BDO U.S., LLP v. Eric Jia-Sobota & A2Z Assocs.

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BDO USA, LLP, et al., Appellants, v. Eric Jia-Sobota & A2Z Associates, Inc. d/b/a EverGlade Consulting, Appellees.

Nos. 20-CV-536, 20-CV-696

Court of Appeals of The District of Columbia

October 6, 2022

Argued Jan. 27, 2022

Appeal from the Superior Court of the District of Columbia (2020 CAB 2600) (Hon. Heidi M. Pasichow, Trial Judge)

Michael B. Kimberly, with whom James M. Commons and Julie H McConnell were on the brief, for appellant.

Brian Walsh, with whom Ari Micha Wilkenfeld, Todd A. Bromberg Krystal B. Swendsboe, and Hyok Chang were on the brief, for appellee.

Before Blackburne-Rigsby, Chief Judge, Deahl, Associate Judge, and Steadman, Senior Judge.

OPINION

Deahl Associate Judge.

Eric Jia-Sobota was a partner at BDO USA, LLP, an accounting firm. He resigned from the partnership to launch a competing firm, and BDO invoked its right to arbitrate various disputes attendant to his departure, mostly involving Jia-Sobota's attempts to bring BDO clients and personnel to his new firm. Around the same time, BDO-pointing to a provision in its arbitration agreement with Jia-Sobota that allowed either party to "seek provisional remedies" in court-filed a complaint in Superior Court seeking to enjoin Jia-Sobota from doing business with or soliciting BDO's clients, or otherwise using its proprietary information, while the arbitration proceedings were pending.

When BDO then moved to compel arbitration, the trial court denied the motion, ruling that BDO had implicitly waived its right to enforce the arbitration clause through its litigation tactics. BDO now challenges that ruling in this appeal. Because it is uncontested that the arbitration agreement between BDO and Jia-Sobota allowed either party to pursue an injunction without waiving its arbitration rights, and because Jia-Sobota has not shown that BDO took any action inconsistent with its intent to arbitrate its underlying claims, we agree with BDO that it did not waive its right to arbitrate, contrary to the trial court's ruling. See generally TRG Customer Sols., Inc. v. Smith, 226 A.3d 751 (D.C. 2020).

Jia-Sobota argues that we should nonetheless affirm on the alternative ground that the arbitration clause is unenforceable because it contemplates an arbitration panel composed entirely of BDO's own partners. In Jia-Sobota's view, permitting BDO's partners to effectively sit in judgment of their own case would be both unconscionable and against public policy, given their patent self-interest. The trial court did not reach the question of enforceability, however, and we decline to resolve it without the benefit of the trial court's input. We therefore vacate the trial court's order concluding that BDO waived its right to arbitrate and remand for consideration of Jia-Sobota's challenges to the enforceability of the arbitration agreement.

I.

Eric Jia-Sobota was a partner at BDO for eight years. When he entered the partnership in 2012, he signed a partnership agreement providing that, in the event he left the partnership, he would be precluded from soliciting BDO clients and luring away BDO employees for two years. The agreement also included an arbitration clause. That clause states that "[a]ny controversy or dispute relating to this Agreement or the Partnership and its affairs or otherwise arising between a Partner and the Partnership . . . shall be considered and decided by an arbitration panel consisting of two (2) members of [BDO's] Board of Directors," and three BDO partners who did not sit on the board. An earlier provision in the agreement that is relevant in this dispute states that "[t]he term 'Partner' herein includes 'former Partner.'" Notwithstanding the arbitration clause, the agreement also expressly permitted either party to "seek provisional remedies from a court."

Jia-Sobota submitted notice of his intent to withdraw from the partnership in April of 2020, at which point he was serving as head of BDO's Industry Specialty Services Group. BDO responded by cutting Jia-Sobota off from access to his company email, partnership resources, and his colleagues. Jia-Sobota started a new firm called EverGlade Consulting the following month. According to BDO, Everglade's launch was the culmination of a "months-long scheme" through which Jia-Sobota planned to lure BDO clients and employees to his new firm, effectively stealing the Industry Specialty Services Group practice from BDO. Jia-Sobota's maneuvering violated his fiduciary duty to the partnership, as well as the anti-poaching and non-compete provisions in the partnership agreement, in BDO's view.

In the months that followed, BDO pursued these claims via a two-track litigation strategy. First, on May 26, BDO filed a "Complaint for Injunctive Relief in Aid of Arbitration" in Superior Court, naming both Jia-Sobota and EverGlade as defendants. In the first paragraph of its complaint, BDO stated that it was seeking "a temporary restraining order and a preliminary injunction in aid of arbitration, as expressly authorized by the partnership agreement."^[1] BDO asked the court to enjoin Jia-Sobota and Everglade "from utilizing any and all BDO trade secrets and confidential or proprietary information, doing business with or soliciting business from BDO clients or prospective clients, or offering employment to any current employee of BDO during the pendency of arbitral proceedings."

While seeking this injunction from the trial court, BDO simultaneously took steps to initiate arbitration of its underlying claims against Jia-Sobota. On June 5, ten days after filing its complaint in Superior Court, BDO filed its "demand for arbitration," summarizing its claims against Jia-Sobota and triggering the arbitration process. Soon thereafter, BDO wrote to Jia-Sobota requesting his input in selecting the members of the arbitration panel, though Jia-Sobota demurred.

Meanwhile, in court, BDO sought and was granted expedited discovery in support of its requests for injunctive relief. BDO was aggressive with its discovery requests, demanding a wide assortment of information and documents from Jia-Sobota, EverGlade, and a number of third parties, spanning the entire eight years of Jia-Sobota's partnership. BDO also sought to take at least eight depositions of parties and non-parties alike. On June 11, Jia-Sobota filed an answer to BDO's complaint, which included several affirmative defenses to BDO's claims as well as six counterclaims against BDO, its CEO, and its affiliates. Two of those counterclaims are relevant here. First, Jia-Sobota claimed that, during his employment, BDO had made material misrepresentations in violation of the False Claims Act. See 31 U.S.C. §§ 3729 to 3731. Second, Jia-Sobota sought a declaratory judgment that the arbitration clause in his partnership agreement with BDO was unconscionable and therefore unenforceable against him. Jia-Sobota followed his answer with discovery requests of his own.

On June 17-six days after Jia-Sobota filed his answer and counterclaims but before BDO responded-the trial court denied BDO's motion for a temporary restraining order. The court's denial of BDO's TRO request expressed some skepticism about the merits of BDO's case. Twelve days later, on June 29, BDO moved (1) to compel arbitration on four of Jia-Sobota's counterclaims and (2) to dismiss with prejudice Jia-Sobota's purportedly non-arbitrable counterclaims under the False Claims Act and for declaratory judgment.^[2] Two days after that, Jia-Sobota moved to stay all arbitration. He made two arguments in support of his motion: (1) that BDO had waived its arbitration rights by litigating in a manner inconsistent with an intention to arbitrate, and (2) that, in any event, the arbitration clause was unenforceable by BDO because it was both unconscionable and against public policy. The parties then agreed to postpone a then-imminent preliminary injunction hearing until September.

On September 2, before the preliminary injunction hearing, the trial court denied BDO's motion to compel arbitration of Jia-Sobota's counterclaims. The court found that BDO had waived its right to compel arbitration by "engag[ing] in conduct inconsistent with the arbitration right." More specifically, the court faulted BDO for (1) seeking a ruling on the merits regarding two of Jia-Sobota's counterclaims, (2) waiting until after the court had denied the TRO to move to compel arbitration, and (3) "engag[ing] in substantial amounts of discovery." The court did not reach Jia-Sobota's argument that the arbitration clause was unconscionable, having found that BDO had waived its right to arbitrate regardless. In a move that appears to have caused some confusion among the parties, the court also denied Jia-Sobota's motion to stay arbitration, explaining that the parties remained free to pursue arbitration if they mutually wished to do so: "In sum, if the parties wish to arbitrate, they may. If, conversely, any party chooses not to engage in arbitration, the Court will not compel" that party to do so. BDO appealed.

The following month, with its first appeal pending, BDO took steps to proceed with the arbitration of its original claims against Jia-Sobota. BDO wrote to the arbitration administrator to request a panel be formed without input from Jia-Sobota because of his recalcitrance in the arbitration process. Jia-Sobota responded by asking the trial court to order BDO to show cause why it should not be held in contempt for violating the court's September 2 order. BDO opposed that motion, arguing that the trial court's September 2 order had dealt solely with BDO's authority to compel arbitration of Jia-Sobota's counterclaims, and in no way inhibited BDO's right to arbitrate its own claims.

The court disagreed. In a November 9...