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- [00:00]
Jen
Being a small business owner isn't just a career, it's a calling.
- [00:03]
Holly
Chase for Business knows how much heart
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Jen
and effort go into building something of your own. Manage all your business finances, from banking
- [00:11]
Justin Teresi
to payments to credit cards, all in
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Jen
one place with Chase's digital tools. Plus access online resources designed to help your business thrive. Learn more@chase.com business chase for business make more of what's yours. The Chase Mobile app is available for select mobile devices. Message and data rates. May apply JP Morgan Chase Bank Naomi Member FDIC Copyright 2026 JPMorgan Chase Co.
- [00:36]
Elliot Stein
So there's a lot of noise about AI, but time's too tight for more promises, so let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions, not noise proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the lets create smarter business.
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The Hartford Representative
IBM when you're running a business, the best days are the ones where priorities stay on track. For mid sized and large companies, risk can affect multiple parts of the organization at once, from property and liability to cyber and regulatory challenges. At that level, managing risk becomes an ongoing discipline. At the Hartford, the focus is on helping businesses manage risk before it turns into something more disruptive. And when losses do happen, that work is paired with insurance coverage shaped by years of underwriting, risk engineering and claims experience. Learn more@the Hartford.com riskmitigation policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut.
- [02:01]
Elliot Stein
Hello and welcome to the Votes and Verdicts podcast hosted by the Litigation and Policy team at Bloomberg Intelligence, the investment research platform of Bloomberg LP on the Bloomberg Terminal. Bloomberg Intelligence has 500 analysts and strategists working across the globe and focused on all major markets. Our coverage includes over 2,000 equities and credits, and we have outlooks on more than 90 industries and 100 market indices, currencies and commodities. This podcast series examines the intersection of business policy and law, and today is our periodic look at the litigation and policy catalysts that we're currently watching and that we think will impact companies across a number of different sectors. My name is Elliot Stein. I'm an analyst with BI covering litigation in the financial sector, and I'm delighted today to be joined by several of my colleagues on BI's litigation and policy team. As always, you can find all of our research on the Bloomberg Terminal at BI Go. And you can find our litigation and policy dashboard at BilaWsGo. Just to timestamp this because things move quickly. It is Thursday, April 30, and it's about 11:30am here on the east coast of the United States. All right, so there is a lot going on both in the courts and in Washington, D.C. we have the war, we have DHS funding, which may or may not happen. We'll soon find out. Elon Musk and OpenAI are in trial this week. Cannabis is being rescheduled. And there's a whole ton of prediction markets litigation that only touches some of the things we're going to talk about. But let's start with our chief policy analyst down in Washington, D.C. nathan Dean. Nathan, come on in. How you doing today?
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Nathan Dean
Good. It's actually a nice day here in the D.C. area and the king and queen just left for their trip to Virginia. And, you know, it's, we're counting down the days till the summer recess, unfortunately. It just shows you how quickly things are going here.
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Elliot Stein
Glad to see they're going to Virginia, my home state from when I was a child, your current home state. So obviously they know that it's an important state. But. So, Nathan, it seems like the deadline. Let's talk about the Iran war. The deadline for President Trump to seek congressional authorization for further military action related to Iran is coming up. I think it's like May 1st, you'll correct me if that's wrong. I mean, do you see anything happening there? I mean, is, is President Trump going to seek authorization? And even if he does and nothing happens or Congress does something, is that going to stop him from continuing to do what he wants to do?
- [04:49]
Nathan Dean
So the 10 second answer is no, and nothing's gonna change. I mean, there is going to be pressure here because under the War powers Resolution of 1973, President Trump has 60 days to get congressional authorization in terms of conflicts. Now, he gave formal notification to Congress on March 2, which then gives us the May 1 date. For what it's worth, President Trump does get in a 30 day extension if he wishes, if he notifies Congress in writing. But that's generally for the safe withdrawal of American troops. So where we're at right now is that the Democrats have continue to push war powers resolutions and they generally fail. Most of the Republican Party is still on board with President Trump. What's important about May 1, though, is that even though I don't think you're going to see any moves from the White House to go seek authorization from Congress, they'll either claim that we have the Authority under Article 2 of the Constitution or they will most likely rely on a pre existing authorization of military force tied to the global war on terror that was passed in 2002. You are going to see a handful of Republicans in the Senate begin to express their displeasure towards the ongoing conflict, namely Senator Murkowski of Alaska, Senator Curtis out of Utah. But you're not really gonna see anything change in terms of the White House strategy. The White House may even come back and say look, the conflict is, you know, we've already won, the conflict doesn't need to continue, et cetera. So we're in this waiting game, right, in terms of like congressional pressure on the War Powers Resolution. And I will say is that there has been already move towards away from Iran, towards Cuba. There was a War Powers Resolution this week on Cuba. And you know, that's probably where this story is headed.
- [06:24]
Elliot Stein
I mean it seems like if Congress did want to do anything, their real leverage would be funding for the war. What's going on with that? I mean the President at some point threw out like $200 billion, but what's happened with that?
- [06:37]
Nathan Dean
Yeah, so there's three numbers to keep in mind. One is 1.5 trillion. This is what the White House is seeking as part of their budget for the Department of Defense war. Of that 1.5 trillion, 350 billion of it is earmarked for reconciliation, which is outside of the appropriations process. This is the process which we'll talk about in a second when it comes to DHS funding. And then you have this idea of an 80 to a $200 billion supplemental package. Now we've got both defense contractors asking about this. We also have fixed income individuals asking about this. Just because if you were to get an extra 200 billion DOL supplemental then that potentially could increase the deficit. So the story is that this 1.5 number, 350 billion of it coming from reconciliation, that's going to go through the appropriations process and the reconciliation portion of it isn't going to be dealt with until the lame duck. So if you're looking at this in terms of where are the money's going to eventually lie amongst the defense contractors, we still have multiple months to figure that process playing out. That will most likely end with either a continuing resolution or they will appropriate by September 30th. So we have plenty of time to figure out how it's going to impact the defense contractors reconciliation. It's going to go into the lame duck passage time frame. It's not going to happen in the current reconciliation bill. So again, plenty of time to figure that out when it comes to the 80 to 200 billion dollars supplemental, and I would call it more likely an 80 billion dollars supplemental versus 200 billion at this point. My sense is, is that we're never going to see that actually come out. You know, the Iran war that we're at right now is different than the Iran war. When that was a first mentioned, obviously, you know, there is hesitation like I just mentioned with Senator Murzkowski, Senator Curtis, even Senator Kennedy out of Louisiana, very conservative Republican, said, and I'm paraphrasing here, I'm not going to give the candy unless I know where it's going. So, you know, he said it much better than I did. But where I'm going with this is that I probably will think that Ed billion just gets inserted into appropriations and we never actually see a supplemental bill.
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Elliot Stein
Interesting. And what's going on with dhs? You mentioned that as well.
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Andrew Silverman
Yep.
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Nathan Dean
So the House last night passed another step of the reconciliation process. They passed a 214 to 212 with one independent voting present. This just keeps the. Keeps the process going. What investors need to know here is though, is that the committee instructions that came from the Senate budget committee unlocks $140 billion worth of reconciliation instruct. Senate leadership wants to keep this tight to around $75 billion. So even though they have the authority to go up to 140, they're gonna keep it tight to around $75 billion that is gonna be solely earmarked for DHS. So the guys think Customs, Border patrol. And the idea here is kick the can beyond so three and a half years down in terms of funding. Kick the cans out of the President Trump's administration so the Democrats don't have a leverage point against him in the second term. I think this passes, I think it goes through by June 1st. They're moving pretty quickly on this. But again, nothing else in here is. You know, there are folks have been trying to attach other things to this that's all being pushed off for another reconciliation bill which would come up in the lame duck period. So it's not all that exciting for those of us in the markets. And I would just say is because the Republicans are viewing this as an appropriations replacement, there's very little deficit impact. Nor are you going to see tax changes. Andrew will have to get a lot more excited about his tax changes in the lame duck period.
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Elliot Stein
Well, it's a pretty low bar for him. To get excited about tax changes. And I know you wanted to just talk about the highway bill. So just quickly, what's going on there?
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Nathan Dean
Yeah, so just real quickly. The highway bill is coming out. It was supposed to be a markup this week, but most likely get kicked to this mid of May. This is the infrastructure replacement for the IJA. If anybody remembers the $1.2 trillion bill from 2021, all you need to know here is the Republicans are seeking 500 to 550 billion. The bulk of that would actual infrastructure projects tied to highways and roads and bridges versus electric vehicles and rails. So if you're looking at this from a funding perspective, Vulcan CRH and Martin Marietta are the three companies to look for. And then just as a part of this, Representative Graves is talking about an electric vehicle tax. Senator Fisher, for example, is calling a thousand dollar tax on any electric vehicle. I don't think that flies. And so I think that's mostly headline risk.
- [11:08]
Elliot Stein
All right, good stuff. I know you have a lot more going on in your world, but in the interest of time, we'll have to move on. All right, let's bring in Matt Sentenhelm to talk TMT litigation and policy. So Matt, I mean, I think the biggest litigation news this week is probably the start of the trial in Elon Musk's lawsuit against OpenAI, accusing OpenAI of failing to honor its charitable mission. Tell us what's going on in the case so far.
- [11:33]
Matt Sentenhelm
Yeah, lots of drama, as expected. Elon Musk is on the stand. I think he's been on the stand for a couple of days. I'm watching it from afar, following the reports as well. But I think we're looking for a decision on the merits of this case in probably the middle of May. The judge has said she'd like to start focusing on potential remedy around May 18th. So, so I think the timing plays out around then as to when we should see a potential decision in this case. And the real question here, how I look at this, I've been surprised about this case, you know, at every stage that really that it's gotten this far. This is a case where Elon Musk sort of threw the kitchen sink of claims against OpenAI complaints with, you know, I think nearly 30 different claims. And this claim that actually made it to a jury was, was number 20 on the list, you know, his lead breach of contract claims. And all of that has fallen away. It turns out there was, you know, no, no real firm contract here. And so it's kind of surprising. It's made it this far and that the judge has let it go this far.
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Elliot Stein
But.
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Matt Sentenhelm
But she has at every step.
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Elliot Stein
And it's only one claim that's the subject of the trial.
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Matt Sentenhelm
Well, there's an unjust enrichment claim as well, but the lead claim is a breach of charitable trust claim. And there was also a fraud claim that looked like it was going to go to a jury at the last second. Musk said, I don't need that one. I'll drop that. So to simplify, we're down to a breach of charitable trust and unjust enrichment. This is about Elon Musk gave about $38 million to OpenAI as it was starting up. And he claims that there was created a charitable trust that OpenAI would be committed to the good of the world, not to private profits, and that this, the course of action that the company has taken since then is a breach of that charitable trust by converting to a for profit focus. And so he seeks, Musk now seeks, you know, it's something like 65 billion to 100 and something billion from OpenAI in disgorgement of misusing the charitable funds. And he seeks pretty severe remedies in terms of returning it to focus on its charitable mission and removing Brockman and Altman as leaders of the company. To me, to me, the big takeaway here, what is this really about? It's how long is this case going to cast a shadow over OpenAI as it looks at going to an IPO and I think with this judge having let the case go this far, you got to take it seriously at this point. And there's a chance, since she's the one ruling on this, there's a chance. She says, hey, there was something wrong here and I need to impose some sort of remedy. And that could cast a shadow that extends beyond this trial, you know, well into next year, I guess even longer if it survives on appeal. I think that any, any serious ruling or majorly disruptive ruling would be vulnerable on appeal.
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Elliot Stein
But
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Matt Sentenhelm
nevertheless, it would cast a shadow over the company as it seeks to move forward with, with a for profit focus for investors.
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Elliot Stein
Why do you think a ruling might be vulnerable on appeal?
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Matt Sentenhelm
I mean, for multiple reasons. I mean, we'll see what sort of remedy she comes up with. But it's, you know, a really disruptive remedy here is, you know, very novel. But there are real questions about whether Musk has standing to bring this suit. He didn't give these funds directly. He gave them through third parties. And so I thought there was a pretty decent argument that as a legal matter, he doesn't have the right to bring a suit like this, just as a matter of standing. Also in terms of the structuring of this company as a conversion from a charity, a nonprofit, to a for profit, normally you would think of the state attorneys general as policing that. And both the California and the Delaware attorney general were alerted to this issue, but refused to intervene. And so it's really strange for a private party who donated funds to have standing to litigate an issue like this. So it's so novel, it's so disruptive. And as I said, he brought this as a breach of contract claim, was his lead claim. What's really missing here is writing, you know, if, if you really wanted to bind OpenAI to, to this stuff, there's very little in writing that, that, that does that. So the judge is sort of piecing together a case that, that says there was a charitable trust created here. But it's, it's not the, you know, most airtight case I've ever seen. I think a very significant ruling that's disruptive to OpenAI for all those reasons would be, would be vulnerable on appeal. But that takes time.
- [17:04]
Elliot Stein
Yep, got it. All right, so the other major issue in your world, legal issue in your world, is this, this past week, is that the FCC has essentially been threatening to revoke Disney's TV licenses or ask them to at least apply early to renew them. The FCC says it's related to DEI issues, but, I mean, these threats also come on the heels of, you know, the assassination attempt on the president and jokes that Jimmy Kimmel made before that about First Lady Melania Trump. So what's this case about?
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Matt Sentenhelm
We don't know. We don't know at this point. I mean, the order that they put out just says we're investigating for non compliance with rules with FCC rules, including, you know, hiring practices or discrimination like that. So, and it certainly, the timing of this suggests that, that President Trump's concerns about Jimmy Kimmel may have something to do with it. A couple things to take away, though, from an investor perspective is, look, the broadcasting business is a very small part of Disney's overall business these days. It owns eight TV stations. That's it. This is less than 2% of the company's revenue. And what we're talking about here is an FCC proceeding that's highly unlikely to actually remove those licenses. When you look at history here, the FCC almost never denies renewals of licenses. For decades, it's been fairly routine, absent very exceptional circumstances where companies don't use the licenses or have criminal problems or flat out lied to the fcc. Absent exceptional cases like that, it's very hard looking at precedent for the FCC to deny a license here. You know, I assume they would take a very aggressive reading of their employment rules, of their non discrimination rules and try to use that against Disney. Would that hold up to justify a denial of renewal? I'm pretty skeptical. The statute says you need a, it's something like a severe violation or a pattern of abuse. And here if the FCC is taking a novel reading of its rules, it's going to be really tough. What this really is most likely about is creating a platform for, for Brendan Carr to keep investigating the company and raise this issue. And that shows his boss, he's, he said, Carr said repeatedly, look, we don't act as an independent agency anymore. We serve the president. And this gives him a platform to say, look, we're going after Disney World. We're looking at it. And he can keep going and, and saying, look, the public interest, you got to serve the public interest. And these companies may not.
- [20:15]
Justin Teresi
Be.
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Matt Sentenhelm
So he can keep harping on that theme and which has political benefits for him, even if it never leads to a concrete legal determination against the company.
- [20:26]
Elliot Stein
Got it. All right, Good stuff, Matt. All right, let's pivot to antitrust and let's start with Jen. Re Jen, you followed the Live Nation trial. Originally it involved DOJ and many states. DOJ settled and then the states continued their trial. Live Nation was found liable by a jury on April 15th. And then the next phase, I guess, is the remedy phase. So maybe tell us a little bit about what the jury found and what types of remedies the company might face. I mean, is a breakup in the cards here?
- [21:01]
Jen
Sure, absolutely. And I would say in terms of a breakup, if it's in the cards ever for any company in any monopolization suit, this would be the one.
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Elliot Stein
Wow. But big statement.
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Jen
Yeah, it is a big statement. Although, you know, I'm still leaning toward that not occurring only because it's really a lot for a judge to issue an order like that, particularly given that the likely path of appeal goes through judges and courts that are probably more on the conservative and business friendly side. So there's a good chance of reversal, like what happened in a very famous case against Microsoft. So I don't know. But my sense is that this particular judge has the wherewithal, the right temperament to issue an order like that. And we do have a company that has been a recidivist. You know, it's been under a consent order for years and it's been found to repeatedly violate that order. So I don't really know what else you do, but let me step back to what you asked about and what did the jury find here? So what the jury decided essentially is that Live Nation has a monopoly position in a couple different markets. Primary ticketing services to major concert venues, primary concert ticketing services to major concert venues and then amphitheaters. Now, I should note that having a monopoly position isn't illegal. So I see these headlines that, oh, Live Nation's a monopolist. Being a monopolist is not illegal, but what is illegal is acting in an anti competitive exclusionary manner to maintain that monopoly. And that's what the jury found that Live Nation did. It said that it had a monopoly for primary ticketing services to major concert venues, which are, by the way, arenas and amphitheaters that seat about 8,000 plus. So it excludes smaller theaters, it excludes stadiums. It's for sort of a vast majority of pop and rock stars and other musicians. Right, that can fill a pretty big venue, but can't necessarily fill a stadium and would would have too many tick people who wanted to participate if it was a smaller theater. So it maintained its monopoly power in those markets by entering long term exclusive agreements with these venues. They use Ticketmaster, that's owned by Live Nation, as the ticketer by directly and indirectly threatening these venues that if you don't use Live Nation as ticketer, we're going to divert our concerts. Now that's a big. Because Live Nation is a promoter and an artist manager, a venue owner and a ticketer and they manage more than 400 and all the really big artists. So basically there was a big controversy at trial because Barclay center decided to use SeatGeek or some other ticketer for events. And all of a sudden all the Live Nation artists were removed and Billie Eilish was one of them who played at a UBS arena rather than playing at the Barclays Center. And this was considered retaliation because they moved away from Ticketmaster, they moved back to Ticketmaster and all of a sudden they got a whole bunch of Ticketmaster Live Nation show.
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Justin Teresi
Coincidence.
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Jen
What a coincidence. Right? So they also decided that they maintain their monopoly in a market for large amphitheaters. That's a big deal because they own the vast majority of large amphitheaters in the United States. And if an artist wants to do a summer tour, they want to do it in amphitheaters or they want to at Least include mostly amphitheaters. And certain artists, like a Jimmy Buffett type, want to do everything in an amphitheater, so.
- [24:10]
Elliot Stein
Well, not anymore.
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Jen
Not anymore. Right, right. I said it's tight.
- [24:14]
Elliot Stein
Okay, gotcha.
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Jen
We'll go with Dave Matthews. How's that?
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Justin Teresi
Okay.
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Jen
All right, so we'll go with Dave Matthews on that one. So basically what Live Nation did here is it refused to allow other promoters other than Live Nation to promote shows in its amphitheater. And also, if an artist wanted to use the amphitheater, and that's important because they needed to go through Live Nation because they own most of them, they would require that artist to also use Live Nation as promoter. So no other promoters could really get any work or handle summer tours. So they're just blocking this competition out of the market. Now, the last thing the jury decided, it agreed with the state's expert on damages, who calculated $1.72 overcharge per ticket for Live nations anti competitive conduct. And the states think this is going to amount to about $700 million. I know that sounds low, but it's very difficult for an industrial organization economist to come up with this kind of a calculation and figure because what they need to do is figure out what would the tickets have cost in a competitive market. And you don't have a competitive market. And they have to use the data that's available to them. And my feeling is this, $72 is probably low because they compared Ticketmaster to the only other big ticketer, which is a company called Axis, which is owned by a company called aeg. But if you're the only other ticketer and Ticketmaster is overcharging, you're probably overcharging too. That's my own feeling about it. But anyway, that's what they came up with. So where are we now and what's next? The judge is going to have to decide Elliot on some post trial motions first. I think before we get into a decision on remedies, Live nations asked him to set aside the jury verdict or for a new trial and to also exclude that expert testimony that came up with that $72 overcharge. I don't think that Live Nation's likely to be successful with any of these. It has a bit of a shot on the expert testimony because there was. There were some problems with the way she used Live Nation's data inputted into her economic modeling. And so the output from that economic modeling is a little bit tentative. So it's possible that 700 million gets dropped, but it doesn't mean that monetary damages won't be imposed at all, because some states have statutes that allow for civil penalties also, and that would be in the judge's discretion, but I think it would be way less than that $700 million. Timing wise, I think that the judge is probably going to decide this by about end of July to mid August based on what's been at least suggested by the parties and the briefing schedule that he's set up. So that's where I think we are with that on damages. The damages process, I think, won't get into full swing until he's made a decision on those motions. Right. And the damages process is going to be briefing expert reports and hearing. And if I'm correct that the motions are going to be decided first, that hearing probably won't even hit till the first quarter of 2027. Yeah, right. Late. So a decision then is Probable in 2H27, toward the end of the year. And at that point, Live Nation can appeal.
- [27:14]
Elliot Stein
Right. And they can appeal everything. Liability.
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Jen
At that point, they can appeal everything. Right. So we talked at the beginning a little bit about divestiture. As I said, I lean against the judge ordering that, although I think if it could ever happen, this would be the case where it would happen. If he did, Live Nation will appeal, and if they appeal, they'll get its date, that order, which means it would be years before something like that went into effect. But I still think that it could happen now if he doesn't. I think the states are going to have to be very creative in what they suggest here in terms of remedies, because really, they're between a rock and a hard place, as is the judge, because Live Nation's been under a consent order that's mostly behavioral with the Department of Justice ever since they acquired Ticketmaster in 2010. And it said you can't do a whole bunch of the stuff that the jury found that they do retaliate against venues, tie their products together, et cetera. It's been found already once by the first Trump administration to have violated that order. They bolstered the order and extended it to December of 2025. So now it's just obvious that the judge is going to have to do more. It may be that it's no exclusive agreements at all in the DOJ settlement. They're allowed to have some exclusive agreements. It may be some sort of a firewall or division between all of its different businesses, promotions, ticketing, artist management. But I think they're going to have to do better than that. So they will obviously put in a brief where they suggest those damages, and I'm going to be very interested to see what that says, because they're going to have to have an alternative beyond divestiture. And like I said, they're going to have to be robust in order to really open up competition in the market.
- [28:51]
Elliot Stein
Got it. Such an interesting case, and one that sort of touches everybody, Right?
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Jen
Yeah. No, it really does. And just one last thing. There is a Tunney act process, too, that has to happen. The Department of Justice settled, and every single Department of Justice antitrust settlement must get a federal judge sign off that it's in the public interest. I think a lot of people believe the settlement is not in the public interest, that it's a slap on the wrist and it's not gonna do anything. But the judge, because of precedent, ever since the Tunney act was passed in the 1970s, is really limited. He's supposed to give deference to the doj. He's not supposed to second guess. He's not supposed to ask could there have been a better settlement, but is this good enough? And so I suspect, and especially because he's going to impose damages so he can go beyond this settlement, I suspect probably there won't be a big issue here. And I think that process will probably run simultaneously with the remedy's hearing. And the very last thing is for anyone listening to the podcast who does have a particular interest in the case, there will be a hearing May 7, and that's going to be to settle, come up with whatever the schedule will be for litigating the remedies, and I will update my materials after that.
- [29:58]
Elliot Stein
Sounds great. All right, Jen, thank you. We look forward to future updates. Let's stick with antitrust and bring in Justin Teresi. Justin, let's talk Visa and something else that affects everybody. Visa, MasterCard, swipe fees. You were at an April 27 hearing concerning the settlement that was valued at like $38 billion in this litigation that seems to be to have been going on forever at this point. Remind us sort of what the case is about, what the settlement is about, and what your takeaway from that hearing was.
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Justin Teresi
Yeah, definitely, Elliot. So, yeah, this has been going on for about 20 years now. A little bit over 20 years, but I don't think it's going to be going on for 30 years. So that's the good news, I think, coming out of great news. Yes. But what this case involves, basically, is the actual swipe fees related to Visa and Mastercard transactions. And what that looks like is that all of these issuing banks who issue these Visa mastercards, the JP Morgan's of the world, the Wells Fargo's of the world, et cetera, they collect a fee, typically between 1 and 3% every time a card is swiped with a merchant. The merchant pays that fee typically to the issuing banks. Right. And right now, the way that that operates is that merchants aren't allowed to pass that fee on to consumers using cards. Cards like those airline rewards cards, the cash back cards, they typically have a higher fee associated with them. And since this case has been filed, those kinds of cards have really proliferated in the last couple of decades. So this deal, fast forward, you know, this is the third try to end this litigation. I think third time might be the charm with this particular situation. But the allegations of the case are that these fees are. The default rate set with them is kind of an antitrust violation. It's a super competitive price. And that, you know, merchants really don't have the ability to say, hey, we're going to take some of these cards with a lower fee. We're not going to take others. That's all changing under the terms of this proposed settlement. And I think for that reason, that's why we either see the deal approved or we actually have some real guardrails as to what a trial remedy might look like in the future if the deal is actually shut down here. So this is a change from my view. I thought, you know, we might not see an approval of the deal because a lot of merchants are still opposed to what this looks like. But I got to tell you, after the hearing on Monday, things are really looking a little bit different, I think, you know, based on the judge's reaction to a lot of what happened during that proceeding.
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Elliot Stein
Well, I mean, those merchants that oppose the settlement, do they have any recourse or they're stuck with it?
- [32:33]
Justin Teresi
Yeah, they're going to be stuck with this, I'd say, if the deal is approved. Because what we're looking at here is a deal where we're talking about equitable relief, right? There's not an ability to opt out from one of these deals the way that there would be with a damages class, which has already happened in this case. We've already addressed all of these damages and the monetary kind of awards that would happen as part of a resolution on that side in 2019 here. Moving forward, we're talking about rule changes in the future and these fee concessions that are a part of the package that's really something that was, I think, thrown into Sweden the deal. It's not addressing past harms and past damages. That's already kind of off the table here. But what else is in the deal, Right? What's here is that we're breaking cards now from Visa MasterCard into three buckets, right? There are standard cards that don't come with all those flashy kind of rewards. You know, they come with a lower kind of fee. There are commercial cards, which typically come with a higher fee, and then there are these premium, so called premium cards. Those are the big ones that everyone's carrying, right? For the airline miles, whatever. Those have the higher fees. Merchants moving forward could say, hey, we're going to take standard cards, but we're not going to accept any other kinds of cards. So that's a real change for merchants here, giving them the ability to really cut down on the cost of that they're experiencing as part of the card acceptance. Also, they can pass these fees on to consumers. Now, that is not something that was allowed before under the terms of the settlement. So, you know, whether or not that actually happens, that's a huge question mark. I think a lot of merchants are saying, hey, we're not going to do that because it kind of makes us look bad from a business standpoint with our actual customers. But some smaller merchants really do want the ability to do this. So, you know, that's all different this time around. That wasn't all allowed in the last proposal. You know, the merchants still had to accept pretty much all visas and all MasterCards under the proposal the court shot down in 2024. So that's changed markedly. Merchants would have to go along with whatever is ordered by the court. But look, the judge, I think, really indicated that if this goes to trial, merchants are pushing for the ability not just to be able to accept or decline a card, depending on the type of card it is, but also by issuing bank, right. So they want to, they feel like, hey, if we negotiate a good deal with Wells Fargo, maybe we'll take a Wells Fargo visa or a MasterCard, but we won't take a J. Morgan Chase Visa, MasterCard if we don't have as good of a deal with them. Right. You know, the card company are saying, look, that would end, that would totally cut up the entire system here, right. What's the point of Visa MasterCard if you're really just going to the issuer to negotiate a deal with them, Right. So you know that, that's, that's what they're objecting that's the basis they're objecting on. The judge, I think, is not going to go for that, though, if we end up.
- [35:11]
Elliot Stein
Yeah. I mean, that doesn't, doesn't sound good for consumers either. It's like.
- [35:15]
Justin Teresi
Right. Because yeah, you're thinking about, you know, 10 different, you know, kinds of cards maybe.
- [35:19]
Elliot Stein
Right.
- [35:19]
Justin Teresi
That are in your wallet, but maybe you only bring all five to the store and the five that you brought to the store aren't accepted because they're with the wrong bank. It's a nightmare, I think, you know, waiting to happen. So here's where we are moving forward, I think, you know, grand scheme. The deal either gets approved as is or we go to trial. But we're not going to see this kind of decline or acceptance by issuer that, you know, the merchants are asking for. That judge made it pretty clear that's not going to happen. And I'll just. One important quote from the hearing. One of the attorneys for the objecting merchant said, look, we'd rather take refill really strongly and we'd rather take this to trial and lose than have this deal. And the judge's reaction was, quote, be careful what you wish for. So, I mean, we're really, I think, starting to see that the kind of outline of what a final resolution looks like, whether it happens in the deal being approved or later on in a trial.
- [36:07]
Elliot Stein
Got it. And when do you expect to hear from the judge on this?
- [36:11]
Justin Teresi
Yeah, so I think we'll hear on preliminary approval relatively quickly. I think by the end of first half, if it's approved. I think the notice period and all of that happens for the second half. And we could see a fairness hearing sometimes in second half if the deal's actually approved.
- [36:23]
Elliot Stein
Got it. All right, Good stuff, Justin. Thank you. All right, we'll pivot from antitrust to tax. Let's bring in Andrew Silverman, our tax man. Andrew, I was thinking like, I feel like every time we introduce you, we should play the Beatles Taxman song, you know, just in the background. So. So maybe I'll talk to the producers to see if they can do that. Andrew Silverman, our tax man.
- [36:44]
Andrew Silverman
I love that.
- [36:45]
Elliot Stein
On April 23, the government announced that federal government announced it was rescheduling Cannabis from Schedule 1 to Schedule 3. Big tax implications for operators of places that sell medical marijuana, I believe. Can you tell us about what the tax implications are here?
- [37:03]
Andrew Silverman
Sure. And I just want to say how happy I am to be here. I'm a longtime listener for some time.
- [37:08]
Elliot Stein
I can't believe we've never had you before. Anyways. All right.
- [37:11]
Justin Teresi
It's.
- [37:12]
Elliot Stein
You'll be on plenty. I know.
- [37:13]
Andrew Silverman
Oh, wonderful. So, yeah. So the Justice Department announced last Thursday, actually, that it would move medical marijuana to Schedule 3 of the Controlled Substances Act. And so the interesting thing about that is it makes an automatic change in the tax code to section 280E. 280E disallows ordinary business tax deductions for businesses that are trafficking in Schedule 1 or Schedule 2 substances like heroin and fentanyl. And up until last Thursday, marijuana was a Schedule 1 substance. And so all of those businesses weren't permitted to deduct their ordinary necessary business deduction. So what that basically means is that marijuana companies were taxed on their gross income rather than their net income. So that's led to extremely high effective tax rates. So, like I said, rescheduling to Schedule 3 means they deduct ordinary business expenses. They can claim depreciation and other tax benefits. So it's a major, major structural shift for marijuana companies. But the problem is that the change only applies to medical marijuana. So what that means is, at least for now, businesses have to distinguish between their costs associated with medical marijuana and those associated with recreational marijuana. And until now, for most of those companies, medical marijuana and recreational marijuana operations have been pretty intertwined. So it just as an example of how complex this could be for a farmer who grows marijuana. They have to figure out where that marijuana is going to go, whether it's going to become medical marijuana in some way, whether it's going to be recreational marijuana. They're going to have to track it until the day that it's sold to determine whether or not they could take their business deductions from growing this stuff. And the timing of the change is also up in the air because the Justice Department isn't the irs. So the Justice Department could say, hey, we've rescheduled this thing. You know, marijuana companies, you're all good on 280e, but it's really up to the IRS to determine how that change is going to roll out. And a lot of marijuana companies have actually been taking their ordinary and necessary deductions since the HHS issued its opinion in 2023. So they're looking to the IRS to say that this change goes back back retroactively to 2023. The IRS has said all this time that that change would not be retroactive, and any change to 280 would go forward as of the day that marijuana is rescheduled.
- [39:53]
Elliot Stein
Remind us what the HHS rescheduling was or order like what did that do?
- [40:00]
Andrew Silverman
Yeah, so the right. This was in 2023. I can't remember exactly when it was mid, mid 2023, I think. But basically HHS said that it didn't think that marijuana should be a Schedule 1 substance any longer. And so a lot of marijuana companies pointed to that and said, well, if HHS is saying it's no longer a schedule one drug, that's good enough for us. So two 80 doesn't apply to us any longer.
- [40:23]
Elliot Stein
Got it. But it was, it wasn't like, it wasn't like an official rescheduling like this past.
- [40:27]
Andrew Silverman
But that started the process of, of administratively making this, this rule change. But then, you know, there's also this June hearing. So, you know, the Justice Department is going sort of on two tracks. On the medical marijuana track, it's saying, you know, you're all good in that respect. On the recreational marijuana track, they're still heading down that administrative rule change path with an administrative law judge and the hearing and all that sort of thing. So we might get recreational marijuana to be moved from schedule one as well. But that's going to be a much longer term process. And that of course has the APA applied to it and I guess Holly could talk about that.
- [41:07]
Elliot Stein
Yeah, Holly's going to talk about that in a minute. But just before that's super interesting. Before we let you go, I know you also put out a report this week on President Trump's, excuse me, Maritime Action Plan. You want to tell us just sort of what the gist of that report?
- [41:22]
Andrew Silverman
Sure, yeah. The maritime action Plan, it's fundamentally about rebuilding US Shipping and shipbuilding. And there's a really clear tax angle to that as that it's actually kind of like what the Chinese are doing with bridge and tunnel. So unlike clean energy, shipbuilders and shippers don't have a production or investment tax credit. And their US Shippers are actually taxed on their foreign income a lot more heavily than shippers outside of the United States. And so with the maritime Action plan from, from the, from, from the White House says is that it wants to institute a new fee on foreign built or foreign flagged vessels that dock in the United States. That's one, one aspect of it and that would be sort of the punish companies for using foreign ships docking in the United States and to encourage them to use US Built ships. And in a way it's sort of like a border adjustment tax. And as, as Holly and I wrote recently, sort of like a border adjustment Tax or, or, or like a tariff. So this could actually be used as a tariff if it's adopted. And the plan also contemplates new tax incentives for US Shipbuilding and operations, like a new production investment tax credit just for shipbuilding. And then the third thing that the Maritime Action Plan says is that it wants to introduce this opportunity Zone benefit just for port, shipping and shipbuilding. If you remember, there's the Opportunity Zones were a big part of the 2017 Tax Cuts and Jobs Act. This is exactly the same concept, but it's just for ships and shipping. And so they're sort of using a carrot and stick approach. Some tax benefits over here and some discouragements of using foreign build ships over here.
- [43:16]
Elliot Stein
Got it. All right, super interesting. So for those of you on the terminal, you can find Andrew's research there, and if you can't find it, just reach out to any of us and we'll point you in the right direction. All right, thanks, Andrew. Holly from let's bring you in. I know you've been covering the marijuana rescheduling issue as well, but sort of from a potential litigation perspective. And you put out a note this morning about some of the litigation that you sort of anticipate and how you see that playing out. Do you want, you want to talk about that?
- [43:46]
Holly
Sure. So as Andrew mentioned, the President signed an order, that order was effective April 22, and that rescheduled medical marijuana or state licensed medical marijuana or FDA approved medical marijuana. But so far I don't think anything has been FDA approved or so what happened is that only applies to medical marijuana, but there is this, this other rulemaking proceeding going on that applies to all medical marijuana, all marijuana. And that that rule was actually proposed in May 2024. So with regard to the April 22 final order that rescheduled medical marijuana, that the President relied on a provision in the Controlled Substances act act that allows the Attorney General to schedule a drug if it is required to do so by an international treaty obligation. But that provision doesn't talk about rescheduling. And the international treaty obligation would be that they're required to schedule a drug to control it.
- [45:08]
Jen
It.
- [45:09]
Holly
But marijuana was already controlled, so it's questionable whether you can reclassify a drug under that provision. And I imagine that there are going to be legal challenges based on that, that the provision was meant to address drugs that are not yet on any schedule, not drugs that are already being controlled.
- [45:28]
Elliot Stein
Who do you think would challenge that? Yeah, who's hurt by that?
- [45:32]
Holly
Well, I've been reading that like some Groups that are opposed to marijuana would challenge it, and they may also challenge the adult use rule if it ever gets finalized.
- [45:43]
Elliot Stein
Okay, got it. All right, go on. And so on the recreational side.
- [45:46]
Holly
Yeah, the adult use rule, I'll call it that. That's not what it's called, but that's, you know, it's reclassifying all. All marijuana. And so it would sort of like, legalize. People don't like when you say legalized, because it's not legalizing, like, the marijuana that people buy off the street, but it's legalizing marijuana that's FDA approved. So that rulemaking began in May, actually in 2024. And now there was supposed to be a hearing, I think, in August of 2024, but that was put off, and then that hearing was withdrawn. And the new hearing is June. In June. And so we expect that rule to be finalized, but I don't think legal challenges to that rule will be successful if it's passed. I don't think. I don't think it will be successful because it was. It was. So the. The Controlled Substances act requires the Attorney General to make certain findings. He doesn't have to make those findings if an international treaty obligation requires him to schedule a drug, but he. He does have to make those findings if. If scheduling is not pursuant to an international treaty obligation. And he did make certain those findings. So one of the findings that he considered was whether there's a high abuse potential, there's a high diversion potential. And the HHS report, which I think Andrew was referring to, that was something that the Attorney General had to commission under this Controlled Substance act and had to give deference to. And that HSS report said that there's not a big abuse potential. And so I think it's a pretty reasoned rule. And in order to prove an APA violation, you have to show that the rule is arbitrary. That's a pretty heavy burden. So that's why I don't think that legal challenges will survive.
- [47:44]
Elliot Stein
Got it. Okay. And the other issue you wanted to talk about was the NEC cases concerning baby formula. I think there's a summary judgment motion pending that you wanted to just talk about.
- [47:56]
Holly
Right. So there's a summary judgment motion pending. The court said that it's going to issue a decision by mid May. It thinks.
- [48:04]
Elliot Stein
Well, remind us what the case is about.
- [48:06]
Holly
Yes. So that neck litigation is against Abbott and Reckitt Means Johnson. They're being sued for claims that preterm infant formula causes necrotizing enterocolitis, which is an intestinal disease. Which could be, like, have lifelong implications or, you know, be fatal. And so There are about 800 cases in federal court, but many more are being filed in state court because the federal court has dismissed the first three bellwether trials. She found first that the plaintiff hadn't alleged an alternative feasible design. One of the problems. And so that's a requirement in like a design defect or failure to warrant case. You have to show that there's an alternative that could have been used. And a lot of these, in a lot of these NICUs, there was no other. There was no donor milk. There was no. The mom was not producing breast milk.
- [48:55]
Jen
The.
- [48:55]
Holly
There. There was no other, you know, there were no other nutrition that they could provide but this formula. So in, in that type of case, the court has said you can't, you know, they had to use this formula, so you can't prove any kind of tort claim. And the other thing that the doctors have been testifying to, which has been problematic for the plaintiffs, is that they say that a warning wouldn't have changed their treatment options and basically treatment. And basically what they say is that we knew that this was. That breast milk poses a lower risk than formula feeding for necrotizing enterocolitis, but we did it anyway. And they have various reasons for doing so, like maybe the baby wasn't gaining weight, or maybe the, the baby needed more nutrition, or maybe the, like the mom wasn't producing breast milk, they didn't have donor milk. So those, those are the reasons why the court has dismissed the case in this fourth bellwether that's supposed to go to trial in August. The doctor has also testified there. There were alternatives available. So. So it makes this a closer case. But the doctor has also testified that a warning wouldn't have changed her treatment. And the reason why was because the baby wasn't gaining weight. So they put it on this heavy, high caloric formula. And so that's why I think they're gonna have a tough time. The plaintiffs are gonna have a tough time in this case, and this case may also get dismissed.
- [50:25]
Elliot Stein
Okay, got it. So for anyone who's interested in that litigation or any other mass torts with an investable angle, Holly's all over those, so reach out with questions. All right, thanks, Holly. Just before we wrap up, a couple things I'm watching in the coming week. The Justice Department's investigation of Jerome Powell and the Federal Reserve over its building renovations. Jeanine Pirro, the U.S. attorney for Washington, D.C. said last week that they were transferring the investigation over to the Fed's inspector general. But they sort of left open the possibility of reopening the investigation. So as a result, Jay Powell at his press conference yesterday said, you know, he'll, he'll obviously step down as chair of the Federal Reserve because Kevin Warsh will be confirmed, but Powell will stay on as a governor. So the investigation, you know, is in sort of this limbo stage. And the Justice Department also indicated that it was going to appeal Judge Boasberg's trial court rulings that quashed Justice Department subpoenas. So that appeal, the deadline to file the notice of appeal is coming up. I believe it's this coming Monday on May 4, although the Justice Department could seek a 30 day extension for good cause. But I'll be watching that appeal. I don't think the Justice Department is going to have a strong argument on appeal. I think the, the subpoenas will likely remain quashed, but I'll be tracking that litigation. And the other thing I'm watching for next week is in a couple cases over litigation concerning prediction markets and event contracts. I mean, there's several dozen lawsuits going on at this point that I've been tracking and we're getting conflicting rulings. The prediction markets and the CFTC say that event contracts, particularly related to sports, fall under the CFTC's jurisdiction, whereas states are trying to stop those contracts because they say they violate the state gambling laws. So next week we have a couple important appeal hearings. One on May 4th is in Massachusetts Supreme Court. Massachusetts sued Kalshee earlier in the litigation and won. The state won and won a preliminary injunction to stop Kalshee from offering at least sports event contracts in the state. That ruling was put on hold pending appeal. And we'll have argument in the in the state's highest court on Monday and then on Thursday, May 7, in a case involving Cowshi and Maryland, which Maryland won back in August, we have Cowshi's appeal being argued in the 4th Circuit. So we're starting to get appellate decisions. Already Couchy won in the Third Circuit in a case involving New Jersey. Just this past week, the 6th Circuit ruled in favor of Ohio against Kalshee. So we're starting to see circuit splits forming, which is sort of the most common way a case gets to the Supreme Court, although we also have federal preemption issues here, which is also a very common avenue to get to the Supreme Court. So short story long, these cases are destined for the high court and we're starting to get some rulings that are going to take us there sooner rather than later, but the precise timing remains to be determined. All right, I think with that, we will wrap up this episode of Votes and Verdicts. As always, thank you for listening. If you have any questions about any of the matters that we discussed on today's episode, please don't hesitate to reach out to us at your convenience. As a reminder, you can find all of our research on the Bloomberg terminal at BI Go. You can find our Litigation and Policy dashboard at Bilawsgo. We want to thank our producers Maryam Chayori and Aditya Somani, without whom this episode would never publish. Thank you again for listening and have a great day.
- [54:44]
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