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

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Speaker 1: Johnson and Johnson first filed for bankruptcy in North Carolina,

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Speaker 1: then in New Jersey. Will the third time in Texas

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Speaker 1: be the charm. Jay and Jay is trying to resolve

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Speaker 1: tens of thousands of suits alleging its talk based baby

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Speaker 1: powder caused cancer by using special bankruptcy rules that allow

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Speaker 1: corporations facing financial turmoil to force an end to all

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Speaker 1: product liability lawsuits. The Third Circuit Court of Appeals in

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Speaker 1: Philadelphia nixed its first bankruptcy attempt, and a New Jersey

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Speaker 1: court nixed its second. Now it will be up to

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Speaker 1: a judge in Texas if the case remains there. Lawyers

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Speaker 1: representing TAUC claimants who opposed Jay and Jay's latest settlement

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Speaker 1: proposal are asking Texas Bankruptcy Judge Christopher Lopez to transfer

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Speaker 1: the case to New Jersey. Jay and j says it

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Speaker 1: has overwhelming support for the roughly eight billion dollar settlement

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Speaker 1: because eighty three percent of alleged victims voted for the deal.

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Speaker 1: Joining me is Anthony Casey, a business and corporate bankruptcy

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Speaker 1: professor at the University of Chicago Law School Tony tell

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Speaker 1: us about the history of Jay and Jay's bankruptcy attempts

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Speaker 1: and about the Texas two step.

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Speaker 2: So this goes back to twenty twenty one. Johnson and Johnson,

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Speaker 2: their consumer subsidiary, had been the defendant in suits alleging

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Speaker 2: ovarian cancer theoliomo being caused by mostly their baby products line,

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Speaker 2: although there's some other products involved containing CAUC and so

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Speaker 2: there was a bad judgment around that time, and this

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Speaker 2: leads to the decision in twenty twenty one to file

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Speaker 2: an entity into bankruptcy. And this is when people start

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Speaker 2: talking about the Texas two step. Now, the allegation is

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Speaker 2: that there's asbestos in the product, and so what they

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Speaker 2: looked to as a precedent where a few other companies

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Speaker 2: had filed what had become majoratively known is Texas two steps.

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Speaker 2: The idea of the Texas two step is Step one,

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Speaker 2: you divide the defendant entity into two entities, one that

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Speaker 2: houses the kind of ongoing business and one that houses

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Speaker 2: the liabilities. Step two, you put the liability company into bankruptcy.

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Speaker 2: And this, if you describe it that way, a lot

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Speaker 2: of people get worked up and say, oh, look that's

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Speaker 2: a fraud and transfer everyone kind of skips over. There's

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Speaker 2: an intermediate step, which is you also include a funding agreement,

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Speaker 2: and the funding agreement says, when the entity goes into bankruptcy,

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Speaker 2: the new liability company, the new asset company, guarantees to

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Speaker 2: make available the value of the assets that were available

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Speaker 2: before the division. And by doing that, you're saying, look,

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Speaker 2: we're actually making all the money available to the claimants

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Speaker 2: for whatever liability ends up the end of the day,

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Speaker 2: but we are separating the entity so that the bankruptcy

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Speaker 2: only involves those liabilities. And the idea behind this is

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Speaker 2: to streamline the bankruptcy. Now they said this kind of

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Speaker 2: maejoritavely became known as the Texas two step. Where did

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Speaker 2: that come from? Well, the statute under which you divide

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Speaker 2: the company in the first step is a Texas divisional

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Speaker 2: merger statute, and there have been a few of companies

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Speaker 2: who had done this previously, where they divided under the

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Speaker 2: Texas statute. Then they did step two. They filed in

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Speaker 2: North Carolina, a western district of North Carolina, and those

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Speaker 2: are still pending. Those cases. So Johnson and Johnson really

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Speaker 2: Johnson and Johnson Consumer Products. There is a consumer ink

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Speaker 2: JJCI was called that company does the divisional merger creates

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Speaker 2: the new JJCI and the LTL LTL files in the

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Speaker 2: Western District of North Carolina. There's a funding agreement that

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Speaker 2: says all of the assets that were available before the

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Speaker 2: division are still available. The value of those are available

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Speaker 2: guaranteed for whatever liabilities end up, and in case those

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Speaker 2: assets lose value, the parent company J and J guarantees

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Speaker 2: to make good on any change in value. That was

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Speaker 2: bankruptcy number one. Now that very quickly gets transferred from

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Speaker 2: the Western Dustry of North Carolina to the District of

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Speaker 2: New Jersey. There's a motion to dismiss in that case.

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Speaker 2: The bankruptcy court denies the motion to dismiss, says this

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Speaker 2: is a good use of bankruptcy. Bankruptcy is a tool

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Speaker 2: to solve collective action problems. You've got tens of thousands

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Speaker 2: of claims against this stutter. There's more coming in the future.

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Speaker 2: The only way to get a global settlement is through

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Speaker 2: a bankruptcy process. This is what bankruptcy is intended for.

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Speaker 2: That goes on appeal to the Third Circuit. The Third

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Speaker 2: Circuit says, no, you should have dismissed the case. Nothing

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Speaker 2: to do with the Texas two step other than the

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Speaker 2: funding agreement provided value, and the Third Circuit says, there's

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Speaker 2: too much money available here for you to claim that

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Speaker 2: you need to be in bankruptcy. You're too solvent, you're

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Speaker 2: not in immediate financial distress. There's an irony in that

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Speaker 2: is they said it was a bad faith filing or

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Speaker 2: not in good faith filing because the debtor provided too

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Speaker 2: much value for the creditors, which is normally the opposite

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Speaker 2: of what you think of when you're able, like what's

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Speaker 2: a bad faith debt are doing? They protected the setup

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Speaker 2: so that there was enough money to cover the claims,

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Speaker 2: and the division didn't change the amount of assets available.

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Speaker 2: Because of that, the Third Circuit said, you're not close

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Speaker 2: enough to financial distress. So that was an attempt one

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Speaker 2: and so that case gets dismissed. A couple hours after

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Speaker 2: the dismissal becomes effective, you have attempt to.

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Speaker 1: So J and J filed the second time in New Jersey,

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Speaker 1: which is the jurisdiction of the third Circuit.

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Speaker 2: So what they do following kind of the logic of

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Speaker 2: the opinion from that third circuit opinion is they reduced

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Speaker 2: the amount of money available, but they maintain enough so

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Speaker 2: that we're still a solvent entity, so that we're not

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Speaker 2: going to underpay creditors. Is the way that they the

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Speaker 2: second letter framed it, and they filed bankruptcy again, and

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Speaker 2: this time in the District of New Jersey. This time,

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Speaker 2: the bankruptcy judge says, well, I'm looking at the opinion

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Speaker 2: before I'm looking at what you did. There's still enough

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Speaker 2: money available that you're not close enough to financial distresses.

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Speaker 2: I understand the opinion from the Third Circuit, So I'm

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Speaker 2: going to have to dismiss this case that goes on

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Speaker 2: appeal to the Third Circuit. The Third Circuit says, that's right, affirms,

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Speaker 2: you know, essentially reiterating its opinion in the first case

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Speaker 2: and saying that the bankruptcy coredit had applied it correctly

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Speaker 2: in the second case. All right, So now we're on

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Speaker 2: round three. So in the third round Johnson and Johnson's announced,

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Speaker 2: I think back in May or earlier in the summer,

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Speaker 2: rather than file bankruptcy and then see what happens, we're

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Speaker 2: going to get the vote. First, we're going to go

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Speaker 2: out to all the claimants and try to build a settlement. Now,

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Speaker 2: the goal of the first to bankruptcies was to be

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Speaker 2: in bankruptcy and then build a settlement that creates a

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Speaker 2: fund that allows claimants both past and future to come

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Speaker 2: and collect against that fund, and the company to continue

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Speaker 2: operating separate from the fund. This time around, they're like, well,

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Speaker 2: let's get everyone on board on the fund first, So

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Speaker 2: they do what it's called a prepackaged bankruptcy. So we're

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Speaker 2: going to get a vote of all the potential claimants

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Speaker 2: and we've got to get a supermajority to get a

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Speaker 2: settlement through. That was true in the first two cases,

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Speaker 2: but we hadn't had the vote yet. This time, we're

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Speaker 2: going to do the vote. We're not stopping any of

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Speaker 2: the litigation while we're having the vote, because we're not

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Speaker 2: going to file unless we get to the point where

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Speaker 2: we have the vote in place. Now. During that time,

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Speaker 2: they apparently determined that they were going to use bankruptcy

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Speaker 2: to settle the ovarian cancer tout claims, but not them

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Speaker 2: as othelioma claim So they separate those off and they

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Speaker 2: have a vote among the ovarian cancer claimants over the summer,

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Speaker 2: and then at the end of that they now say

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Speaker 2: they have a rough eighty three percent of the potential

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Speaker 2: claimants voting for a settlement, and the settlement was kind

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Speaker 2: of laid out here. If you vote for this, here's

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Speaker 2: the plan we're going to put before the bankruptcy court.

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Speaker 2: Webb a vote when we go in. Are you on

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Speaker 2: board with this? Because if you are, this is prepackaged

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Speaker 2: in the sense of we know who's voted. You're the

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Speaker 2: only class of claimants because of the simplification and splitting off.

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Speaker 2: So what they did then was another divisional merger where

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Speaker 2: they separated the company into three entities. So there was

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Speaker 2: the holding company that existed. That company kind of swallows

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Speaker 2: up all the other entities that have been divided out

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Speaker 2: and then divided into three. The going forward company, the

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Speaker 2: mesothelioma company, which is going to settle outside of bankruptcy,

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Speaker 2: and the company that's kind of filed for bankruptcy, which

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Speaker 2: is the taut claimants. And that's the case that filed

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Speaker 2: last Friday, right, So this is the new entity filing,

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Speaker 2: and they file in Texas this time with the vote

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Speaker 2: in place, the plan drafted in line, hoping to get

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Speaker 2: the kind of approval through the Texas Bankruptcy Court.

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Speaker 1: So the opponents of this, some of the lawyers representing

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Speaker 1: claimants say that JJ is trying to game the system

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Speaker 1: because it's trying to get bankruptcy protections that are meant

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Speaker 1: for companies that can afford to pay their debts. Do

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Speaker 1: you agree with that, I mean no.

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Speaker 2: So this has been the debate from the beginning, with

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Speaker 2: the question of whether or not bankruptcy is the right

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Speaker 2: place for mass tortue claims to be resolved, whether or

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Speaker 2: not the Texas two step is a positive or negative. Now,

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Speaker 2: one thing to note is that bankruptcy in the US

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Speaker 2: Chapter eleven, I should say corporate bankruptcy has always been

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Speaker 2: a tool for resolving collective action problems among creditors where

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Speaker 2: their actions could destroy value. And the way that they

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Speaker 2: can destroy value is you ultimately get a race to

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Speaker 2: the courthouse. And so if you think about any of

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Speaker 2: these mass torque cases, you've got tens of thousands of claimants.

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Speaker 2: Some of them are going to go and get zero recovery,

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Speaker 2: some of them are going to get a billion dollar recovery.

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Speaker 2: And there was one large judgment for a group of

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Speaker 2: plaintiffs that was in the billions. And what happens is

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Speaker 2: that we don't know when these claims, particularly the asbestos

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Speaker 2: will end because asbestos shows up years later, and so

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Speaker 2: you have a decade long future of litigation that's costing.

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Speaker 2: You know, at one point, I think they said it

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Speaker 2: was costing a billion dollars a year to litigate these cases,

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Speaker 2: and that's destroying value. Now, the third circuitance first opinion said, look,

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Speaker 2: you're Johnson and Johnson. There's enough money for this to

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Speaker 2: go on for quite some time without it causing any problems.

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Speaker 2: Now that's true if these claims are actually valid. That

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Speaker 2: won't always be true. Right, If you have one hundred

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Speaker 2: thousand claims that are worth millions of dollars each, that'll

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Speaker 2: bankrupt any company in the world. Now, the irony was

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Speaker 2: that people say, well, yeah, but they're not really valid claims,

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Speaker 2: so they're not in that much financial trouble, which is

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Speaker 2: a weird argument. I mean, like everyone's arguing these from

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Speaker 2: like odd positions. The plaintiffs are arguing, yeah, but most

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Speaker 2: of the claims aren't any good, so you don't need

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Speaker 2: to worry about it, which is such an odd argument.

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Speaker 2: And what's really going on is stakeholders are losing value

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Speaker 2: in the current world because there's this endless litigation. If

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Speaker 2: money runs out, it'll be the case that the first

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Speaker 2: to come win and the later to come lose. And

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Speaker 2: bankruptcy has the only mechanism in our legal system that

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Speaker 2: can get parties to a global resolution that says, here's

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Speaker 2: the money available, let's stop destroying value. And that benefits

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Speaker 2: the debtor, but it also benefits the creditors because it

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Speaker 2: gets the money put aside and available sooner rather than later.

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Speaker 2: So if you're in line, if you're one of the

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Speaker 2: current eighty thousand claimants or so, when is your trial

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Speaker 2: going to happen? When is yourself am not going to

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Speaker 2: happen outside of bankruptcy. And if you're someone who doesn't

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Speaker 2: even know that they're sick yet, you know, the timing

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Speaker 2: of when the value gets put aside for you is

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Speaker 2: years or decades away. So bankruptcy, the way I look

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Speaker 2: at it, is intended to solve those kind of problems.

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Speaker 1: Right.

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Speaker 2: It says, Look, when you have a pool of assets

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Speaker 2: and you have a group of creditors who collectively want

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Speaker 2: the same thing, but individually have incentives to kind of

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Speaker 2: try to cut in line, get ahead of each other

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Speaker 2: and get the big payouts. We want to solve that problem.

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Speaker 2: That's what bankruptcy is supposed to do. The critics as

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Speaker 2: you say, no, no, no, it's only supposed to be

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Speaker 2: when you're running out of money. And if you look

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Speaker 2: around the world, there are jurisdictions that have said you

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Speaker 2: can't file for bankruptcy until you're totally insolvent. And what

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Speaker 2: you see is that companies fail because they don't file

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Speaker 2: soon enough. And there's been a trend around the world

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Speaker 2: of things called pre insolvency proceedings, which our countries realizing that, wait,

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Speaker 2: it's too late if we start helping them when they're insolvent.

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Speaker 2: We should do what the US does and help them

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Speaker 2: before they're insolvent. But we can't do it because our

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Speaker 2: system requires them to be insolvent. So let's create a

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Speaker 2: whole other system, a pre insolvency system. If you look

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Speaker 2: at Chapter eleven, it's both says you can file early,

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Speaker 2: you can file before you're insolvent, and file when you're insolvent,

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Speaker 2: and you want to encourage you to use it as

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Speaker 2: soon as you've become aware of the potential to preserve

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Speaker 2: value through coordination. Now, it is true if there was

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Speaker 2: a debt that like had zero possibility of ever having

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Speaker 2: financial problems. Bankruptcy is not made for that debtor. And

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Speaker 2: that was what the first bankruptcy opinion in New Jersey

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Speaker 2: said it. So listen, if you do the math, there's

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Speaker 2: a possibility here, a real one. But this is going

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Speaker 2: to eat up a lot of value for people. Now,

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Speaker 2: the Third Circuit says it is not immediate enough. They

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Speaker 2: didn't define that, but they said it has to be,

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Speaker 2: you know, somehow, like imminent or on the horizon. And

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Speaker 2: my view, and I think the view of a lot

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Speaker 2: of lawyers and some mac bankruptcy scholars, is that just

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Speaker 2: makes people wait too long. And an engender's litigation of

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Speaker 2: am I close enough? Am I close enough? And you

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Speaker 2: have weird cases where American Airlines and Hurts, for example,

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Speaker 2: everyone thought they were insolvent when they files for bankruptcy,

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Speaker 2: but at the end of their bankruptcies they were solvent.

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Speaker 2: Does that mean that you need to undo everything because

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Speaker 2: they shouldn't have been there. You don't want to be

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Speaker 2: litigating that every day, like do you have enough money?

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Speaker 2: Do not have enough money? And that's why mighty is

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Speaker 2: the Third Circuit rule, which is the only court that

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Speaker 2: has that immediate financial distress rule, is too onerous on

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Speaker 2: debtors and discourages filing the colorful metaphor people uses. It

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Speaker 2: tells them to call the fire department after the house

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Speaker 2: burned down, Right, you want to do it earlier. You

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Speaker 2: want to do it when there's some potential danger or

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Speaker 2: value destruction that you're trying to stop.

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Speaker 1: Coming up Next, will the judge transfer the case to

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Speaker 1: New Jersey? You're listening to Bloomberg, Johnson and Johnson's third

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Speaker 1: bankruptcy filing to resolve tens of thousands of lawsuits alleging

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Speaker 1: its talk based baby powder cost Cancer is facing familiar

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Speaker 1: challenges by opposing lawyers, including its new choice of venue Texas.

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Speaker 1: I've been talking to Anthony Casey, a bit business in

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Speaker 1: corporate bankruptcy professor at the University of Chicago Law School.

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Speaker 1: So why did Jay and Jay pick Houston for the

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Speaker 1: third bankruptcy filing.

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Speaker 2: I don't know why exactly, a big Houston. There's a

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Speaker 2: couple of things going on. One is, when they filed

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Speaker 2: in North Carolina, the court said, well, you created this

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Speaker 2: entity in Texas and the next day you filed in

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Speaker 2: North Carolina. So we're going to venue chance you to

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Speaker 2: New Jersey. So to do this structure where you simplify

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Speaker 2: and say, look, we're only putting into bankruptcy the claimants

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Speaker 2: whose claims were trying to resolve and the ones who

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Speaker 2: overwhelmingly want to resolve it, right, they voted they want

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Speaker 2: to resolve this. In order to do that, you need

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Speaker 2: to do this divisional merger, which requires you to be

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Speaker 2: a Texas entity when you do it. So one reason

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Speaker 2: they might have filed in Texas. They're like, look, we're

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Speaker 2: not going to venue shop this time. Everyone criticized this

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Speaker 2: for it, So we'll do a Texas divisional merger and

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Speaker 2: then we'll file in Texas. Right, So that's one argument

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Speaker 2: for why to file time. You know, I don't think

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Speaker 2: it's lost on people that if they have filed again

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Speaker 2: in New Jersey, right, they would have faced the same standard.

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Speaker 2: And so New Jersey, because of the third Circuit rule,

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Speaker 2: puts in place a block that says you can't restructure

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Speaker 2: this until it's too late. And so I think those

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Speaker 2: two things together made Texas the obvious venue to file, right.

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Speaker 2: So the third circuit, which would be Pennsylvania, New Jersey

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Speaker 2: and Delaware, right, that's off the table because you'd have

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Speaker 2: to make the company so close to insolvency, you know, dangerously,

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Speaker 2: so that you might be taking something away from the claimants. Right,

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Speaker 2: this entity is just money and a settlement for the victims.

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Speaker 2: And so if the requirement in the Third Circuit is

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Speaker 2: you need to make that entity insolvent, the requirement is

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Speaker 2: you need to make sure you're not paying the claimants

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Speaker 2: in full. Right, So you don't want to do that,

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Speaker 2: and if you go that far, you run into a

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Speaker 2: fraudent transfer problem. Really, if you want to resolve this,

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Speaker 2: you can't file in the third Circuit. Now, no other

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Speaker 2: circuit in the country has that rule, so that opens

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Speaker 2: up the possibility of other places. And again like when

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Speaker 2: they filed in North Carolina the first time, they got

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Speaker 2: venue transferred. But filing in Texas, well, your Texas entities

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Speaker 2: you have to be Texas entities because that's what was

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Speaker 2: required for you to do this structure. So yeah, inferring here, Okay,

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Speaker 2: well we'll just file in Texas, which also is a

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Speaker 2: very experienced, known jurisdiction. This dealt with a lot of

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Speaker 2: large cases. You're not going to overload the court in

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Speaker 2: that way, which some people thought maybe that was happening

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Speaker 2: in North Carolina. So those would be. I think the

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Speaker 2: reasons they're in Texas. But that's why I don't think

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Speaker 2: there's any venue transfer coming.

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Speaker 1: And that was my next question, because the attorneys for

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Speaker 1: the tel climates, who oppose the latest settlement proposal, are

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Speaker 1: trying to get it transferred out of Texas, and the

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Speaker 1: Justice Department's Bankruptcy Monitor, the US Trustees Office filed in

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Speaker 1: New Jersey to get it transferred to that.

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Speaker 2: State, and that already failed, right, so the New Jersey motion,

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Speaker 2: I didn't quite understand why you're trying to file it there.

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Speaker 2: There's lots of legal problems with trying to get the

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Speaker 2: New Jersey court to take the case from Texas. Partly,

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Speaker 2: you know, there is a bankruptcy rule that says if

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Speaker 2: a debtor with a pending case files somewhere else, the

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Speaker 2: court with the pending petition can bring it in. But

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Speaker 2: the New Jersey court dismissed the case. Right, there's no

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Speaker 2: petition pending there, so it's not clear that that court

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Speaker 2: would even have the power. There's all kinds of weird

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Speaker 2: questions that arise if the New Jersey court tries to

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Speaker 2: take it. So one, it's not clear the court could

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Speaker 2: take it, but two, the Court has the discretion not to,

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Speaker 2: and I can't imagine would want to open up all

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Speaker 2: those questions, which I think is why it already denied

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Speaker 2: that motion yesterday afternoon, saying you know, for now I'm

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Speaker 2: not taking the case. I think it's a without prejudice

341
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Speaker 2: and they might try it again. Go okay, So then

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Speaker 2: the right place to bring a venue transfer motion is

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Speaker 2: in the court where the case that you want transferred

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Speaker 2: is pending, Like that's what the statute says. That would

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Speaker 2: be the Texas Court. But what's the argument for transferring it?

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Speaker 2: So the argument for the New Jersey Court to take it,

347
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Speaker 2: generally that rule in bankruptcy is, in order to make

348
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Speaker 2: administration easier and more coherent, we should bring the cases together.

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Speaker 2: The New Jersey case has been dismissed, so there's nothing

350
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Speaker 2: to administratively bring it together with. So there's not that argument.

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Speaker 2: So then you know, if someone really egregiously manufactures venue,

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Speaker 2: courts can transfer venue. Now this would be the court

353
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Speaker 2: where you file to the Texas Court. But go back

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Speaker 2: to well why is their venue in Texas? Well, it's

355
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Speaker 2: a Texas entity. Why is it a Texas entity? Because

356
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Speaker 2: the only way to structure this thing this way was

357
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Speaker 2: to make it a Texas entity, and so Texas actually

358
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Speaker 2: is the first and obvious place to file for a

359
00:20:00,840 --> 00:20:05,560
Speaker 2: company that has used the Texas Statute to structure itself

360
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Speaker 2: in this way where we simplify the bankruptcy and think

361
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Speaker 2: about it the simplification, the mesothelioma claimants aren't voting for

362
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Speaker 2: a bankruptcy settlement. The ovarian claimants are, and so the

363
00:20:19,640 --> 00:20:22,280
Speaker 2: value of the separation, just to use an example, is

364
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Speaker 2: we're going to put the ovarian claimants into the bankruptcy process,

365
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Speaker 2: which overwhelming they voted in favor of, and we're not

366
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Speaker 2: going to put the mesotheliomal claimants. We're also not going

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Speaker 2: to put all the other creditors of the operations of

368
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Speaker 2: the business. We're not going to have them subject to

369
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Speaker 2: the bankruptcy and we're not going to have them able

370
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Speaker 2: to step in and make objections. So we're really simplifying

371
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Speaker 2: so that the only way that a plan gets confirmed

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Speaker 2: in the Texas Bankruptcy is if there is a valid

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Speaker 2: vote of a supermajority of these claimants. No one else

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Speaker 2: can affect that. It's really just about whether or not

375
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Speaker 2: they want this settlement, and that's the simplification that the

376
00:21:00,800 --> 00:21:04,000
Speaker 2: Texas two step allows, and if to get there you

377
00:21:04,119 --> 00:21:07,080
Speaker 2: have to become a Texas entity. That makes Texas in

378
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Speaker 2: my mind, the obvious venue. Now, some people are going

379
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Speaker 2: to say, some critics are going to say, but you

380
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Speaker 2: should never have been able to do the divisional merger

381
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Speaker 2: in the first place. The only problem with that argument

382
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Speaker 2: is no court has ever said that. And importantly, the

383
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Speaker 2: Third Circuit when they dismissed the case, it was not

384
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Speaker 2: because of the structure. It was because too much money

385
00:21:26,119 --> 00:21:28,720
Speaker 2: was available. That was the only reason. And if you

386
00:21:28,840 --> 00:21:32,600
Speaker 2: read it, the opinion applies to any debtor who isn't

387
00:21:32,640 --> 00:21:36,359
Speaker 2: close enough to financial distress, regardless of how they're structured.

388
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Speaker 2: And so as I read the opinion, it would have

389
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Speaker 2: applied to old JJCI, the old Johnston, Johnson and Consumer Company,

390
00:21:43,920 --> 00:21:47,200
Speaker 2: had it filed without ever dividing. The Third Circuit rationale

391
00:21:47,200 --> 00:21:49,760
Speaker 2: suggests it would have dismissed that case has nothing to

392
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Speaker 2: do with the Texas divisional merger. And so at that

393
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Speaker 2: point you're like, well, state law says you can do this.

394
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Speaker 2: They did this under state law, and now they're Texas entities.

395
00:21:57,920 --> 00:22:00,960
Speaker 2: The first time. They then moved to North Carolina and

396
00:22:01,000 --> 00:22:03,680
Speaker 2: got a venue transfer. So this time they didn't do that.

397
00:22:03,720 --> 00:22:06,879
Speaker 2: They stuck with Texas and they file in Texas. I

398
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Speaker 2: don't see how what the argument to the court is

399
00:22:10,760 --> 00:22:14,119
Speaker 2: for venue transfer. Where should this case be. It should

400
00:22:14,160 --> 00:22:17,800
Speaker 2: be where the parent company is. I guess that would

401
00:22:17,800 --> 00:22:21,160
Speaker 2: be the argument for sending it back to New Jersey.

402
00:22:21,520 --> 00:22:25,040
Speaker 2: But as long as we're allowing the divisional merger, it's

403
00:22:25,080 --> 00:22:27,560
Speaker 2: not clear why that has any benefit to anybody, right,

404
00:22:27,600 --> 00:22:29,879
Speaker 2: It doesn't make the case smoother, it doesn't make the

405
00:22:29,920 --> 00:22:32,719
Speaker 2: case easier. There's nothing to consolidate it with. So the

406
00:22:32,720 --> 00:22:35,440
Speaker 2: only reason I would see to transfer it is if

407
00:22:35,440 --> 00:22:37,800
Speaker 2: you went as far as saying you can't do the

408
00:22:37,840 --> 00:22:41,080
Speaker 2: Texas divisional merger, which would be a shocking thing for

409
00:22:41,160 --> 00:22:43,800
Speaker 2: a federal bankruptcy court to say that a state law

410
00:22:43,960 --> 00:22:46,040
Speaker 2: transaction is just out of bound.

411
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Speaker 1: So then you think that there is almost no way

412
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Speaker 1: that the Houston judge will transfer venue to New Jersey.

413
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Speaker 2: Correct. Yeah, I didn't think there was any chance that the

414
00:22:56,400 --> 00:22:59,119
Speaker 2: New Jersey judge would take it, and we saw that,

415
00:22:59,200 --> 00:23:02,239
Speaker 2: and I think there's no way that'll change. And I

416
00:23:02,240 --> 00:23:06,639
Speaker 2: think there's very little chance that the Texas judge will

417
00:23:06,840 --> 00:23:09,360
Speaker 2: send it somewhere else, because I just don't see the

418
00:23:09,480 --> 00:23:11,159
Speaker 2: You know, if you look at the statute, read the

419
00:23:11,240 --> 00:23:14,040
Speaker 2: language of the statue, where's your principal's business, where's your headquarters,

420
00:23:14,080 --> 00:23:16,840
Speaker 2: where you incorporated? Those are the things you look for.

421
00:23:16,880 --> 00:23:19,879
Speaker 2: And here we have that. We have a business that

422
00:23:20,000 --> 00:23:23,119
Speaker 2: is a Texas entity. And so this isn't a mailbox case,

423
00:23:23,160 --> 00:23:26,040
Speaker 2: This isn't anything, and it wasn't on the ev either, right,

424
00:23:26,119 --> 00:23:29,440
Speaker 2: So these transactions were announced months ago, right, and voted

425
00:23:29,480 --> 00:23:32,640
Speaker 2: on by the majority of creditors and claimants. So all

426
00:23:32,720 --> 00:23:35,560
Speaker 2: the formal things are there. And then if you get

427
00:23:35,560 --> 00:23:38,920
Speaker 2: the discretion, what's the discretionary reason to send the case

428
00:23:38,960 --> 00:23:43,280
Speaker 2: somewhere else when you've got a supermajority of the claimants

429
00:23:43,320 --> 00:23:46,639
Speaker 2: in favor of it, when you've got the venue. The

430
00:23:46,760 --> 00:23:50,680
Speaker 2: move to Texas was very open. The reasons for it

431
00:23:50,720 --> 00:23:53,359
Speaker 2: are very clear. I'm just trying to think, like, what's

432
00:23:53,440 --> 00:23:56,240
Speaker 2: the hook for sending this case somewhere else.

433
00:23:56,800 --> 00:23:59,960
Speaker 1: I can see that the lawyers for the cancer victim

434
00:24:00,119 --> 00:24:03,040
Speaker 1: who want to try their cases, why they want it moved,

435
00:24:03,560 --> 00:24:07,760
Speaker 1: But why does the Justice Department want it moved?

436
00:24:08,440 --> 00:24:13,240
Speaker 2: So I think the Trustees Office has taken a negative

437
00:24:13,320 --> 00:24:20,159
Speaker 2: view of a lot of the mass tort bankruptcy structures.

438
00:24:20,320 --> 00:24:22,560
Speaker 2: Maybe there is a view that, like you said, that

439
00:24:23,000 --> 00:24:25,520
Speaker 2: you know, you need to truly be insolvent. You know,

440
00:24:25,560 --> 00:24:28,440
Speaker 2: this is partly why they appealed to the Supreme Court

441
00:24:28,440 --> 00:24:31,080
Speaker 2: in the Purdue case. You know, they had a policy

442
00:24:31,160 --> 00:24:34,160
Speaker 2: view that you're not supposed to use third party releases

443
00:24:34,359 --> 00:24:37,080
Speaker 2: in master bankruptcy cases. I'm a little surprised in their

444
00:24:37,160 --> 00:24:39,879
Speaker 2: motion in New Jersey because the Office tends to be

445
00:24:40,320 --> 00:24:43,479
Speaker 2: kind of textualless and formalists, and if you look at

446
00:24:43,480 --> 00:24:46,040
Speaker 2: the rule, I don't see how the New Jersey Court

447
00:24:46,119 --> 00:24:48,760
Speaker 2: had the power, and so they were asking it to

448
00:24:48,800 --> 00:24:52,439
Speaker 2: do something I think that would be not formalist beyond

449
00:24:52,440 --> 00:24:54,280
Speaker 2: the power of the statute, which is not the way

450
00:24:54,320 --> 00:24:56,960
Speaker 2: I normally think of their positions. That said, I think

451
00:24:57,000 --> 00:24:59,639
Speaker 2: that they view themselves as the watchdog of bankruptcy process,

452
00:24:59,680 --> 00:25:02,240
Speaker 2: which I think is a good thing. But they have

453
00:25:02,280 --> 00:25:05,760
Speaker 2: a view that what large companies are doing to reach

454
00:25:05,880 --> 00:25:09,520
Speaker 2: mass towards settlements and bankruptcy is problematic. I think that's

455
00:25:09,520 --> 00:25:13,159
Speaker 2: an incorrect view, but I think that's what's driving this.

456
00:25:13,760 --> 00:25:16,760
Speaker 2: As you say, it's not their views are put out

457
00:25:16,800 --> 00:25:19,879
Speaker 2: there even when they conflict with the majority views of

458
00:25:19,920 --> 00:25:22,240
Speaker 2: the claimants. And that was true in Purdue for sure,

459
00:25:22,320 --> 00:25:25,240
Speaker 2: and it seems to be true here as well. They're

460
00:25:25,280 --> 00:25:27,359
Speaker 2: just like, but this is the way it should be done,

461
00:25:27,960 --> 00:25:30,240
Speaker 2: and that's why they want it, I guess in New Jersey.

462
00:25:30,240 --> 00:25:32,440
Speaker 2: I mean the weird thing about wanting it in New Jersey.

463
00:25:32,480 --> 00:25:35,080
Speaker 2: If your a claimant, why is New Jersey any different?

464
00:25:35,119 --> 00:25:37,359
Speaker 2: So the claimants are everywhere, so it's not clear, like

465
00:25:37,480 --> 00:25:41,040
Speaker 2: why New Jersey is better for a claimant than anywhere else. Now,

466
00:25:41,040 --> 00:25:44,359
Speaker 2: maybe their view is you've already been dismissed in New Jersey,

467
00:25:44,400 --> 00:25:47,159
Speaker 2: you should stay there. You shouldn't be able to try

468
00:25:47,800 --> 00:25:51,440
Speaker 2: to change things. And that view, if you go down

469
00:25:51,440 --> 00:25:54,440
Speaker 2: the road, gets really problematic because how long would you

470
00:25:54,480 --> 00:25:58,399
Speaker 2: be bound by the company's circumstances change over time? So

471
00:25:58,400 --> 00:26:00,840
Speaker 2: how long do they think they're bound the fact that

472
00:26:00,920 --> 00:26:03,119
Speaker 2: they had a ruling in one court at one time

473
00:26:03,280 --> 00:26:06,960
Speaker 2: and then a year later company files again even after

474
00:26:07,040 --> 00:26:10,320
Speaker 2: there was dismissed, Like, are they bound into infinity to

475
00:26:10,359 --> 00:26:13,040
Speaker 2: never file anywhere ever? Again? It can't be right. So

476
00:26:13,080 --> 00:26:16,080
Speaker 2: I'm not totally sure the theory that the Trustee's office has,

477
00:26:16,119 --> 00:26:18,960
Speaker 2: but it seems to be that they don't like what's

478
00:26:19,000 --> 00:26:22,440
Speaker 2: going on in a kind of a vague sense, and they'll.

479
00:26:22,200 --> 00:26:26,840
Speaker 1: Be basically nothing going on until October eleventh. Judge Lopez

480
00:26:26,920 --> 00:26:30,480
Speaker 1: ruled that no talk litigation can proceed against Jay and

481
00:26:30,600 --> 00:26:34,800
Speaker 1: Jay until that date while he considers whether the bankruptcy

482
00:26:34,840 --> 00:26:38,240
Speaker 1: case should proceed in the Houston court or not, so

483
00:26:38,280 --> 00:26:41,360
Speaker 1: he could find out fairly quickly whether the bankruptcy will

484
00:26:41,400 --> 00:26:44,160
Speaker 1: proceed in Texas or not. Thanks so much for being

485
00:26:44,200 --> 00:26:47,439
Speaker 1: on the show, Tony. That's Professor Anthony Casey of the

486
00:26:47,520 --> 00:26:50,639
Speaker 1: University of Chicago Law School coming up next on The

487
00:26:50,640 --> 00:26:56,320
Speaker 1: Bloomberg Lawn Show. With AI Supercharging the Threat of Election Disinformation,

488
00:26:56,800 --> 00:27:00,480
Speaker 1: California's governor has signed three bills to crack down on

489
00:27:00,560 --> 00:27:04,639
Speaker 1: the use of AI to create false images or videos

490
00:27:04,640 --> 00:27:08,240
Speaker 1: in political ads ahead of November. I'm June Grosso and

491
00:27:08,240 --> 00:27:13,919
Speaker 1: you're listening to Bloomberg with Artificial Intelligence Supercharging the Threat

492
00:27:13,920 --> 00:27:18,600
Speaker 1: of Election disinformation. Lawmakers across the country have raised to

493
00:27:18,680 --> 00:27:23,760
Speaker 1: address the issue over concerns the manipulated materials could erode

494
00:27:23,760 --> 00:27:27,560
Speaker 1: the public's trust in what they see and hear. California

495
00:27:27,600 --> 00:27:31,000
Speaker 1: has been on the cutting edge of regulating AI, and

496
00:27:31,040 --> 00:27:35,000
Speaker 1: Governor Gavin Newsom signed three bills last week to crack

497
00:27:35,040 --> 00:27:38,679
Speaker 1: down on the use of artificial intelligence to create false

498
00:27:38,760 --> 00:27:42,119
Speaker 1: images or videos in political ads ahead of the election.

499
00:27:42,640 --> 00:27:45,920
Speaker 1: Joining me is Joanna rosen Forster, a partner at Crowell.

500
00:27:46,400 --> 00:27:50,120
Speaker 1: So Joanna start by telling us about the rising concerns

501
00:27:50,240 --> 00:27:53,440
Speaker 1: about AI and deep fakes in particular.

502
00:27:54,320 --> 00:27:56,920
Speaker 3: Yeah, I think that there has been a rise at

503
00:27:56,960 --> 00:28:00,240
Speaker 3: the state and at the federal level of concerns learn

504
00:28:00,320 --> 00:28:04,040
Speaker 3: with respect to what we're calling deep fakes, which is

505
00:28:04,200 --> 00:28:08,440
Speaker 3: passing off somebody's image or voice as authentic even though

506
00:28:08,480 --> 00:28:13,359
Speaker 3: it's been manipulated or as artificial and using AI, or

507
00:28:13,400 --> 00:28:16,040
Speaker 3: not even using AI, just using photoshops to do it,

508
00:28:16,480 --> 00:28:19,800
Speaker 3: and the concern being that, on one hand, is it

509
00:28:19,920 --> 00:28:25,760
Speaker 3: deceptive to consumers? Is it deceptive to voters or their

510
00:28:26,240 --> 00:28:31,400
Speaker 3: votes being manipulated or procured through false means or pretenses,

511
00:28:31,800 --> 00:28:34,800
Speaker 3: And to a degree also with respect to actors and

512
00:28:34,880 --> 00:28:39,520
Speaker 3: personalities and celebrities their likeness. I think the big issue

513
00:28:39,520 --> 00:28:42,160
Speaker 3: that we all are thinking about on this is the

514
00:28:42,240 --> 00:28:45,120
Speaker 3: Taylor Swift deep fake that was a few weeks ago.

515
00:28:45,480 --> 00:28:48,560
Speaker 3: So I think there's been a big concern about the

516
00:28:48,680 --> 00:28:53,040
Speaker 3: use of AI to manipulate images in elections, in particular

517
00:28:53,280 --> 00:28:57,040
Speaker 3: because of the concern that it could falsely procure votes

518
00:28:57,280 --> 00:29:01,840
Speaker 3: or put undue influence on voters. And the concern has

519
00:29:01,840 --> 00:29:04,680
Speaker 3: also risen with respect to AI tools because the AI

520
00:29:04,840 --> 00:29:08,400
Speaker 3: tools make it so easy to make the deep fakes,

521
00:29:08,840 --> 00:29:12,160
Speaker 3: and to make the deep fakes so convincing such that

522
00:29:12,520 --> 00:29:16,360
Speaker 3: it's almost imperceptible to the naked eye or indiscernible to

523
00:29:16,520 --> 00:29:20,760
Speaker 3: humans that it is indeed a deep fake. So Congress

524
00:29:20,760 --> 00:29:24,840
Speaker 3: has been considering this for a while. Congress, for federal

525
00:29:24,880 --> 00:29:27,520
Speaker 3: or for worse, has been unable really to put together

526
00:29:27,600 --> 00:29:30,720
Speaker 3: any type of real truth federal statue or federal mandate

527
00:29:30,760 --> 00:29:33,400
Speaker 3: on this, leading it to the states to start to

528
00:29:33,440 --> 00:29:36,160
Speaker 3: regulate on this. I think when I last looked at it,

529
00:29:36,200 --> 00:29:40,800
Speaker 3: over forty states have now in some stage of legislation,

530
00:29:41,400 --> 00:29:46,080
Speaker 3: whether it be introduced to enacted, or addressing this. And

531
00:29:46,240 --> 00:29:50,400
Speaker 3: last week Governor Newsom in California passed into law a

532
00:29:50,520 --> 00:29:54,400
Speaker 3: set of landmark with being called first in the nation

533
00:29:54,680 --> 00:30:00,400
Speaker 3: type laws that really address not only celebrity likeness control

534
00:30:00,520 --> 00:30:04,200
Speaker 3: for celebrities in deep fake, which is with respect to elections,

535
00:30:04,280 --> 00:30:07,480
Speaker 3: or not just in general. Heart blaunched the use of

536
00:30:07,520 --> 00:30:11,040
Speaker 3: a personalities image or likeness in a deep fake. And

537
00:30:11,080 --> 00:30:14,280
Speaker 3: then separately, a series of bills that were passed in

538
00:30:14,320 --> 00:30:18,719
Speaker 3: California he signed into law that specifically addressed the threat

539
00:30:19,120 --> 00:30:24,400
Speaker 3: of using manipulated or artificial images and sound recordings in elections.

540
00:30:24,800 --> 00:30:29,120
Speaker 3: And it's been hailed as an effort to really try

541
00:30:29,160 --> 00:30:33,080
Speaker 3: to safeguard the election process, make it safer, more secure,

542
00:30:33,320 --> 00:30:36,800
Speaker 3: and be more fair and equitable. And those laws went

543
00:30:36,840 --> 00:30:39,760
Speaker 3: into effect immediately, so they are in effect right now.

544
00:30:40,200 --> 00:30:44,479
Speaker 3: I think the concern that you see from industry in

545
00:30:44,520 --> 00:30:47,520
Speaker 3: a lot of ways is that one of the laws

546
00:30:47,840 --> 00:30:52,000
Speaker 3: AB two six fifty five is directed almost entirely at

547
00:30:52,080 --> 00:30:56,240
Speaker 3: social media companies and puts a lot of obligation in

548
00:30:56,320 --> 00:30:59,520
Speaker 3: burden on the shoulders of social media companies operating in

549
00:30:59,560 --> 00:31:06,720
Speaker 3: Californi to identify, route out, address, takedown, deep fakes, or

550
00:31:06,760 --> 00:31:10,080
Speaker 3: things that they think might be deep fakes. And it's

551
00:31:10,080 --> 00:31:13,680
Speaker 3: caused quite a scramble for social media companies as a results.

552
00:31:14,120 --> 00:31:16,040
Speaker 1: How would these laws be enforced?

553
00:31:16,480 --> 00:31:19,360
Speaker 3: Yeah, it's a great question. So there's three different sets

554
00:31:19,400 --> 00:31:22,920
Speaker 3: of laws with respect to the electoral process. So two

555
00:31:23,000 --> 00:31:27,120
Speaker 3: out of the three can be enforced by average citizens,

556
00:31:27,600 --> 00:31:31,320
Speaker 3: can be enforced by the elected officials themselves or by

557
00:31:31,360 --> 00:31:34,600
Speaker 3: the attorney general. And what they do is they create

558
00:31:35,040 --> 00:31:39,040
Speaker 3: a private cause of action and or the ability for

559
00:31:39,120 --> 00:31:42,719
Speaker 3: the attorney general or for a state enforcer to file

560
00:31:43,120 --> 00:31:46,120
Speaker 3: an action in court that takes precedence, so they get

561
00:31:46,160 --> 00:31:49,560
Speaker 3: to the top of the docket for injunctive relief or

562
00:31:49,640 --> 00:31:54,360
Speaker 3: other remedies. So there's not really much of a financial stick.

563
00:31:54,800 --> 00:31:59,840
Speaker 3: You know, in California, we have the Fair Political Practices Commission,

564
00:32:00,040 --> 00:32:05,000
Speaker 3: and for decades now it has had the power to

565
00:32:05,120 --> 00:32:10,080
Speaker 3: enforce violations in the electoral process for pecuniary violations right

566
00:32:10,080 --> 00:32:13,680
Speaker 3: for five thousand dollars per violation. These other laws really

567
00:32:13,840 --> 00:32:19,240
Speaker 3: more give power to individuals, to the elected official itself

568
00:32:19,720 --> 00:32:23,120
Speaker 3: or the candidate, and to enforcers of the law in

569
00:32:23,120 --> 00:32:27,160
Speaker 3: California to bring civil actions and to seek injunctive relief.

570
00:32:27,960 --> 00:32:31,400
Speaker 1: Without these kinds of laws, how difficult is it to

571
00:32:31,520 --> 00:32:37,080
Speaker 1: get social media companies to take down content when someone

572
00:32:37,160 --> 00:32:38,640
Speaker 1: says that's a deep fake.

573
00:32:39,640 --> 00:32:41,920
Speaker 3: Yeah, So that's I think the real question. And I

574
00:32:41,960 --> 00:32:44,200
Speaker 3: think you're going to get different answers depending on who

575
00:32:44,240 --> 00:32:46,080
Speaker 3: you're talking to. And I think if you talk to

576
00:32:46,200 --> 00:32:50,280
Speaker 3: legislators and Sacramento, the reason why they passed twenty six

577
00:32:50,440 --> 00:32:55,040
Speaker 3: fifty five. What their argument is, it's almost impossible to

578
00:32:55,080 --> 00:32:57,480
Speaker 3: do it. I think if you were to talk to

579
00:32:57,520 --> 00:33:01,080
Speaker 3: social media companies or talk to those within the ambit

580
00:33:01,160 --> 00:33:05,320
Speaker 3: of the definition of social media, which in California could

581
00:33:05,400 --> 00:33:10,760
Speaker 3: also embrace potentially certain e commerce companies and others, it

582
00:33:10,840 --> 00:33:14,600
Speaker 3: was really defined to be companies that have outward facing

583
00:33:14,680 --> 00:33:18,600
Speaker 3: websites or applications to consumers or end users, and have

584
00:33:18,720 --> 00:33:22,320
Speaker 3: at least a million users in California in the preceding

585
00:33:22,360 --> 00:33:26,560
Speaker 3: twelve months. So we're not talking only about YouTube and

586
00:33:26,600 --> 00:33:30,200
Speaker 3: Google and x. It's a much broader sweep. So I

587
00:33:30,240 --> 00:33:32,680
Speaker 3: think that if you talk to the social media companies,

588
00:33:32,680 --> 00:33:36,040
Speaker 3: they would say, we're doing this already with respect to

589
00:33:36,080 --> 00:33:38,360
Speaker 3: the tools that we have and with the powers that

590
00:33:38,400 --> 00:33:42,440
Speaker 3: we have and the contractual obligations that we have under

591
00:33:42,480 --> 00:33:45,720
Speaker 3: our terms and conditions. And that's really I think the

592
00:33:45,720 --> 00:33:48,120
Speaker 3: crux of the issue is that the legislators are saying,

593
00:33:48,120 --> 00:33:51,680
Speaker 3: you're not doing enough. The social media companies are saying,

594
00:33:52,000 --> 00:33:54,959
Speaker 3: we're doing what we can when it violates our terms

595
00:33:54,960 --> 00:33:58,360
Speaker 3: and conditions, our rules of play to being on our platform.

596
00:33:58,800 --> 00:34:01,200
Speaker 3: And I think they would also say, you know, frankly,

597
00:34:01,840 --> 00:34:04,320
Speaker 3: there's a limit to what we actually have to do,

598
00:34:04,680 --> 00:34:09,480
Speaker 3: that this legislation abrogates our rights under the First Amendment.

599
00:34:10,000 --> 00:34:14,600
Speaker 3: It is potentially preempted by the Communications Decency Acts section

600
00:34:14,719 --> 00:34:18,120
Speaker 3: two thirty. So I think there's conflict there about what

601
00:34:18,360 --> 00:34:21,719
Speaker 3: social media companies actually have to do and whether that

602
00:34:21,840 --> 00:34:23,239
Speaker 3: stute can require them to do it.

603
00:34:23,280 --> 00:34:27,160
Speaker 1: Also, and did the social media companies lobby against the bill?

604
00:34:27,920 --> 00:34:28,440
Speaker 2: They did.

605
00:34:28,560 --> 00:34:30,600
Speaker 3: You know, if you look at the legislative history and

606
00:34:30,640 --> 00:34:34,080
Speaker 3: the letters that were submitted, you see a fair number

607
00:34:34,200 --> 00:34:38,560
Speaker 3: of letters that were submitted by institutions like the First

608
00:34:38,600 --> 00:34:43,200
Speaker 3: Amendment Coalition, which was arguing exactly what I said, that

609
00:34:43,280 --> 00:34:47,239
Speaker 3: these laws abrogate social media companies First Amendment rights and

610
00:34:47,719 --> 00:34:51,240
Speaker 3: us preempted by section two thirty. You had net Choice,

611
00:34:51,520 --> 00:34:56,040
Speaker 3: which is a trade group that represents many social media

612
00:34:56,160 --> 00:35:00,399
Speaker 3: companies and Internet players. They also lobbied and and wrote

613
00:35:00,480 --> 00:35:04,080
Speaker 3: letters in and protests to the law. You know, in

614
00:35:04,120 --> 00:35:08,120
Speaker 3: the amendment process, some of their concerns were addressed a

615
00:35:08,160 --> 00:35:11,200
Speaker 3: little bit, and then an urgency measure that was also

616
00:35:11,600 --> 00:35:15,120
Speaker 3: adopted and enacted with twenty six fifty five, which is

617
00:35:15,200 --> 00:35:19,160
Speaker 3: AB twenty eight thirty nine, addressed some of the I

618
00:35:19,200 --> 00:35:22,040
Speaker 3: would say some of the social media company's concerns. But

619
00:35:22,280 --> 00:35:25,399
Speaker 3: the root issue here, you know, the first principle here

620
00:35:25,480 --> 00:35:28,879
Speaker 3: that the social media companies are concerned about is hey,

621
00:35:29,440 --> 00:35:34,000
Speaker 3: this is government intrusion. And the Supreme Court, in what

622
00:35:34,920 --> 00:35:37,080
Speaker 3: you know, those of us who work in the space,

623
00:35:37,160 --> 00:35:41,080
Speaker 3: considered landmark. On July first, issued a case called Moody

624
00:35:41,280 --> 00:35:44,840
Speaker 3: versus Net Choice, and in that decision, a majority of

625
00:35:44,880 --> 00:35:51,279
Speaker 3: the justices said that Texas and Florida laws essentially requiring

626
00:35:51,360 --> 00:35:56,840
Speaker 3: social media companies to curate or not curate political speech

627
00:35:57,280 --> 00:36:01,239
Speaker 3: implicated the First Amendment. And you had majority ruling, and

628
00:36:01,280 --> 00:36:05,720
Speaker 3: then you had concurring justices essentially saying that social media

629
00:36:05,840 --> 00:36:09,400
Speaker 3: companies and the way they present information to end users

630
00:36:09,840 --> 00:36:14,680
Speaker 3: and their selection the feed are expressive compilations which are

631
00:36:14,680 --> 00:36:19,320
Speaker 3: worthy of First Amendment protection. So you have this tension

632
00:36:19,400 --> 00:36:24,400
Speaker 3: now between what legislators think might be right for people

633
00:36:25,360 --> 00:36:29,040
Speaker 3: and what first principles of our of our country are

634
00:36:29,080 --> 00:36:30,320
Speaker 3: with respect to First Amendment.

635
00:36:30,960 --> 00:36:34,880
Speaker 1: Now there's a battle over SB ten forty seven, which

636
00:36:34,920 --> 00:36:39,239
Speaker 1: is California's first of its kind AI safety bill, and

637
00:36:39,280 --> 00:36:42,719
Speaker 1: there's a question about whether Governor Newsome will even sign it.

638
00:36:42,800 --> 00:36:46,000
Speaker 1: He has until September thirtieth, to do that. Why is

639
00:36:46,000 --> 00:36:48,440
Speaker 1: that bill so much more controversial than the ones he

640
00:36:48,520 --> 00:36:49,040
Speaker 1: did sign.

641
00:36:49,840 --> 00:36:52,759
Speaker 3: The bills that were passed were really more focused on

642
00:36:52,800 --> 00:36:58,000
Speaker 3: the electoral process, and the AI bill is pretend not

643
00:36:58,200 --> 00:37:01,920
Speaker 3: just potentially, but it's far more wide sweeping and would

644
00:37:01,960 --> 00:37:05,680
Speaker 3: create disclosures or requirements with respect to the use of

645
00:37:05,719 --> 00:37:10,080
Speaker 3: AI is in nearly everything and every aspect of a

646
00:37:10,160 --> 00:37:15,799
Speaker 3: California citizen residents experience with AI. The three bills that

647
00:37:15,800 --> 00:37:19,560
Speaker 3: were passed last week solely deal with the electoral process.

648
00:37:20,160 --> 00:37:22,880
Speaker 3: So something a note about AB two six fifty five

649
00:37:23,120 --> 00:37:26,960
Speaker 3: is it really is also time constraint, So this burden

650
00:37:27,080 --> 00:37:30,960
Speaker 3: on social media companies and in general labeling or disclosing

651
00:37:31,360 --> 00:37:35,480
Speaker 3: deep fakes or otherwise taking them down. For the most part,

652
00:37:35,960 --> 00:37:38,080
Speaker 3: it's in relation to an election, So it's one hundred

653
00:37:38,080 --> 00:37:41,279
Speaker 3: and twenty days before the election is when the obligation

654
00:37:41,400 --> 00:37:46,160
Speaker 3: kicks in and runs in some instances, depending on the

655
00:37:46,200 --> 00:37:49,040
Speaker 3: section of the statute, runs for sixty days after the election.

656
00:37:49,520 --> 00:37:51,759
Speaker 3: So in an election year, when you've got a primary

657
00:37:52,080 --> 00:37:55,040
Speaker 3: and a general, you know it may be in place

658
00:37:55,360 --> 00:37:58,319
Speaker 3: for most of the year, but outside of the electoral

659
00:37:58,360 --> 00:37:59,680
Speaker 3: process it has no effects.

660
00:38:00,400 --> 00:38:03,680
Speaker 1: So someone has to sue to enforce these laws to

661
00:38:03,760 --> 00:38:07,799
Speaker 1: get a deep fake in a political advertisement taken down.

662
00:38:07,880 --> 00:38:11,880
Speaker 1: Let's say the election is in what less than six weeks?

663
00:38:12,560 --> 00:38:15,480
Speaker 1: So how fast can that be done in California's courts.

664
00:38:16,320 --> 00:38:20,360
Speaker 3: Yeah, so all three of the laws create precedence for

665
00:38:20,440 --> 00:38:24,520
Speaker 3: these lawsuits, and in twenty six fifty five, the one

666
00:38:24,560 --> 00:38:27,359
Speaker 3: that regulates social media companies, the cause of action can

667
00:38:27,400 --> 00:38:30,759
Speaker 3: arise very quickly. So what you know, the general process

668
00:38:31,040 --> 00:38:34,920
Speaker 3: is that the social media companies have to have some

669
00:38:35,040 --> 00:38:40,120
Speaker 3: type of mechanism or repository or interfaith on their sites now,

670
00:38:40,200 --> 00:38:43,359
Speaker 3: or some type of email address where a consumer, an

671
00:38:43,520 --> 00:38:46,960
Speaker 3: end user, a citizen, even a candidate or a committee

672
00:38:47,200 --> 00:38:51,200
Speaker 3: could say, hey, this image of you know, candidate X

673
00:38:51,320 --> 00:38:53,399
Speaker 3: is a deep fake. You need to take it down.

674
00:38:53,840 --> 00:38:57,439
Speaker 3: And the social media companies have thirty six hours it's

675
00:38:57,480 --> 00:38:59,160
Speaker 3: not very long, you know, a day and a half

676
00:38:59,239 --> 00:39:02,680
Speaker 3: to reply that and say we've taken it down or

677
00:39:02,719 --> 00:39:05,400
Speaker 3: here's what we're going to do. In some instances they

678
00:39:05,400 --> 00:39:08,160
Speaker 3: have seventy two hours. But that cause of action arises

679
00:39:08,360 --> 00:39:11,600
Speaker 3: very quickly from the time that they are unnoticed, and

680
00:39:11,640 --> 00:39:15,120
Speaker 3: then once that time period elapses, ostensibly the cause of

681
00:39:15,160 --> 00:39:18,680
Speaker 3: action is complete if the action hasn't been taken or

682
00:39:18,719 --> 00:39:22,919
Speaker 3: no action has been taken, and the claimant can run

683
00:39:22,920 --> 00:39:26,800
Speaker 3: into court and their case pursuant to the statute gets priority,

684
00:39:26,880 --> 00:39:28,480
Speaker 3: so they go to the front of the line. And

685
00:39:28,520 --> 00:39:32,000
Speaker 3: so what I would envision, because it fors injunctive relief,

686
00:39:32,480 --> 00:39:35,200
Speaker 3: is that you would see lit against filing for tros

687
00:39:35,280 --> 00:39:39,600
Speaker 3: or preliminary injunctions which also get heard and ruled on

688
00:39:39,640 --> 00:39:40,760
Speaker 3: a fast track basis.

689
00:39:41,040 --> 00:39:45,560
Speaker 1: Thanks so much, Joanna. That's Joanna Rosenforster, a partner at Crowell.

690
00:39:46,000 --> 00:39:48,640
Speaker 1: And that's it for this edition of the Bloomberg Law Podcast.

691
00:39:49,000 --> 00:39:51,359
Speaker 1: Remember you can always get the latest legal news by

692
00:39:51,400 --> 00:39:55,239
Speaker 1: subscribing and listening to the show on Apple Podcasts, Spotify,

693
00:39:55,520 --> 00:39:59,359
Speaker 1: and at Bloomberg dot com, slash podcast, slash Law. I'm

694
00:39:59,440 --> 00:40:01,840
Speaker 1: June gross So, and this is Bloomberg