[00:00:00] Speaker 02:
Okay, our now on to our next order of business of the day, which is case 21-1871 Levi Strauss versus aqua dynamics Mr. Michaels, please proceed if you wish you may take your mask off Thank you, your honor Mr. Michaels right here

[00:00:25] Speaker 04:
I have hearing injuries from too many years on the water listening to big guns from the Navy.

[00:00:32] Speaker 04:
So would you please be sure to speak up?

[00:00:36] Speaker 00:
Yes, Your Honor.

[00:00:37] Speaker 00:
I'd be delighted to.

[00:00:38] Speaker 00:
And if I happen to forget, please remind me.

[00:00:43] Speaker 00:
May it please the court, and good morning.

[00:00:47] Speaker 00:
My name is Jimmy Michaels, and I'm appearing here today on behalf of Aqua Dynamics Systems, Inc.

[00:00:57] Speaker 00:
This was a real treat to see the swearing in today.

[00:01:00] Speaker 00:
If I would have known that that type of ceremony happened, I might have wanted to appear in person for my motion to appear for this court.

[00:01:10] Speaker 02:
We probably would have denied it.

[00:01:11] Speaker 02:
We only do it for a long time.

[00:01:14] Speaker 00:
It was also a real treat to hear Judge Plager utter the word vacatur before the argument even started.

[00:01:22] Speaker 00:
Before we do get started, I just want to thank you for the opportunity to present oral argument this morning.

[00:01:26] Speaker 00:
And I understand that the court is familiar with the briefs and the law.

[00:01:31] Speaker 00:
So I'd like to just cut right through to what

[00:01:35] Speaker 00:
What Judge Oreck at the Northern District characterized as the heart of the dispute, which is an opinion that I share, and I believe counsel for Levi's shares it too, which is were the undisclosed business dealings between Jams on the one hand and Levi's on the other hand, trivial or non-trivial?

[00:01:57] Speaker 00:
If they were trivial in this court's view, then Levi's should win the day.

[00:02:03] Speaker 00:
They were nontrivial in this court's view, which is certainly our view.

[00:02:08] Speaker 00:
And we believe it's the view of the Ninth Circuit.

[00:02:10] Speaker 00:
We believe it's the only view that is appropriate in light of the guidance provided by the Supreme Court in the Ninth Circuit.

[00:02:19] Speaker 03:
Where do we draw the line?

[00:02:20] Speaker 03:
I mean, how many, obviously with respect to after Monster, all of these

[00:02:27] Speaker 03:
owners of gems have an issue, have a problem.

[00:02:30] Speaker 03:
So the question is, is one prior case enough?

[00:02:35] Speaker 03:
In other words, is there ever a trivial relationship that these owners could have?

[00:02:47] Speaker 00:
In a hypothetical world, yes, I can think of trivial cases that they could have.

[00:02:51] Speaker 00:
If one of the arbitrators seven years ago had bought a pair of Levi's jeans at Macy's and didn't disclose that because he had forgotten that that was one of the 20 brands of jeans in his closet, I could see that being trivial.

[00:03:05] Speaker 00:
But when we're talking about entrusting an arbitrator or mediator, whatever the case may be, with determining legal rights and obligations resulting in legal conflicts, that is a matter that should be disclosed.

[00:03:20] Speaker 04:
Let's answer Judge O'Malley's question, a good question, in two steps.

[00:03:27] Speaker 04:
Step number one is, is it your view that any time an arbitrator is what they call an owner with 0.1% possibility of getting money,

[00:03:42] Speaker 04:
which is standard in the industry, at least as far as this particular company, arbitration company, is concerned, is it your view that that's per se a grounds for disqualification?

[00:04:02] Speaker 00:
In the hypothetical that you present, if there is an arbitrator... No, it's not a hypothetical.

[00:04:08] Speaker 04:
It's a simple question.

[00:04:09] Speaker 04:
The simple question is the fact that an arbitrator happens to work with jams automatically disqualifying.

[00:04:21] Speaker 00:
an arbitrator who is an owner of Jams, when Jams has had prior?

[00:04:27] Speaker 04:
Of which many judges and many of the arbitrators are owners, apparently.

[00:04:34] Speaker 04:
I'm not quite clear.

[00:04:35] Speaker 04:
Perhaps you know exactly when you become an owner and when you don't.

[00:04:40] Speaker 04:
But put that aside.

[00:04:43] Speaker 04:
Is it your view that the very fact that the arbitrator has

[00:04:49] Speaker 04:
an, quote, ownership interest, which is apparently a standard interest, that that automatically disqualifies the arbitrator.

[00:04:59] Speaker 00:
It does not automatically disqualify the arbitrator.

[00:05:02] Speaker 04:
So that's not a disqualification in and of itself.

[00:05:05] Speaker 00:
Well, if it were properly- That's a yes or no.

[00:05:08] Speaker 04:
That's not a disqualification in and of itself.

[00:05:11] Speaker 00:
Yes, Your Honor.

[00:05:12] Speaker 00:
I agree with that.

[00:05:14] Speaker 04:
Then what did these arbitrators, everybody involved,

[00:05:19] Speaker 04:
who deals with arbitrators know who these people work for.

[00:05:23] Speaker 04:
They all work through jams.

[00:05:26] Speaker 04:
They don't really work for jams, but they work through jams.

[00:05:30] Speaker 04:
So what did these people do wrong other than reveal the fact that they are jams arbitrators, which everybody knew?

[00:05:39] Speaker 04:
and including your client who wanted them.

[00:05:42] Speaker 04:
And what else should they have done?

[00:05:46] Speaker 04:
What did they do wrong?

[00:05:48] Speaker 00:
There is a distinction between Jam's arbitrators and Jam's owner arbitrators.

[00:05:55] Speaker 04:
Had they made that distinction, that would have disqualified them.

[00:06:02] Speaker 00:
No, Your Honor.

[00:06:03] Speaker 00:
Had they made that disclosure,

[00:06:06] Speaker 00:
back when they made their original disclosures at the outset of the arbitration, then both parties, including my client, could have made a fully informed decision about whether they wanted to proceed.

[00:06:17] Speaker 04:
Are you telling me that your client and the lawyers who represented your client had no understanding of how the arbitration business worked?

[00:06:27] Speaker 04:
Is that what you're telling us?

[00:06:30] Speaker 04:
There was no disclosure that those- Are you telling us that without some detailed disclosure of their exact dollar income through jams, that your client and its lawyers could not possibly know that these arbitrators have an interest that they get money from working through jams?

[00:06:55] Speaker 00:
They couldn't have known about the particular type of income stream that was coming to them.

[00:07:01] Speaker 00:
As eventually disclosed by Jams, they receive a share of the profits of Jams on a yearly basis.

[00:07:09] Speaker 04:
All the owners do, and apparently a third of all arbitrators are owners.

[00:07:13] Speaker 04:
Is that what we understand?

[00:07:15] Speaker 00:
Somewhere in between a quarter and a third, yes.

[00:07:17] Speaker 03:
So you didn't know until Monster came out?

[00:07:20] Speaker 00:
That's correct, Judge O'Malley.

[00:07:23] Speaker 00:
The interim award was issued and very shortly thereafter, Monster came out.

[00:07:27] Speaker 00:
After Monster came out, Jams, in a big hurry, sent supplemental disclosures that revealed significantly more past business dealings between Jams and Levi's than had been disclosed in the first place.

[00:07:41] Speaker 03:
So when they did the first disclosure, they didn't disclose the ownership interest, right?

[00:07:47] Speaker 00:
That's correct, Your Honor.

[00:07:48] Speaker 03:
And when they did the first disclosure, they disclosed only some prior dealings.

[00:07:54] Speaker 00:
That's exactly correct, Your Honor.

[00:07:56] Speaker 00:
When they did the initial disclosure, the arbitrators disclosed each individual arbitrator's prior dealings.

[00:08:03] Speaker 00:
We then learned that two of those arbitrators were actually owners of jams.

[00:08:08] Speaker 00:
Under Commonwealth Codings, under the Schmitz case from the Ninth Circuit, under New Regency, the overall business dealings of the organization that they were an owner of had to be disclosed.

[00:08:22] Speaker 00:
They were not until after Monster Case.

[00:08:25] Speaker 03:
I was actually kind of shocked when the Monster Case came out because I had no idea that some of these arbitrators were actually owners of jams and that they weren't disclosing that to people.

[00:08:37] Speaker 03:
Why is it, so I was almost as shocked that the Ninth Circuit just didn't set down a hard and fast rule that says the owner arbitrators can't be arbitrators without full disclosure.

[00:08:53] Speaker 03:
But they didn't.

[00:08:56] Speaker 00:
So I agree with your shock and surprise, which Judge Friedland shared in the dissent.

[00:09:03] Speaker 00:
On further reflection, well,

[00:09:06] Speaker 00:
It's been about two years since Monster, and our research hasn't shown a single arbitration was vacated under Monster, after Monster.

[00:09:14] Speaker 00:
And that's actually not that surprising to me, because it's a really particular set of circumstances that led to Victor and Monster.

[00:09:22] Speaker 00:
that I don't think has been present in any of the other post-monster cases, but is present here.

[00:09:29] Speaker 00:
First of all, you're dealing with an arbitration organization that is owned by the arbitrators.

[00:09:35] Speaker 00:
Think about the other big arbitration organizations out there, AAAs and nonprofit, FINRA, Quasi-Governmental Entity.

[00:09:42] Speaker 00:
JAMS, as far as I know, fits into a very small minority of those types of organizations.

[00:09:47] Speaker 00:
Then, only looking at the Ninth Circuit, which has a different rubric,

[00:09:51] Speaker 00:
for evident partiality.

[00:09:53] Speaker 00:
Then you have to hit a case where there actually were prior business dealings.

[00:09:58] Speaker 00:
Then that case has to involve one of the one quarter to one third of arbitrators who are owner arbitrators.

[00:10:05] Speaker 00:
So it's actually rather small, you know, once you whittle it down, get to the bottom of the funnel, it's a very small group of cases you're dealing with.

[00:10:12] Speaker 00:
That's what happened in Monster, and that's what happened here.

[00:10:14] Speaker 02:
How many arbitrations did Jams do for Levi's?

[00:10:19] Speaker 00:
So what was eventually disclosed was that in about nine years, 10 months before Monster Energy came down.

[00:10:27] Speaker 00:
You can call it 10 years.

[00:10:29] Speaker 00:
Fair enough, Judge Plager.

[00:10:32] Speaker 00:
In that period of time, there was one court reference

[00:10:36] Speaker 00:
which Judge Oreck correctly treated as an arbitration and which I don't think there is grounds to change his mind there.

[00:10:46] Speaker 00:
Judge Oreck treated it as an arbitration.

[00:10:48] Speaker 00:
So there's one of those and six mediations for a total of seven interactions.

[00:10:53] Speaker 00:
Council has recently raised the idea that perhaps one of those mediations was double counted but what Judge Oryk saw was six and one.

[00:11:01] Speaker 04:
Certainly in smaller numbers than Monster dealt with.

[00:11:05] Speaker 04:
Monster dealt with like 97.

[00:11:07] Speaker 00:
That's absolutely right.

[00:11:09] Speaker 00:
Monster far surpassed whatever threshold there is.

[00:11:11] Speaker 04:
Let me ask you, I'm sorry, I didn't mean, had you finished or did you have a further question?

[00:11:17] Speaker 02:
So I guess I wanted to ask you

[00:11:21] Speaker 02:
With only one arbitration, and it seems quite clear that the district court found that the arbitration is something from which the company would derive more money, takes more time, is more involved.

[00:11:34] Speaker 02:
And it makes sense, because you're actually rendering a decision as distinct from remediation, where you're just facilitating the parties trying to reach a decision.

[00:11:42] Speaker 02:
One arbitration in 10 years, the lower court found

[00:11:48] Speaker 02:
that in conjunction with the mediations to be trivial.

[00:11:51] Speaker 02:
Is that correct?

[00:11:53] Speaker 00:
Yes.

[00:11:53] Speaker 02:
Is that a question of fact?

[00:11:56] Speaker 00:
We're not here to dispute.

[00:11:58] Speaker 02:
Is it a question of fact?

[00:12:00] Speaker 00:
No.

[00:12:00] Speaker 02:
Of course it is.

[00:12:01] Speaker 02:
Yes, of course it is.

[00:12:02] Speaker 02:
How could it not be?

[00:12:03] Speaker 00:
It is a question of the legal significance of those facts.

[00:12:08] Speaker 02:
That's just application of law to facts, then.

[00:12:10] Speaker 00:
We don't dispute.

[00:12:12] Speaker 02:
It's a question of fact, counsel.

[00:12:14] Speaker 02:
What is my standard of review for a question of fact?

[00:12:16] Speaker 00:
The standard of review for question of fact is clear error.

[00:12:19] Speaker 00:
Right.

[00:12:19] Speaker 02:
So how can I say the lower court clearly erred when he found that one arbitration in nearly a decade

[00:12:27] Speaker 02:
Doesn't is trivial.

[00:12:30] Speaker 00:
The way that the Ninth Circuit evaluated this very issue in Monster Energy was on a de novo basis.

[00:12:37] Speaker 00:
Because the Ninth Circuit found that what they were interpreting was a matter, was the facts of the 97 arbitrations in Monster were not in dispute.

[00:12:46] Speaker 02:
The Ninth Circuit set out the standard.

[00:12:48] Speaker 02:
That was the de novo part.

[00:12:50] Speaker 02:
They set out the two-part test in Monster.

[00:12:53] Speaker 02:
That's the de novo part, right?

[00:12:56] Speaker 00:
I believe that the standard of review that the Ninth Circuit looked at was... Show me.

[00:13:02] Speaker 02:
Show me where that's the case in Monster.

[00:13:07] Speaker 00:
We looked at page one.

[00:13:12] Speaker 00:
Provided pin site.

[00:13:14] Speaker 00:
uh... jurisdiction standard review on eleven thirty three review you know about the district court's confirmation of the arbitration of the ultimate conclusion correct that's the ultimate conclusion I would posit that the ultimate conclusion is the legal conclusion that was drawn from the undisputed facts of the ninety-seven arbitration the Ninth Circuit laid out a two-part test step one is whether the arbitrator's ownership interest in jams was sufficiently substantial do you think that's a question of fact

[00:13:44] Speaker 00:
I think that the facts there are that there are.

[00:13:47] Speaker 02:
I didn't ask you what you think the facts are.

[00:13:49] Speaker 02:
I asked if you think it's a question of fact.

[00:13:52] Speaker 02:
Yes.

[00:13:54] Speaker 02:
So according to you, the Ninth Circuit laid out a two-part test for determining this level of partiality that requires vacator.

[00:14:04] Speaker 02:
Step one is whether or not the ownership interest in Jams was sufficiently substantial.

[00:14:09] Speaker 02:
You can see that's a question of fact.

[00:14:11] Speaker 02:
So if that were the inquiry in front of us, which it's not,

[00:14:14] Speaker 02:
We'd have to review that inquiry for clear error, correct?

[00:14:16] Speaker 00:
Your Honor, I'm sorry.

[00:14:17] Speaker 00:
I may have gotten my words tangled.

[00:14:20] Speaker 00:
I believe that the question of whether an ownership interest is substantial is a question of law.

[00:14:28] Speaker 00:
On the record that we have, we know the fact of what that ownership interest is, which is an equal ownership share that is shared by one quarter to one third of the arbitrators at Jams.

[00:14:40] Speaker 00:
But whether that rises to the threshold of substantial or not is a question of law.

[00:14:46] Speaker 00:
Just as whether the business dealings, which we agree on, rise to the threshold of non-trivial is a matter of law.

[00:14:54] Speaker 02:
Do you have any support for that statement?

[00:14:57] Speaker 02:
Because I don't agree with you.

[00:14:58] Speaker 02:
I don't think that's accurate.

[00:15:00] Speaker 02:
Whether or not something is substantial has not usually been the kind of thing we say is a legal question.

[00:15:06] Speaker 02:
Likewise, whether something is trivial or not trivial is not the kind of thing that usually is a legal question that judges ought to be deciding de novo on appeal.

[00:15:15] Speaker 02:
Those feel like quintessential fact questions to me by the nature of the articulation of

[00:15:21] Speaker 02:
their particular tests.

[00:15:22] Speaker 02:
And so I'd like to know if you have any support for your thinking that it's not just the ultimate legal question that is de novo reviewed, but rather all subsidiary questions as well to the inquiry.

[00:15:34] Speaker 00:
Your Honor, I think that reviewing the Commonwealth Coding's case, reviewing the Schmitt's case, reviewing the new Regency case, all of which in which arbitration awards were vacated after having been issued, on the grounds of there being business dealings between the parties

[00:15:51] Speaker 00:
and an entity owned by one of the arbitrator.

[00:15:55] Speaker 00:
And I think looking at those in conjunction with the Lagstein case and then the Sussex case, which was in the district court briefing but did not appear in the briefing before the appellate court here today.

[00:16:07] Speaker 00:
I think looking at those, you see that the way that the Ninth Circuit and, in one instance, the Supreme Court treated the analysis was by taking the undisputed facts.

[00:16:17] Speaker 00:
The facts really were not under dispute in any of those matters.

[00:16:20] Speaker 00:
in deciding whether they met the legal thresholds.

[00:16:23] Speaker 03:
Certainly, the Ninth Circuit has said that certain circumstances are substantial as a matter of law, right?

[00:16:32] Speaker 00:
Like 97 arbitrary, yes.

[00:16:34] Speaker 03:
Well, no, like the ownership interest.

[00:16:36] Speaker 00:
Yes.

[00:16:36] Speaker 03:
And in Schmitz, which I think is distinguishable to some extent, they said as a matter of law, where you actually represented a party, that that is

[00:16:47] Speaker 03:
substantial.

[00:16:48] Speaker 03:
So I get your point that it can rise to the level of being substantial or being even nontrivial as a matter of law, depending upon the scope of the facts.

[00:17:01] Speaker 03:
In other words, just like summary judgment, sometimes there are lots of underlying facts, but they're not important to the ultimate conclusion.

[00:17:08] Speaker 03:
But here, the second problem, the triviality problem, that's the one that I think Judge Moore wants you to focus on in terms of

[00:17:17] Speaker 03:
isn't whether something is trivial a question of fact until, basically, it blows up so that there can be no dispute.

[00:17:29] Speaker 03:
Where does the district court have any kind of discretion in ultimately deciding triviality?

[00:17:37] Speaker 00:
Once you start looking at repeat players, once the fact of a repeat player is established, and that's something the Ninth Circuit found important in Monster.

[00:17:47] Speaker 00:
I don't know that they found it dispositive, but they found it important.

[00:17:51] Speaker 00:
I think at that point, you're looking at a matter of law.

[00:17:56] Speaker 03:
Going back to Judge Moore's earlier question, is there a difference between a repeat player for arbitrations, which brings in a lot more money, or a repeat player for mediations?

[00:18:07] Speaker 00:
I think that in any of these analyses, what's important is the financial relationship, not necessarily the nature of the legal rights that are being adjudicated or resolved by that relationship.

[00:18:21] Speaker 03:
We know that is it in the record the actual dollar amounts that that jams earned from these relationships No, it's not your honor.

[00:18:29] Speaker 00:
We have some indicia pointing us in that direction We know from the an attachment to the district court briefing the jams fees range from 450 to 750 sub 450 to 800 dollars per hour and four thousand dollars to eight thousand dollars per day and

[00:18:46] Speaker 00:
That's exhibit 12 to the McFarland Declaration with the motion to vacate from the district court briefing.

[00:18:53] Speaker 00:
We know that in the arbitration at issue here, the total fees were about $140,000.

[00:19:00] Speaker 00:
No matter how you slice this, the amount of money at stake far surpasses the $12,000 that were at stake, albeit at $1968 in Commonwealth codings when the US Supreme Court said,

[00:19:13] Speaker 00:
That type of relationship will be the big concern.

[00:19:19] Speaker 00:
You see a similar fact pattern in the other Ninth Circuit cases, too.

[00:19:22] Speaker 00:
The thresholds, the 19 cases over 35 years, the new regency, the negotiation.

[00:19:30] Speaker 00:
When you look at those numbers, the numbers in our case far surpass those.

[00:19:36] Speaker 00:
Seven matters over 10 years is a higher proportion than 19 over 35.

[00:19:40] Speaker 00:
Six mediations and one arbitration would lead to fees far greater than the $12,000 in Commonwealth codings.

[00:19:47] Speaker 00:
And then you look at the cases where the courts refuse to vacate or refuse to disqualify an arbitrator under this standard.

[00:19:57] Speaker 00:
The connection between the business organization owned by the arbitrator and the party is far less substantial.

[00:20:05] Speaker 00:
And I would direct you to the Leibstein in the Sussex case, which is 781 F3, 1065 out of the Ninth Circuit in 2015.

[00:20:13] Speaker 00:
You are way over your time, Counselor.

[00:20:16] Speaker 00:
Yes, I was going to.

[00:20:17] Speaker 02:
You're on the closing council.

[00:20:19] Speaker 00:
Thank you, Your Honor.

[00:20:20] Speaker 01:
Thank you.

[00:20:24] Speaker 01:
Good morning, your honor.

[00:20:25] Speaker 01:
May it please the court?

[00:20:27] Speaker 01:
Monster Energy was a case about repeat player bias.

[00:20:32] Speaker 01:
And it was of such a magnitude that disclosure was required.

[00:20:36] Speaker 01:
And Monster Energy was a repeat player because it had a form contract that compelled each of its vendors to arbitrate any dispute between them at Jams in Orange County, California.

[00:20:49] Speaker 01:
And pursuant to that contract, Monster Energy compelled the other party in that case to participate in that arbitration.

[00:20:57] Speaker 01:
Here, the facts could not be more starkly different.

[00:21:01] Speaker 01:
Here, Levi's did not want to have this arbitration.

[00:21:04] Speaker 01:
Levi's litigated for over a year trying to prevent this arbitration from happening.

[00:21:09] Speaker 01:
Levi's actually filed the declaratory judgment action in the district court to enjoin the arbitration and was ultimately unsuccessful and was compelled

[00:21:18] Speaker 01:
to participate in that arbitration.

[00:21:20] Speaker 03:
But does that really matter?

[00:21:21] Speaker 03:
I mean, we're talking about disclosures.

[00:21:24] Speaker 01:
We're talking about the disclosure.

[00:21:26] Speaker 01:
But the issue that is at key in the Ninth Circuit decision is to address the bias created by a repeat player.

[00:21:36] Speaker 01:
And in awkward dynamics briefing, they say,

[00:21:42] Speaker 01:
that Judge Ware and Judge Brazil were susceptible to an incentive to reward Alison Koh for past loyalty and to lure it back for future engagements with the dispute.

[00:21:52] Speaker 01:
And so here, there was no past loyalty to reward.

[00:21:55] Speaker 01:
Levi's had had minimal, minimal contact with Jams that had not been disclosed.

[00:22:02] Speaker 03:
What about luring them back?

[00:22:04] Speaker 03:
I mean, I do find this whole notion that these are owners of this entity and that they hold themselves out as neutrals to be pretty offensive.

[00:22:15] Speaker 03:
And Levi's is a big company and probably will have a lot of disputes.

[00:22:20] Speaker 03:
So why wouldn't the very incentive to keep Levi's happy be enough?

[00:22:26] Speaker 01:
Well, the theory of Monster Energy was to prevent repeat player bias based on past contacts.

[00:22:32] Speaker 03:
But you just quoted that they also talked about luring them back for future contacts.

[00:22:37] Speaker 01:
Well, I think that that would apply to any company.

[00:22:40] Speaker 01:
To any company.

[00:22:40] Speaker 03:
Certainly any large company that might have repeated disputes.

[00:22:43] Speaker 01:
Yes.

[00:22:44] Speaker 01:
Yes.

[00:22:45] Speaker 01:
And that goes back to the concern of Justice White in the Commonwealth Coding's case that

[00:22:51] Speaker 01:
You can basically disqualify the most qualified arbitrators by placing the burden here too low to disqualify them.

[00:22:59] Speaker 01:
Because two retired federal district court judges would be disqualified from this case, would be then disqualified from arbitrating any matter with a major company.

[00:23:10] Speaker 01:
So you would disqualify the entire layer of arbitrators from JAN.

[00:23:15] Speaker 03:
Just those arbitrators who are owners.

[00:23:18] Speaker 01:
And we don't have disclosure from Jams of who that entire body is.

[00:23:23] Speaker 01:
It's between a third and a quarter.

[00:23:26] Speaker 01:
And we know that the two federal judges or retired federal judges in our case were.

[00:23:29] Speaker 01:
We know that the retired federal judge in the Monster Energy case were.

[00:23:33] Speaker 01:
So it appears to affect retired judges.

[00:23:36] Speaker 03:
Yeah, just retired judges who don't understand that you shouldn't have a conflict of interest.

[00:23:43] Speaker 01:
Well, in this case, if you're looking at the repeat player bias,

[00:23:48] Speaker 01:
The disclosures from Jams at the inception of the arbitration were that Judge Ware, who was a panelist in this case, had in fact mediated a case for Levi's.

[00:24:00] Speaker 01:
And so he was involved in that case.

[00:24:02] Speaker 01:
None of the panelists was involved in that case, so took the fee as a panelist in that case.

[00:24:07] Speaker 01:
Aside from that one that was disclosed, the only

[00:24:12] Speaker 01:
prior dealings in the prior five years with Levi Strauss was one mediation and one court appointment.

[00:24:19] Speaker 01:
So over the preceding five years, which is what the time period at Monster Energy looked at, there was one mediation and one court appointment.

[00:24:27] Speaker 01:
And there's nothing in the record.

[00:24:28] Speaker 03:
Right, but if I'm a lawyer and the question is a conflict, if Judge Moore and Judge Plager are my partners, then anything that they did

[00:24:41] Speaker 03:
creates a conflict for me, right?

[00:24:43] Speaker 01:
In a law firm, yes.

[00:24:44] Speaker 01:
And that's the Schmitz case because of the duties of fidelity.

[00:24:47] Speaker 03:
So why is this not different?

[00:24:50] Speaker 03:
I mean, why is this different?

[00:24:51] Speaker 01:
In two reasons here.

[00:24:52] Speaker 01:
One is in terms of what the scope of the neutrals

[00:24:58] Speaker 01:
Responsibilities are in the mediation.

[00:25:00] Speaker 01:
They're not the party who's deciding the case.

[00:25:02] Speaker 01:
They're the party who are trying to broker the deal between the two parties.

[00:25:06] Speaker 01:
And Judge Orrick found that distinction meaningful.

[00:25:10] Speaker 01:
In the Monster Energy case itself,

[00:25:12] Speaker 01:
The record to the Ninth Circuit made reference to 17 mediations that Monster Energy had had before Jams.

[00:25:19] Speaker 01:
And the Ninth Circuit did not even mention those in its briefing.

[00:25:22] Speaker 01:
They did not feel that, in their opinion, they did not feel that those mediations were relevant enough to include in the opinion.

[00:25:30] Speaker 01:
They only mentioned the arbitrations themselves.

[00:25:33] Speaker 01:
And Levi's had one court reference that Judge Oreck treated as an arbitration for purposes of analysis.

[00:25:41] Speaker 01:
That was the only non-mediation that Levi's had in the preceding five years.

[00:25:46] Speaker 04:
Monster Energy is somewhat of an outlier decision to begin with.

[00:25:54] Speaker 04:
The dissent in Monster Energy had a number of interesting points to make about what was wrong.

[00:26:02] Speaker 04:
with the approach.

[00:26:04] Speaker 04:
But I understand that Monster Energy is still the law of the Ninth Circuit.

[00:26:10] Speaker 04:
But as we apply that outlier law, do we have any obligation to try to limit its reach?

[00:26:20] Speaker 01:
How does that work?

[00:26:21] Speaker 01:
I think there's several ways to look at that.

[00:26:23] Speaker 01:
The first is, under Ninth Circuit case law,

[00:26:28] Speaker 01:
Prior dealings have to be disclosed if they are such that they give a reasonable impression of bias.

[00:26:36] Speaker 01:
And so I think here, if you put into context, the attorneys for Aqua Dynamics at Nixon Peabody and Morris, Polich, and Purdy

[00:26:47] Speaker 01:
had had over 130 engagements with Jams in the preceding five years.

[00:26:53] Speaker 01:
And so Levi's had had a tiny fraction of that.

[00:26:56] Speaker 01:
And so if you're looking at just within that context, the impact of those numbers of dealings that Levi's had had is not such that would bring a reasonable belief of inherent bias in favor of Levi's over awkward dynamics.

[00:27:11] Speaker 03:
What about the attorneys for Levi's?

[00:27:15] Speaker 01:
The attorneys for Levi's had had, I don't know the exact number.

[00:27:18] Speaker 01:
It was less than the Nixon Peabody.

[00:27:20] Speaker 01:
I know that.

[00:27:22] Speaker 01:
It was considerably less.

[00:27:23] Speaker 01:
I don't know the exact number.

[00:27:28] Speaker 01:
I think that's a good question.

[00:27:33] Speaker 02:
Yes?

[00:27:33] Speaker 02:
Do you think these questions of

[00:27:35] Speaker 02:
For example, triviality is a question of law or a question of fact?

[00:27:38] Speaker 01:
I believe it's a question of fact because you're applying what the law is and looking at the number of dealings and determining whether or not it is trivial or not.

[00:27:49] Speaker 01:
And I think even if you look at it as a question of fact, or as a matter of law, because the number of dealings we have here are such a tiny fraction of what we had in Monster Energy, and there's not a repeat player bias at play, that either is a question of fact, or as a matter of law, that the district court should be looking at.

[00:28:07] Speaker 02:
Why do you think there's not a repeat player bias?

[00:28:09] Speaker 02:
I mean, if you've had nine contacts or seven contacts with somebody, why doesn't that make you a repeat player?

[00:28:16] Speaker 01:
If you look at the period of,

[00:28:19] Speaker 01:
time that the Monster Energy Court was looking at was five years before the inception of the arbitration.

[00:28:24] Speaker 01:
And so if Monster Energy, as my opposing counsel had said, Monster Energy's

[00:28:30] Speaker 01:
made the forced the disclosure of jams in this case immediately after that case was done.

[00:28:35] Speaker 01:
And so had they made that disclosure the day that this arbitration was instituted, it would have disclosed two mediations and one court reference.

[00:28:45] Speaker 01:
And so at that point, you'd have those three connections.

[00:28:48] Speaker 01:
One of those had already been disclosed because of Judge Ware's involvement in it.

[00:28:52] Speaker 01:
So you would only have one undisclosed mediation and one undisclosed

[00:28:56] Speaker 01:
court appointment.

[00:28:57] Speaker 03:
But did Monster Energy say anything about only doing a five-year look back?

[00:29:01] Speaker 01:
That was the period that was irrelevant in that case.

[00:29:04] Speaker 01:
They did not hold it as a matter of law.

[00:29:05] Speaker 01:
Right, but they didn't say that's the only period that would be relevant.

[00:29:08] Speaker 01:
Right.

[00:29:08] Speaker 01:
They didn't say as a matter of law that that was the period that you were looking at.

[00:29:11] Speaker 03:
No.

[00:29:12] Speaker 03:
Do you think that Judge Bork actually held it against your friends on the other side because they asked for the jams arbitration

[00:29:26] Speaker 01:
whether that was a part of his opinion.

[00:29:28] Speaker 01:
I'm not sure what you're on.

[00:29:29] Speaker 01:
I mean, was that a factor?

[00:29:31] Speaker 01:
Yes.

[00:29:32] Speaker 01:
Okay.

[00:29:32] Speaker 01:
He said it was relevant, but not dispositive.

[00:29:35] Speaker 03:
Okay.

[00:29:36] Speaker 03:
And why is that relevant?

[00:29:37] Speaker 03:
Cause you can, you can ask for all kinds of things and still not know.

[00:29:41] Speaker 03:
that you're not being told about potential conflicts?

[00:29:46] Speaker 01:
I think that is relevant here because of the posture of the case is monster energy, phrased at Over and Over Again, that the disclosures are important when you have a repeat player against a one-off player.

[00:29:56] Speaker 01:
And a lot of the arbitrations come up where you have exactly this like a form contract where one party is compelling

[00:30:03] Speaker 01:
opponent after opponent after opponent to the same arbitrable body and it becomes a repeat player that becomes a normal customer there and Monster Energy was literally one arbitration per month or about one and a half arbitrations per month for a five-year period.

[00:30:20] Speaker 01:
Whereas in Levi's you have only the two undisclosed

[00:30:25] Speaker 01:
engagements prior to the inception of this arbitration, and then four or five for the five-year period after.

[00:30:31] Speaker 01:
So it does not go up to that magnitude.

[00:30:34] Speaker 01:
That, again, under the Ninth Circuit ruling, it has to show the apparent bias of one party over the other.

[00:30:43] Speaker 01:
And under Monster Energy,

[00:30:45] Speaker 01:
those limited engagements do not rise to that level.

[00:30:49] Speaker 03:
And I just want to ask you the question that I asked your friend on the other side, and that is, where's the line?

[00:30:55] Speaker 03:
OK, 97, clearly that's too much.

[00:30:59] Speaker 03:
And now we've got seven.

[00:31:02] Speaker 03:
And you're saying that's not enough.

[00:31:04] Speaker 03:
So where does the line get wrong?

[00:31:06] Speaker 01:
Well, in terms of that, there's one district court case, but the Pacelli versus Vainline bunkering.

[00:31:12] Speaker 01:
And it's in our briefs at 2021 Westlaw 303-8641.

[00:31:18] Speaker 01:
That's another case.

[00:31:19] Speaker 01:
And they looked at a case of six mediations.

[00:31:22] Speaker 01:
prior to that arbitration.

[00:31:24] Speaker 01:
And they found that that was not significant enough to rise to the level under Monster Energy.

[00:31:30] Speaker 03:
So that's six.

[00:31:32] Speaker 01:
That's six.

[00:31:32] Speaker 03:
Where's the line?

[00:31:33] Speaker 03:
Is it 13?

[00:31:34] Speaker 03:
Is it 20?

[00:31:35] Speaker 03:
Is it 30?

[00:31:36] Speaker 01:
I think the line is when you look at the Ninth Circuit case law, and it says if it's sufficient to show that the arbitral body would be inherently biased in favor of one party and over the other.

[00:31:51] Speaker 01:
And so here, if you look at in contact, the very small number of engagements that Levi's had had over that long period of time, comparing it to the number of engagements that council had had, that Aqua Dynamics Council has had, there is no reasonable inference or reasonable belief that that arbitrable body would have been favored Levi's over Aqua Dynamics based on those limited prior engagements.

[00:32:19] Speaker 02:
So while seven, you believe, is not enough in this case, you don't preclude the idea that it could be enough in another case.

[00:32:28] Speaker 02:
Because, for example, what if it were seven arbitrations within a year of showing a new relationship with a party that was sort of the promise of an enormous amount of new business?

[00:32:40] Speaker 02:
That might be a different set of facts.

[00:32:43] Speaker 02:
So it's possible seven touch points could be enough, depending on what they were and the extent of time they arise over.

[00:32:51] Speaker 01:
Yes, I would agree with that.

[00:32:52] Speaker 02:
That's why it feels very factual to me, this conclusion.

[00:32:55] Speaker 02:
I don't see how it could be a legal question.

[00:32:59] Speaker 01:
Yes, I think with that, Your Honor, seven arbitrations, given the amount of the distinction between a mediation and an arbitration, that would be the case.

[00:33:10] Speaker 01:
And here in the court appointment, there is nothing in the record.

[00:33:14] Speaker 01:
that establishes its duration, its magnitude, or the amount of money that Jams got from that appointment.

[00:33:22] Speaker 01:
The figures that were in Aqua Dynamics brief were speculative.

[00:33:27] Speaker 01:
There's nothing in there.

[00:33:28] Speaker 02:
Yeah, but who has access to that information?

[00:33:31] Speaker 01:
In Monster Energy, the party challenging the arbitration subpoenaed

[00:33:36] Speaker 01:
jams and asked for that.

[00:33:38] Speaker 01:
In this case, Aqua Dynamics did not subpoena jams.

[00:33:40] Speaker 01:
They did not conduct discovery.

[00:33:42] Speaker 01:
They did not take any... There was an open district court case.

[00:33:46] Speaker 01:
They didn't take any discovery in that case at all.

[00:33:48] Speaker 01:
They just simply got the disclosures from jams and then filed the briefs on that.

[00:33:57] Speaker 03:
To Judge Moore's point, you actually cite, and I don't know why you're not pointing her to this, but you cite cases in your brief that

[00:34:06] Speaker 03:
say that a question of triviality is one that should be reviewed for clear error.

[00:34:12] Speaker 03:
If it's clear error, then it's got to be factual, right?

[00:34:16] Speaker 01:
I believe so, Your Honor, yes.

[00:34:18] Speaker 02:
Anything further, counsel?

[00:34:21] Speaker 01:
Not unless you have other questions.

[00:34:27] Speaker 01:
Thank you.

[00:34:29] Speaker 02:
Mr. Michaels, I'll restore two minutes of rebuttal time.

[00:34:32] Speaker 04:
Mr. Michael, I agree with the notion that the fact that aqua

[00:34:40] Speaker 04:
insisted on arbitration with jams is irrelevant to the final decision as to whether there was adequate belief that these people were biased.

[00:34:54] Speaker 04:
But help me remember the record.

[00:34:57] Speaker 04:
Had ACWA had prior experience in mediations with jams?

[00:35:04] Speaker 00:
Your Honor, I believe that ACWA disclosed that it had won prior mediation with Jams.

[00:35:10] Speaker 04:
I'm using mediation or arbitration in the book.

[00:35:14] Speaker 04:
I believe it was mediation.

[00:35:15] Speaker 04:
But they had used Jams at a prior time.

[00:35:20] Speaker 00:
Yes, and it had been.

[00:35:22] Speaker 00:
I'm sorry.

[00:35:24] Speaker 00:
I think what had been disclosed in the initial disclosures was that ACWA had not.

[00:35:33] Speaker 00:
Had any contact with Jams?

[00:35:35] Speaker 00:
The initial disclosure of what was at issue was the three arbitrators, not Jams as an entity.

[00:35:41] Speaker 00:
And at that point, there were no aqua connections, I believe.

[00:35:44] Speaker 00:
I know it's in the record.

[00:35:45] Speaker 00:
When the later disclosures were made that covered the connections with Jams as a whole, at that point, I believe it was disclosed that there was one mediation.

[00:35:54] Speaker 04:
That Jams had prior connections with?

[00:35:57] Speaker 04:
Yes.

[00:35:58] Speaker 04:
OK, thank you.

[00:36:00] Speaker 00:
So I'd like to address very quickly the standard of review issue.

[00:36:05] Speaker 00:
The primary case that the appellee cites for that proposition is employer's insurance of Warsaw versus national union fire insurance.

[00:36:15] Speaker 00:
And there, what the court does is it looks at the underlying, what was the connection

[00:36:21] Speaker 00:
between the arbitrator and the party.

[00:36:23] Speaker 00:
And the court says things like it appears to have been brief, entailing only a couple hours of work.

[00:36:28] Speaker 00:
They say that copies of documents had been submitted.

[00:36:31] Speaker 00:
They say that they believed the arbitrator to be impartial, and that they believe he formulated no fixed opinions or definite conclusions.

[00:36:40] Speaker 00:
I would submit that the decision that someone had

[00:36:45] Speaker 00:
Formulated no fixed opinions or definite conclusions, that might be a matter of fact.

[00:36:50] Speaker 00:
But the legal significance of that, the legal significance of the arbitrator not formulating those opinions or conclusions, would be a question of law subject to de novo review.

[00:37:00] Speaker 02:
OK, anything further?

[00:37:01] Speaker 02:
Thank you, counsel.

[00:37:04] Speaker 02:
We thank both counsel.

[00:37:05] Speaker 02:
This case is taken.