Weekend Law: Fed Legal Fight, Flag Burning & Grant Cuts

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2:01And analysis of important legal issues, cases and headlines. Apple's a walled garden. They don't license their technology. That is a valid basis to dismiss the case. Bloomberg Law with June Grosso from Bloomberg Radio.

2:17Welcome to the Bloomberg Law Show. I'm June Grosso. Ahead in this hour, President Trump's battle with the Fed escalates into an emergency court hearing. Can Trump jail protesters who burn the American flag? And the Supreme Court allows the administration to do what it wants again.

2:44It's an unprecedented legal battle that could reshape the Federal Reserve's long-standing political independence. President Trump is the first president in history to try to oust a sitting Fed governor. Trump says he's firing Lisa Cook, the first black woman to serve as a Fed governor, because she committed mortgage fraud by listing homes in both Michigan and Georgia as her primary residences when she got mortgages in 2021. She seems to have had an infraction and she can't have an infraction, especially that infraction because she's in charge of, if you think about it, mortgages, and we need people that are 100 percent above board.

3:27Cook is fighting back by filing a lawsuit saying Trump doesn't have the power to remove her from office and that he violated the federal law that allows him to remove a Fed governor only for cause. Cook's lawsuit is a major escalation in the growing clash between the White House and the Fed, which has resisted Trump's demands for lower interest rates. It presents novel issues and will almost certainly end up at the Supreme Court. It's just a matter of when. Cook is seeking an emergency injunction to block her firing and confirm her status as a member of the Fed's governing board. Federal Judge Gia Cobb held an emergency hearing on Friday, but her decision isn't likely until next week or perhaps even later.

4:15Joining me is Bloomberg Intelligence Senior Litigation Analyst Elliot Stein. Elliot, tell us about Cook's arguments for why Trump can't fire her for these mortgage fraud allegations that took place before she became a Fed governor? Well, the first argument is that the for-cause requirement hasn't been met. And their argument is that cause requires more than mere allegations on truth social, that, you know, you look to the Humphreys executor standard, which is that there has to be some sort of inefficiency, neglect of duty, or malfeasance in office. These allegations don't rise to that. And in any event, she wasn't given an opportunity to be heard on this and to contest the allegations and that she has a right to receive notice of the accusations and to contest them.

5:08And is the administration's main argument that basically the president is the president and the courts have to defer to him? Yeah, that's a lot of it. I mean, their argument first is that the statutory text only refers to cause. It doesn't refer to inefficiency, neglect of duty, or malfeasance in office. So that gives him a broader removal authority. And then there's also nothing in the statute or in the case law, is their argument, that a court can even review that determination, that the statute gives the president the right to determine if there was cause, and that's not reviewable. And that there's also nothing about giving the person notice or an opportunity to be heard.

5:48And in fact, the case law, they argue, goes against Lisa Cook's argument on that. And if notice was required, she got noticed because she was aware for several days about these allegations before she was actually terminated, and she never tried to rebut the allegations factually. And in any event, you know, a hearing, this is the government's argument, a hearing seems like it would be unnecessary because she hasn't even contested the allegations and given a reason for why these documents would have been filled out in the way that they were. The only sort of explanation she gave in her papers was that there might have been an unintentional clerical error in her mortgage application, a mislabeling, but no real explanation beyond that.

6:34And as far as the administration's claims that Trump's truth social posts constituted notice of the allegations. Judge Cobb said to the government's lawyer, you're not suggesting what happened would satisfy due process requirements. And he replied that he was. Yeah, their argument is that the true social posts do provide sufficient notice. And as a result, if notice is required, they satisfied it. And Abby Lowell had a sort of funny line, And, you know, he said notice shouldn't require having to sign up for a truth social in order to see the president's truth social post directly. And Abby Lowell's argument is, you know, it has to be something a little more formal than that.

7:20Not necessarily, you know, a full blown investigation, but some opportunity to rebut the allegations. In May, the Supreme Court blocked the reinstatement of NLRB and Merit Systems Protection Board commissioners while their suits played out and did the same for Consumer Product Safety Commission heads in July. So was there an argument that this judge should follow that precedent here? That did come up in a few contexts, one of which was the irreparable harm argument, because, you know, Lisa Cook's argument is that if she can't continue to serve on the Federal Reserve Board while the litigation plays out, she'll be irreparably harmed because, you know, she's unable to perform her duties that she was appointed and confirmed to perform.

8:06And the government cited all these cases, including Wilcox, right, where the NLRB and the Emeritus Systems Protection Board commissioners were not reinstated by the Supreme Court while those cases played out. And, you know, the government argued those cases stand for the proposition that it's harmful to the president if, you know, he's unable to perform his statutory duties to remove federal officers. You know, the Wilcox case really is a good example of how it can be used by both sides to support their argument. But a different factor here is the independence of the Fed. And that was a highlight of Cook's complaint.

8:42Did it play in the hearing as well? Judge Cobb herself alluded to it. It came up obviously several times in Abby Lowell's arguments as well. And I think, you know, it's relevant because the Supreme Court in May and Wilcox sort of alluded to it in the sense that the Federal Reserve is more of a quasi-private uniquely structured institution, whereas so much of the case law deals with agencies, some of which don't even exist anymore. The cases are from more than 100 years ago. So the context may be a little different. We'll just see how much that actually matters to the various judges that are going to hear this.

9:19This was an emergency hearing. What turned it into not so much of an emergency? Yeah, well, where one side seeks a TRO, a temporary restraining order, But they're only good, if they're granted, they're only good for like 10 days, maybe two weeks. And then the party has to seek a preliminary injunction in order to basically keep the status quo in place for the rest of the litigation. And what often happens, I think is probably going to happen here, is because the issues are so similar for a TRO and a preliminary injunction, the parties don't want to have to go through the same motions twice. So the way the court left it was that they're going to finish briefing the TRO on Tuesday.

10:00Lisa Cook will file her reply to President Trump's papers. And in the meantime, the parties will talk about potentially basically converting the TRO motion to a preliminary injunction motion, again, because the issues basically are the same. And it would just allow the ruling to stay in place longer and it would allow the ruling to be appealed. We're at a very early stage of this litigation. But after the hearing, do you think Trump or Cook has the edge? Well, this is such a close case. I think President Trump has very good arguments based on the text of the Federal Reserve Act, which only says for cause and doesn't say anything more than that.

10:44Case law, I think, also in large measure helps President Trump. But you have to overlay over all that, that we're talking about the Federal Reserve here. And the Supreme Court in the Wilcox decision in May went out of its way to distinguish the Federal Reserve when it comes to a lot of these issues. And so much of the case law that is being discussed deals with agencies that really fall more clearly under executive authority. So it's going to really be up to the various courts that are going to hear this to decide how much they want to distinguish the Federal Reserve from all that precedent. And, you know, I think Judge Cobb alluded to that.

11:28You know, she said she has to map Federal Reserve independence over all these issues. To me, that suggests Lisa Cook has a good shot at winning before Judge Cobb, at least at this early stage. And then, you know, from there, we'll go up to the D.C. Circuit and then the Supreme Court and we'll see how they deal with their Wilcox decision from May. Elliot, tell us what the Fed's response to the lawsuit has been. The Fed is sort of staying silent and not picking a side and saying they'll abide by any court decision, which is why Lisa Cook's complaint names the Federal Reserve Board governors both collectively and in their individual capacity as defendants, along with Fed Chair Jay Powell.

12:10Explain why timing might be important for Trump here. In the near term, you have an FOMC meeting in mid-September, right, where everyone's expecting some sort of rate cuts, it seems. I actually don't think that's the most important date because for that date, Lisa Cook is just one seat on the FOMC out of 12. In July, when they met and they didn't lower rates, you only had two dissenting votes. So I don't think her vote is necessarily going to sway anything in September. But to me, the more important dates to keep in mind are the end of February when the Federal Reserve Board gets to reappoint or block reappointment of the regional Federal Reserve Bank presidents who rotate onto the FOMC.

12:53So if the president can oust Lisa Cook by February, he essentially on the Federal Reserve Board will have three sympathetic votes. And on the other side, you'd have three votes, you know, that probably don't align with the president, Powell, Michael Barr and Vice Chair Jefferson. And you wouldn't have all these other regional reserve bank presidents who, for the most part, have been voting consistently with Jay Powell against lowering rates. So, you know, February is important because it starts to potentially change the composition of the FOMC in a direction that's more favorable to President Trump.

13:33And Trump is continuing to fire board members. On Wednesday, he fired one of two Democratic members of the U.S. Service Transportation Board to break a two to two tie before the board considers the largest railroad merger ever proposed. You know, I think the hallmark of this when the history books are written is its efforts to expand executive authority over almost every aspect of the government. You know, we do have the Supreme Court decision in May that suggested the Federal Reserve is a little different. We'll sort of see how that plays out. Thanks, Elliot. That's Bloomberg Intelligence Senior Litigation Analyst Elliot Stein.

14:12Coming up next, Trump wants to jail flag burners. I'm June Grosso and you're listening to Bloomberg.

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17:19This is Bloomberg Law with June Grosso from Bloomberg Radio. And what the penalty is going to be, if you burn a flag, you get one year in jail. No early exits, no nothing. You get one year in jail. If you burn a flag, you get, and what it does is incite to riot. President Trump signed an executive order on Monday directing the U.S. Attorney General to prosecute people for burning the American flag. But flag burning is protected under the First Amendment under well-settled Supreme Court precedents. In fact, none other than the late Justice Antonin Scalia, a conservative icon, was part of the majority in the 1989 case that established that the Constitution protects burning the flag as a form of symbolic speech.

18:13Yeah, if I were king, I would not allow people to go about burning the American flag. However, we have a First Amendment which says that the right of free speech shall not be abridged. And it is addressed in particular to speech critical of the government. I mean, that was the main kind of speech that tyrants would seek to suppress. Burning the flag is a form of expression. Trump called the justices who made that decision a, quote, very sad court. And the order directs the attorney general to pursue litigation to challenge that 1989 precedent. You get one year in jail and it goes on your record.

18:54And you will see flag burning stopping immediately. But just two hours later, a combat veteran burned an American flag across the street from the White House to protest the executive order targeting flag burning. I'm burning this flag as a protest to that illegal fascist president that sits in that house. My guest is David Cole, a professor at Georgetown Law. He represented the men who burned the flags in the two leading Supreme Court cases. David, there's a long history in this country of desecrating or burning the flag as a form of political protest that goes back to the Civil War. But states and even Congress have passed laws to prevent flag burning.

19:41Tell us about the seminal case the Supreme Court decided in 1989, where you represented Gregory Lee Johnson. Sure. So Gregory Johnson burned an American flag in Dallas, Texas, in a protest outside of the Republican National Convention that year and was prosecuted under a Texas statute that made it a crime to burn the flag in a way that would deeply offend onlookers. He was convicted in the trial court. That conviction was overturned by the highest court in Texas, but Texas took the case up to the Supreme Court and the Supreme Court in Texas v. Johnson ruled that the government may not criminalize expression through the burning of a flag simply because people find that message offensive.

20:32It was a five to four decision, but it didn't divide the court down ideological lines. In fact, conservative icon Justice Antonin Scalia was in the majority. Why do you think it didn't go down ideological lines? So that's a great question. We won the case with the votes of two Republican appointees, Justice Kennedy and Justice Scalia, both of whom I think, you know, over time showed themselves to be committed to the First Amendment. Justice Stevens, also a committed First Amendment justice, dissented. I think in his case, it came down to the fact that he was a veteran of World War II. He clearly was deeply offended by the very practice of burning a flag and therefore dissented.

21:18But over time, I think, you know, if you look back at the cases that preceded Texas Services Johnson, many justices, including liberal justices, expressed some reservation about whether or not flag burning should be protected by the First Amendment. So it's not something that has divided the country along partisan lines. And will you explain the thinking of the justices in the majority and in the dissent? So the majority held that the justification for throwing someone in jail for burning the flag is that the message sent by engaging in that conduct is offensive. And the court held that under the First Amendment, the government has to maintain neutrality in the field of expression.

22:07It can't punish speech simply because it or a majority of people find a particular message to be offensive. Once you go down that road, virtually anything can be prohibited by the government because one man's offense is another man's truth. The dissent argued, well, this is really not so essential a form of expression. Chief Justice Rehnquist called flag-burning, quote, an inarticulate grunt. And there's a very powerful interest in preserving the unity that the symbol expresses. And therefore, states should be permitted to prescribe how people can use the flag. They can wave it, but they can't burn it.

22:53So President Trump is also with this executive order calling for Attorney General Pam Bondi to pursue litigation to challenge the Supreme Court's ruling in 1989. This Supreme Court is very different from that Supreme Court. Do you think that they would still uphold the precedent? Yes. This court is different from the court from 1989 and 1990. But this is, if anything, an even stronger pro-First Amendment court. And Texas v. Johnson is not just a kind of one-off. It is cited again and again and again for this basic premise, probably the most fundamental premise of free speech law, which is the fact that speech offends somebody is not a justification for the government to throw the speaker in jail.

23:43And that's ultimately what punishing flag burners is about. It's about throwing them in jail because we would be very pleased if they wave the flag. We are very upset if they burn the flag. But either way, you are using the flag to express a message. And the government is not allowed to tell us what messages we can and cannot express through symbolic speech or otherwise. Now, Trump's executive order doesn't direct the attorney general to prosecute those who burn flags for the flag burning itself. But it says the Justice Department should bring cases, quote, against acts of American flag desecration that violate applicable content neutral laws.

24:27while causing harm unrelated to expression consistent with the First Amendment. So the cases are going to be limited to those where there is a violation of other laws? So this executive order is, I suppose, as befitting something that is ultimately about symbols, almost entirely symbolic, because it acknowledges, as it must, that the Supreme Court has decisively ruled that you can't punish someone for burning a flag. And what it does is says, well, there may be some circumstances in which one could where the reason you're engaged in the prosecution is not the burning of the flag per se, but some other interests altogether.

25:14So, for example, many towns and cities prohibit burning of anything in public without a permit. You can't burn leaves. You can't burn wood in public without a permit. That law can be applied to the burning of an American flag because the law is not about speech. It's not about what burning a flag communicates. It's an environmental law or fire safety law that is neutral as to speech. And it's long been the case that that kind of law, in fact, the Supreme Court has said that kind of law, would be perfectly permissible. It is very rare that that is the basis for a flag desecration prosecution, however.

25:52The other example that Trump puts forth is, well, if somebody burned a flag in such a way as it constituted incitement to imminent lawless action or fighting words, those are not protected by the First Amendment. Even pure speech, if it constitutes incitement to imminent lawless action or fighting words, is not protected by the First Amendment. So if flag burning fell into those very, very narrow categories, you could prosecute it. That's true, but sort of trivial and largely irrelevant because people burn flags not to engage in fighting words, not to incite some imminent lawless action, but to protest what the American government is doing.

26:35That's why they burn flags. And that is exactly why flag desecration laws were enacted. And that the Supreme Court has held is an impermissible justification for targeting any form of speech. So, yeah, if you come up with a case, and I have not seen one in my entire lifetime, where someone burns a flag in order to send a signal to some group that is steeled to action to engage in illegal conduct, well, sure, just as you could criminalize that person from, you know, raising his hand to incite that lawless action, you could penalize burning a flag if it's being used for that purpose. But it's really a null set.