[00:00:00] Speaker 05:
We will then proceed to hear argument in the first case on calendar for argument this morning, which is 23-15296, Carl Hanson versus Elon Musk et al.

[00:00:14] Speaker 05:
And we will hear first from Mr. Thomas.

[00:00:27] Speaker 01:
Good morning, your honors.

[00:00:28] Speaker 01:
My name is George Thomas, and I represent appellant Carl Hanson in case number 23-15296.

[00:00:37] Speaker 01:
I would like to reserve one minute for rebuttal, if it may please the court.

[00:00:44] Speaker 01:
This case comes out of the United States District Court for the District of Nevada.

[00:00:49] Speaker 01:
Originally, Mr. Hanson, the plaintiff and appellant in this case, filed a Sarbanes-Oxley anti-retaliation claim and then added the claims of intentional interference of contract and breach of contract with the latter being against the United States Security Association.

[00:01:11] Speaker 01:
Mr. Hanson, the case was then taken to arbitration after a motion to compel arbitration.

[00:01:19] Speaker 01:
It was moved to arbitration, and during arbitration, Mr. Hanson then brought forward a Nevada-Rico allegation as well as a federal.

[00:01:28] Speaker 05:
The central issue that you cut to the chase, the central issue in this case is whether the

[00:01:33] Speaker 05:
statutory stipulation that Sarbanes-Oxley claims cannot be arbitrated presents some kind of a bar to the application of principles of preclusion from the arbitration to the Sarbanes-Oxley claim.

[00:01:53] Speaker 05:
Can you focus specifically on that question?

[00:01:55] Speaker 01:
Sure.

[00:01:56] Speaker 01:
Thank you, Your Honor.

[00:01:58] Speaker 01:
First, as you mentioned, Sarbanes-Oxley does contain an anti-arbitration clause, and it is our position that that is precise, deliberate congressional intent for federal courts to handle this federal issue, both in legal findings as well as factual findings.

[00:02:20] Speaker 01:
In Greenblatt, it was a similar case, although it dealt with RICO, where the court said that, it was the 11th Circuit said that arbitration on one RICO violation doesn't preclude the, or on wire fraud issue, doesn't preclude the court from hearing a RICO case, although the issues are exactly the same, and moreover,

[00:02:45] Speaker 01:
Federal courts have consistently held that when claims that bring similar facts, even the same facts, are brought to arbitration, courts should be hesitant to preclude issues that are squarely in the focus of the federal court's jurisdiction.

[00:03:06] Speaker 03:
So can you address our decision in Clark versus Bairstones and why that doesn't sort of just resolve the argument that you're making today?

[00:03:16] Speaker 01:
Yes, Your Honor.

[00:03:17] Speaker 01:
That's certainly the position of the appellees and is the precedent of the court.

[00:03:23] Speaker 01:
Our position would be one that that case is either wrongly decided and should be overturned to focus more on the congressional intent.

[00:03:36] Speaker 05:
That would require an en banc rehearing.

[00:03:37] Speaker 05:
You're in front of a three-judge panel that's bound by circuit precedent.

[00:03:42] Speaker 01:
Yes, Your Honor, felt obligated to.

[00:03:44] Speaker 05:
So either you can extinguish

[00:03:47] Speaker 05:
I think the question is can you distinguish it or do you lose under it?

[00:03:52] Speaker 01:
Well, the one distinguishing factor is that there is a between the Sarbanes-Oxley legal framework and the Dodd-Frank legal framework, there's a difference in the analysis.

[00:04:06] Speaker 01:
And our position is more tailored towards the fact that the district court did not engage in any sort of independent

[00:04:17] Speaker 01:
factual analysis rather couched their entire decision in what occurred in arbitration where at the very least some even if it is a flippant analysis you know maybe referencing and taking the evidence that was given at arbitration

[00:04:41] Speaker 01:
giving it some recognition.

[00:04:43] Speaker 01:
However, the court, in our opinion, was still required to at least go through some sort of analysis, or even quasi-analysis, but to just simply, in an eight-page dismissal on claim preclusion, maybe one page just simply says, these claims are identical.

[00:05:04] Speaker 01:
They're exactly the same.

[00:05:05] Speaker 01:
Well, they're not exactly the same.

[00:05:06] Speaker 04:
Did you object to the confirmation of the award?

[00:05:10] Speaker 01:
I do not believe that Appellant Hanson's trial counsel objected to the confirmation of the arbitration award.

[00:05:18] Speaker 01:
The only, I think, opposition that Mr. Hanson filed during the lower court proceedings was the responses to the motion to dismiss filed by the appellees.

[00:05:32] Speaker 04:
So the anti-arbitration provision of Sarbanes-Oxley at issue by its terms says if the agreement requires arbitration of the dispute arising under the section, then that isn't enforceable.

[00:05:47] Speaker 04:
But your client actually litigated the issue within Dodd-Frank of whether he had an objective basis to understand that there's a violation of the securities laws, correct?

[00:05:59] Speaker 01:
Yes, your honor.

[00:06:00] Speaker 04:
So why is that issue not preclusive under issue preclusion, even if your client didn't arbitrate the Sarbanes-Oxley claim?

[00:06:11] Speaker 01:
Your honor, I genuinely always remain candid.

[00:06:16] Speaker 01:
I don't have a perfect answer for that question.

[00:06:20] Speaker 01:
I think ultimately our position is that

[00:06:24] Speaker 01:
The congressional intent is clear and when the statute has language that says that we should deter away from arbitrating certain issues, that it's the court's duty to do so.

[00:06:40] Speaker 01:
Again, the court could have taken the evidence, the pre-trial, pre-arbitration briefings, the post-briefings, and analyzed it and gone through a checklist of

[00:06:54] Speaker 01:
the claims and decide whether or not this should survive the motion to dismiss phase.

[00:06:59] Speaker 04:
But why should, in arbitration, the purposes of it and the principles of issue preclusion, why should the defendants have to re-litigate what they view as a dispositive issue on the Sarbanes-Oxley claim?

[00:07:13] Speaker 01:
I don't know if we are asking for full re-litigation, rather just surviving the motion to dismiss phase.

[00:07:20] Speaker 01:
This maybe is a case that gets resolved at summary judgment.

[00:07:24] Speaker 01:
But for the motion to dismiss, the courts are bound to take the facts that are in the complaint as true, make reasonable inferences in favor of the non-moving party, and rule on the motion to dismiss in a vacuum.

[00:07:40] Speaker 01:
And it's our position that the court did not do so.

[00:07:46] Speaker 01:
And unless the panel has any further questions, I would hand over the microphone to the appellees.

[00:07:53] Speaker 05:
All right.

[00:07:54] Speaker 05:
You just saved your time for rebuttal.

[00:07:55] Speaker 01:
Yes, Your Honor.

[00:07:56] Speaker 01:
Thank you.

[00:07:56] Speaker 05:
All right.

[00:07:57] Speaker 05:
Thank you.

[00:07:57] Speaker 05:
Then we will hear first from Mr. Robertson for seven minutes.

[00:08:09] Speaker 02:
Good morning.

[00:08:11] Speaker 02:
Christopher Robertson for Elon Musk and the Tesla entities.

[00:08:15] Speaker 02:
I'll be arguing for seven minutes.

[00:08:17] Speaker 02:
Ms.

[00:08:17] Speaker 02:
Largent represents United U.S.

[00:08:20] Speaker 02:
Security Associates, and she'll have three minutes.

[00:08:24] Speaker 02:
So let's address the question you asked.

[00:08:26] Speaker 02:
Why doesn't Clark answer the question?

[00:08:28] Speaker 02:
And we believe, of course, it does.

[00:08:30] Speaker 02:
There's no question that arbitration, particularly arbitration here, and I think it's really important, and I think members of the panel focused on this.

[00:08:38] Speaker 02:
There's no question there was a full and fair opportunity to litigate this claim with a former federal judge who heard evidence, heard witnesses, got extensive briefing.

[00:08:52] Speaker 02:
No part of the factual record was prohibited from being entered.

[00:08:56] Speaker 02:
When you look at Clark, what's interesting about Clark, and you mention it, is the legal proposition that arbitration can be issue preclusion is firm.

[00:09:05] Speaker 02:
There the concern was, and they talked about it, was the record was maybe incomplete.

[00:09:09] Speaker 02:
You don't have that issue here.

[00:09:10] Speaker 02:
This is an absolutely complete record.

[00:09:13] Speaker 02:
That lasted three days of hearings.

[00:09:15] Speaker 04:
Well, I think you'd referred to that he had a full and fair opportunity to litigate the claim.

[00:09:20] Speaker 04:
I think we're talking about issue preclusion.

[00:09:23] Speaker 04:
Is it distinguishable that Sarbanes-Oxley has a broader coverage for whistleblowers than the Dodd-Frank claim?

[00:09:33] Speaker 04:
He didn't have a full and fair opportunity to litigate the gap between Sarbanes-Oxley's elements for whistleblower claims and Dodd-Frank, did he?

[00:09:41] Speaker 02:
Well, we believe he did.

[00:09:43] Speaker 02:
Certainly both Judge Hoffman at the arbitration and the district judge both evaluated that.

[00:09:49] Speaker 02:
When you think about what are the elements, the claims of a Sarbanes-Oxley claim, there's the four elements, right?

[00:09:55] Speaker 02:
There's protected activity.

[00:09:57] Speaker 02:
Was there some form of protected activity?

[00:09:59] Speaker 02:
And if you look at digital reality, Justice Ginsburg's opinion, she's very clear that the concern would be that these statutes need to be focused on violations of the securities laws.

[00:10:08] Speaker 04:
Well, that's not what Sarbanes-Oxley said.

[00:10:10] Speaker 04:
It provides also other fraud laws.

[00:10:13] Speaker 02:
Well, mail fraud, wire fraud, bank fraud, and securities fraud.

[00:10:16] Speaker 02:
But they all relate to a fundamental fraud on the shareholders of a public company.

[00:10:22] Speaker 02:
And here, factually, both of the arbitration, the judge found that what Mr. Hanson had raised in no way implicated shareholder fraud, whether that was rooted in mail fraud, wire fraud, bank fraud.

[00:10:35] Speaker 02:
Ultimately, what you need to have the whistleblower

[00:10:38] Speaker 02:
raise is some form of fraud that then manifests a fraud on shareholders of the company.

[00:10:44] Speaker 02:
And that simply wasn't here.

[00:10:45] Speaker 02:
That was what was found.

[00:10:46] Speaker 02:
And that's the issue that's precluded.

[00:10:48] Speaker 02:
I agree.

[00:10:49] Speaker 02:
We're not saying this is race judicata.

[00:10:51] Speaker 02:
It's clearly a different statutory claim.

[00:10:53] Speaker 02:
But the underpinnings and the facts, the actual underlying facts that were found to be dispositive of the Dodd-Frank claim are also dispositive of the Sox claim.

[00:11:03] Speaker 05:
Can we go back to Clark, because I want to understand

[00:11:06] Speaker 05:
how you're contending Clark is relevant here.

[00:11:09] Speaker 05:
And there's two potential issues when you think about preclusion and arbitration.

[00:11:14] Speaker 05:
One is kind of sort of a multi-factor analysis, whether the arbitration had sufficient quality, shall we say, to it, to merit being used for preclusive pert.

[00:11:25] Speaker 05:
But then the other is this sort of, is there a sort of per se rule for this type of claim against arbitrating it?

[00:11:32] Speaker 05:
Does Clark speak to that second issue?

[00:11:35] Speaker 02:
Yeah, we believe it does, and it all starts with Byrd.

[00:11:39] Speaker 02:
So it all starts with Byrd, the Supreme Court in Byrd, talking about not really the specific issue in this case, but talking about whether a court should stay one claim or the other, pending resolution of the other, whether that be in arbitration or in another proceeding.

[00:11:54] Speaker 02:
And that's where it really all starts.

[00:11:57] Speaker 05:
because clark in saying it relies on uh... prior decision in anderson yes in saying it says an arbitration decision can have raised to counter collateral stop look back even if the underlying claim involves the federal securities lawyers it sets aside any claim that this sort of a categorical bar and it's like cd anderson and cd anderson relies on mcmahon correct which says that

[00:12:25] Speaker 05:
12b-5, Enrico claims arbitrable.

[00:12:28] Speaker 05:
So that just seems to say there is no bar for securities claims, but how does that address when we have a statutory provision that says these are non-arbitrable, which was an application.

[00:12:39] Speaker 05:
So I'm not seeing how Clark addresses this second issue.

[00:12:42] Speaker 02:
Well, I think it's Greenblatt and Coffee, really, are the two cases that address that specific issue, Your Honor.

[00:12:47] Speaker 02:
At the time that those cases were decided, securities claims could not be arbitrated.

[00:12:52] Speaker 02:
So they clearly had to be broken off, and there were arbitrable and non-arbitrable claims.

[00:12:57] Speaker 02:
And those securities claims were non-arbitrable.

[00:12:59] Speaker 02:
And what the court said is, you can send the claims that are arbitrable to arbitration.

[00:13:04] Speaker 02:
You can stay the claims that are not subject to arbitration, which is exactly what happened here.

[00:13:10] Speaker 02:
And to the extent that the issues, the facts, or dispositive facts are decided in the arbitration, those can then be used for preclusive effect on the remaining non-arbitrable securities claim.

[00:13:22] Speaker 02:
I agree with you.

[00:13:23] Speaker 02:
Then what happened is in McMahon and subsequent cases, the Supreme Court said certain securities claims are, in fact, arbitrable.

[00:13:32] Speaker 02:
certain claims still aren't arbitrable and there's still plenty of cases that have said separate the arbitrable from non-arbitrable claim and certainly the court could have allowed them to go in tandem we know that we've seen those cases but they didn't the court specifically here said go arbitrate

[00:13:49] Speaker 02:
Let's see what that results in factually and legally.

[00:13:52] Speaker 02:
And if those facts and legal conclusions are dispositive of what I have left in front of me, because I know it can't be arbitrated, I can use that for preclusive effect.

[00:14:01] Speaker 02:
And that's exactly what happened here.

[00:14:02] Speaker 05:
I'd hollow out the ban on arbitration, because basically the only time it's going to have any effect is if the only claim you have is Sarbanes-Oxley.

[00:14:11] Speaker 05:
Because if it's paired with anything else,

[00:14:14] Speaker 05:
then that'll go to arbitration, and then bind on the other.

[00:14:17] Speaker 05:
So it seems to undo the statutory policy.

[00:14:20] Speaker 02:
Well, I don't believe that's the case at all, Your Honor.

[00:14:22] Speaker 02:
I really don't.

[00:14:22] Speaker 02:
I think what it does is it says to a district judge, look at the claims in front of you, and you can decide how to manage your docket.

[00:14:29] Speaker 02:
And you can either manage it by sending claims to arbitration.

[00:14:32] Speaker 02:
They clearly have to go to arbitration, keeping whatever claims don't, and then determining how you're going to manage your docket.

[00:14:39] Speaker 02:
Here, again, we have a full arbitration.

[00:14:41] Speaker 02:
The judge looked at the record.

[00:14:42] Speaker 05:
Are you suggesting they could have gone forward?

[00:14:45] Speaker 05:
Certainly.

[00:14:45] Speaker 02:
Sarbanes-Oxley claim while the arbitration was 100% and that has happened in other cases the judge here just decided not to do that allowed the claim to go forward and then looked at what he had in front of him and said there's no reason to retry this case it's already been tried all the critical dispositive facts have been decided and they've been decided in a way that would be dispositive of the Sarbanes-Oxley claim

[00:15:09] Speaker 02:
So there's no need to get passed a motion to dismiss or go to summary judgment or try the case again.

[00:15:13] Speaker 02:
It's been tried, it's been decided, and there's nothing left.

[00:15:17] Speaker 02:
Thank you, Your Honors.

[00:15:18] Speaker 05:
Thank you.

[00:15:19] Speaker 05:
We'll hear now from Ms.

[00:15:21] Speaker 05:
Largent.

[00:15:27] Speaker 00:
Good morning, Your Honors.

[00:15:29] Speaker 00:
May it please the Court, Robin Largent on behalf of Defendant Annapellee U.S.

[00:15:33] Speaker 00:
Security Associates, not United States Security Association, to be clear.

[00:15:39] Speaker 00:
I requested a brief time for all argument today to highlight a unique difference between the defenses of my client USSA and the Tesla and Musk defendants, which I think has been kind of glossed over by plaintiff and appellant in this matter.

[00:16:00] Speaker 00:
And what that is is the arbitrator specifically found after

[00:16:08] Speaker 00:
a lot of evidence and testimony in this matter that U.S.S.A.

[00:16:13] Speaker 00:
did not have knowledge of any protected activity within the meaning of Dodd-Frank or Sox on the part of Mr. Hanson in order to thereafter retaliate against him for it.

[00:16:27] Speaker 05:
This with respect to the there's kind of some activity in the August period and he said that

[00:16:33] Speaker 05:
Your client didn't know, but that Musk and Tesla did know about that activity.

[00:16:39] Speaker 00:
Yes, and it's axiomatic that you can't retaliate against somebody for something you don't know about.

[00:16:46] Speaker 04:
Is that part of the prima facie case?

[00:16:47] Speaker 00:
yes okay and ussa argued that in their pre-hearing arbitration brief argued it in their post arbitration brief um it has never been addressed by mr hanson it's never been responded to ussa argued it predominantly in its opening brief in this case you won't find a mention of it in the reply brief by mr hanson

[00:17:13] Speaker 00:
I submit that the issue has been waived by mr. Hanson by failure to address it before this court in that the Order dismissing the claims against us say should be affirmed on that basis alone additionally I want to highlight something that I think is important because mr. Hanson seems to

[00:17:35] Speaker 00:
emphasize as his primary basis for saying that collateral estoppel can't apply to bar his SOX claim, he says that that's because SOX claims aren't arbitrable.

[00:17:49] Speaker 00:
There's an exemption for them.

[00:17:51] Speaker 00:
That doesn't mean collateral estoppel can never apply.

[00:17:54] Speaker 00:
The Supreme Court has held that in two cases.

[00:17:57] Speaker 00:
The Ninth Circuit has recognized that collateral estoppel can still apply.

[00:18:01] Speaker 00:
The question is, was there a full and fair opportunity to litigate it in a record that shows that in the arbitration proceeding?

[00:18:10] Speaker 00:
Yes, there are two different claims, Dodd-Frank and Sox, and they have slightly different burden shifting frameworks and things like that.

[00:18:19] Speaker 00:
On the issue of what is protected activity, they're largely the same.

[00:18:24] Speaker 00:
If the court reads digital reality versus Summers, the Supreme Court explained that, and if you just look at the statute itself, the Dodd-Frank statute, it says that a whistleblower is someone who files an SEC complaint, okay?

[00:18:40] Speaker 00:
You have to be a whistleblower in order to even be able to bring a Dodd-Frank claim, but- Thank you, Counselor.

[00:18:47] Speaker 05:
Your time's expired.

[00:18:48] Speaker 05:
Okay.

[00:18:48] Speaker 00:
Thank you.

[00:18:49] Speaker 00:
Thank you.

[00:18:53] Speaker 05:
We'll hear a rebuttal from Mr. Thomas.

[00:18:58] Speaker 01:
Thank you, Your Honors.

[00:19:00] Speaker 01:
Just very briefly, earlier it was asked why should defendants be forced to litigate something twice that they've already maybe addressed in arbitration.

[00:19:16] Speaker 01:
What I hear Mr. Musk and Tesla propose is that Mr. Hanson could have proceeded with Sarbanes-Oxley claim while he was proceeding with the Dodd-Frank claim.

[00:19:29] Speaker 01:
And it then creates a framework where perhaps we are asking plaintiffs to then litigate

[00:19:37] Speaker 01:
two cases at the same time creating perhaps the same concern for plaintiffs as we would for defendants.

[00:19:47] Speaker 01:
And furthermore, if we allow courts to

[00:19:53] Speaker 01:
push similar issues that retain the same facts to arbitration and then couch their dismissal on a preclusion nature on those arbitration findings, we are eviscerating and ignoring the fact that these claims cannot be arbitrated.

[00:20:17] Speaker 01:
And with that, I have no further argument for the panel.

[00:20:23] Speaker 05:
Thank council for their arguments and the matter of Hanson versus Musk is submitted.