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

[00:00:05] Speaker 04:
The next case we have scheduled for argument is Sage versus Capstone Logistics.

[00:00:33] Speaker 01:
Good morning, your honors. May it please the court, Benjamin Schatz of Dwayne Morris for defendant and appellant Capstone Logistics. I'd like to reserve five minutes for rebuttal.

[00:00:44] Speaker 01:
The district court here denied Capstone's motion for arbitration based on a misunderstanding of the Supreme Court precedent on mootness.

[00:00:56] Speaker 01:
The district court's analysis was that if the plaintiff's individual claims were sent to arbitration, then the plaintiffs would no longer have a stake in their class claim, and therefore the class claim would have to be dismissed as moot.

[00:01:12] Speaker 01:
That's simply wrong.

[00:01:15] Speaker 01:
Even if sent to arbitration, the plaintiffs would still have a stake in their class claims that would prevent a dismissal for mootness. The district court's analysis was based on a case called Genesis Healthcare, And Genesis is completely distinguishable. It was an FLSA collective action, not a Rule 23 class action. And the Supreme Court has made clear that FLSA collective actions are fundamentally different from class actions.

[00:01:47] Speaker 01:
And this Court has also said that. And therefore, The Genesis case was simply off point, and the district court judge made a mistake in deciding that there would be a mootness problem.

[00:02:01] Speaker 02:
But counsel, so what about the Villa Lobos issue?

[00:02:04] Speaker 01:
Okay, so moving beyond what the District Court did, because that's quite wrong, and getting to... I agree with you on that, but I don't know how you get around Villa-Lobos. Okay, well, so let's then talk about the real issue that's here.

[00:02:22] Speaker 01:
And I'd like to start by making clear that the complaint here has ten causes of action.

[00:02:31] Speaker 01:
The first eight are labor code claims, the ninth is a UCL claim, and the tenth claim is a PAGA claim. And Adolph and Villalobos, those only relate to the PAGA claim.

[00:02:44] Speaker 01:
And the complaint itself, the very first line of the complaint says that the labor code claims are being brought on an individual basis and also on a class basis.

[00:02:58] Speaker 01:
To be clear, the complaint that we're looking at here has four analytically distinct types of claims. And I'd point the court to the Westmoreland v. Kindercare Education case, which is in the briefing at page 980, because that case talks about how to look at these four different types of distinct claims.

[00:03:21] Speaker 02:
The four are labor code individual, labor code class, PAGA individual, class. Precisely.

[00:03:27] Speaker 01:
That's exactly right. So the class claims, the individual labor code claims, they're not affected by the Adolph or the Villalobos case, which I will get to in a minute. I'm not trying to avoid your question, but I am trying to put it in context because it doesn't answer the question about what should happen in this case because there are still individual labor code claims. And at the very least, those need to be sent to arbitration.

[00:03:57] Speaker 01:
There's no way around that. The plaintiff in a class action like this always sues in a dual capacity.

[00:04:04] Speaker 01:
And so those are separate. And if the plaintiff loses the representative capacity, the individual case still exists.

[00:04:11] Speaker 02:
So at a minimum, the labor code individual claims should be sent to arbitration. Is that correct?

[00:04:17] Speaker 01:
That's exactly right. Yes, Your Honor. Okay, so now what do we do about the PAGA claim? Because that's the one that seems to have confused everybody.

[00:04:26] Speaker 01:
This court's order asks about, well, what is the impact of the Adolf case and the Villalobos case?

[00:04:34] Speaker 01:
The Adolf case... of course, is the California Supreme Court case that creates the split scheme when the FAA applies, meaning that the individual PAGA claims get sent to arbitration and the representative PAGA claims don't.

[00:04:51] Speaker 01:
But the Adolph case, admittedly, only applies when the FAA applies. And in this case, in this posture, for purposes of this appeal, the FAA does not apply. Adolph doesn't address what to do in that situation.

[00:05:08] Speaker 01:
There's no answer to that from the California Supreme Court.

[00:05:11] Speaker 03:
Would you support certifying this question to the California Supreme Court?

[00:05:15] Speaker 01:
I think that would be a wonderful idea.

[00:05:18] Speaker 01:
The California Supreme Court has been dealing with these a lot. In fact, the one that's pending right now, LEPR, which is mentioned in the briefing, is fully briefed and will probably be decided before the end of the year.

[00:05:33] Speaker 01:
And that one has to do, LEPR has to do with whether or not every PAGA case claim necessarily includes an individual claim. So it's very relevant to what we're talking about, although I'll admit, I can't guarantee that the LEPER decision will give you an answer, but it will certainly give all of us guidance and those who work in this area. So that might be something to...

[00:05:56] Speaker 01:
to rest on and to see what happens. But for now, we live in the world where we have Adolph, which is great in most cases, but not this case.

[00:06:06] Speaker 01:
And so that takes us to Villalobos, which is the only published California intermediate appellate court case to pick up where that gap left off. And Villalobos says, well, you can't split the claims. The PAGA claim has to stay together, and so you simply cannot send the individual piece to arbitration and the representative piece to court.

[00:06:33] Speaker 01:
So it does exactly what ADOF does not do, but it reasons that, well, there's no FAA, so you're under California law, and California law doesn't allow that split. It's a judicially created rule, and it's not something that the California Supreme Court has actually ever specifically addressed. So you're left with one published intermediate opinion.

[00:06:54] Speaker 02:
There's another appellate court that followed it, though, in an unpublished, correct?

[00:07:00] Speaker 01:
That's correct. You are talking about Grajeda v. Maersk, I believe. That's the only case. So you've got one published case. You have one unpublished case.

[00:07:10] Speaker 02:
But there's no basis for us, I think, that we could say that. that the Supreme Court, as is the state now, there's no basis for us to say we doubt that the California Supreme Court will not follow this given that two intermediate courts have followed it.

[00:07:24] Speaker 01:
Well, I can't predict what the California Supreme Court would do, but I will point out... To make a reasonable prediction. Correct, and so let me help with that. I will also point out that despite Villalobos, there are at least...

[00:07:40] Speaker 01:
five, possibly more, federal district court decisions that are not following Villalobos, that are doing something else. They are splitting the claims.

[00:07:49] Speaker 04:
Can you give an argument of why they could be split under CAA?

[00:07:56] Speaker 01:
Well, I think the first argument is why should there be any difference? I mean, the policies of the CAA and the FAA should be the same. I mean, this creates a ridiculous mess. It's also very ironic that when you're dealing with interstate workers who you would think would be subject to the federal law, instead they're not. They get this exception and they end up following state law. which goes off in its own unusual direction.

[00:08:24] Speaker 01:
These cases were not in the briefing because this hadn't been addressed in the briefing.

[00:08:30] Speaker 01:
If you don't mind, I'd like to give you at least a citation to one case. I can give you more if you like.

[00:08:36] Speaker 01:
The one I would point you to is called Shanley versus Tracy Logistics, 2026, Westlaw, 61534. That's from the Eastern District of California. In that case, cites a whole bunch of others, so I won't give you the other ones. unless you want them, I'd be happy to supply additional briefing on this case since the briefing as it exists now I don't think is quite adequate to get to the decision that needs to be reached.

[00:09:03] Speaker 01:
But the Shanley case from the Eastern District cites cases from the Northern District and the Central District. So there are judges throughout California that are not following the Villalobos line of reasoning.

[00:09:17] Speaker 05:
Are they citing the Alobos and rejecting it?

[00:09:22] Speaker 01:
No. It has not been specifically addressed. But the Shanley case cites all of these other cases. And in terms of a rationale, there are a number of different reasons. I think the Shanley case primarily says, well, sending a case to arbitration isn't really a claim isn't really splitting the claim. It still exists. It's in court and it's in arbitration. It'll come back together at some point. And so why do that? Why not do that? What's the problem? So I think that these cases, they're federal cases.

[00:09:56] Speaker 01:
They're not California cases. But they do show that there is a difference of opinion about what to do in this situation under California law, because these are cases that acknowledge an exception to the FAA. Usually, it's a transportation worker exception. So it's not so clear exactly what to do.

[00:10:17] Speaker 01:
But I think that the main takeaway for purposes of deciding this appeal apart from the PAGA piece, is, well, but the labor code claims, the individual claims, those have to go to arbitration.

[00:10:32] Speaker 05:
And so at the very least... But under the CAA, doesn't the district court have the discretion not to send them?

[00:10:41] Speaker 01:
I would say a district court judge has discretion to do just about anything the district court judge wants. But in this instance, the district court judge was not exercising any discretion. District court opinion was very clear. He cited the Genesis case and provided a mootness analysis, which was not briefed by any of the parties. So this was sort of a surprise to begin with.

[00:11:01] Speaker 01:
But I don't think it would be right to say, well, the district court could exercise discretion. Therefore, this court is going to exercise discretion for him. I think that this court needs to say, there's been a mistake about mootness. That's not the answer. send it back down to the district court. And then the district court judge can deal with all of these issues, the PAGA questions and the labor code questions. And if the district court judge feels like exercising discretion in some way about something, we can brief that and we can discuss it.

[00:11:32] Speaker 01:
But that hasn't happened yet in this case. We're here on essentially a two-page minute order that rests on a misanalysis of Supreme Court law of mootness that's very clearly an error. And so that's why we're here to seek a reversal of that.

[00:11:49] Speaker 05:
So, I mean, it seems to me that the question of whether the district court should exercise discretion under 1281.2 was brief to it, and it just didn't cite that. Are you arguing that, I mean, we could remand for the district court to be more clear, but it seems to me from context that's what the district court was responding to, was an argument that it should exercise its discretion under 1281.2.

[00:12:14] Speaker 01:
I've got several responses. First of all, the 1281.2 argument is quite bogus because the discretion provided under that state statute not a federal statute, requires that there be some case involving a third party, which there isn't.

[00:12:29] Speaker 05:
Well, that's what I'm in trouble with here, because you say there's no third party because all the individual plaintiffs are subject to the arbitration agreement, but that's not quite right. Each individual employee has an individual arbitration agreement, and there's not one giant arbitration agreement. There's hundreds of whatever different arbitration agreements. So they are each third parties to each other's arbitration agreements.

[00:13:01] Speaker 01:
Well, but the California statute that says a California judge has discretion about sending a part of a case to arbitration has to do with If there's one case over here and there's another case over here, there's no other case. There's no pending case.

[00:13:14] Speaker 05:
And in terms of other class members, there isn't even a case if one is sent to arbitration and one is pending in federal court. I mean, that seems to be exactly designed. I mean, there are, to me, the point is the risk of inconsistent rulings, isn't it?

[00:13:31] Speaker 01:
Correct. Inconsistent rulings is what drives this. But there's no inconsistent rulings if there's only one case right now. There's one case in front of the district court judge. with two plaintiffs. And there's been no certified class. And those plaintiffs signed the same arbitration agreement. And it would seem strange for this court to affirm the district court judge's exercise of discretion when the district court judge never exercised discretion. That's not what happened here at all. The district court plainly misunderstood the law. And that itself is a mistake.

[00:14:04] Speaker 01:
But beyond that, I just don't see how A statute that gives a trial court judge in California discretion to do whatever he wants in terms of arranging arbitration versus a pending other case could even apply here.

[00:14:19] Speaker 05:
Well, it's the California Arbitration Act. I mean, you're saying it's assuming for the purposes of this motion that is what the district court is applying, correct?

[00:14:27] Speaker 01:
Yes, that's true. That's true.

[00:14:30] Speaker 01:
But again, the discretion that has been focused on requires that there be some other case. And there isn't any other case. There's just this case.

[00:14:38] Speaker 05:
Do you have a California case that interprets this 12-year-old in the way you're interpreting it?

[00:14:43] Speaker 01:
I'm relying on the plain language of the statute. It's very clear. If you wanted cases about it, I suppose we could find some. I imagine that they would all say, well, if you're going to use this provision, you have to have a third party. The language says the court may refuse to enforce an arbitration agreement. A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party. There has to be another entity involved.

[00:15:15] Speaker 01:
That is what the court is concerned about. That is what this statute is designed at so that you don't have two different cases going that do different things. And the two plaintiffs here are not considered third parties to each other? No, they're exactly in the same situation, and it's the same case.

[00:15:30] Speaker 05:
Well, they're third, well.

[00:15:34] Speaker 05:
I would say there's, to me, it's about whether they are third party to the agreement at issue, but in any case, I understand your argument.

[00:15:42] Speaker 01:
All right, I see that I'm just about out of time.

[00:15:44] Speaker 04:
We'll give you two minutes for rebuttal because we asked you a lot of questions. Thank you.

[00:15:53] Speaker 00:
Good morning, Your Honors. Karen Gold of Blackstone Law on behalf of respondents Jacob Sage and Reginald McOwens. May it please the court. This appeal comes before you on a somewhat unusual procedural background, and that's because we're operating in a world where the district court has already ruled that we're outside of the Federal Arbitration Act under the Transportation Worker Exemption, and therefore the California Arbitration Act applies, so we're within the CAA. And even within there, there's a ruling from the district court that the class action waiver is invalid and unenforceable under California law under Gentry.

[00:16:29] Speaker 00:
Those are not disputed here. So that forms kind of the boundaries of the world that we're operating in for this appeal.

[00:16:39] Speaker 00:
Appellant raises three arguments with respect to why it believes the district court erred. I'd like to address the first one because that pertains to the question that the court had posed prior to oral argument. So the first argument is that the district court supposedly erred when it declined to compel arbitration of respondents' individual PAGA claims.

[00:17:02] Speaker 00:
I think the court is spot on. It's an issue that was not necessarily flushed out as thoroughly as it should have been, but I do believe in researching it further that it is dispositive here. Adolph v. Uber, in kind of the short answer to the court's question, is that Adolph v. Uber and the Villalobos case both stand for the proposition that under California law, when you are outside of the FAA and you're in the CAA world, There are no federal preemption issues or concerns, and therefore, you cannot split the PAGA claim. The longer answer involves a little bit of history with how California courts – Before we get there, then – Yes.

[00:17:37] Speaker 02:
I mean, so assuming I agree with you that PAGA claims cannot be arbitrated, what about the individual labor code claims –

[00:17:45] Speaker 00:
Yes, Sharon, I appreciate that question. So there's a poison pill clause in this arbitration agreement that my colleague did not address in his oral argument, but I think it's also separately dispositive of this case.

[00:17:59] Speaker 00:
The poison pill in the agreement says – and I'd like to actually read the exact language because it's – Because it didn't seem like a poison pill to me, so I'd love to – The poison pill says – If any term, provision, or portion of this agreement is determined to be void or unenforceable, it shall be severed and the remainder of the agreement shall be fully enforceable, provided, however, that if the waiver of class and collective claims is found to be unenforceable, then, quote, any claim brought on a class, collective, or representative action basis must be filed in a court of competent jurisdiction, and such court shall be the exclusive forum for such claims.

[00:18:38] Speaker 00:
Here, it's undisputed that the district court found that the claims that were brought on a class action basis, that is all of the labor code claims that were asserted as class action claims, that the class action waiver was unenforceable as to those claims.

[00:18:53] Speaker 02:
Correct.

[00:18:54] Speaker 00:
On the plain language of this agreement, that triggers what we're referring to as a poison pill, what my colleague is, in the briefing, at least referred to as a savings clause. Now, their argument here is that the court should just ignore that language. The court never should have reached it.

[00:19:09] Speaker 02:
I don't understand how what you're calling the poison pill covers individual labor code claims.

[00:19:14] Speaker 00:
Because the individual labor code claims are brought on a class action basis.

[00:19:21] Speaker 00:
They're not separate individual labor. We plead a class action and there's a PAGA claim. They're individual claims that are brought on a class action basis. It's pled as a class action.

[00:19:32] Speaker 04:
So that language – But it could be brought under individual basis too under the law, right? I mean if someone – typically it is brought on class action basis. But someone – just one employee says I'm – just for me – I'm suing.

[00:19:43] Speaker 00:
Absolutely, Your Honor, but that's not how it was brought here. And so here it was brought as a class action.

[00:19:48] Speaker 02:
Wait, so are you saying you don't have individual labor code claims?

[00:19:52] Speaker 00:
I'm saying that the individual labor code claims, if I choose to sue an employer, I can do it on my own behalf, and I can make, as the person that controls the drafting of the pleading, I can say I'm suing on my own behalf as an individual and not plead class action claims. However, I also have the choice to bring a claim for those same alleged violations of the law on a class action basis, and that's why it triggers this language that says A claim brought on a class action basis.

[00:20:21] Speaker 05:
The whole point of a class action claim is saying the litigation of my individual claim will determine the claims of the class. Correct. I mean, it's saying I am representing a class. When I bring my individual claim, I want to represent an entire class.

[00:20:37] Speaker 00:
Correct. So you're representing the class with your individual claim, and as the person who is drafting the pleading, you choose whether you're going to bring it on an individual basis or on a class action basis. It is your individual claim once you plead it as a class action complaint or claim, it triggers this provision. And so here it's undisputed that the claim was brought on a class action and representative action basis.

[00:20:59] Speaker 02:
Is there any – is it California case law saying that what you're saying, that when you bring a class action, any individual claim – Essentially, you're saying it merges with the class action, and so therefore the individual claim goes with the class action.

[00:21:15] Speaker 00:
This is somewhat unusual language. I don't have a case that specifically says that before me, but I'm happy to brief it for the court if it would be helpful.

[00:21:21] Speaker 02:
That would be helpful for me because I get what you're saying, but it says – as I read it, I think the plain language would be that the class action claim can't be arbitrated and has to be brought.

[00:21:32] Speaker 04:
So you're saying – From the other side, they said there are four claims. You're saying essentially there's three claims at most. PAG, if you can split it, there's two, and then there's just one labor code. It's a class action, and that's it.

[00:21:44] Speaker 00:
It's essentially – so there is some case law I can actually point the court to. I have it in here related to a later argument, but I think it might be helpful here.

[00:21:53] Speaker 00:
It's In re Hansen. It's 869F3D1052. And in that case, the court's talking about – whether somebody loses standing when they lose their individual claim. So can they no longer bring a class action once their individual claim is resolved? And the answer is yes, because the class action is kind of a fiction, not a fiction, it's a procedure that's created that allows you to bring your claim on a representative basis on behalf of others.

[00:22:23] Speaker 05:
I'll put it this way.

[00:22:26] Speaker 05:
As a plaintiff's lawyer, could you file simultaneously an individual court case and a class action case on behalf of the same individual raising the same exact claim. You cannot do that. You cannot do that. You cannot do that. You say you file one complaint saying, I have this claim and I'm bringing it on a class action basis. Is that correct? Correct.

[00:22:46] Speaker 02:
Could you dismiss your individual labor code claims and still proceed in the class action?

[00:22:51] Speaker 00:
No, you cannot. The class action mechanism is dependent upon having a viable representative plaintiff that will represent the group under the requirements of certain procedural elements that are in place to protect the putative class members. And so one of those requirements is that the representative plaintiff is an adequate representative of the absent class members. And what Henry Hansen discusses is that when you no longer have a stake in the litigation because you don't have an individual claim, you're no longer able to bring a class action effectively.

[00:23:25] Speaker 02:
I'm sorry. I know I've seen cases though where you know, that they've sent individual cases, individual claims to arbitration. And then the question was whether or not that person can proceed in the class action. So it seems like you could split.

[00:23:40] Speaker 00:
You can't split a class action in that way, is my understanding.

[00:23:43] Speaker 04:
I mean, I guess what would happen is because you're just bringing this as a class action here on the labor code. If it's if the court says denies class cert, then you would have only individual claims. And then I assume then they can move to compel arbitration that individual because there's no longer a class. You can't see class certification anymore at that point.

[00:24:03] Speaker 04:
Arguably, then they could move to compel that. Now it's a truly individual claim, not a putative class claim, and then it could go to arbitration.

[00:24:10] Speaker 00:
Correct. A party or a court can dismiss class claims, and you're left with your individual claims. But it is all one and the same. You can't have a class claim without a viable representative plaintiff with those same claims that they're bringing on behalf of everyone.

[00:24:24] Speaker 00:
I would like to go back very quickly, unless the court has other questions on this, to the initial question the court had asked.

[00:24:33] Speaker 00:
So the longer version of the short version that I provided earlier is that you have to look at the panel should look at the history of how the California courts have treated PAGA claims historically. And the case that really is controlling here is a 2014 California Supreme Court case Iscanian v. CLS Transportation, Los Angeles. It's 59 Cal 4th, 348. And the ruling in Iscanian is that PAGA waivers are contrary to public policy.

[00:25:03] Speaker 00:
The FAA does not preempt it, and you can't split PAGA claims. Now, admittedly, the language in Iskanian does not say that third point as clearly as I just said it, but Viking River, the United States Supreme Court, and multiple cases following Iskanian have unequivocally held that that's what the language in Iskanian stands for, that under California law, PAGA claims cannot be split.

[00:25:28] Speaker 02:
Do you see any reason to certify this question to the Supreme Court?

[00:25:31] Speaker 00:
I actually do believe it is an important issue that would benefit from certification. However, I don't know that this is the right case to do it in only because I think the other issues are dispositive here between the poison pill and between some of the other arguments I'm going to address shortly. I don't think it's necessary to resolve this, but I do think it might be helpful. So I would leave that to the court's discretion.

[00:25:53] Speaker 05:
Is the Leeper case, I think you said, is that pending? Is that worth waiting for, in your opinion, or...? Do you think things are clear enough?

[00:26:03] Speaker 00:
I believe that Villalobos is clear enough, and I believe it's a strong indicator of what the California Supreme Court would do. And it goes back to this kind of historical discussion I wanted to have briefly.

[00:26:13] Speaker 04:
But going to Villalobos, I mean, the reasoning makes sense, but on the other hand, I mean, can we give that so much weight? You know, California appellate court's a little bit weird. Different, well, not weird, but different from the federal courts in the sense that there's no horizontal stare decisis at all. Just any appellate court doesn't have to follow anything. They can go their own way, so you can just have a wide variety of opinions. So, I mean, I think reasoning seems to make sense, and the Iskanian rule wasn't abrogated. It was only for FAA. But, I mean, you know, it's a state law, you know.

[00:26:44] Speaker 04:
Can't give too much weight to that. Maybe it's better to see what happens more or wait for the California Supreme Court to tell us what the law is and state law.

[00:26:51] Speaker 00:
I would certainly defer to this panel on how it chooses to proceed in that respect. I will say, though, that California law is and has been for many years very clear, especially since Ascanian, that you cannot split these claims. And the only reason that that changed, and there are literally hundreds if not thousands of cases that follow that in California and federal courts applying California law when applicable, that followed Ascanian to the T. until the United States Supreme Court issued its order in Viking River Cruises.

[00:27:23] Speaker 00:
And in Viking River Cruises, that threw the whole analysis kind of for a loop because all of a sudden, the United States Supreme Court said that these claims are divisible, that PAGA claims are divisible. And it said that FAA preempts the Iskanian rule that says you can't divide the claims.

[00:27:42] Speaker 05:
So if I understand correctly, your argument is under the CAA, it's always been clear you Can't split, shouldn't split, whatever. And then to the extent Viking River changed that, it was only in the context of the FAA. But because we're essentially not in the context of the FAA, we're back to essentially Ascanian land. Then Ascanian has been followed. And all that Villalobos did was say, clarify that. When we're not applying the FAA, we're applying Ascanians.

[00:28:15] Speaker 00:
That's absolutely correct, Your Honor. And there's a case that I wanted to cite for Your Honors. It's LaCour v. Marshals of California, LLC. It's 117 Cal App 5th, 505. And this case has a very detailed explanation and discussion from the California judges. This is a California appellate judge.

[00:28:37] Speaker 00:
And there's the primary opinion that was issued, but then there's also a concurring opinion by the same judge or justice that had issued the primary opinion where he talks about this in detail. And he explains how difficult it's been for the California courts to reconcile this claim splitting issue, which is completely inconsistent with California law and how California courts have always interpreted PAGA to not be splittable.

[00:29:03] Speaker 00:
And so I would suggest that for some additional context of that, issue, that's a great opinion to review.

[00:29:12] Speaker 04:
If we certify the question of whether these PACA claims can be split, should we also certify whether 1281.2 under the CAA, what it means, what the third party means, whether giving discretion courts to stay arbitration in lieu of the court proceeding?

[00:29:32] Speaker 00:
I don't believe that issue needs to be certified. And I want to offer perhaps a slight...

[00:29:38] Speaker 00:
different version of how we interpret 1280, sorry, 1284 than what the court had discussed with my other counsel. So PAGA actions have always been an action that's defined where the real party in interest is the state of California. It's the LWDA. It's they are deputizing private citizens who have to meet the aggrieved employee status to bring a claim on behalf of and for the benefit of the state of California. Every claim that's brought under PAGA, at this time when this case was filed, 75% of anything recovered goes to the state of California.

[00:30:14] Speaker 00:
Even on a plaintiff's individual, and I say that kind of in quotes because it's the representative individual claim, 75% of the individual's claim, any penalties would go to the state of California. So under PAGA, the law is very, very clear that there is this third party because the state of California is the third party that is implicated here.

[00:30:35] Speaker 04:
It's kind of similar to Ketam suits. I mean, would we say the United States is the problem? I mean, I don't know. I'm asking you. Is it? Okay.

[00:30:43] Speaker 00:
Yes, Your Honor, absolutely. They've been regularly compared to those types of suits.

[00:30:47] Speaker 05:
If I understand opposing counsel's argument, they're saying 1281 doesn't apply unless when the third party is essentially – a third party to the same court action. And I understood it to be saying that you look at the arbitration and you ask whether there's a third party involved in the court action. So in the arbitration that they're saying should be compelled, there's one employee and the employer, because by definition we're talking about only an individual arbitration.

[00:31:19] Speaker 05:
And then the question would be, is there a court action, which would be this case, And is there a third party involved in that case? But they seem to be arguing, no, we wouldn't ask is there a third party involved in the court action who's not a party to the individual arbitration agreement. We're asking if there's a third party in a whole other court action. Is there any court case that addresses that? I mean, I'm not sure that I agree with that argument as a fair reading in the plain language, but is there any case resolving this or how would you respond to that?

[00:31:53] Speaker 00:
My response is probably similar to my colleague's response, which is as I look at the plain language, I'm happy to find additional case law and brief it if the panel thinks it would be helpful. But the plain language of 1281.2 says that the trial court can avoid having to submit any part of the suit to arbitration. It says, quote, a party to the arbitration agreement here, that's referring to capstone, is is also a party to a pending court action or special proceeding with a third party. Here, that's the LWDA, in our opinion. This is how we interpret it.

[00:32:23] Speaker 00:
Arising out of the same transaction or series of related transactions, and there is a possibility of conflicting rulings on common issues of law or fact. So here you have a situation where they're asking that the court sever... certain claims between the individual respondents and have them tried separately in arbitration where the law says at least the representative PAGA action portion at a minimum can't be sent to arbitration. So you have these three parties. I read it as being part of the same statute, but I do think that this gives the court a lot of discretion.

[00:32:59] Speaker 00:
And I believe, you know, my colleague had said that they don't believe the court exercised its discretion. I think that The court did exercise its discretion. It decided that there were ramifications that if – and it goes back to how class actions are fundamentally how they exist, right? And so I believe the district court did get it correct when it said that if you send an individual's claims to individual arbitration – whether they win or lose, that disposes of the entire class action.

[00:33:30] Speaker 00:
Because if they win, they no longer have a stake in it. And if they lose, they no longer have a stake in it. And so they can no longer serve as a representative of that putative class when it comes back. And taking that into consideration, and perhaps the case cited wasn't directly on point because it was in the FLSA statute, but there are cases that talk about this, including the Henry Henson case that I referenced earlier, where it says, You can't send an individual claim to arbitration and have it resolved and allow that plaintiff to still have standing to bring a class action.

[00:34:02] Speaker 00:
That's not how the procedural mechanisms work here.

[00:34:06] Speaker 02:
Sorry, just on the third party point, is there any case that says that LA, the labor workforce is a third party?

[00:34:14] Speaker 00:
Um, tons of cases, your honor. I'm happy to submit them. I just don't have it here at the moment.

[00:34:18] Speaker 02:
Where they actually didn't appear that just by nature of bringing the packet there, the third party.

[00:34:22] Speaker 00:
They, they are appearing in through, so they deputize the plaintiffs to bring the case on their behalf. They don't actually appear.

[00:34:31] Speaker 02:
They're not a third party then.

[00:34:33] Speaker 00:
They are because the claims are being brought on their behalf.

[00:34:36] Speaker 02:
But you're, but you just said they deputized your plaint, your client. So your client represents them.

[00:34:42] Speaker 00:
The way that the case is always discussed is that the real party in interest is the state of California and the LWDA.

[00:34:51] Speaker 02:
I agree. They're definitely the real party in interest, but that's different than being a third party. If your client is the deputy for them, there's no third client.

[00:34:59] Speaker 05:
In the individual arbitration between employee A and the employer, is the state a party to that individual arbitration or a third party?

[00:35:11] Speaker 00:
A third party.

[00:35:11] Speaker 05:
In the pending court action.

[00:35:14] Speaker 00:
If it's just bilateral arbitration.

[00:35:15] Speaker 05:
Because the whole point is the individual arbitration rate is going to happen between one employee and the employer. Correct.

[00:35:22] Speaker 05:
And then the question is, is there a court action pending that involves a third party? Correct, Your Honor. Who is not the employee and not the employer. And you're saying when there's a POGIT claim in the court action and the employee in the POGIT claim is actually responsible a representative of the state. The state is a party to the court action and is, by definition, a third party to the individual arbitration.

[00:35:49] Speaker 00:
Absolutely correct, Your Honor. And that's how ample case law sets this arrangement up under California law. The state of California and the LWDA is considered a real party in interest. It is a third party. We understand it to be under this statute.

[00:36:06] Speaker 04:
Great. Thank you.

[00:36:08] Speaker 00:
Thank you.

[00:36:16] Speaker 01:
So the starting point from the other side was that Villalobos was dispositive. But it's obviously not because it doesn't address the labor code claim issues, which we've gone over. So for that, they rely on their poison pill argument.

[00:36:30] Speaker 01:
But there is no poison pill here. And you can see that clearly from the case they cite, the one they rely on, Westmoreland, the one that I just cited to start this at pages 979 and 980.

[00:36:42] Speaker 01:
talk very specifically about what you do when you have a case with individual labor code claims as class claims and then the pocket claims. And so the Westmoreland case says very clearly, if it hadn't been for the poison pill, which existed in that contract, then the individual labor code claims would have been sent to arbitration. So there's your guidance under California law. It couldn't be any clearer. And it's not a poison pill because that language doesn't invalidate the entire contract.

[00:37:13] Speaker 01:
It only attacks those claims. Go ahead. little bit confused because i really had focused most on the paga claim not the labor code claims are you claiming that the labor code claims can be split into individual and class but that doesn't seem to make sense to me that's exactly what happens that's that's what westmoreland says and that's the conversation that you just had all about when you bring a class claim it's always an individual claim and a class claim it's both and those are analytically but it

[00:37:43] Speaker 04:
Yes, in the sense that pre-certification is an individual claim as a pewter of a class, but I don't think you can litigate them separately, the two of them, because that person wants to be the class representative in the class action. So I don't see how you can do an individual just with that individual claim. And if a class is denied, certification is denied, then that person has the option then to pursue its individual claim later sequentially. But I don't see how you can do it simultaneously, a class rep saying, I want to be a class rep for a class action, but I also want to do individual.

[00:38:13] Speaker 01:
Well, I'm not sure that that would ever happen. So here, there has been no class certified.

[00:38:18] Speaker 05:
Once the class action waiver has been invalidated, your own agreement says they must bring their class action claim in court. And the only way they can do that is saying, I, as an individual, have this claim, and I want to act as a class representative.

[00:38:34] Speaker 01:
The provision says that the class part of it can't be arbitrated. It's a lamps plus sort of argument.

[00:38:40] Speaker 05:
It says they have to bring their class claim in. As a class action in court.

[00:38:43] Speaker 01:
In court. Yeah. So in other words, only a court can certify a class. That's what's happening here.

[00:38:48] Speaker 05:
And they can't do that unless they have an individual claim.

[00:38:51] Speaker 05:
They go to court saying, I have a claim and I want to serve as a class representative. I want to bring this as a class action. I want to bring my claim as a class action. You can't have two court actions. going at the same time. There's no way in which an individual employee could say, I'm going to file individual claim and at this whole separate action as a class action. It's they're bringing their claim as a class action.

[00:39:17] Speaker 04:
Because they wouldn't be an adequate or typical representative, class representative to have individual claim. I mean, there's no way you could certify a class at that point. So there's no way you can split it.

[00:39:27] Speaker 01:
Right. But the first line of, so the first line of their complaint says these two plaintiffs Individually, comma, and on behalf of others.

[00:39:35] Speaker 04:
I mean in the sense that it's an individual claim preserving the rights. If classification is denied, that person can pursue an individual claim. Again, sequentially, not simultaneously.

[00:39:49] Speaker 01:
Right, and Westmoreland says you can take the individual part and send that to arbitration.

[00:39:56] Speaker 01:
I mean that's what would have happened but for the poison pill in that case.

[00:40:00] Speaker 02:
I mean the thing is if you send the individual claim to arbitration, there's no way they could ever bring a class action claim in federal court.

[00:40:09] Speaker 01:
No, that's not right at all.

[00:40:11] Speaker 02:
Why? Because if they go to – if you send an individual claim to arbitration, they either win in arbitration, right, and then therefore they can't be part of a class – or they lose an arbitration, and therefore they can't be part of the class.

[00:40:22] Speaker 01:
No. See, that's what tripped up the district court judge to begin with. And now I'm getting tripped up. And that's why he thought Genesis was the answer to this. But why is that wrong? Because under Roper, which is the US Supreme Court case, it controls this. And it's the Roper case. I mean, it's a long line of Sosna, Garrity, and Roper. But that explains that once the class is you get started, there is still an economic stake in the class.

[00:40:54] Speaker 01:
And this is why class actions are broad. Because under Roper, the Supreme Court talks about how the stake is an economic interest in class certifications. So they still can pursue that.

[00:41:13] Speaker 02:
And also, there is a substantive... You're saying after the claim is arbitrated, there's still a way to proceed in arbitration? Yes.

[00:41:20] Speaker 03:
Yes. There's no way. They can't be... They're not an adequate or typical representative under Rule 23 if they already have an arbitration separate. They no longer have a claim.

[00:41:28] Speaker 05:
It's been resolved.

[00:41:29] Speaker 01:
Well, but they still have a stake in whether or not they can get a class which can then shift fees and expenses. And again, that's what Roper was... But they can't be a class representative.

[00:41:38] Speaker 03:
I mean, that's...

[00:41:42] Speaker 01:
I think that they can. I think that the mootness part of it is wrong and that the Supreme Court case in Roper addresses that.

[00:41:52] Speaker 02:
They might have a stake, but they can't bring a class action.

[00:41:57] Speaker 01:
Well, they've already brought it. I mean, they've brought the case. They haven't moved for certification. I mean, maybe they should do that. But as we stand right now, there's just an individual labor code claims, and so those have to go to arbitration.

[00:42:18] Speaker 01:
And I don't think that this Court seems to be doing a lot of work. And you shouldn't have to do this work. You either send it up to the Cal Supreme Court to let them resolve this mess, or you send it back down to the District Court to get real briefing. Because remember, this came off of a mandatory joint brief. Each side got three pages. There was no room to address any and all of this mess. And the judge, just on his own, said, oh, well, I see a mootness problem.

[00:42:44] Speaker 01:
I'm done here.

[00:42:46] Speaker 02:
What would you say we would send back? If we don't want to deal with this What would you say we do to the district court?

[00:42:55] Speaker 01:
The district court's mootness analysis is incorrect. You shouldn't have relied on Genesis because this court and many others have said that that doesn't apply in a class action case, which is what this is. And so the court needs to figure out what to do next, which is how we got here. The court asked for three pages each of joint briefing because it didn't know what to do. I think maybe it can ask again what to do. and actually get real briefing instead of, you know, both sides are up here saying, we haven't cited this case to you, but then there's, I mean, this is just not right how we even got here.

[00:43:28] Speaker 01:
There should be a do-over. This case should reverse. It can do so simply and cleanly if it likes. And this court shouldn't have to do all the work that we've just been struggling with to figure this out. because that's what district courts are for. You're here to review. If you review what the district court did, what he did was wrong, and so it should be sent back.

[00:43:50] Speaker 01:
Thank you, Your Honors.

[00:43:51] Speaker 04:
Thank you both for the helpful argument. The case is submitted.