[00:00:03] Speaker 03:
Go ahead.

[00:00:04] Speaker 04:
Good morning.

[00:00:04] Speaker 04:
May it please the court?

[00:00:06] Speaker 04:
My name is Cody Bolse.

[00:00:06] Speaker 04:
I'm counsel for the appellants in this matter, and I'll endeavor to reserve three minutes of time for rebuttal.

[00:00:13] Speaker 04:
In light of this court's recent order on jurisdiction, I wanted to just start with a note on that.

[00:00:18] Speaker 04:
We think this court has jurisdiction under 158D1 because the bankruptcy court's order is a final order.

[00:00:24] Speaker 04:
We discussed this at length on pages 10 through 13 of our brief.

[00:00:28] Speaker 03:
Let me ask the question on this, because I've

[00:00:31] Speaker 03:
for whatever reason, had a number of cases now on this jurisdictional question under 158.

[00:00:37] Speaker 03:
And I've even had it now where the district court is sitting as a bankruptcy judge, which presents a whole other set of problems.

[00:00:44] Speaker 03:
Why is it under 158?

[00:00:46] Speaker 03:
We have case law that says you can be more flexible in the 158 context.

[00:00:51] Speaker 03:
But this is odd because you have, I mean, the interlocutory appeal, there's no question the district court granted interlocutory appeal under 158, right?

[00:01:00] Speaker 04:
Yeah, we accept that Judge Calabretta understood his appellate jurisdiction as arising under 158.

[00:01:04] Speaker 04:
No dispute about that.

[00:01:06] Speaker 03:
But at the end of the day, what's before him is emotion and limiting.

[00:01:10] Speaker 03:
And it's very odd to get emotion in limine.

[00:01:13] Speaker 03:
I mean, I guess my question is, is the vehicle by which this comes up, does it matter?

[00:01:19] Speaker 03:
Because we would never look in any other context and say, oh yeah, emotion in limine is a final resolution of your rights.

[00:01:28] Speaker 03:
But that's the context in which this is coming up.

[00:01:32] Speaker 04:
I recognize it as a.

[00:01:33] Speaker 04:
bit of an odd vehicle.

[00:01:35] Speaker 04:
But the motion eliminates here were odd.

[00:01:37] Speaker 04:
They were about the preclusive effect of district court findings.

[00:01:41] Speaker 04:
We're not talking about whether a witness could testify or whether a document could come in.

[00:01:47] Speaker 04:
And I would just point this court towards Inray Century Center Partners.

[00:01:52] Speaker 04:
That's a Ninth Circuit case from 1992 that I think is pretty directly on point.

[00:01:57] Speaker 04:
That case involved an appeal from a grant of partial summary judgment.

[00:02:03] Speaker 04:
by a bankruptcy court.

[00:02:04] Speaker 04:
The bankruptcy court granted partial summary judgment as to three of four causes of action.

[00:02:09] Speaker 04:
The fourth cause of action survived.

[00:02:12] Speaker 04:
And this court found that it was a final order and that it had appellate jurisdiction, again, notwithstanding the fact that there was this other cause of action out there, because it resolved those three issues.

[00:02:24] Speaker 04:
And that's just like the case here.

[00:02:25] Speaker 04:
We do have the 523A6 claim.

[00:02:28] Speaker 04:
But whatever happens with that is not going to affect the A7 claim.

[00:02:33] Speaker 04:
court's finding as to the a seven claim was a final resolution of that claim.

[00:02:38] Speaker 03:
And so how do we judge on an interlocutory appeal that goes up to the district court?

[00:02:43] Speaker 03:
How do we judge whether it's final?

[00:02:45] Speaker 03:
Is it?

[00:02:45] Speaker 03:
I mean, number one, it's the district court has to decide all issues on the interlocutory appeal.

[00:02:50] Speaker 03:
You would agree with that, right?

[00:02:52] Speaker 04:
I don't.

[00:02:52] Speaker 04:
I don't know that the court district court needs to decide all the issues.

[00:02:56] Speaker 03:
I think the district court on the interlocutory appeal.

[00:02:59] Speaker 03:
I mean, the interlocutory appeal was limited to this issue, right?

[00:03:02] Speaker 03:
That's right.

[00:03:03] Speaker 03:
Yes.

[00:03:03] Speaker 03:
Yeah.

[00:03:03] Speaker 03:
So, I mean, I think it seems to me that it's fairly obvious if a district court only addressed part of the issue.

[00:03:11] Speaker 03:
I mean, the district court's order has to be final and that has to mean something.

[00:03:15] Speaker 03:
At least it has to be final as to the issue before it on interlocutory appeal.

[00:03:22] Speaker 01:
Does the district court have to, at a minimum, decide whether the minimum wages were willful and malicious?

[00:03:29] Speaker 04:
I don't think it does, because that issue was not before the district court on appeal.

[00:03:35] Speaker 04:
The only issue before the district court was this A7 claim, which is why we sought leave to appeal.

[00:03:44] Speaker 04:
We recognize we did seek leave to appeal, and that's why Judge Calabretta understood jurisdiction is arising under 158A.

[00:03:50] Speaker 04:
But we don't think that's dispositive.

[00:03:52] Speaker 04:
That was just a belt and suspenders approach.

[00:03:54] Speaker 04:
We recognize that bankruptcy finality

[00:03:57] Speaker 04:
is a bit fuzzy.

[00:03:59] Speaker 04:
And as you recognize, Judge Nelson, you've had a number of these cases that have this tricky issue.

[00:04:04] Speaker 04:
And so that was just simply a matter of taking that issue off the table.

[00:04:08] Speaker 04:
We don't think that's dispositive for this court.

[00:04:10] Speaker 04:
We think that this court can look at its own appellate jurisdiction and look at the character of the order.

[00:04:17] Speaker 04:
Is it a final order?

[00:04:18] Speaker 04:
change the status quo?

[00:04:20] Speaker 04:
Does it fix the rights and obligations of the parties?

[00:04:23] Speaker 03:
So the third one that you just talked about, that seems to be the one that I'm grappling with.

[00:04:28] Speaker 03:
Does it fix the rights of the parties?

[00:04:30] Speaker 03:
And your argument is, it does.

[00:04:32] Speaker 03:
If we have this motion in Lemony,

[00:04:35] Speaker 03:
And the district court, that's enough to decide this issue preclusively to the parties.

[00:04:44] Speaker 03:
That's your position.

[00:04:45] Speaker 04:
I think it is, yes.

[00:04:45] Speaker 04:
And again, it would be different if this was an ordinary motion in Lemonade to.

[00:04:49] Speaker 03:
But is there a way that it could come up in the future?

[00:04:51] Speaker 03:
I mean, a lot of reasons why we don't take interlocutory appeals and why we have the jurisdiction that we do is because some decisions are preliminary.

[00:05:00] Speaker 03:
And the district court might revisit that.

[00:05:04] Speaker 03:
in another context.

[00:05:06] Speaker 03:
Why does that, why shouldn't we look at that here and say, you know what, we need it, I mean, the case you cited me in the century partners, that was a summary judgment.

[00:05:19] Speaker 03:
No, it was summary, right?

[00:05:20] Speaker 04:
Yes, it was a partial summary judgment.

[00:05:22] Speaker 03:
This is not partial summary judgment.

[00:05:24] Speaker 03:
This is emotion and limiting.

[00:05:25] Speaker 03:
So why wouldn't we say, well, maybe this would come, I mean, district courts do this all the time where,

[00:05:30] Speaker 03:
where they may issue something on emotion and limiting or a preliminary motion, and then they decide it differently when all the facts are before them.

[00:05:40] Speaker 03:
So why wouldn't we say we need a, we just need a summary judgment ruling, even if it's partial, we're just not going to do this on emotion and limiting.

[00:05:51] Speaker 01:
Well, it didn't, didn't, didn't we hold in landmark that remand for further fact finding

[00:05:58] Speaker 01:
Defects basically affects finality.

[00:06:03] Speaker 01:
In this case, I don't- Well, wherever it comes from.

[00:06:06] Speaker 04:
Sure, sure.

[00:06:07] Speaker 04:
I agree that if there were further facts defined or further facts that might change the finding, you'd have no argument for me.

[00:06:14] Speaker 04:
I would say, sure, this is a purely interlocutory appeal.

[00:06:18] Speaker 04:
That's not the case here.

[00:06:19] Speaker 04:
There's no further facts to find as to the A7 claim.

[00:06:23] Speaker 04:
It's simply a matter.

[00:06:24] Speaker 04:
It's a legal question as to whether the deaths are dischargeable.

[00:06:28] Speaker 04:
on the face of the judgment as written.

[00:06:30] Speaker 04:
The judgment won't change.

[00:06:33] Speaker 04:
And I think that's the only thing that would change that finding.

[00:06:35] Speaker 04:
And again, in full recognition that this is a bit of an odd vehicle given the context.

[00:06:40] Speaker 04:
But again, bankruptcy finality, it is more of a pragmatic doctrine.

[00:06:46] Speaker 04:
And I think for our purposes here, the motion eliminate order is functioning much like a summary judgment order because it's about the substantive preclusive effect

[00:06:57] Speaker 03:
If let's say we hadn't, let's say we hadn't taken this up or say we don't think there's jurisdiction here.

[00:07:05] Speaker 03:
You've got a district court order on appeal that says, you know, the district court or the bankruptcy that decides the party's rights.

[00:07:14] Speaker 03:
If that goes back down, could the bankruptcy court in your mind come to a different conclusion at another stage in the proceeding based on additional information?

[00:07:24] Speaker 04:
I don't see how it could, what would change.

[00:07:27] Speaker 04:
I suppose the bankruptcy court could wake up one morning and has authority to change its findings, I suppose.

[00:07:38] Speaker 04:
But again, there's nothing that is going to change.

[00:07:41] Speaker 03:
Well, I suppose here, to the extent that it's a legal question, the bankruptcy court, even if we said we don't have appellate jurisdiction, the bankruptcy court would be bound by the district court's decision.

[00:07:53] Speaker 03:
And so it could not go another way on the legal question.

[00:07:57] Speaker 03:
There would have to be some factual impetus to allow it to decide it differently.

[00:08:03] Speaker 04:
I think that's right.

[00:08:04] Speaker 04:
And again, it's really a pure question of law.

[00:08:07] Speaker 04:
There's no new factual findings.

[00:08:09] Speaker 04:
The A6 claim is based on different factual and legal bases.

[00:08:15] Speaker 04:
So whatever happens with that claim, it's not going to change the A7 claim.

[00:08:20] Speaker 04:
So if there's no further question on that, I would just like to turn to the merits.

[00:08:24] Speaker 04:
And starting with what this case is not about, this case is not about Paga penalties, because Paga penalties is a misnomer.

[00:08:31] Speaker 04:
It's about civil penalties that arise from substantive provisions of the labor code.

[00:08:37] Speaker 04:
PAGA is just a procedural statute by which the state deputizes private attorneys general to enforce its labor law.

[00:08:44] Speaker 04:
It was enacted to address the chronic under enforcement of the labor code.

[00:08:49] Speaker 04:
These penalties could previously only be sought by the state or local law enforcement.

[00:08:55] Speaker 04:
To serve as a private attorney general, the employee must have suffered an injury and needs to meet certain administrative

[00:08:59] Speaker 04:
requirements.

[00:09:00] Speaker 04:
They can't collect wages.

[00:09:02] Speaker 04:
They can only collect these penalties.

[00:09:04] Speaker 03:
I think you've got a hurdle.

[00:09:08] Speaker 03:
All appellants tend to have a hurdle.

[00:09:09] Speaker 03:
You've got to show an error.

[00:09:10] Speaker 03:
But what's hard here in your case, and I want to tell you how I'm thinking about it and then have you respond to it, you agree that 25% of the penalty, of the $80,000 penalty, is paid directly to a private party, correct?

[00:09:30] Speaker 04:
Yeah, there's no dispute that private individuals will receive it.

[00:09:35] Speaker 04:
Right.

[00:09:36] Speaker 04:
We don't contest that as a legal matter.

[00:09:39] Speaker 04:
We don't think that matters under the language of 523A7, which just makes the debt non-dischargeable to the extent it is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit.

[00:09:53] Speaker 03:
OK, so tell me, because you just read it, and it says payable to.

[00:09:56] Speaker 03:
You knew where I was going.

[00:09:57] Speaker 04:
I don't understand how you get past that.

[00:09:59] Speaker 04:
So I think there's a very simple answer, which is nothing there talks about receipt and recipient.

[00:10:07] Speaker 04:
It's language of obligation.

[00:10:08] Speaker 04:
To whom the obligation flows.

[00:10:10] Speaker 03:
How is 25% of the award payable to the government?

[00:10:16] Speaker 04:
Well, let me give you an example, Your Honor.

[00:10:19] Speaker 04:
When we get our paychecks, we recognize that there's going to be a big difference between our gross pay and our net pay.

[00:10:25] Speaker 04:
Money will go to the state for our state taxes, to the federal government for our federal taxes, maybe to our health insurance provider.

[00:10:32] Speaker 03:
OK, but that seems very distinguishable because, well, part of it seems distinguishable.

[00:10:38] Speaker 04:
And my point, though, just to finish, is that we wouldn't say that our gross wages are payable to these other entities that receive portions of them.

[00:10:46] Speaker 04:
Likewise, suppose we have a personal injury plaintiff who wins $100 judgment.

[00:10:52] Speaker 04:
She's got a contingency fee agreement with her attorney, has agreed to pay them 30%.

[00:10:56] Speaker 04:
I think we all agree that the entire $100 is payable to the injured plaintiff, notwithstanding the fact that she may distribute some of them later.

[00:11:06] Speaker 04:
And I think there's case law consistent with this.

[00:11:09] Speaker 04:
And I think we should start with Kelly v. Robinson.

[00:11:11] Speaker 04:
That's the 1986 Supreme Court case about criminal restitution.

[00:11:15] Speaker 04:
And the court there says the debt was non-dischargeable even though the restitution payments were, quote, forwarded to the victim.

[00:11:23] Speaker 04:
Likewise, in Ray Jensen, that's a Colorado case dealing with civil restitution sanctions imposed in connection with the state consumer protection statute.

[00:11:33] Speaker 04:
And the court found that those debts were non-dischargeable, notwithstanding the fact that some may be shared with the victims.

[00:11:39] Speaker 04:
So the critical inquiry, I think,

[00:11:41] Speaker 04:
is whether the debt is penal in nature and whether the obligation flows to the state.

[00:11:46] Speaker 04:
In the Paga context, that obligation goes to the state, and the state has simply exercised its discretion to distribute some of those funds.

[00:11:56] Speaker 04:
And I'm running long my time here.

[00:11:58] Speaker 04:
I just want to close with a quote from a Fourth Circuit case from 1995.

[00:12:03] Speaker 04:
That's the HUD v. CCMV case, which I think encapsulates our position.

[00:12:08] Speaker 04:
Quote, the Supreme Court has given 523A7 a broad reading and has held that it applies to all criminal and civil penalties, even those designed to provide restitution to injured private citizens.

[00:12:19] Speaker 04:
We interpret these cases to say that so long as the government's interest in enforcing a debt is penal, it makes no difference that the injured persons may thereby receive compensation for pecuniary loss.

[00:12:31] Speaker 04:
And if there's no questions, I'll preserve the balance of my time.

[00:12:34] Speaker 04:
OK.

[00:12:43] Speaker 00:
Good morning, Your Honors.

[00:12:45] Speaker 00:
Natalie Rahn, appearing for the Pataxel Appellees.

[00:12:50] Speaker 00:
May it please the Court, I'll also address with the jurisdictional issue.

[00:12:56] Speaker 03:
You stick to your position that we have jurisdiction.

[00:13:00] Speaker 00:
I agree that the Court has jurisdiction for some similar reasons.

[00:13:08] Speaker 00:
Number one being the finality of the

[00:13:12] Speaker 00:
Issue preclusion motion and lemonade ruling that while the vehicle was a little bit odd I agree that it has the the effect of a summary judgment on the a7 claims and so to address the courts earlier, I think concerns No facts would be would be presented at trial because the court has already made this issue preclusion ruling and

[00:13:37] Speaker 00:
and determined from a final standpoint that 75% of the fees are non dischargeable in the 25% are dischargeable and similarly as are the attorney's fees.

[00:13:51] Speaker 00:
But I have to agree with the court as far as a substantive matter that these.

[00:13:57] Speaker 00:
There there can be no reasonable dispute in my mind that the 25% of these fees are payable to the aggrieved employees that's very clear in the court's order and I just don't see how we get around that the appellants.

[00:14:13] Speaker 00:
have asked the court to essentially disregard the end recipient rule and have conflated and asked the court to consider ownership or the purpose of the fees.

[00:14:26] Speaker 00:
But that conflates the two separate elements in the A7 statute, which necessarily requires that the court determine both

[00:14:35] Speaker 00:
who this that that this is for the benefit of the government and also payable too.

[00:14:41] Speaker 00:
And so we can't conflate those two issues.

[00:14:43] Speaker 00:
We have to assume Congress meant two different things by those two different elements.

[00:14:48] Speaker 00:
And in this case, just simply cannot meet both of those elements.

[00:14:52] Speaker 03:
Does it even meet the for the government provision?

[00:14:57] Speaker 03:
Even if you take them separately, does it even meet the for the government for the benefit of the government?

[00:15:01] Speaker 03:
Not for the benefit of the government or the benefit of the public?

[00:15:05] Speaker 00:
And not that certainly not the 25%.

[00:15:07] Speaker 00:
I think that that's never for the benefit that is not for the benefit of the government as far as the Medina case goes.

[00:15:16] Speaker 00:
I think that the court in Medina recognize that it was critical.

[00:15:20] Speaker 00:
The court said it was critical in that case that there wasn't a judgment.

[00:15:24] Speaker 00:
that already distributed an amount to the aggrieved employees.

[00:15:30] Speaker 00:
But I think even then, the Medina court got it wrong because there was no dispute at any point that 25% necessarily was required to be distributed to the aggrieved employees by statute.

[00:15:42] Speaker 00:
That 25% was never going to go and benefit or benefit the government.

[00:15:49] Speaker 00:
So it wouldn't have met either of the prongs.

[00:15:52] Speaker 02:
Council with that same reasoning apply in a restitution context or a crime victims fund context The money's going the government.

[00:16:01] Speaker 02:
They're paying it out, but oh ultimate beneficiaries the private person

[00:16:10] Speaker 00:
Well, I think the reasoning is similar, but in that case, we don't have a payable to issue because the payable, the restitution fees are going to be paid to the government where we don't have that in this case.

[00:16:22] Speaker 02:
Right, but it's distributed, payable to the government, distributed to private parties.

[00:16:27] Speaker 00:
In a restitution sense, yes.

[00:16:29] Speaker 00:
In a Paga sense, no.

[00:16:31] Speaker 00:
The amount, the 25% is not going to be paid to the state at any point in this case.

[00:16:41] Speaker 03:
And if I'm not mistaken, and I think you cited some cases where even if it were paid to the state, if the state had a legal obligation to just hand that over and they didn't have any discretion on that, that still wouldn't be payable too.

[00:16:58] Speaker 03:
I think there was that in Ray Towers case out of the seventh circuit, the Rashid case out of the third circuit.

[00:17:05] Speaker 03:
Am I right in how I'm reading that?

[00:17:08] Speaker 03:
Is that your argument?

[00:17:09] Speaker 03:
I mean, I guess to a certain degree it doesn't matter, because this is never paid to the state.

[00:17:14] Speaker 00:
Both correct, yes.

[00:17:15] Speaker 00:
That is not an issue in this case, because it's never paid.

[00:17:19] Speaker 00:
That also was my argument, and that was the ruling in the case, which was cited and relied on by the Jensen case.

[00:17:25] Speaker 00:
They relied on the Towers case, which ultimately held that yes, and distinguished the HUD case, because in Jensen it discussed those two cases.

[00:17:34] Speaker 00:
in towers, that was the distinguishing factor, that these amounts were earmarked for these particular individuals, and so they were not going to benefit the government or be paid to the government as an end recipient.

[00:17:49] Speaker 00:
And that was, I think, the distinguishing factor in that.

[00:17:53] Speaker 00:
That was also a distinguishing factor in the case relied on in Medina regarding the University of New Mexico, where they said even though the University of New Mexico is the real party in interest, they're not going to receive the funds.

[00:18:09] Speaker 00:
They're earmarked for individuals.

[00:18:11] Speaker 00:
which is the exact same issue we have in this case, and even more fatal with regard to the attorney's fees.

[00:18:19] Speaker 00:
There can be no reasonable argument that the attorney fees would ever be payable to a government, that they benefited the government, or that they were not compensatory in nature.

[00:18:32] Speaker 00:
That's exactly what they were.

[00:18:33] Speaker 00:
They were meant to compensate

[00:18:35] Speaker 00:
aggrieved employees as far as the Paga part goes, but also they had an independent basis, multiple independent bases on which the court granted attorney's fees to these particular plaintiffs.

[00:18:49] Speaker 00:
And I think that's best elucidated by the fact that the attorneys in this case are the claimants.

[00:18:56] Speaker 00:
They're parties to the appeal.

[00:18:58] Speaker 00:
They are the ones who disputed dischargeability.

[00:19:02] Speaker 00:
That's because they're the ones who are going to receive the attorney's fees.

[00:19:19] Speaker 00:
And I think with that, if the court has no further questions, I can reserve the rest of my time.

[00:19:26] Speaker 03:
Well, there's no reserving because you are the appellee.

[00:19:30] Speaker 02:
I'll ask a question.

[00:19:32] Speaker 02:
I'll sail by the situation.

[00:19:35] Speaker 02:
So these programs, the Paga law or other mechanisms that, you know, key tam statutes,

[00:19:43] Speaker 02:
are enacted in part because there's support for this in our system and the citizens want to have this.

[00:19:51] Speaker 02:
It's a vehicle where they can step in the shoes of the government temporarily and go after someone for conduct that violates either the law or violates regulation, whatever it might be.

[00:20:04] Speaker 02:
And you're allowing

[00:20:08] Speaker 02:
the miscreants to get away with it because they can just discharge in bankruptcy because the money's not going to the government because the government has a program set up to allow private parties to step in their shoes.

[00:20:20] Speaker 02:
How does that make sense?

[00:20:21] Speaker 02:
Why is that not for the benefit of the government?

[00:20:24] Speaker 02:
Because the government's going to enact this program in the first place.

[00:20:28] Speaker 00:
Well, I think we have to look at two things.

[00:20:31] Speaker 00:
Partially it is for the benefit of the government and they've got it set up, but they're only benefiting to the extent of the 75% that they're receiving.

[00:20:42] Speaker 00:
The 25% that is dischargeable in this case, or has been ordered dischargeable, is not for the benefit.

[00:20:49] Speaker 02:
Right, but maybe the law doesn't get passed in the first place if 100% goes to the government because people say, well, this is designed to provide incentive for people to go after the bad actors because the government's not doing its job, so we're going to pass a law that has broad-based support, majority support, that allows the private party to get some extra benefit.

[00:21:10] Speaker 00:
Well, I think the legislature set it up this way with the 75% going to the the state.

[00:21:18] Speaker 00:
and the 25% going to the employees to essentially to incentivize them.

[00:21:24] Speaker 00:
But I think that for that reason, and also for the reasons set forth in the congressional intent in 523A7, that may be true.

[00:21:32] Speaker 00:
There may be some benefit.

[00:21:33] Speaker 00:
There of course is some benefit.

[00:21:36] Speaker 00:
I don't think we can reasonably argue there's not a benefit to the government in enacting these Paga penalties.

[00:21:45] Speaker 00:
doesn't get to the end result recipient issue, the payable to issue, and also the argument that the 25% is not ultimately going to benefit.

[00:21:55] Speaker 02:
Where does the end result, the ultimate payee, where does that come into play?

[00:22:00] Speaker 02:
The statute says payable to is payable to the government, the government distributes it as they choose.

[00:22:04] Speaker 02:
What if the government said, we're going to take this money and distribute it to needy families, or some other program like that.

[00:22:11] Speaker 02:
Would that be

[00:22:12] Speaker 02:
Beyond the scope of the discharge.

[00:22:17] Speaker 00:
Well, I think that takes it a step further because in that case, it's payable to the government and then the government has discretion on where it's going to distribute.

[00:22:28] Speaker 00:
Whereas we don't have that here.

[00:22:30] Speaker 00:
The legislature has already

[00:22:32] Speaker 00:
Outlined exactly where the funds are going to go and it doesn't have a mechanism where even the state Receives it it goes well at least in this judgment.

[00:22:42] Speaker 00:
There's not a mechanism where the state will ever receive the 25% Conceivably it's going to go to some third-party administrator who will distribute it to the aggrieved employees is usually how Paga actions function

[00:22:58] Speaker 00:
Same the same analysis with regard to the attorney's fees a different analysis with regard to the attorney's fees because in this case I Think it fails all three all four prong prongs of 523 a7.

[00:23:15] Speaker 00:
It's not a fine or a penalty it's compensatory in nature meant to compensate the individuals who bring the action and

[00:23:25] Speaker 00:
In connection with multiple other actions that they're bringing not just but the eight hundred and plus thousand dollars that they actually did recover.

[00:23:35] Speaker 00:
It's not payable to the government, and it's not for the benefit of the government.

[00:23:39] Speaker 00:
At least in this case, I don't think we can argue that it was solely for the benefit of the argument.

[00:23:44] Speaker 02:
Especially when it's... But it incentivizes the party to bring the claim because they can... A lawyer will take their case because there's a chance they get an attorney's fees award.

[00:23:53] Speaker 02:
So that benefits the government because the government doesn't have to supply the staff to handle all these claims and go after these folks violating the law.

[00:24:04] Speaker 00:
Well, I think that the fact that there were multiple other statutes under which the attorney's fees were awarded also combines to the incentive.

[00:24:16] Speaker 00:
But to your point, yes, I could see the benefit to the government in that way.

[00:24:20] Speaker 00:
But it still doesn't meet the rest of the prongs.

[00:24:26] Speaker 00:
It's not a fine or a penalty.

[00:24:29] Speaker 00:
It's compensatory.

[00:24:30] Speaker 00:
It's incentivizing to make sure that the individual employees who are

[00:24:34] Speaker 00:
bringing the case don't have to come out of pocket to incur their own expenses.

[00:24:39] Speaker 00:
It's meant to sway those fees to the employer.

[00:24:46] Speaker 00:
If there are no further questions, I thank you for your time.

[00:24:57] Speaker 03:
Thank you.

[00:25:06] Speaker 04:
Just a few quick points.

[00:25:08] Speaker 04:
Judge Morris, I think you hit the nail on the head when you talked about distribution.

[00:25:11] Speaker 04:
We all agree there's a line of cases, Kelly, Jensen, et cetera, where states have discretion to make distribution to other parties.

[00:25:20] Speaker 04:
The only difference here is that the state has done it on the front end in the statute.

[00:25:25] Speaker 04:
It seems strange to say that if this was just the LWDA's practice to distribute it this way, and it wasn't in the statute, and we all recognize that ultimately it would be distributed in that way.

[00:25:35] Speaker 04:
that suddenly the nature of the debt would change.

[00:25:39] Speaker 04:
I don't think it would.

[00:25:41] Speaker 04:
States have discretion to do that.

[00:25:43] Speaker 03:
I don't understand how that argument, can you address in-rate towers and Rashid, the Seventh Circuit and the Third Circuit cases, because in those cases it was payable to the government and they said it's still not payable to because the government has a legal obligation to send that on.

[00:26:00] Speaker 03:
It's only when there's discretion in the HUD case

[00:26:04] Speaker 03:
that you could argue that it was payable to the government?

[00:26:11] Speaker 04:
So I think the key distinction is that these cases involve restitution that are intended to recompense other parties.

[00:26:23] Speaker 04:
The penalties at issue here, like I said, are labor code penalties that are in the substantive labor code provisions that are recoverable by the state, $100 violation.

[00:26:33] Speaker 04:
There's no private right of action to that.

[00:26:35] Speaker 04:
At the time that violation arises, it is fully payable to the state.

[00:26:40] Speaker 04:
PAGA is just an enabling statute that expands who can bring those claims and how they're distributed.

[00:26:49] Speaker 04:
I also want to note that the end recipient rule, I don't see that in any of the cases.

[00:26:56] Speaker 04:
It may often be the case that payable to means who's going to end up with it.

[00:27:00] Speaker 04:
But there's not some hard and recipient role.

[00:27:03] Speaker 04:
In fact, I gave you a series of cases in which payments were made to private individuals.

[00:27:10] Speaker 04:
I also want to note that I don't think we conflate the payable to and for the benefit of element.

[00:27:16] Speaker 04:
Like I said, in our understanding, payable to simply means that the right runs to the government.

[00:27:21] Speaker 04:
You could have things that fit the other four elements but aren't payable to under that.

[00:27:25] Speaker 03:
What are you relying on for that?

[00:27:27] Speaker 03:
Because if we were just to look at a common understanding of payable to, I just don't see how your theory fits within that.

[00:27:35] Speaker 03:
Don't worry.

[00:27:35] Speaker 03:
I'll give you time to answer that.

[00:27:39] Speaker 04:
Sure.

[00:27:39] Speaker 04:
I'll answer that quickly.

[00:27:40] Speaker 04:
Again, I would come back to the examples that I gave.

[00:27:44] Speaker 04:
We often, money is payable to us that gets distributed.

[00:27:48] Speaker 04:
The example of the the plaintiff or our paychecks and we wouldn't understand that our paychecks is payable to Etna or the franchise tax board and For taxed on the gross amount and if our employer didn't pay us our full wages and we sued for the non-payment of wages We couldn't the employer couldn't show up and say oh, you know, sorry actually

[00:28:09] Speaker 04:
You know, you're only entitled to some percent because the rest of it wasn't payable to you.

[00:28:13] Speaker 04:
It was payable to the IRS or Kaiser Permanente, et cetera.

[00:28:17] Speaker 04:
And so I see my red light is on.

[00:28:19] Speaker 04:
So if there's no questions, I'll thank the court for its time.

[00:28:22] Speaker 03:
OK, thank you.

[00:28:22] Speaker 03:
Thank you to both counsel for your arguments in the case.

[00:28:25] Speaker 03:
The case is now submitted.