[00:00:00] Speaker 02:
Good morning everyone and welcome to the Ninth Circuit.

[00:00:02] Speaker 02:
We have three cases on calendar today.

[00:00:04] Speaker 02:
We'll go ahead and we'll just get started.

[00:00:07] Speaker 02:
We'll call the first case Black Rock Coffee Bar versus BR Coffee.

[00:00:19] Speaker 00:
May it please the court.

[00:00:21] Speaker 00:
I'm Kristin Assai, appearing on behalf of the appellant Black Rock Coffee Bar, LLC.

[00:00:28] Speaker 00:
There you go.

[00:00:29] Speaker 00:
Thank you.

[00:00:30] Speaker 00:
I'd like to reserve three minutes for rebuttal.

[00:00:32] Speaker 02:
Very well.

[00:00:34] Speaker 00:
This case presents a narrow question.

[00:00:37] Speaker 00:
Can a party compelled to arbitrate by a court order later unilaterally abandon the arbitration when it is unhappy with a ruling affecting another party and then use its lack of participation to vacate the arbitration award?

[00:00:53] Speaker 00:
The district court allowed the BR entities to vacate the arbitration award against them on this basis and this court should reverse.

[00:01:02] Speaker 00:
Before I get into the merits of my argument, I'd like to clarify some of the party names in this case because it's a little bit messy.

[00:01:09] Speaker 00:
That would be helpful.

[00:01:11] Speaker 00:
So when I in our briefing before this court we've referred to the Apple ease as the be our entities Those are the entities that were originally compelled to arbitration by the district court.

[00:01:24] Speaker 01:
Those are the franchisees Correct.

[00:01:27] Speaker 00:
All right.

[00:01:27] Speaker 01:
Can we call them franchisees that would be?

[00:01:30] Speaker 00:
Sure.

[00:01:31] Speaker 00:
The only difference with the franchisees is that one of the entities is a umbrella holding company that was not actually an operating company, but if it helps for this court's purposes, we can call them the franchisees.

[00:01:43] Speaker 01:
That would help.

[00:01:44] Speaker 00:
Great.

[00:01:45] Speaker 00:
And the other parties that we've referred to are the BR owners.

[00:01:49] Speaker 00:
Those are the owners of the franchisees.

[00:01:51] Speaker 01:
Can we call them owners?

[00:01:53] Speaker 00:
Owners, yes.

[00:01:54] Speaker 00:
And the reason that there is some messiness is because in the district court's original order compelling arbitration, the district court used the phrase BR parties to refer to the franchisees.

[00:02:06] Speaker 00:
And throughout the arbitration record, the arbitrator also referred to the franchisees as the BR parties.

[00:02:14] Speaker 00:
But then the BR owners, the owners were later added to the arbitration.

[00:02:20] Speaker 00:
And we're not subject to the original order compelling arbitration.

[00:02:26] Speaker 00:
Some of the messiness to.

[00:02:27] Speaker 01:
Which is where the whole thing got.

[00:02:29] Speaker 00:
Yes.

[00:02:30] Speaker 00:
And the district court's order that vacated the arbitration award here referred to the entities, the franchisees, and the owners as sometimes the BR parties, and sometimes referred to conduct by just the owners as the BR parties.

[00:02:46] Speaker 00:
So there is a little bit of messiness.

[00:02:48] Speaker 00:
So I'm going to try my best to be very specific today, talk about the franchisees and then the owners.

[00:02:54] Speaker 00:
Thank you, your honor.

[00:02:55] Speaker 00:
So there are two bases on which the district court vacated under 10a4 for a manifest disregard of law with respect to the error in adding the owners to the arbitration and then under 10a3 for Depriving the franchisees of a fundamentally fair hearing So I'm going to start with the 10a4

[00:03:19] Speaker 00:
The district court vacated the award based on that arbitrator's error in adding the owners, and then held that that error tainted the entire process, therefore providing a basis for the franchisees to vacate.

[00:03:34] Speaker 01:
Can I stop you right there and answer your question?

[00:03:36] Speaker 01:
Yes.

[00:03:36] Speaker 01:
It's my understanding, and this is exceedingly confusing, but it's my understanding that back in approximately 2022, the district court ruled that

[00:03:49] Speaker 01:
the owner should not have been joined in the arbitration.

[00:03:54] Speaker 01:
Is that correct?

[00:03:56] Speaker 00:
That ruling was in?

[00:03:58] Speaker 01:
Or whenever.

[00:03:59] Speaker 00:
February of 2023.

[00:04:00] Speaker 00:
2023.

[00:04:01] Speaker 01:
And it's my understanding that there was no appeal from that order.

[00:04:06] Speaker 00:
That is correct.

[00:04:07] Speaker 01:
So we are bound by that determination, are we not?

[00:04:11] Speaker 00:
Correct.

[00:04:11] Speaker 00:
For purposes of this appeal, we are assuming that the arbitrator did not have authority.

[00:04:16] Speaker 01:
To join the owners.

[00:04:17] Speaker 00:
Correct.

[00:04:18] Speaker 00:
But the argument is that that still did not constitute a manifest disregard of law.

[00:04:24] Speaker 00:
But for purposes of the argument today, I just really want to focus on why the error in exceeding jurisdiction with respect to the owners did not taint the entire award such that it provided a basis to vacate us to the franchisees.

[00:04:40] Speaker 00:
What this court said in the Comedy Club versus Improv West case is that when an arbitrator exceeds his authority or engages in a manifest disregard of law under 10A4, only the aspect of the award that suffers from the 10A4 defect should be vacated.

[00:04:57] Speaker 00:
In Comedy Club, the

[00:05:02] Speaker 00:
Arbitrator had exceeded his authority and engaged in the manifest disregard by issuing an injunction that extended to non-parties, and because the injunction violated a California non-compete statute.

[00:05:16] Speaker 00:
But this court did not throw out the entire award on that basis.

[00:05:20] Speaker 00:
It held that the remainder of the award could stand, and only the aspect where the arbitrator actually exceeded its authority should be vacated.

[00:05:28] Speaker 01:
Well, I understand your argument on that.

[00:05:31] Speaker 01:
The award of the arbitrator is based upon, as I understand it, the sanctions for failure to participate in discovery.

[00:05:45] Speaker 01:
Is that correct or not?

[00:05:47] Speaker 00:
That is not the sole basis of the award.

[00:05:50] Speaker 01:
But it is a basis.

[00:05:53] Speaker 00:
The award was based on BlackRock's motion for summary disposition.

[00:05:59] Speaker 00:
which, under the AAA rules, the arbitrator is not permitted to make an award based on the sole default of a party, and he did not do so.

[00:06:07] Speaker 00:
BlackRock submitted six declarations, 23 exhibits, relied on the record in that case, as well as the sanctions order, but the sanctions order was not the sole or even the primary basis.

[00:06:19] Speaker 01:
There was some factual basis that was...

[00:06:20] Speaker 00:
Correct, but it was based on the evidentiary record before the arbitrator, which he had an opportunity to review and for which the franchisees had an opportunity to oppose that motion and present evidence.

[00:06:35] Speaker 01:
And they didn't?

[00:06:38] Speaker 00:
They voluntarily chose to not do so.

[00:06:42] Speaker 01:
Is that because there were matters pending in court?

[00:06:50] Speaker 00:
What the district court found was that it was because the owners had filed an action seeking to challenge the jurisdictional issues and that somehow that, and this goes more to the 10A3 argument perhaps from what the district court said, but that it became a fraught landscape for the BR entities or the franchisees to be navigating.

[00:07:16] Speaker 00:
But that's not the standard.

[00:07:18] Speaker 00:
The entities could have and should have continued to participate in the arbitration because they did not have a jurisdictional objection.

[00:07:25] Speaker 00:
They did not seek a stay from the court in any way.

[00:07:29] Speaker 00:
And they had a full and fair opportunity to participate.

[00:07:32] Speaker 00:
They simply decided to side with the owners, in part because it was the same counsel appearing on behalf of the owners and the franchisees, and just stopped participating.

[00:07:44] Speaker 00:
and that is not a proper basis for the court to vacate.

[00:07:51] Speaker 00:
And so under 10A4, there is nothing on the face of the award demonstrating any error with respect to the franchisees.

[00:07:59] Speaker 00:
It is undisputed that the arbitrator had authority over the franchisees and that the claims that the arbitrator adjudicated were within the scope of the party's arbitration agreement.

[00:08:13] Speaker 00:
So the district court's basis for vacating on this tainting the entire process, I just want to address that briefly, which is that typically arises when the parties do not receive the decision maker that they agreed to or the process that they agreed to.

[00:08:30] Speaker 00:
Somehow the entire arbitration that the parties contracted for was tainted.

[00:08:35] Speaker 00:
For example, in the moving case where the

[00:08:39] Speaker 00:
lead arbitrator was impersonating an attorney and it was not someone that the parties had ever agreed to therefore the entire award was infected by the error or in the pool ray case from the fifth circuit that the district court relied upon

[00:08:53] Speaker 00:
where an impermissible plaintiff had intervened, resulting in both plaintiffs and defendants in the arbitration not agreeing to the process with an arbitrator they had not agreed to, and an indivisible award that made no basis on which the court could parse it between the proper parties.

[00:09:11] Speaker 01:
If we were to agree with you and reverse the district court's order vacating the arbitration, that would

[00:09:22] Speaker 01:
leave us where?

[00:09:25] Speaker 01:
That would leave you in the position of enforcing this arbitration award against the franchisees?

[00:09:33] Speaker 00:
Correct.

[00:09:33] Speaker 00:
And BlackRock only moved to confirm the award as to the franchisees.

[00:09:38] Speaker 00:
It never moved to confirm the award as to the owners and has no intention to in light of the district court's order in joining that.

[00:09:46] Speaker 04:
So some of the damages

[00:09:48] Speaker 04:
I think maybe all of them were joint damages against.

[00:09:51] Speaker 04:
So how is that going to be split up then?

[00:09:54] Speaker 04:
What's your?

[00:09:55] Speaker 00:
There are six counts in the arbitration award.

[00:09:59] Speaker 00:
The first three were only as to the entities except for, I'd say, one count of

[00:10:05] Speaker 00:
the breach of contract claim that was only against two of the owners.

[00:10:10] Speaker 00:
So there was no shared damages with respects to claims one, two, and three.

[00:10:16] Speaker 00:
So then it only is the trade secret misappropriation and the fraudulent transfer claims for which there's any shared damages.

[00:10:24] Speaker 00:
But the fact that the liability is joint doesn't mean it can't be parsed.

[00:10:28] Speaker 00:
And what I would

[00:10:30] Speaker 00:
rely upon is, and we will submit a 28.

[00:10:33] Speaker 04:
How will you parse it for those?

[00:10:38] Speaker 00:
What Blackrock did is seek to confirm only as to the franchisees So what we would be asking this court to do is to reverse and have the judgment entered at the district court level That for each of the claims only as to the franchisees Separating out the owners and that is consistent with what this court did in the Ralph Andrews figure out for the ones that need to be parsed out I'm trying to figure out who's going to figure out

[00:11:06] Speaker 04:
Who's going to portion that?

[00:11:08] Speaker 04:
You don't want us to do that.

[00:11:09] Speaker 00:
No.

[00:11:09] Speaker 00:
And there doesn't need to be any apportioning.

[00:11:11] Speaker 00:
It would just mean that the final judgment would only say BlackRock versus franchisees, which is the only caption in this case, as to each of the specific counts.

[00:11:22] Speaker 04:
So for those claims for which there is joint liability, is it your position that even though there is joint liability, the entire portion can properly be apportioned to the franchisees?

[00:11:34] Speaker 00:
Correct, because the franchisees had direct liability.

[00:11:38] Speaker 00:
And if this court were to look to the merits of the motion for summary disposition, which is really beyond the scope of.

[00:11:45] Speaker 04:
So you're saying there's not really a hard apportionment question here, because it's sort of like joining several.

[00:11:52] Speaker 04:
Exactly, Your Honor.

[00:11:54] Speaker 04:
Even though half the entities are no longer in it, the ones that remain are liable for all of it.

[00:12:00] Speaker 00:
Correct.

[00:12:01] Speaker 00:
And, like I said, I will submit a 28-J letter on this, but the Fifth Circuit, who was reviewing the, in the pool-ray decision that the District Court relied upon, had since clarified in a decision that came out after the close of the briefing,

[00:12:15] Speaker 00:
that when the arid issue is only adding a non-signatory defendant to the arbitration, even if the liability is joint and several, you can easily carve them out.

[00:12:26] Speaker 00:
You just vacate the part of the award that has to do with the non-signatory defendant who has been properly added, and the remainder of the arbitration award can stand.

[00:12:38] Speaker 00:
I see that I'm going into my rebuttal time, so... You want to reserve your time?

[00:12:42] Speaker 00:
I'll reserve.

[00:12:43] Speaker 02:
Thank you, Your Honor.

[00:12:49] Speaker 03:
Good morning, Your Honors.

[00:12:50] Speaker 03:
May it please the court?

[00:12:52] Speaker 03:
My name's Justin Reed, and I represent the franchisees, or the appellees in this case.

[00:13:02] Speaker 03:
All my clients are asking for and all they've ever been asking for is just a fair shot at a factual arbitration hearing that's balanced, free of bias.

[00:13:11] Speaker 03:
They're not playing tug of war with the arbitrator.

[00:13:15] Speaker 03:
The district court correctly finally was able to wrangle in all the multitude of things that was going on here.

[00:13:22] Speaker 03:
And when they finally got in a position to rule on the pending motions, they properly vacated the award.

[00:13:30] Speaker 03:
And I want to make sure that this court's aware.

[00:13:33] Speaker 03:
I think they are, but I just, in abundance of caution, I want the court to be aware that the district court has remanded the parties back to a AAA arbitration with a new arbitrator for an evidentiary hearing.

[00:13:45] Speaker 03:
And that dovetails into another point of clarification.

[00:13:48] Speaker 01:
Evidentiary hearing on what?

[00:13:52] Speaker 03:
On the entire case.

[00:13:56] Speaker 03:
And that dovetails into my next point, and I want to make sure the panel is aware that in this case, there never was an evidentiary hearing.

[00:14:05] Speaker 03:
I don't think that we've read a case, cited a case, or relied on a case where the arbitrator has gone so far as to actually unilaterally vacate the evidentiary hearing and not even give one of the parties an opportunity to present evidence there.

[00:14:23] Speaker 01:
So we're back to square one, essentially, so far as the arbitration is concerned, but it's who's in the arbitration, just the franchisees in Black Rock.

[00:14:36] Speaker 03:
The parties in the arbitration are the franchisees and BlackRock.

[00:14:40] Speaker 03:
We are not back to square one, though.

[00:14:43] Speaker 03:
The district court sent us back in time to the point in time, the moment before they tried to add the new parties and the new claims.

[00:14:55] Speaker 03:
So the prior discovery that was done in the case, which my clients answered over 300 interrogatories, there's 50.

[00:15:02] Speaker 01:
It's on the record that was made before all this

[00:15:06] Speaker 03:
Yeah, so it's not a total redo.

[00:15:08] Speaker 03:
He just took us back in time, wiped out all the prejudice, and said you can move forward and have your hearing.

[00:15:15] Speaker 01:
You tried to settle this?

[00:15:19] Speaker 03:
Always.

[00:15:21] Speaker 03:
Yes.

[00:15:23] Speaker 02:
Actually, let me follow up on that, because this is multi-universe now.

[00:15:31] Speaker 02:
Our court has a very, very good mediation office.

[00:15:34] Speaker 02:
And I'm curious what your parties have tried to do that with our mediation office at all.

[00:15:38] Speaker 02:
Could you let us know what you've done there?

[00:15:41] Speaker 03:
I believe we had an initial mediation hearing.

[00:15:44] Speaker 03:
And we gave it an effort, a good faith effort.

[00:15:50] Speaker 02:
And do you think that would be fruitless to try it again?

[00:15:55] Speaker 03:
I don't.

[00:15:55] Speaker 03:
I never think that resolution's impossible.

[00:16:00] Speaker 03:
I think I've probably resolved 99.9% of the cases in my entire career.

[00:16:04] Speaker 03:
But in a long time.

[00:16:05] Speaker 03:
Yeah.

[00:16:06] Speaker 03:
I agree.

[00:16:07] Speaker 03:
So yes, we're interested in mediation.

[00:16:09] Speaker 03:
We've given it a good faith effort.

[00:16:11] Speaker 03:
I'm always willing to give that an effort.

[00:16:13] Speaker 01:
We've tried to settle this outside of mediation, I assume.

[00:16:16] Speaker 03:
Yes, we have.

[00:16:18] Speaker 03:
And I want to credit my opposing counsel.

[00:16:22] Speaker 03:
They're professional.

[00:16:23] Speaker 03:
They've been wonderful to work with in that regard, and we've really tried.

[00:16:28] Speaker 03:
It's a complicated case, a lot of issues, but I'm always trying to get it resolved.

[00:16:33] Speaker 03:
Yes, thank you.

[00:16:36] Speaker 03:
If I may, another high-level issue I want to set the table with is that I believe that the appellants have

[00:16:47] Speaker 03:
cited the wrong or incorrect legal standard of review with respect to the district court's factual findings.

[00:16:55] Speaker 03:
This case is primarily based on a multitude of factual findings as to what went on.

[00:17:00] Speaker 03:
Appellants cited the de novo standard, and that is the correct standard for the legal conclusions that the district court made.

[00:17:08] Speaker 03:
But it is not the correct standard for the district court's factual findings.

[00:17:13] Speaker 03:
The correct standard for the factual findings

[00:17:15] Speaker 03:
is clear error.

[00:17:17] Speaker 03:
And as this panel is well aware, clear error has a highly deferential standard to the district court's factual findings.

[00:17:25] Speaker 03:
And I think that the fact that the appellants didn't cite it, didn't analyze it, and didn't really contextualize their entire arguments in their briefing within the clear error standard

[00:17:38] Speaker 03:
I don't think we get off go with the appeal, and I certainly don't think it can support the relief requested.

[00:17:45] Speaker 03:
Nowhere do they argue that any of the district court's factual findings were clearly erroneous, which is the standard.

[00:17:53] Speaker 03:
And so I just want to make sure that the panel is aware of that.

[00:17:56] Speaker 03:
And when we're looking at all the factual determinations, that is the appropriate standard to apply.

[00:18:02] Speaker 03:
None of it's been argued.

[00:18:05] Speaker 03:
And if the court really takes time to go through the district court's orders, Judge Simon meticulously goes through and lays out just a multitude of really important facts.

[00:18:18] Speaker 03:
And it's very informative.

[00:18:20] Speaker 03:
And it's pretty easy to get to the end of that and see that the clear standard cannot be met.

[00:18:27] Speaker 03:
With that said, I want to shift gears and focus on a point.

[00:18:35] Speaker 01:
Would you, in your, Judge Simon was clearly upset with what he clearly thought that the arbitrator had acted wrongly.

[00:18:48] Speaker 01:
Can you just explain in your own words what it was that was so bad that happened in the arbitration?

[00:18:54] Speaker 03:
That was so what?

[00:18:55] Speaker 01:
Bad.

[00:18:56] Speaker 03:
Yes.

[00:18:57] Speaker 03:
I would be happy to do that.

[00:19:01] Speaker 03:
When I saw we had 15 minutes, I thought it would take us two days to go through the entire case, because we've been in five or six courtrooms.

[00:19:09] Speaker 03:
But I'll give you in my own words.

[00:19:12] Speaker 03:
I took over the case when I came in.

[00:19:17] Speaker 03:
We got started.

[00:19:18] Speaker 03:
The arbitration was midstream.

[00:19:21] Speaker 03:
And the franchisors got the idea that they wanted to bring in the individual owners into the arbitration and new claims.

[00:19:31] Speaker 03:
And it's important for the panel to understand they didn't just try and add people to the arbitration.

[00:19:36] Speaker 03:
They also added claims.

[00:19:38] Speaker 03:
And that's pivotal because the claims affect

[00:19:42] Speaker 03:
the existing parties in the arbitration.

[00:19:44] Speaker 03:
It affects the award.

[00:19:46] Speaker 03:
It affects the inability to separate the award, which is a separate issue.

[00:19:49] Speaker 03:
But they tried to bring in new claims.

[00:19:52] Speaker 03:
I immediately objected, said arbitrator cannot rule on the threshold issue of adding parties.

[00:20:00] Speaker 03:
That needs to go to the court.

[00:20:01] Speaker 01:
Then that's when it's... So there's a provision in the contract that seemed to

[00:20:07] Speaker 03:
If you have parties to a contract, if there's a contract between the two parties, the arbitrator has authority now to work within that.

[00:20:15] Speaker 03:
But if the question is whether there are parties to the contract, that's a district court's determination, not the arbitrator's, because there's no contract.

[00:20:24] Speaker 03:
So it's longstanding law.

[00:20:26] Speaker 03:
It's pretty well known.

[00:20:27] Speaker 03:
That got briefed, and then that's when the tug of war really started.

[00:20:31] Speaker 03:
And at first, just tried to work with the arbitrator on it, and submit a briefing, and provided the law, and we were meeting and conferring on it.

[00:20:40] Speaker 03:
And initially, we agreed to a stipulation in order that the arbitrator sign, saying he was vacating all the dates.

[00:20:49] Speaker 03:
He knew we were going into court to fight this out.

[00:20:52] Speaker 03:
He vacated dates and said, basically, we'll wait till this gets decided.

[00:20:58] Speaker 03:
But then there was some more wrangling, and it didn't get

[00:21:03] Speaker 03:
No court action got filed right away, and the arbitrator seemed to get irritated by that.

[00:21:08] Speaker 03:
And he started saying, you haven't gone into court.

[00:21:12] Speaker 03:
I'm going to get this thing going again.

[00:21:13] Speaker 03:
And there was some wrangling there.

[00:21:16] Speaker 03:
On February 23, 2022, this appeal, I filed a court action to enjoin the arbitrator, to enjoin AAA, to put the brakes on this.

[00:21:29] Speaker 03:
Because he was clearly moving forward.

[00:21:34] Speaker 03:
Prior to that, I had tried to remove the arbitrator.

[00:21:37] Speaker 03:
I was in private meetings with AAA's vice president.

[00:21:40] Speaker 03:
AAA brought an attorney in.

[00:21:42] Speaker 03:
They usurped the arbitrator's power and put a hold on a discovery hearing for me.

[00:21:48] Speaker 03:
But then that got screwed up the way the case administrator handled it.

[00:21:51] Speaker 03:
So then I started chasing that down to correct it.

[00:21:54] Speaker 03:
And then a whole bunch of things started where I was just chasing AAA and the arbitrator around trying to put the brakes on things.

[00:22:01] Speaker 03:
So I filed the court action.

[00:22:04] Speaker 03:
something pivotal I think the district court keyed in on this is that you filed it in state court I did because yeah I and then it then we made our way up to to judge Simon correct so

[00:22:21] Speaker 03:
But this is important, and this really puts the whole situation in context.

[00:22:25] Speaker 03:
I mean, there's 100 things that happened that were prejudicial that Judge Simon goes through in his order.

[00:22:30] Speaker 03:
But after I filed the court action, AAA and the arbitrator hired an attorney, and that attorney appeared in the action for them.

[00:22:39] Speaker 03:
And the arbitrator brought a motion to dismiss the action.

[00:22:44] Speaker 03:
And this is at evidence record 562 and 564.

[00:22:50] Speaker 03:
He brought his motion to dismiss on April 8.

[00:22:54] Speaker 03:
In his motion, they cite, they say that my clients are trying to unduly influence him, that we're retaliating against him, that we're trying to force him to be impartial, and that we're trying to force him to be adversarial.

[00:23:09] Speaker 03:
So in a public court filing, the arbitrator's attorney files this.

[00:23:13] Speaker 03:
And what we're seeing with that is what he believes my client's character is.

[00:23:20] Speaker 03:
and what they're doing yet he's supposed to be our impartial arbitrator ruling on a thirty million dollar case for us five days later after he filed that the arbitrator decides he is going to rule on a pending discovery motion for him and that's when he issued the terminating sanctions and deemed all requests for admissions admitted uh... said documents it's a wild discovery order but

[00:23:49] Speaker 03:
So five days after he states publicly he thinks we're unduly influencing and retaliating, he moves forward and rules on this motion.

[00:23:58] Speaker 03:
And then everything really went off the rails after that.

[00:24:04] Speaker 03:
my opposing counsel quickly brought a motion for summary judgment on it.

[00:24:07] Speaker 03:
Judge Simon was working with us trying to speed up his process to get in front of this, but it was hard because some things were going on with his schedule and whatnot.

[00:24:18] Speaker 03:
So Judge Simon, opposing counsel, we all knew what was going on and this arbitrator just sped up and started racing off this cliff with us.

[00:24:27] Speaker 03:
So after he issues the terminating sanctions motion,

[00:24:31] Speaker 03:
The opposing counsel brings a motion for summary judgment based on it, primarily.

[00:24:38] Speaker 03:
He rules on it in October, grants rubber stamps to the motion.

[00:24:45] Speaker 03:
And then on November 7th, the arbitrator just vacates the hearing, the evidentiary hearing.

[00:24:52] Speaker 03:
The whole purpose of the arbitration is to privately hire AAA and the arbitrator so that we get an evidentiary hearing.

[00:24:58] Speaker 03:
He just vacates it.

[00:25:01] Speaker 03:
why that was particularly problematic, why that was particularly problematic is because another thing that was going on which I was working with the court on and trying to seek relief on, AAA has a whole set of procedural rules that need to be followed when a party comes into a case or you add claims.

[00:25:25] Speaker 03:
Actually AAA doesn't even have a process to add parties but

[00:25:29] Speaker 03:
The arbitrator wasn't following any of those rules with the new parties or claims.

[00:25:33] Speaker 03:
There needs to be an administrative hearing.

[00:25:35] Speaker 03:
The arbitrator needs to make disclosures.

[00:25:37] Speaker 03:
The parties get to decide whether that arbitrator is appropriate for those types of claims.

[00:25:42] Speaker 03:
They can disqualify.

[00:25:43] Speaker 03:
All these rules needed to be applied.

[00:25:45] Speaker 03:
He wasn't applying them.

[00:25:46] Speaker 03:
I was objecting, saying, hey, you at least need to go back and follow the procedures.

[00:25:51] Speaker 03:
He wasn't doing that.

[00:25:56] Speaker 03:
So when he rules on this motion for summary judgment, these new parties haven't answered.

[00:26:01] Speaker 03:
They haven't filed counterclaims.

[00:26:03] Speaker 03:
No one's challenged the new claims yet.

[00:26:05] Speaker 03:
There's been no administrative hearing.

[00:26:07] Speaker 03:
They haven't agreed to the arbitrator.

[00:26:10] Speaker 03:
It's all in the briefing, but it just goes on and on.

[00:26:14] Speaker 01:
Well, are you talking about what happened before the sanctions order?

[00:26:18] Speaker 03:
But before the sanctions order I objected and put AAA in the arbitrary notice that these things needed to be followed.

[00:26:24] Speaker 03:
I was also in district court challenging all this, seeking injunctive relief, et cetera.

[00:26:31] Speaker 03:
And the arbitrator just wasn't listening to anybody and was not waiting for the court.

[00:26:36] Speaker 01:
Well, did you file a response to the motion for sanctions?

[00:26:42] Speaker 03:
Yes.

[00:26:43] Speaker 03:
I believe I filed a letter

[00:26:49] Speaker 03:
No, I apologize, Your Honor.

[00:26:51] Speaker 03:
Prior to it, I sent a letter saying, I don't believe it's appropriate to hear this motion.

[00:26:56] Speaker 03:
We have our action pending in court.

[00:26:58] Speaker 03:
You're a defendant in the case.

[00:27:01] Speaker 03:
I've asked for a discovery referee.

[00:27:03] Speaker 03:
You need to pause this.

[00:27:04] Speaker 01:
In short, you were saying that this is in the court as to whether or not these other parties should be there.

[00:27:15] Speaker 01:
And the arbitrator just continued with the arbitration.

[00:27:20] Speaker 03:
Yes.

[00:27:20] Speaker 03:
I was pointing this out.

[00:27:21] Speaker 03:
I was objecting.

[00:27:22] Speaker 03:
I was in court.

[00:27:23] Speaker 03:
I was objecting to AAA.

[00:27:24] Speaker 03:
Everyone knew what was going on.

[00:27:26] Speaker 03:
He just blatantly just kept going.

[00:27:28] Speaker 01:
And why was that unlawful or improper for him to go forward?

[00:27:35] Speaker 01:
He said, well, there's been no ruling yet.

[00:27:38] Speaker 01:
We don't know how it's going to come out.

[00:27:40] Speaker 01:
I'm not going to just sit here.

[00:27:43] Speaker 03:
Thank you, your honor.

[00:27:44] Speaker 03:
I only have eight seconds.

[00:27:46] Speaker 03:
Is it OK to answer?

[00:27:47] Speaker 03:
Thank you.

[00:27:48] Speaker 02:
Keep going.

[00:27:48] Speaker 02:
Keep going.

[00:27:48] Speaker 03:
Thank you.

[00:27:50] Speaker 03:
It was improper because first, the AAA rules and the law requires us to get a fundamentally fair hearing.

[00:28:00] Speaker 03:
You can read 1,000 cases.

[00:28:02] Speaker 03:
They all come to the standard is that we get a fundamentally fair evidentiary hearing period.

[00:28:07] Speaker 03:
That is the gold standard of the arbitration.

[00:28:10] Speaker 03:
We were not getting that by him.

[00:28:13] Speaker 03:
Continuing to move forward despite what was going on in court and not wait for that, we were not receiving a fundamentally fair hearing.

[00:28:22] Speaker 03:
I was having to tug a war over here.

[00:28:23] Speaker 03:
I was having to deal with the court and try and get relief.

[00:28:28] Speaker 03:
You could just never catch up to what was going on.

[00:28:31] Speaker 03:
And all the arbitrator had to do was push pause.

[00:28:34] Speaker 03:
He just had to wait for the court to rule.

[00:28:37] Speaker 03:
not do anything, he wouldn't have created any prejudice or bias.

[00:28:41] Speaker 03:
He knew the court was going to rule.

[00:28:43] Speaker 03:
He knew it was in front of the court.

[00:28:45] Speaker 03:
There was no reason to not wait for the court to rule.

[00:28:49] Speaker 03:
But he knew that he was going to be disqualified if the new parties were in the case.

[00:28:55] Speaker 03:
I had already telegraphed that, that he was not going to be ruling on this case.

[00:29:00] Speaker 03:
And I can't speak, I can't get in his mindset.

[00:29:03] Speaker 03:
Something was going on.

[00:29:05] Speaker 03:
He seemed agitated.

[00:29:06] Speaker 03:
He seemed willing to throw rules out the window.

[00:29:10] Speaker 03:
I got the sense that he was possibly in the superior court judge mindset of these are the rules of civil procedure and things like that.

[00:29:21] Speaker 03:
And arbitration is different.

[00:29:22] Speaker 03:
Arbitration is fundamentally fair.

[00:29:24] Speaker 03:
He's privately hired.

[00:29:27] Speaker 03:
The arbitration rules say that we have to object or we waive it.

[00:29:33] Speaker 03:
We have to object to the arbitrator or we waive it.

[00:29:35] Speaker 03:
If the arbitrator is not following the rules, we have to object or we waive them.

[00:29:40] Speaker 03:
AAA rule R-52 also states, and I'm going to quote it, it says, no judicial proceeding by any party relating to the subject matter of the arbitration shall be deemed a waiver of the party's right to arbitrate.

[00:29:54] Speaker 03:
So the rules basically say you need to object immediately.

[00:29:58] Speaker 03:
You need to resist, and you're fine, and you have safe harbor if you go to court.

[00:30:03] Speaker 03:
And that's exactly what I was doing.

[00:30:07] Speaker 03:
OK.

[00:30:09] Speaker 02:
Do you have anything further you want to sum up with?

[00:30:17] Speaker 03:
I do, and thank you.

[00:30:18] Speaker 03:
Make it brief, but go ahead.

[00:30:19] Speaker 03:
It will be brief.

[00:30:22] Speaker 03:
This default award is a $31 million award.

[00:30:27] Speaker 03:
It's serious.

[00:30:27] Speaker 03:
It affects people's lives and livelihoods and businesses.

[00:30:31] Speaker 03:
It's massive.

[00:30:35] Speaker 03:
This warrants meticulously knowing Judge Simon's order.

[00:30:39] Speaker 03:
He spent a lot of time in it and knowing the exhibits and the records.

[00:30:44] Speaker 03:
And I know it's a lot to wrangle.

[00:30:47] Speaker 03:
But if the court is able to take the time to meticulously go through that, they will see that that clear standard is not met.

[00:30:54] Speaker 03:
We didn't get a fundamentally fair hearing.

[00:30:56] Speaker 03:
And Judge Simon's remand is going to reset the clock and make it fair.

[00:31:00] Speaker 03:
They have every opportunity in the world now to go prove their case on a balanced, equal footing.

[00:31:05] Speaker 03:
Thank you.

[00:31:05] Speaker 02:
Thank you, Kessler.

[00:31:14] Speaker 00:
So, on rebuttal, I wanted to address better, just a couple of points.

[00:31:18] Speaker 00:
First, the issue of the franchisees getting a fair shot with the evidentiary hearing.

[00:31:26] Speaker 00:
The franchisees chose to abandon the arbitration and they still have not demonstrated a basis that allowed them to do so.

[00:31:33] Speaker 00:
And what I heard from the franchisees council is all these things about the objections that were made and what was going on with the arbitrator.

[00:31:42] Speaker 00:
This is beyond the scope of the court's narrow review under 10A3, which is the Fundamentally Fair Hearing Inquiry.

[00:31:51] Speaker 00:
What the court's job under 10A3 is to ensure that the parties receive the process that they agree to.

[00:31:56] Speaker 00:
That is, notice an opportunity to present argument and evidence in front of an unbiased decision maker.

[00:32:04] Speaker 00:
The district court improperly second guessed the fundamental fairness, but it is the procedural fairness that this court is looking at, not to the underlying substantive fairness.

[00:32:17] Speaker 00:
They chose to abandon and not respond to any of the motions, despite the opportunity to do so, and they did so at that risk.

[00:32:25] Speaker 00:
I also want to address the issue about the new claims that were added as part of the motion to amend, because that part did affect the franchisees.

[00:32:34] Speaker 00:
But the franchisees never moved to vacate on the basis that the arbitrator lacked authority to add the fraudulent transfer claim, which is the only new claim that was against the franchisees.

[00:32:48] Speaker 00:
And if this court looks to the arbitration agreements, it will see that that claim is within the scope.

[00:32:56] Speaker 00:
And so again, it is outside this court's review to vacate under nine USC 10.

[00:33:03] Speaker 00:
So in closing, in vacating the arbitration award here, the district court improperly put himself in the shoes of the arbitrator, provided no deference to the arbitrator's procedural rulings, and that is beyond the scope of review.

[00:33:20] Speaker 00:
So we ask that this court reverse with directions to confirm the award as to the franchisees.

[00:33:27] Speaker 00:
Thank you.

[00:33:29] Speaker 02:
Thank you, counsel.

[00:33:31] Speaker 02:
Thank you both for your arguments and briefing in this, I'll just say interesting case.

[00:33:37] Speaker 02:
This one is submitted.