“Hipster Antitrust” Movement Takes Center Stage in CongressOn Wednesday, July 29, 2020, the House Judiciary Committee’s antitrust subcommittee held a widely publicized hearing in which representatives questioned CEOs from Amazon, Apple, Facebook and Google about allegedly anticompetitive business practices. This hearing had its genesis in a 2017 Yale Law Journal article by Lina Khan, which gave rise to what became known informally as the “hipster antitrust” movement. (Not coincidentally, Khan is advising Rep. David Cicilline, the chairman of the Antitrust Subcommittee, and she sat near him during the hearing.)

Since the Reagan administration, the development of antitrust law has focused on consumer welfare – typically indicated by low prices – to determine whether competition had been harmed unlawfully. This development was based on then-professor (and later judge) Robert Bork’s influential book, The Antitrust Paradox, and the libertarian “Chicago school” of economics. If prices stay low and customers are happy, then courts are typically reluctant to find any antitrust violation. If the complaining party was a competitor whose business was harmed, it is often met with the response that the antitrust laws exist to protect competition, not individual competitors.

More recently, scholars such as Khan have argued that this historical view is too narrow, and they advocate for a broader focus on market structure and the power and influence large tech companies wield. They argue that, rather than merely analyzing whether corporate actions result in lower consumer prices, the law should recognize that the excessive concentration of economic power in a handful of large companies is inherently bad, because it exacerbates other ills, such as income inequality and labor abuses, and gives undue political influence to too few people. Khan’s article was specifically about Amazon, a company that famously offers low prices on a wide variety of consumer goods and that has for the most part been well-liked by customers, but which, she argued, exerts a dangerous amount of power to effectively control the online retail economy.

The view that companies should not be too big or too powerful is not new; the “hipster” label is a pejorative term based on the movement’s embrace of the views of older scholars, most notably Justice Louis Brandeis, who wrote in the 1930s about the “curse of bigness.” However, this view is not currently the law. No major antitrust opinions or government enforcement actions this century have been based on the notion that antitrust law prohibits mere “bigness.”

At this point it is impossible to tell whether Congress will actually take any meaningful action to change the law, and the upcoming elections could impact political appetites to make such a change. At various points the “Big Tech” hearing devolved into political venting and grandstanding, with several representatives routinely interrupting the CEOs’ answers to make their own scripted pronouncements. But the hearing was nonetheless a shot across the bow of those firms, signaling that they are being scrutinized more closely than they previously realized. (This may or may not cause those firms to voluntarily alter their practices.) There does appear to be considerable sentiment among both liberals and conservatives that something should be done to check the power of these large companies, and representatives on both sides of the aisle remarked that this was an issue that had unusually high bipartisan support.

It is unlikely that companies such as Google or Facebook would be “broken up” entirely, in part because, despite their faults, they are so popular among their users. But it is possible that certain aspects of their businesses could be spun off or regulated. Congressional action, if any, could take several forms. One possibility is legislation to supplement or amend the existing federal antitrust laws. For example, prior to 2004, some courts recognized “monopoly leveraging” – i.e., using lawfully obtained monopoly power in one market to confer a competitive leg up to gain market share in another market – as a basis to establish liability under Section 2 of the Sherman Act, which prohibits unlawful monopolization and attempts to monopolize. The U.S. Supreme Court effectively foreclosed that theory in Verizon Communications v. Trinko, and although there is respected economic scholarship to support the court’s reasoning, not everyone agrees. Congress theoretically could pass legislation to resurrect the monopoly leveraging theory. This may conceivably prevent a large tech company with a monopoly in one market (say online retail sales or social messaging or mobile phones or online search engines) to obtain significant market power in another market (say consumer data). We could also see legislation aimed at political censorship on social media platforms such as Facebook. These are just a couple of examples that Congress could target with specific legislation.

Alternatively, proposed legislation could be vague and generalized, such as providing that courts should consider other indicia of economic power and market dominance besides the ability and willingness to raise consumer prices. In other words, Congress could mandate that courts reject the Bork view and adopt the Brandeis/“hipster” view. This would effectively require courts to start over and figure things out on their own, much as they have done historically based on the rather spare language of the Sherman Act and developments in economic scholarship.

Rather than new legislation, there could simply be heightened pressure to enforce existing law to punish perceived violations. Certain alleged practices, such as pricing below cost to drive out a competitor or force it to merge, are covered by existing antitrust law, and the Department of Justice already has the tools to bring legal action to prevent those practices.

In sum, it remains to be seen whether anything meaningful comes from the hearing. But it did at least demonstrate the bipartisan support for the so-called “hipster antitrust” concerns that certain tech companies have gotten too big and too powerful, and that existing antitrust law may not be sufficiently equipped to address those concerns.

D.C. Circuit Avoids Decisive Ruling on Personal Jurisdiction in Class ActionsWe have repeatedly mentioned the long-awaited decision in Molock v. Whole Foods Market Group, Inc. from the District of Columbia Circuit. While we hoped this opinion would finally provide some circuit-level clarity about how the Supreme Court’s Bristol-Myers Squibb decision applies in the class action context, the court instead largely dodged this issue. There are good and useful aspects to the decision though, and it leaves open the door to applying Bristol-Myers to class action claims. However, the wait for a definitive ruling continues.

A quick refresher on the facts: Molock arose from Whole Foods’ alleged manipulation of its incentive-based bonus program. Current and former employees sued in the District Court for the District of Columbia and brought various state law claims. Importantly, the employees sought to represent a putative class of “past and present employees of Whole Foods” — regardless of where the employees lived. Whole Foods sought to dismiss on multiple grounds, including lack of personal jurisdiction, the denial of which was the subject of this interlocutory appeal.

In a 2-1 split opinion, the D.C. Circuit determined that deciding whether Bristol-Myers applies to class action claims would be premature because the putative class members are not yet parties to the action. As a decision to dismiss putative class members before class certification under Rule 23 would be, in its view, “purely advisory,” the court affirmed the district court’s denial of Whole Foods’ motion to dismiss and remanded the case for further proceedings.

Don’t miss the dissent. Senior Circuit Judge Laurence Silberman criticized the majority’s decision to avoid addressing the Bristol-Myers issue. As he points out, the challenge was not the court’s jurisdiction over the putative class members but was rather a challenge on the named plaintiffs’ entitlement to bring those claims on behalf of putative class members. Judge Silberman explained why Bristol-Myers should apply before class certification at the Rule 12 phase. Any impact on the plaintiffs’ ability to bring class action claims would not be so overwhelming because the claims could still be brought where corporations are subject to general jurisdiction (here, by “driving 110 miles down the road and filing this class action in Wilmington”).

Even though this is not the landmark circuit-level opinion we hoped it would be, there are still important takeaways from Molock.

First, waiting to apply Bristol-Myers until class certification is not our preferred result because it has the potential to impose expansive discovery costs. Judge Silberman pointed out the danger of the majority’s approach as it relates to extensive class discovery. To illustrate, the Molock plaintiffs intend to take discovery of payroll records from more than 200 Whole Foods stores, with the potential to expand the class and add nearly 300 other stores. Compared to the five D.C. stores that would be at issue otherwise, Judge Silberman acknowledged the extreme difference in scope and cost. The majority brushed off this concern because, in their view, “concerns about discovery costs must yield to Supreme Court precedent” and district courts have wide-ranging discretion to limit overly burdensome requests. We see no principled reason to impose the burden of class-wide discovery costs when there are no facts that could support subjecting the defendant to nationwide jurisdiction in a forum.

Second, while Molock is not all good for class defendants, neither is it all bad. If the D.C. Circuit thought that Bristol-Myers could not apply to class actions, it easily could have said so. By not addressing the question, the majority signaled a willingness to apply the same personal jurisdiction rules to class actions as apply in non-representative cases. Indeed, by deferring questions of personal jurisdiction to class certification, the court treated absent class members the same way it treats putative class representatives. If that result bears out, Bristol-Myers applies to class actions.

Finally, the dissent effectively outlines potential arguments for companies to make going forward. Beyond just the negative effects of expansive discovery, Judge Silberman repeatedly pointed out the fallacies in many arguments against applying Bristol-Myers in the class action context. This dissent thus provided a roadmap for arguments that may convince other judges and justices in the future. For now, companies facing class exposure will almost certainly continue to assess the need to move to dismiss under Rule 12(b)(2) at the outset of a case and maintain that objection all the way through class certification.

Shortly, we will examine how the Seventh Circuit, in a decision released the same day as Molock, addressed the application of Bristol-Myers to class actions.

State and Federal Regulators Open Probe into 403(b) Plans for TeachersIn what appears to be a growing trend, state and federal regulators are launching investigations into the sales practices and administration of 403(b) retirement plans for school districts.

Two weeks ago, on January 10, 2020, Delaware Attorney General Kathy Jennings announced a settlement with Horace Mann Investors, Inc., concluding the state’s multi-year investigation into the facts and circumstances relating to over 120 403(b) retirement accounts opened by teachers in 2016 and 2017. The accounts were opened with Horace Mann during the state’s transition of its deferred compensation plans from numerous 403(b) independent service providers to a sole provider, Voya Financial. The Delaware Attorney General’s Investor Protection Unit (IPU) alleged and concluded that one of Horace Mann’s registered representatives engaged in dishonest and unethical practices in violation of the Delaware Securities Act by taking unfair advantage of his customers, who were confused about the transition to Voya Financial, by providing them with inadequate or inaccurate information. IPU also alleged and concluded that Horace Mann failed to sufficiently supervise its registered representative. As part of the settlement, Horace Mann and its registered representative will each pay a fine of $250,000 and make a $50,000 payment for investor education for Delaware educators. Horace Mann will also be required to make settlement payments, compensating over 120 teachers for potential loss earnings.

Delaware’s investigation is the most recent in what appears to be a growing trend by state and federal regulators in cracking down on teacher pension plans. In 2014, the Financial Industry Regulatory Authority (FINRA) announced that it had fined Merrill Lynch, Pierce, Fenner & Smith Inc. $8 million for failing to waive mutual fund sales charges for certain charities and retirement accounts and required the firm to make over $24 million in restitution to more than 13,000 small business retirement accounts and over 3,100 403(b) retirement accounts. A year later, the U.S. Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations announced a multi-year Retirement-Targeted Industry Reviews and Examinations Initiative (ReTIRE Initiative) that will focus on high-risk areas of registrants’ sales, investment, and oversight processes, with emphasis on select areas where retail investors’ savings for retirement may be harmed.  To that end, in late 2019, the SEC launched a broad investigation into the compensation and sales practices of companies that administer 403(b) retirement plans for school districts. Specifically, the agency is seeking details on how administrators, which serve critical roles in selecting investments for 403(b) plans for teachers, choose investment options and police themselves when conflicts of interest arise. The SEC’s announcement came on the heels of New York’s investigation into whether life insurers and their agents were taking advantage of teachers by selling them potentially high-cost and inappropriate investments in 403(b) retirement savings programs.

Though it is difficult to predict how many other states will follow the lead of the SEC, New York and Delaware, with the ReTIRE Initiative in place and the increased activity by both state and federal regulators, investment advisors and broker dealers should review and reflect upon their policies, procedures and practices relating to the sale and management of their 403(b) plans and consider stepping up their focus in this area.