hotels from die Insurance Company 0:15:34.200 --> 0:15:38.640 after arguing the coronavirus outbreak drained value out of the transaction. 0:15:39.160 --> 0:15:42.600 A Delaware judge concluded that mere A properly canceled the 0:15:42.680 --> 0:15:46.360 deal after the insurance company's response to the COVID nineteen 0:15:46.440 --> 0:15:49.880 pandemic meant it couldn't meet conditions for closing the sale 0:15:49.880 --> 0:15:53.320 of the hotels, which included iconic properties such as the 0:15:53.360 --> 0:15:56.600 West ND Saint Francis in San Francisco and the Lows 0:15:56.680 --> 0:16:00.280 Santa Monica Beach Hotel near Los Angeles. This is decision 0:16:00.320 --> 0:16:03.520 is the first in Delaware addressing the legal consequences of 0:16:03.600 --> 0:16:06.840 corporate counters to the pandemic, and they provide a basis 0:16:06.880 --> 0:16:09.480 for other firms to walk away from deals they say 0:16:09.480 --> 0:16:13.240 we're crippled by COVID nineteen. My guest is a lawyer 0:16:13.240 --> 0:16:17.760 who represented Murray Mike Karlinsky, Global head of Complex Litigation 0:16:17.840 --> 0:16:21.280 at Quinn Emmanuel. The judge wrote a two D forty 0:16:21.280 --> 0:16:25.920 two page opinion tell us briefly why he decided to 0:16:26.000 --> 0:16:29.160 cancel the deal. The starting point on this is that 0:16:29.240 --> 0:16:31.280 there are a number of cases that are right now 0:16:31.320 --> 0:16:35.120 pending in the various courts, mostly in Delaware, where you 0:16:35.160 --> 0:16:39.240 have deals that have terminated in the post pandemic or 0:16:39.320 --> 0:16:44.920 during the COVID world. And those cases have common themes 0:16:44.960 --> 0:16:48.440 to them, which are that under the governing documents, the 0:16:48.520 --> 0:16:51.600 merger agreement or the acquisition agreement, there clauses in there 0:16:51.640 --> 0:16:54.960 that allow a buyer to terminate under certain circumstances, either 0:16:55.040 --> 0:16:59.520 the failure of certain conditions having been satisfied or representations 0:16:59.560 --> 0:17:02.680 that were aid that turned out to be false. This 0:17:02.760 --> 0:17:06.399 case is consistent with those cases and that the buyer 0:17:06.480 --> 0:17:10.040 here is seeking to terminate based upon failures by the 0:17:10.080 --> 0:17:12.679 seller to comply with the terms of the agreement. We 0:17:12.720 --> 0:17:15.399 went through a full trial. We litigated this case in 0:17:15.520 --> 0:17:19.240 a very very expedited fashion over the course of three 0:17:19.280 --> 0:17:21.320 and a half months from start to finish, in what 0:17:21.400 --> 0:17:24.480 would otherwise be a three year litigation, but it was 0:17:24.520 --> 0:17:28.080 all compressed with the seller seeking to force the buyer 0:17:28.160 --> 0:17:32.080 to close and the buyer seeking to terminate the deal 0:17:32.400 --> 0:17:36.440 based upon failures under the contract. The Court here by 0:17:36.520 --> 0:17:39.320 Chancellor Laster, after a trial and hearing all of the 0:17:39.400 --> 0:17:42.320 evidence and reviewing all of the materials that were submitted, 0:17:42.600 --> 0:17:46.840 ultimately concluded that the buyer our client Mira A Asset, 0:17:47.400 --> 0:17:51.640 had proven that the seller had failed to comply with 0:17:52.000 --> 0:17:56.160 various provisions of the agreements, which were conditions that had 0:17:56.200 --> 0:17:59.720 to be satisfied before the buyer would be required to 0:17:59.760 --> 0:18:03.760 close is the deal? The judge wrote that the other 0:18:03.800 --> 0:18:07.920 side committed fraud about fraud what was he referring to? There? 0:18:08.359 --> 0:18:11.920 So one of the underlying questions in the case. This 0:18:12.000 --> 0:18:15.639 was a bizarre case because while we had the contract 0:18:15.720 --> 0:18:20.520 issues prior to entering into the contract. Uh and by 0:18:20.560 --> 0:18:23.520 the way, just so we're all clear, the contract here 0:18:23.720 --> 0:18:29.879 was to acquire luxury hotels in the United States and 0:18:30.040 --> 0:18:33.360 some of the top name hotels. Prior to entering into 0:18:33.440 --> 0:18:38.400 the agreement, it became known to us the buyer that 0:18:38.760 --> 0:18:43.960 for six of the hotels, someone purported to transfer title 0:18:44.040 --> 0:18:47.320 to those hotels to their own names, and so, in 0:18:47.359 --> 0:18:50.040 other words, it raised the question as to whether the seller, 0:18:50.119 --> 0:18:53.600 who was going to be transferring these hotels to us 0:18:53.880 --> 0:18:57.320 in exchange for roughly six billion dollars in purchase price, 0:18:57.880 --> 0:19:02.800 owned the hotels. So at the time the seller disclosed 0:19:03.200 --> 0:19:07.520 the existence of these six what we're called fraudulent deeds 0:19:07.720 --> 0:19:11.120 deeds on the properties to the buyer, there was an 0:19:11.119 --> 0:19:14.560 explanation that was given to the buyer. We were told, essentially, 0:19:15.040 --> 0:19:18.440 there's nothing really to worry about. This seems to be 0:19:18.560 --> 0:19:22.680 or this is the work of a twenty something year 0:19:22.720 --> 0:19:27.119 old uber driver with a criminal record, and it's really 0:19:27.160 --> 0:19:31.320 nothing more than a nuisance. So to assuage the buyer's 0:19:31.359 --> 0:19:35.119 concerns about is there a problem here does the seller 0:19:35.200 --> 0:19:39.080 really own these hotels? We were given an explanation that 0:19:39.160 --> 0:19:43.520 was quite the ninth and the essential message was this 0:19:43.600 --> 0:19:46.760 is nothing really to worry about. What it turned out 0:19:47.000 --> 0:19:50.919 in fact, and what was ultimately demonstrated through the course 0:19:50.960 --> 0:19:54.879 of this case and a trial, is that there was 0:19:54.960 --> 0:19:59.520 something much more sinister behind these deeds. There was an 0:19:59.560 --> 0:20:03.800 individ jewel and an organization who was responsible for those 0:20:04.160 --> 0:20:09.359 fraudulent deeds, and that the seller here had a long history, 0:20:09.400 --> 0:20:15.120 over a decade long, of litigation with this very sinister party, 0:20:15.280 --> 0:20:19.200 and that prior to signing the agreement, the seller actually 0:20:19.280 --> 0:20:22.200 knew that it was not the work of a twentysomething 0:20:22.320 --> 0:20:25.000 year old uber driver. It was not a mere nuisance 0:20:25.040 --> 0:20:27.399 as it was portrayed to us, but rather there was 0:20:27.480 --> 0:20:30.840 something much much more sinister, uh and much more of 0:20:30.840 --> 0:20:34.240 a concern, And all of that was withheld from the 0:20:34.760 --> 0:20:37.440 from the buyer, and so the buyer signed an agreement 0:20:38.119 --> 0:20:42.119 it was unaware of any of these underlying facts and 0:20:42.200 --> 0:20:46.280 details and the fact that the seller knew were concealed 0:20:46.359 --> 0:20:51.640 from it. So the underlying the sinister person I'm referring 0:20:51.680 --> 0:20:55.560 to was a fraudster in the court's eyes. But what 0:20:55.680 --> 0:20:58.080 the court is referring to when it said a fraud 0:20:58.160 --> 0:21:02.879 upon fraud is the the seller here defrauded the fire 0:21:03.600 --> 0:21:06.960 by withholding all of this information as to who was 0:21:07.040 --> 0:21:10.200 really behind these deeds and how big of a potential 0:21:10.280 --> 0:21:13.840 problem this really was. And we only learned about this 0:21:13.960 --> 0:21:17.720 as we the buyer, learned about these problems months and 0:21:17.800 --> 0:21:21.639 months later, when um some more of the facts started 0:21:21.680 --> 0:21:24.000 to come out. And that is what the court is 0:21:24.040 --> 0:21:28.240 referring to when it referred to the seller having engaged 0:21:28.280 --> 0:21:33.960 in fraud about fraud. Was the judge's decision based more 0:21:34.080 --> 0:21:37.159 on that you perhaps couldn't get the proper title or 0:21:37.280 --> 0:21:41.399 was it problems because of the coronavirus outbreak? That's a 0:21:41.440 --> 0:21:46.800 great question, June. The court's decision is premised on two pillars. 0:21:47.359 --> 0:21:53.199 One pillar was an argument that the coronavirus and the 0:21:53.359 --> 0:21:58.280 impact that COVID had on the hotel's at these particular 0:21:58.359 --> 0:22:03.240 fifteen luxury hotels was so significant that the seller started 0:22:03.280 --> 0:22:07.320 to make changes to the operations of these hotels in 0:22:07.520 --> 0:22:11.720 violation of obligations that it had under the contract. There's 0:22:11.760 --> 0:22:14.959 a provision which is standard in these contracts called an 0:22:15.080 --> 0:22:18.879 ordinary course covenant, and it basically says from the time I, 0:22:19.040 --> 0:22:22.399 as a buyer, signed the contract to the closing of 0:22:22.400 --> 0:22:26.399 the contract, which could take many months. Here signing to 0:22:26.520 --> 0:22:30.840 closing was expected to be nine months or so. The seller, 0:22:31.000 --> 0:22:35.480 you're obligated to operate the business these hotels in the 0:22:35.640 --> 0:22:41.080 ordinary course, consistent with past practice. Here the seller made 0:22:41.240 --> 0:22:46.720 dramatic changes. It furloughed five thousand plus employees, and it 0:22:46.800 --> 0:22:49.560 did a number of other things. And so one of 0:22:49.600 --> 0:22:53.199 the argument, and this is the one that was specific 0:22:53.280 --> 0:22:57.240 to COVID, was we said, this was a violation of 0:22:57.320 --> 0:22:59.800 that covenant and it gave the buyer an opportunity to 0:22:59.800 --> 0:23:02.639 turn eminate the deal. And the court agreed with us. 0:23:02.720 --> 0:23:06.720 So the court concluded, notwithstanding that these changes were made 0:23:07.160 --> 0:23:09.320 in the light of COVID, and they may have even 0:23:09.400 --> 0:23:14.399 been reasonable given COVID, they nevertheless violated the terms of 0:23:14.440 --> 0:23:19.080 the merger agreement. That was the specific COVID issue. The 0:23:19.200 --> 0:23:22.240 other issue, which was the second pillar of the court's decision, 0:23:22.640 --> 0:23:27.679 related to this whole underlying title issue and the failures 0:23:27.720 --> 0:23:29.879 as we talked about a moment ago of the seller 0:23:29.920 --> 0:23:33.800 to make proper disclosures, and the way it all culminated 0:23:34.480 --> 0:23:37.080 was that one of the key things that is a 0:23:37.119 --> 0:23:42.000 buyer of real estate let alone, billions of dollars worth 0:23:42.040 --> 0:23:45.600 of real estate always has to have both for its 0:23:45.640 --> 0:23:49.359 own protection and because third party lenders who are going 0:23:49.400 --> 0:23:52.920 to be lending the buyer proceeds to buy the deal 0:23:53.520 --> 0:23:57.800 is they have to have complete title insurance. When we 0:23:57.880 --> 0:24:00.280 buy a house, we buy title insurance to make sure 0:24:00.359 --> 0:24:05.040 that the title we're getting is is correct, it doesn't 0:24:05.080 --> 0:24:08.080 have clouds on it will so too in a deal 0:24:08.160 --> 0:24:11.159 like this. But because of all of these issues that 0:24:11.280 --> 0:24:16.240 were raised both by the UH, the sinister character, plus 0:24:16.480 --> 0:24:19.280 the fact that there were all of these concealments by 0:24:19.320 --> 0:24:23.480 the seller itself that went on for months, and surprises 0:24:23.520 --> 0:24:27.879 that were ultimately sprung upon um the buyer here and 0:24:27.960 --> 0:24:31.639 the title insurance companies. When the deal was getting set 0:24:31.720 --> 0:24:36.119 for closing, the title insurers basically threw their hands up 0:24:36.160 --> 0:24:41.560 and said, we can't provide complete title insurance here. We 0:24:41.600 --> 0:24:44.560 have real concerns because of these issues that have not 0:24:44.680 --> 0:24:49.040 been properly addressed by the seller. We're just not comfortable. 0:24:49.480 --> 0:24:51.840 And so they did something which known in the industry 0:24:51.920 --> 0:24:56.480 as raising exceptions. So they're saying we will provide title 0:24:56.520 --> 0:25:00.320 insurance for some, but not all, and then at all. 0:25:00.440 --> 0:25:04.080 Part was really really significant and so in the end, 0:25:04.200 --> 0:25:08.520 that was another provision in the agreement that failed. The 0:25:08.640 --> 0:25:11.760 court found that the seller was obligated to make sure 0:25:11.880 --> 0:25:16.639 that the actions it took allowed title insurance that fully 0:25:16.680 --> 0:25:20.399 protected the buyer here as to any of this underlying 0:25:20.440 --> 0:25:24.159 fraudulent indeed scheme. And because the title insurers could not 0:25:24.359 --> 0:25:28.960 get comfortable uh and therefore wouldn't give that complete insurance, 0:25:29.200 --> 0:25:32.560 the condition in the contract failed. And of course also 0:25:32.600 --> 0:25:35.280 the lenders who would have been asked to lend four 0:25:35.320 --> 0:25:39.240 billion dollars of third party financing for this transaction, they 0:25:39.280 --> 0:25:42.720 too said we're not comfortable, and they too said, if 0:25:42.720 --> 0:25:46.240 there's not complete title insurance, we can't go forward. So 0:25:46.280 --> 0:25:50.959 that second pillar was fact specific to this case, and 0:25:51.040 --> 0:25:54.440 I think what compelled the court to the outcome as 0:25:54.480 --> 0:25:57.640 it related to this particular issue was the court understood 0:25:58.160 --> 0:26:02.399 contextually just how serious of an issue this was and 0:26:02.480 --> 0:26:07.320 why it ultimately led to the title insurers raising these exceptions, 0:26:07.920 --> 0:26:10.920 and that the blame for it lies at the feet 0:26:10.960 --> 0:26:14.480 of the seller because of all of its concealment throughout 0:26:14.480 --> 0:26:18.120 the course of the deal process. Do you think that 0:26:18.200 --> 0:26:21.960