[00:00:00] Speaker 01: May it please the court, Eden Anderson, on behalf of Appellant Kelly Services. [00:00:05] Speaker 01: I'll reserve three minutes for rebuttal. [00:00:07] Speaker 01: I plan to first address the delegation issue and the scope of the party's arbitration agreement. [00:00:14] Speaker 01: This court has already held, including in the employment context in Brennan and in Galilee, that when an arbitration agreement incorporates AAA rules, the parties clearly and unmistakably delegated gateway issues to the arbitrator. [00:00:29] Speaker 01: And that's because AAA's Rule 6, as your sister circuits have noted, is about as clear and unmistakable as language can get. [00:00:40] Speaker 01: Counsel, does Mr. Ruiz's sophistication matter? [00:00:44] Speaker 01: Mr. Ruiz's sophistication should not matter under Section 2 of the FAA. [00:00:50] Speaker 01: Arbitration agreements are placed on equal footing with other contracts and can only be invalidated based on generally applicable contract principles. [00:01:01] Speaker 01: And there is no generally applicable I'm unsophisticated contract defense. [00:01:09] Speaker 01: And adopting such a rule and applying it uniquely [00:01:13] Speaker 01: in the context of arbitration runs afoul of the FAA. [00:01:20] Speaker 01: Rule 6 is clear. [00:01:23] Speaker 02: Before we get to Rule 6, I guess I want to understand the scope of, you can see that Brennan was trying to understand its contract, specific contract under California contract law. [00:01:37] Speaker 02: whether that cleared a heightened clear and unmistakable for Federal Arbitration Act contracts. [00:01:45] Speaker 02: It was dealing with federal California contract law. [00:01:48] Speaker 02: We're trying to read this under California contract law. [00:01:52] Speaker 01: I mean, there's no distinct, the contract here and the contractor Brennan have the same language. [00:01:57] Speaker 02: Well, does it matter? [00:01:59] Speaker 02: They don't, do they? [00:02:01] Speaker 02: So Brennan says that any controversy or claim arising out of this agreement shall be settled by binding arbitration in accordance with the rules of the AAA. [00:02:11] Speaker 02: This doesn't contain that language. [00:02:12] Speaker 02: It says that I agree to use binding arbitration. [00:02:15] Speaker 02: The AAA doesn't come in until after the coverage and exclusions clauses. [00:02:20] Speaker 01: Well, the contracted issue in Brennan was an employment agreement. [00:02:24] Speaker 01: Right here we have a stand-alone arbitration agreement and both agreements incorporated AAA rules. [00:02:34] Speaker 02: So it doesn't matter where the AAA rules are incorporated? [00:02:37] Speaker 01: Absolutely not, Your Honor. [00:02:39] Speaker 01: There is, you know, the only requirement for delegation clause is that it be [00:02:43] Speaker 01: clear and unmistakable, and then there's a consumability requirement. [00:02:48] Speaker 01: But there's no rule that it has to appear in a particular place or in a particular order within an arbitration agreement. [00:02:55] Speaker 02: Well, the only rule is we're trying to reach a reasonable reading of whether each particular contract meets this. [00:03:03] Speaker 02: And in Brennan, the AAA incorporation happened in a different section of the contract than the agreement to arbitrate. [00:03:10] Speaker 02: It only happens after. [00:03:12] Speaker 02: the claims and exclusions. [00:03:14] Speaker 02: Why isn't this more like Mondragon, which from the California court is more controlling? [00:03:20] Speaker 01: Well, first, the facts in Mondragon and the arbitration agreement there were completely different. [00:03:28] Speaker 01: Of course, in both cases, here and there, we have an incorporation of AAA rules, but in Mondragon, there was language that specifically undermined [00:03:39] Speaker 01: the delegation and made it ambiguous and not clear and unmistakable. [00:03:44] Speaker 01: Here we don't have any such language undermining the incorporation. [00:03:48] Speaker 01: Okay, walk me through that. [00:03:49] Speaker 02: So I see in section four of this agreement, it says the employment resolution of the AAA will apply. [00:03:57] Speaker 02: In Mondragon, the parties will use the AAA for arbitration. [00:04:03] Speaker 02: So [00:04:04] Speaker 02: That looks a lot alike. [00:04:05] Speaker 01: Yeah, that's the similarity. [00:04:07] Speaker 01: But then in Mondragon, there was a bunch of other language elsewhere in that. [00:04:11] Speaker 03: What's the next sentence of that, if you recall, in Mondragon? [00:04:14] Speaker 01: You know, I would have to pull up. [00:04:16] Speaker 03: That's something that AAA rules will explain how to file a demand for arbitration. [00:04:21] Speaker 01: Right. [00:04:21] Speaker 03: It suggests that the rules are used for a limited purpose, not for the whole arbitration. [00:04:28] Speaker 01: Correct. [00:04:29] Speaker 01: And there was even a dish. [00:04:31] Speaker 01: I don't have all the language of the Mondragon agreement [00:04:35] Speaker 01: right in front of me, but there was additional language elsewhere in the agreement that also undercut the incorporation of the AAA rules. [00:04:42] Speaker 01: I mean, the two cases are just factually very distinguishable. [00:04:45] Speaker 02: Incorporation of the AAA rules for this purpose, right? [00:04:48] Speaker 02: We're talking about whether it's the incorporation of the AAA rules as to arbitrability questions, or who decides, the third order question, right? [00:04:55] Speaker 01: Correct. [00:04:58] Speaker 01: Correct. [00:04:59] Speaker 01: So the question now, though, is whether [00:05:03] Speaker 01: the language of Rule 6 is less clear when a party who agrees to it is not sophisticated. [00:05:10] Speaker 01: And this court should answer that question just as the majority of its sister circuits and the majority of district courts in this circuit have and conclude that party sophistication is not relevant to delegation. [00:05:26] Speaker 01: And there are four reasons why this should be so. [00:05:31] Speaker 01: First, a party sophistication rule runs counter to the Supreme Court's decision in the first options case, which describes the clear and unmistakable standard, as I quote, as an objective one. [00:05:45] Speaker 01: How a party subjectively perceives contractual language should not affect the plain meaning of a contract. [00:05:56] Speaker 01: And as we already discussed, the second reason is that an I am unsophisticated contract defense would be preempted by the FAA. [00:06:07] Speaker 01: And third, Mr. Ruiz, in signing his arbitration agreement, which was an entirely voluntary agreement, expressly acknowledged, and I quote, that he had carefully read this agreement and I understand its terms. [00:06:25] Speaker 01: He should not, after the fact, be able to disclaim that understanding. [00:06:30] Speaker 01: Courts don't have the power to relieve people from their contractual commitments. [00:06:36] Speaker 03: If we were to disagree with you and say that sophistication does matter, do we have to accept that he is unsophisticated? [00:06:43] Speaker 01: No, Your Honor. [00:06:45] Speaker 01: There was clear error in the district court's finding on that Mr. Ruiz did not even submit a declaration in opposition to the motion to compel. [00:06:56] Speaker 01: The district court reached a finding of lack of sophistication based only on evidence that Mr. Ruiz worked as a temporary [00:07:09] Speaker 01: worker and on stereotypical assumptions. [00:07:13] Speaker 01: We know nothing about Mr. Ruiz. [00:07:16] Speaker 02: But you can see that the district court did make a finding that is subject to clear error. [00:07:23] Speaker 02: It's just that it was clearly erroneous. [00:07:26] Speaker 01: We do concede that there is a factual finding, but our contention is that it was clearly erroneous and that the district court flipped the burden of proof and improperly placed it on Kelly [00:07:38] Speaker 01: to establish sophistication. [00:07:41] Speaker 01: As this court's decision in the Patrick case makes clear, it is Mr. Ruiz's burden to establish his lack of sophistication. [00:07:50] Speaker 01: And as I just said, he did not even submit a declaration in opposition to the motion to compel. [00:07:58] Speaker 03: Can I ask an unrelated question? [00:08:00] Speaker 03: If we were to agree with you that the arbitrator needs to decide the scope of the agreement, do we need to reach the class waiver question? [00:08:08] Speaker 03: Or does that all go to the arbitrator? [00:08:12] Speaker 01: No, no. [00:08:12] Speaker 01: If we went on the first issue on the delegation issue, you don't need to do anything else, Your Honor. [00:08:19] Speaker 01: My final point on [00:08:22] Speaker 01: delegation is that AAA's Rule 6 was adopted specifically in response to the first options decision to create a clear and unmistakable delegation and adopting a party sophistication rule would deprive countless parties of the benefit of their bargain. [00:08:46] Speaker 03: That's the one question I had. [00:08:48] Speaker 03: Brennan, one big distinction with Brennan is the fact that Brennan referenced one set of AAA rules while this one references the AAA rules effective at the time of filing. [00:08:59] Speaker 03: Doesn't that change the calculus at all? [00:09:03] Speaker 01: It doesn't, Your Honor. [00:09:04] Speaker 01: This Court has already, in the Oracle America case, decided this exact same issue in the context of incitral rules and held [00:09:14] Speaker 01: that that exact same language didn't matter. [00:09:17] Speaker 01: And rule, AAA rule six has been on the books, like I said, since shortly after the first options decision and the substance of the rule as it existed when Mr. Ruiz signed his arbitration agreement is no different than the substance of the rule as when he filed suit in 2023. [00:09:40] Speaker 01: Turning to scope, the district court erred in permitting Mr. Ruiz to use 17-200 to circumvent his arbitration agreement for four reasons. [00:09:51] Speaker 01: But before I get into those four reasons, it's important to emphasize two guiding and binding principles. [00:10:00] Speaker 01: Under US Supreme Court precedent, including the first options and lamps plus cases, under the FAA, [00:10:06] Speaker 01: If there is ambiguity about the scope of coverage of merits claims, it must be resolved in favor of arbitration. [00:10:14] Speaker 01: As the Supreme Court explained in Lamps Plus, contra proforentum is not an interpretive tool. [00:10:22] Speaker 01: It is instead a tie-breaking mechanism of last resort that has no application when the FAA governs, as here. [00:10:31] Speaker 01: And the second principle [00:10:34] Speaker 01: When a carve-out from arbitration is at issue, U.S. [00:10:38] Speaker 01: Supreme Court precedent, the Circuit City case, mandates that the carve-out be construed narrowly. [00:10:45] Speaker 01: These principles are paramount as the agreement's language is considered, and they were entirely ignored by the district court. [00:10:54] Speaker 03: Why are those principles true under the FAA textually? [00:10:57] Speaker 03: I don't see that in the text of the FAA. [00:11:02] Speaker 03: What I understand the FAA to say is that we should just treat arbitration clauses equally and not give it, you know, disfavor, but not also give it favor. [00:11:11] Speaker 03: And you're already advocating for favorable reading. [00:11:15] Speaker 01: You know, Your Honor, I'm not sure that I've thought about that enough to answer that question. [00:11:19] Speaker 01: What I can tell you though is that [00:11:21] Speaker 01: It's binding U.S. [00:11:23] Speaker 01: Supreme Court precedent that those two principles apply and guide this court's analysis. [00:11:31] Speaker 03: Well, there's an extension from that, so I'm not sure if those are all completely binding, but go ahead. [00:11:36] Speaker 01: Now, as to the four reasons why unfair competition means common law unfair competition. [00:11:44] Speaker 01: First, Mr. Ruiz filed a 17200 claim in arbitration [00:11:51] Speaker 01: that's an admission he understood a 17200 claim to be a covered claim? [00:11:58] Speaker 02: Well, no it isn't. [00:11:59] Speaker 02: It's an admission that he decided that strategically that that was, that those were covered in one way. [00:12:06] Speaker 02: I don't think we want to get too much into kind of admissions or judicial swap. [00:12:11] Speaker 02: Both parties don't have the cleanest hands in terms of this piece. [00:12:14] Speaker 02: So why don't we get to the, I mean, [00:12:17] Speaker 02: unfair competition claims you've just said that you know what's ambiguous about that this is an unfair competition claim [00:12:25] Speaker 01: I mean, the agreement can be interpreted in two different ways. [00:12:29] Speaker 01: It's ambiguous. [00:12:30] Speaker 01: He interprets it. [00:12:31] Speaker 01: He's arguing it one way. [00:12:33] Speaker 01: We're arguing it another way. [00:12:34] Speaker 01: There's a clear ambiguity that has to be resolved in favor of arbitration. [00:12:40] Speaker 01: And I disagree with your honor that the filing of a 17-200 claim in arbitration is irrelevant. [00:12:46] Speaker 01: I mean, he didn't even need to allege that claim in arbitration. [00:12:50] Speaker 01: It was entirely a derivative claim. [00:12:54] Speaker 01: that serve no purpose. [00:12:55] Speaker 01: So the fact that he and his counsel allege that an arbitration shows that it's a covered claim. [00:13:02] Speaker 03: Do you want to save the rest of your time for rebuttal? [00:13:05] Speaker 01: Yes, Your Honor. [00:13:06] Speaker 01: Thank you. [00:13:22] Speaker 00: May it please the court, Jenny Basinger on behalf of Appellee Raul Ruiz Jr. [00:13:29] Speaker 00: I want to first address a point that counsel just made with respect to ambiguity and ambiguities needing to be resolved in favor of arbitration. [00:13:41] Speaker 00: That actually, as the court noted, is not found in the FA anywhere. [00:13:45] Speaker 00: And in fact, what the purpose of the FA was [00:13:48] Speaker 00: when it was enacted was to place arbitration agreements on equal footing with other contracts. [00:13:55] Speaker 00: And as we all know, California or state law interpreting contracts governs this court or guides this court in interpreting the arbitration agreement here. [00:14:07] Speaker 02: some limits to that, at least, is that first option seemed to suggest that the rule of construction that you would benefit from here, that it has to be clear and unmistakable, is the flip side of the court's rules of construction that your friend noted. [00:14:25] Speaker 02: In other words, I think there's language in there. [00:14:27] Speaker 02: It says, whereas with respect to scope, we'll kind of put a finger on the scale of [00:14:33] Speaker 02: arbitration with respect to who decides arbitrability because it's technical it needs to be clear and unmistakable. [00:14:38] Speaker 02: So I get that there's not the FAA itself textually just kind of says do contract law here. [00:14:46] Speaker 02: But the Supreme Court seems to suggest we got to take both of those at once. [00:14:51] Speaker 00: And I think the FAA language itself is controlling and also [00:15:00] Speaker 00: When it comes to contract interpretation, we are always looking at trying to identify the mutual intention of the parties. [00:15:07] Speaker 00: That is our overarching goal every time we review any contract, including an arbitration agreement. [00:15:13] Speaker 00: And I think with the clear and unmistakable standard, contextually where that arises and the reason that the [00:15:21] Speaker 00: US Supreme Court imposed the clear and unmistakable standard when we're talking about arbitrability is because it recognized that determining who makes that initial determination of arbitrability is something that parties don't consider. [00:15:36] Speaker 00: It's not something that's on their minds. [00:15:38] Speaker 00: I think the court referred to it as a rather arcane consideration. [00:15:42] Speaker 00: And because of that, it's likely from a practical standpoint that the parties weren't intending to change the normal rule. [00:15:52] Speaker 02: Before we leave your opening point for now, what's your response to the fact that Mr. Ruiz availed himself of arbitration with respect to UCL claims? [00:16:00] Speaker 00: Well, you can voluntarily submit any claim you want to arbitration. [00:16:04] Speaker 00: And if a party then opposes arbitration and says that it's not agreeable, then that's fine. [00:16:11] Speaker 00: After the fact, you can agree to arbitrate any claim you want. [00:16:15] Speaker 00: And in this instance, it was not a derivative claim. [00:16:18] Speaker 00: It's a sick leave pay claim that can only be brought pursuant to the UCL on an individual basis under California law. [00:16:27] Speaker 00: And that's why it was brought that way, because the other claims asserted in the arbitration were [00:16:34] Speaker 00: not wage and hour claims they're just relating I mean they are and they aren't their wage and hour claims and that they arise under the labor code but it was literally related solely to a sick leave issue a failure to put an alleged failure to provide sick leave and then a wrongful termination in retaliation for using sick leave and there's no private right of action under the sick leave law in California you have to raise it through the UCL and that's why it was raised that way because factually it was identical to the claims that were already [00:17:04] Speaker 00: Concededly subject to arbitration. [00:17:09] Speaker 02: Why isn't this case controlled by Brennan? [00:17:12] Speaker 00: because Brennan itself expressly limited its reach to situations identical to Brennan. [00:17:19] Speaker 00: And also, there are critical differences. [00:17:22] Speaker 03: It said that it didn't reach whether or not sophisticated versus unsophisticated parties, right? [00:17:27] Speaker 03: That's the main limitation I was talking about. [00:17:29] Speaker 00: Correct. [00:17:30] Speaker 03: So your argument has to be that unsophisticated parties, Brennan doesn't apply to unsophisticated parties. [00:17:38] Speaker 00: Yes, factually it doesn't in the court. [00:17:40] Speaker 00: This court expressly said that. [00:17:42] Speaker 00: It's limiting its determination. [00:17:45] Speaker 03: So if we're going to adopt that rule, how does that not violate the FAA? [00:17:49] Speaker 03: That if you're dealing with delegation clauses, if you're an unsophisticated party, then a different rule applies. [00:17:59] Speaker 00: I think firstly, [00:18:01] Speaker 00: We don't even need to get into that because of differences in Brennan. [00:18:05] Speaker 03: Right. [00:18:06] Speaker 03: But that's the main difference in Brennan. [00:18:07] Speaker 03: So let's just address that one first. [00:18:09] Speaker 00: Well, actually, the more fundamental differences are that the language in Brennan in the arbitration agreement and delegation clause are different in significant ways that actually, sorry. [00:18:19] Speaker 03: I'm just saying, I don't think Brennan says that those textual differences that you're pointing to are salient or legally salient. [00:18:25] Speaker 03: What they did say is that unsophisticated versus sophisticated may be legally salient. [00:18:30] Speaker 00: Well, the court didn't say that textual differences are salient, but if it's limited to that holding and the textual differences further indicate that there's a lack of intention. [00:18:40] Speaker 03: For the sake of this argument now, that they are the same arbitration clause and we're just dealing with the sophisticated versus unsophisticated. [00:18:47] Speaker 03: How does that survive the FAA? [00:18:52] Speaker 00: In California contract interpretation, when you're looking at intent, sophistication of the parties can [00:19:01] Speaker 03: Illuminate that issue and so in every contract yes Subjective intent of this the party. [00:19:09] Speaker 00: It's not subjective intent, and I think that's the distinction I'm trying to make I'm not saying because of subjective understanding. [00:19:15] Speaker 03: What is it? [00:19:17] Speaker 00: reasonable expectation [00:19:19] Speaker 00: which is something that oftentimes is infused in California contract interpretation in the insurance context. [00:19:25] Speaker 00: And I think in Lamps Plus, the U.S. [00:19:27] Speaker 03: Supreme Court actually said when discussing... So my question then is, under California contract law, are unsophisticated parties always treated differently? [00:19:38] Speaker 00: No, but the sophistication of the parties can illuminate what the intention and reasonable expectations of the parties are when engaging in contract interpretation. [00:19:47] Speaker 00: under California law, which is what we're doing here, engaging in contract interpretation. [00:19:52] Speaker 03: Do you have a case for that proposition? [00:19:54] Speaker 03: Sorry. [00:19:55] Speaker 03: That's OK. [00:19:56] Speaker 00: I don't, off the top of my head. [00:19:59] Speaker 00: I can tell you that there are cases in the insurance context that address the issue of reasonable expectations routinely. [00:20:06] Speaker 00: And in fact, it may actually be one of the cases with the unfair competition issue that is an additional issue in this case, where [00:20:15] Speaker 00: interpreting the scope of unfair competition in those contracts. [00:20:18] Speaker 00: The reasonable expectation of the insured is what controls. [00:20:22] Speaker 03: So if you want to make the argument of why Brennan is distinguishable based off of the terms of the arbitration agreement. [00:20:29] Speaker 00: It's distinguishable for all of the reasons that I think the court identified earlier, which are that the way that the agreement proceeds lends itself to a logical interpretation that [00:20:44] Speaker 00: the arbitration rules or where the incorporation by reference occurs doesn't even get triggered until after an initial determination about arbitrability has been made. [00:20:55] Speaker 00: And therefore, a reasonable person reading it could say, oh, I see. [00:20:58] Speaker 00: These apply once we're in the arbitral forum. [00:21:02] Speaker 00: And therefore, it doesn't apply here. [00:21:06] Speaker 03: So are you making that argument based off of the titles of the sections? [00:21:10] Speaker 00: No, just the way in which they proceed. [00:21:12] Speaker 00: But also the direct language. [00:21:14] Speaker 03: What do you mean by that, though? [00:21:16] Speaker 00: They proceed in an order fashion to me as far as how things are going to be determined. [00:21:22] Speaker 00: First, we have an agreement to arbitrate. [00:21:24] Speaker 00: Then we have exclusions. [00:21:25] Speaker 00: And then when we're in arbitration under this agreement, [00:21:31] Speaker 03: There are certain rules. [00:21:33] Speaker 03: It seems to follow. [00:21:34] Speaker 03: I don't know. [00:21:35] Speaker 03: It seems under your agreement, it seems you have the agreement to arbitrate. [00:21:38] Speaker 03: There's exclusions to it. [00:21:40] Speaker 03: And then what are the rules? [00:21:42] Speaker 03: And one of the rules is that the arbitrator will decide the scope of the agreement. [00:21:47] Speaker 03: That just seems to flow logically. [00:21:51] Speaker 00: And it doesn't seem to logically follow in the same way to me. [00:21:53] Speaker 00: But more importantly, there is another term in the arbitration rules section that lends itself [00:22:00] Speaker 00: just as was the case in Mondragon, to a determination or interpretation that the incorporation by reference was not intended to include and define the authority of the arbitrator. [00:22:15] Speaker 00: And that is the final sentence of section four, which specifically says the arbitrator shall have the authority to award the same damages and other relief that would have been available in court pursuant to applicable law. [00:22:26] Speaker 03: Well, why is that? [00:22:28] Speaker 03: That was a response to state law that requires that language, right? [00:22:32] Speaker 00: But that's already in the arbitration rules, in the AAA rules. [00:22:35] Speaker 03: I mean, it's belts and suspenders. [00:22:37] Speaker 03: It's just saying that there's a state law that mandates this. [00:22:40] Speaker 03: Otherwise, it's found unconscionable, right? [00:22:45] Speaker 00: True, but generally speaking, you don't read contracts under California law to have any superfluous language. [00:22:51] Speaker 00: And that language is completely superfluous if [00:22:55] Speaker 00: the incorporation by reference of the AAA rules was intended to define the authority of the arbitrator. [00:23:01] Speaker 00: Because the authority of the arbitrator to do this exact thing, that's then enumerated. [00:23:05] Speaker 03: Or it's a safe mechanism to ensure that the contract is not found unconscionable. [00:23:10] Speaker 00: Okay, then there's two reasonable interpretations of the contract language, which then make the delegation clause itself ambiguous. [00:23:16] Speaker 03: But then we go to the, then it goes to Arbitr. [00:23:18] Speaker 00: To the what? [00:23:19] Speaker 03: Then it goes to Arbitr if it's ambiguous. [00:23:21] Speaker 00: It goes to the arbitrator if it's ambiguous? [00:23:23] Speaker 03: Yeah, if you're saying it's ambiguous, then the arbitrator can decide and then the courts can move in afterwards. [00:23:28] Speaker 00: No, if it's ambiguous as to what the delegation clause meant, which I think you just indicated an interpretation, your interpretation of what those additional languages or additional words mean, I put it, posited an alternative. [00:23:42] Speaker 00: explanation as to what inclusion of that final sentence means. [00:23:45] Speaker 03: But isn't that what the delegation clause is all about? [00:23:47] Speaker 03: If there's disagreement about the terms of the agreement, then the delegation clause allows the arbitrator to decide that in the first instance. [00:23:56] Speaker 00: But this is disagreement about what the delegation clause means or doesn't mean, and that's a threshold issue. [00:24:04] Speaker 02: That's a third order question that's covered by the clear and unmistakable test. [00:24:07] Speaker 00: Correct. [00:24:09] Speaker 00: And that is why [00:24:11] Speaker 00: I think incorporating by reference in general adds an additional layer of confusion as to what the parties intended. [00:24:19] Speaker 00: And whenever there's any level of ambiguity about what the parties intended with the delegation clause, the court needs to be the determiner of arbitrability. [00:24:29] Speaker 00: And I think there's myriad reasons that there's ambiguity here that have just been identified. [00:24:36] Speaker 00: And that's why the delegation clause [00:24:38] Speaker 02: Well, can you point me to where in Brennan we should look to find the best statement of limiting principles? [00:24:45] Speaker 02: It's a little odd whenever we're doing any arbitration case, because we're not the ones who say what California contract means. [00:24:53] Speaker 02: We're trying to figure out what California courts would think it means. [00:24:58] Speaker 02: But there is this federal clear and unmistakable overlay. [00:25:01] Speaker 02: And so I'm trying to figure out which parts of Brennan are binding on us, are self-limiting, [00:25:12] Speaker 00: I don't know that in this factual context, any portion of Brennan is binding on this court because the factual circumstances are entirely different and the court limited itself to those specific factual circumstances. [00:25:24] Speaker 02: But there's an argument, I think, that Brennan held that an incorporation of the AAA rules is clear and unmistakable evidence of delegation of arbitrability. [00:25:38] Speaker 00: And it also expressly stated repeatedly that it was limiting that holding. [00:25:43] Speaker 02: But did it limit it in any other way aside from the sophistication question that you discussed with Judge Bumate? [00:25:55] Speaker 02: I'm sorry. [00:25:55] Speaker 02: Maybe that wasn't where you're going. [00:25:57] Speaker 02: But some other way that it was limited because let's assume away the sophistication issue on the terms of the contract. [00:26:05] Speaker 02: Why doesn't Brennan control? [00:26:09] Speaker 02: Why isn't it holding that any incorporation of AAA leads us to a clear and unmistakable delegation? [00:26:17] Speaker 00: Well, I think no court since then has found that any incorporation leads to that. [00:26:20] Speaker 02: Courts have routinely found when there's... Well, it only takes one case, right, for us to have to follow it. [00:26:26] Speaker 00: I don't think there's binding courts that have said that. [00:26:28] Speaker 00: I think there's actually, in fact, whenever there's ambiguities, so if there's, for example, and I don't know a case off the top of my head, so I apologize for that, but for example, when there's [00:26:38] Speaker 00: a subsequent clause that identifies or recognizes the court could make a determination about enforceability. [00:26:44] Speaker 00: Then, okay, the delegation clause is now ambiguous. [00:26:47] Speaker 00: We can't enforce it because it's no longer clear and unmistakable. [00:26:49] Speaker 00: That happens with the incorporation by reference also. [00:26:52] Speaker 00: So it's not just any time you incorporate by reference necessarily there's an enforceable delegation clause. [00:26:59] Speaker 00: You're still looking at whether [00:27:02] Speaker 00: In the context of the contractor dealing with that incorporation by reference events is a clear and unmistakable intention to delegate this rather arcane issue of who decides arbitrability. [00:27:14] Speaker 00: to an arbitrator and depart from the normal expectations that everyone, I mean, the U.S. [00:27:18] Speaker 00: Supreme Court recognized. [00:27:19] Speaker 00: The normal expectation is you would expect that a court would make these fundamental foundational decisions. [00:27:25] Speaker 02: Right, but I guess, again, now that the question regarding incorporation of the AAA rules is squarely before us, we hold that incorporation of AAA rules constitutes clear and unmistakable evidence that contracting parties agreed to arbitrate arbitrability. [00:27:41] Speaker 00: in the abstract and in the absence of something that counters that, like the factual distinctions that I've just asserted a moment ago about. [00:27:48] Speaker 02: But the agreement contains an incorporation of the AAA rules. [00:27:52] Speaker 00: It does. [00:27:53] Speaker 00: It contains an incorporation of future AAA rules. [00:27:55] Speaker 00: And as I was positing earlier, just I think a moment ago, the fact of incorporation by reference in general infuses an additional level of confusion to contract interpretation. [00:28:07] Speaker 02: Sure, but that piece has been resolved by, that didn't stop Brennan from reaching the holding that it did. [00:28:12] Speaker 02: So it has to be something else. [00:28:14] Speaker 02: What is it? [00:28:17] Speaker 00: That the fact of the contract here. [00:28:20] Speaker 02: It's a different contract. [00:28:21] Speaker 00: Correct. [00:28:22] Speaker 00: And in fundamentally important ways that I think I identified. [00:28:29] Speaker 03: You are out of time unless you have a wrapping up sentence. [00:28:32] Speaker 03: Go ahead. [00:28:35] Speaker 03: OK. [00:28:35] Speaker 03: Thank you, counsel. [00:28:43] Speaker 01: Your Honors, I don't see any material distinction between the language at issue here and in Brennan. [00:28:51] Speaker 01: This agreement very clearly states that the employment dispute resolution rules of AAA will apply. [00:29:00] Speaker 02: How far does this go? [00:29:03] Speaker 02: This is the flip side of the question. [00:29:05] Speaker 02: Brennan purports to state a very broad rule. [00:29:11] Speaker 02: Any incorporation of the AAA rules, if it's in a footnote in small type that the state courts have said is usually not sufficient, it can't mean any incorporation of AAA rules. [00:29:23] Speaker 01: I think the issue you're raising is one of procedural unconscionability. [00:29:26] Speaker 01: Obviously if you bury it somewhere or [00:29:30] Speaker 01: or if you have a 50-page arbitration agreement and it's in small type, that's an issue. [00:29:35] Speaker 02: Well, what about incorporation of AAA rules for limited purposes, which I take it to be your friend's argument. [00:29:40] Speaker 02: For the limited purposes of once an arbitral claim has been brought, then these will [00:29:47] Speaker 01: I don't even understand her argument because that's the whole purpose of incorporating AAA rules is to delegate that issue to the arbitrator. [00:29:57] Speaker 02: Not only in California, but in any state in the Ninth Circuit, parties are not free to incorporate for limited purposes AAA rules. [00:30:06] Speaker 02: Once they incorporate the AAA rules, [00:30:08] Speaker 01: If you want to add language saying, okay, well, we're incorporating this rule, that rule, that's fine, that's not what we have here. [00:30:15] Speaker 02: But, well, for which purposes, right? [00:30:17] Speaker 02: I mean, so if you want to take, if you wanted to have the agreement that plaintiff says that they have, [00:30:26] Speaker 02: What else would you have to say? [00:30:27] Speaker 02: In other words, if we go to arbitration, AAA all the way, fine. [00:30:32] Speaker 01: And you might say only the procedural rules will apply in arbitration, some limitation like that. [00:30:40] Speaker 03: What about Mondragon? [00:30:41] Speaker 03: Do you think that that was rightly decided? [00:30:42] Speaker 03: That seemed to be pretty reasonable to me. [00:30:46] Speaker 03: Mondragon, Mondragon. [00:30:49] Speaker 01: Mondragon, going back to your question, there were two key distinctions in language there. [00:30:54] Speaker 01: There was a savings clause. [00:30:56] Speaker 01: that referred to a court deciding the enforceability of the contract, which directly undermined the earlier language. [00:31:06] Speaker 03: So those are factual distinctions from Brennan that could take us out of this world, Brennan's world. [00:31:10] Speaker 01: Exactly, Your Honor. [00:31:12] Speaker 01: And the last point I want to make on this party sophistication rule is it's just an unworkable test. [00:31:20] Speaker 01: I mean, where do you draw the line as to who's unsophisticated, [00:31:25] Speaker 01: or who's not? [00:31:26] Speaker 01: Does it turn on IQ or educational level or, you know, income? [00:31:32] Speaker 01: And how does a party that's contracting even know the answer to that question in advance? [00:31:38] Speaker 01: It's an unworkable test, and a party-by-party assessment would undermine contract interpretation. [00:31:45] Speaker 03: Okay. [00:31:45] Speaker 03: Thank you, counsel. [00:31:45] Speaker 03: This case is submitted, and we are adjourned for today.