[00:00:07] Speaker 03:
adventures, I'd like to reserve three minutes for rebuttal.

[00:00:13] Speaker 03:
Your Honor, as this appeal concerns two independent grounds for reversal, whether the district court properly evaluated the challenge to Bigfoot's adequacy as a derivative plaintiff, and whether the district court erred in vacating trial to entertain that challenge.

[00:00:27] Speaker 03:
But like you said, Your Honor, I know you are well familiar with those arguments from our brief, so I'd like to begin this morning by really focusing on the chronology.

[00:00:45] Speaker 03:
And in the process, I'd like to clarify a point that was made in our opening brief.

[00:00:52] Speaker 03:
The first important date is July 31, 2023, and that's the date of the status conference that became ground zero for all of this.

[00:01:02] Speaker 03:
And going into that status conference, a specific trial date had not been set.

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that the plan going back to the previous status conference in May was to have a trial in August and the district court said he was left with the impression we could do this in August and he asked quote are you going to be ready for a bench trial in August so that's what everyone understood the plan was and at that conference

[00:01:45] Speaker 03:
their evidentiary challenge to Bigfoot's derivative plaintiff adequacy, which Bigfoot only had three days to respond to.

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And the second important date is August 10th, 2023.

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And on that day, the district court should have denied defendants' motion because it had become clear it wasn't really about diversity, it wasn't really

[00:02:14] Speaker 04:
this case, you're telling us on an issue which the district court determined was determinative and did not require a trial, that he should have gone ahead and had a trial anyway.

[00:02:26] Speaker 03:
That's a tough sell.

[00:02:28] Speaker 03:
Yes, I understand, Your Honor, and that's why we provided briefing on this issue as to you have to reconcile

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discretion for scheduling, but I believe that the old voice... So the case had gone ahead with the trial even though he decided that your client wasn't an appropriate representative to bring that trial and hence no trial was needed.

[00:02:56] Speaker 04:
You're telling us he should have had a trial anyway?

[00:02:59] Speaker 03:
Effectively, yes, Your Honor.

[00:03:00] Speaker 03:
I believe it was

[00:03:08] Speaker 04:
Well, it was prejudicial because you wound up losing that.

[00:03:46] Speaker ?:
Council that suggested to the court.

[00:04:41] Speaker 03:
you

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concern.

[00:05:09] Speaker 03:
We think this was just too late and that's what the Riggins case talks about, the Wolf case talks about.

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to find an abusive discretion.

[00:06:25] Speaker 04:
I think at some point you need to get to the merits of the main issue, which is whether your client is an appropriate representative for a derivative action.

[00:06:35] Speaker 03:
And that comes to the Larson, which is our primary argument that the district court, they fundamentally misapplied Larson.

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We're not arguing about specific evidence as to certain factors.

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There were factors we disagreed with the court, but we're not appealing those.

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And the argument that some of the individual factors in Larson might not have been applied as they perhaps could have been.

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But the bottom line is the district court says, your client Bigfoot's interests are directly antagonistic to other NextEngine shareholders' interests because Bigfoot seeks to own NextEngine's IP and the other shareholders want NextEngine to own that IP.

[00:07:26] Speaker 04:
Is that true or not?

[00:07:34] Speaker 03:
We've never tried to hide from the fact that there is economic antagonism.

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These parties have been in litigation for a long time.

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We don't try to sugarcoat that.

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But Larson, keep in mind, was itself a reversal of an order that only took into account economic adversity and did not take into account the other factors.

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And so that's ultimately the holding of Larson was to say, district court, you only weigh the economic adversity and you didn't weigh things

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The interests are truly antagonistic.

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How can the court conclude that Bigfoot is an appropriate representative to bring a derivative action on behalf of the corporation if the other shareholders have a different interest?

[00:08:24] Speaker 03:
Because the text of Larson is that is not the only concern.

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Counsels, Judge Gould, if I could interject.

[00:08:30] Speaker 01:
Yes, please.

[00:08:34] Speaker 01:
The language about adequate representation

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being a prerequisite to going forward on a class action is part of the FRCP 24 correction.

[00:08:49] Speaker 01:
23.1 I believe.

[00:08:51] Speaker 01:
Okay, 23.1 in the prohibitive action context.

[00:08:57] Speaker 01:
And do we have the circuit authority

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is it open to us to consider advocacy in a different way than running through all those factors?

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And then the way the Larson court applied them.

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And they have different emphases, different factors, different tests.

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And so the text of Larson is quite clear.

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We're going to synthesize all those into one definitive factor test to assess derivative adequacy.

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And Larson has been treated as such by many district courts throughout the country.

[00:10:03] Speaker 01:
They say... By the fact of the line, in Larson, did the Circuit Court say this is the only way to analyze

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in subsequent cases.

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So there is nothing in the text of Larson that introduces

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lack of familiarity and lack of commitment.

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I don't think the district court is misapplying the law to say, well, you're too committed, you're too familiar.

[00:11:24] Speaker 03:
I don't think Larson gives him that leeway based on the text, which is pretty clear of what the Larson court was trying to do and the problem it was trying to solve.

[00:11:34] Speaker 04:
Larson says that an adequate representative must be free from economic interests that are antagonistic to the interests of

[00:11:47] Speaker 04:
is aimed at that.

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And then Larson talks about the many things that may lead to that.

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But the ultimate standards set in Rule 23.1 and set in Larson focuses on the antagonism.

[00:12:02] Speaker 04:
And you can march through the factors, but if you still conclude the antagonistic interests preclude Bigfoot from being an adequate representative, which is what the District Court concluded, how does the District Court violate

[00:12:24] Speaker 03:
the district court should have done is they said district court you emphasized only economic adversity and the Larson court went through its own factors and I think the next to last paragraph and it and it and it reversed and it remanded with instructions to take into account everything so I think you have the

[00:12:57] Speaker 03:
more than economic antagonism.

[00:12:59] Speaker 03:
Well, it's not.

[00:13:00] Speaker 04:
Actually, Larson just said what I read from.

[00:13:03] Speaker 04:
That was from Larson.

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And the key is the economic antagonism.

[00:13:08] Speaker 04:
So, okay.

[00:13:11] Speaker 00:
Did you want to leave a little time for a bottle?

[00:13:26] Speaker ?:
Yes, thank you.

[00:15:30] Speaker 01:
I could ask you the same.

[00:17:37] Speaker 02:
Can you discuss your view of counsel's argument that there was a bait and switch, that there was a prospective motion that was signaled to the court and it was a different kind of motion that came on the eve of trial and so the party was, Bigfoot was prejudiced as a result.

[00:18:59] Speaker ?:
this is a standing issue.

[00:19:59] Speaker 04:
a factual question.

[00:20:00] Speaker 04:
I know there was litigation that was resolved by a different judge in the central district in, I believe it was 2021.

[00:20:09] Speaker 04:
And I found references to that.

[00:20:11] Speaker 04:
Is that case still pending or was there an appeal or what happened?

[00:20:17] Speaker 04:
I guess it was the case in front of, well, I didn't write down who the judge was.

[00:20:42] Speaker ?:
the name of the litigation, but it is my understanding that that's a result case.

[00:20:50] Speaker 04:
It wasn't appealed, not pending anything, that was just the end of it.

[00:20:55] Speaker 04:
That's my understanding, yes.

[00:20:59] Speaker 04:
One other subject I'd like to take up with you, and we've obviously been talking about the antagonism or potential antagonism between

[00:21:14] Speaker 04:
your client or your client's principal Mr. Knighton and the other shareholders.

[00:21:21] Speaker 04:
Is there antagonism there?

[00:21:22] Speaker ?:
I mean, as demonstrated by the record, no.

[00:21:27] Speaker ?:
I believe that all of the remaining shareholders other than Big

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complicated set of transactions, and I'm not sure that my handle on it is very firm, but at one point it appeared that Mr. Knighton reported to transfer assets from Next Engine to Shape Tools in order to avoid the result of the debt that was owed to Bigfoot.

[00:22:24] Speaker 04:
How did that impact

[00:22:39] Speaker ?:
oddly enough, kind of immaterial, that with respect to the note as demonstrated in the record here, the initial note was litigated in a lawsuit that was ultimately resolved in favor of an extension, curiously, on a set of counterclaims that they asserted, and they were awarded a $5.2 million judgment, which at that time, as the record

[00:23:38] Speaker 04:
It was pretty confusing.

[00:23:40] Speaker ?:
So I have a little rubric here, and I can kind of run through it, time permits.

[00:23:46] Speaker ?:
But the idea is that in the – so the second lawsuit was the one that Next Engine secured a judgment for $5.2 million and applied that to

[00:25:12] Speaker 02:
I don't believe so.

[00:25:13] Speaker 02:
Thank you, counsel.

[00:25:21] Speaker 03:
Thank you, Your Honors.

[00:25:22] Speaker 03:
Just in rebuttal, I'd like to respond to my colleague's points and also I think something that will help Judge Gould's concerns and also Judge Clinton's concern with what difference does it make.

[00:25:49] Speaker 03:
we're worried about antagonism and entanglements.

[00:25:52] Speaker 03:
They then list the factors and they conclude by saying, we are satisfied that an evaluation of these factors is important in determining the adequacy of representation.

[00:26:02] Speaker 03:
So I think that goes to Justice Gold's concern of they are laying, Justice Gold wants to know what the authority is.

[00:26:09] Speaker 03:
I believe Larson is the authority and Larson holds itself out as that Larson isn't saying, well, here's some things you can consider.

[00:26:17] Speaker 03:
says there's all these different factors that are out there from all these different circuits including our own and we want to clarify that into one test that we think is adequate and the court should do that and then they apply their own factors to reverse a district court order much like this one that only took into account economic antagonism they said you can't do that you got to weigh these

[00:26:47] Speaker 03:
isn't a bad guy for using a legal system to redress their wrongs.

[00:26:51] Speaker 03:
The loan was not repaid.

[00:26:53] Speaker 03:
The shareholder value was diminished.

[00:26:55] Speaker 03:
And we have – we're not bad guys because we're – there's no vindictiveness in that.

[00:27:00] Speaker 03:
We're not too familiar.

[00:27:01] Speaker 03:
We're not too committed.

[00:27:02] Speaker 03:
And it's an error of law to invert those factors and weigh those against us.

[00:27:07] Speaker 03:
So unless there's further questions, that's all I have.

[00:27:10] Speaker 03:
No questions.

[00:27:10] Speaker 03:
Thank you, Council.

[00:27:12] Speaker 03:
Thank you both for your helpful arguments, and the matter will be submitted.