Wang v. Kahn

1

YOULIN WANG, Petitioner, v. RICHARD KAHN, Respondent.

No. 20-cv-08033-BLF

United States District Court, N.D. California, San Jose Division

January 18, 2023

ORDER DENYING RESPONDENT'S MOTION TO COMPEL ARBITRATION

[RE: ECF NO. 114]

BETH LAB SON FREEMAN, United States District Judge

This action for injunctive relief arises from an arbitration regarding fees for the tax services provided in association with two real estate sales in Palo Alto, California (the “Arbitration”). In November 2019, Respondent Richard Kahn and Forensic Professionals Group USA, Inc. (“FPG”) initiated the Arbitration to recover unpaid fees against Petitioner Youlin Wang, as well as Petitioner's former attorney Derek Longstaff. ECF No. 1 (“Pet.”) ¶¶ 24-25. After learning of the Arbitration, Petitioner filed this action in the Northern District of California, seeking to enjoin Kahn and FPG from pursuing the Arbitration and to enjoin Longstaff from purporting to act on Petitioner's behalf in the Arbitration. Pet. ¶¶ 37-69.

Now before the Court is Respondent Richard Kahn's motion to compel arbitration. ECF No. 114 (“MTC”); see also ECF No. 124 (“Reply”). Petitioner Youlin Wang opposes the motion. ECF No. 117 (“Opp.”). For the reasons explained below, the Court DENIES the motion to compel arbitration.

I. BACKGROUND

A. Factual Background

The following facts are submitted by Respondent Kahn. Kahn was the principal of FPG. Declaration of Richard Kahn, ECF No. 112-1 (“Kahn Decl.”) ¶ 4. On November 20, 2019, Kahn, naming himself and FPG as claimants, filed an arbitration action against Petitioner Wang for breach of contract for failure to make a payment under a contract. Id. ¶ 14. The underlying contract arose when Wang's attorney Derek Longstaff, hired through his brother-in-law and authorized agent Greg Xiong, hired FPG to assist with Wang's tax returns in association with certain of Wang's properties in California. Id. ¶¶ 24-26; see also Declaration of Youlin Wang, ECF No. 23-4 Ex. A (“Wang Decl.”) ¶¶ 3, 5; Declaration of Guohua “Greg” Xiong, ECF No. 1172 (“Xiong Decl.”) ¶¶ 3-5, 8-9.

Kahn “believed that Longstaff was the attorney duly licensed and authorized by Wang to act as Wang's power of attorney (POA) on all matters relating to the properties 3880/3878 Magnolia Drive and 2017/2018 tax matters as well as entering enforceable fee agreements for FPG services.” Kahn Decl. ¶ 24. Kahn also states that Wang authorized Longstaff to receive his tax refunds and settle any fees with FPG. Id. But Wang claims that, in the course of Longstaff's interactions with the Kahn and FPG on behalf of Petitioner, Longstaff created a fraudulent power of attorney (“POA”) dated November 13, 2017, purportedly from Petitioner, conferring Longstaff and his firm with broad authority to act on Petitioner's behalf. Wang Decl. ¶ 16, Ex. B (“November 2017 POA”). Petitioner asserts that he did not sign the POA and did not give Longstaff authority to act on his behalf. Id. Kahn states that he did due diligence to confirm the POA was legitimate. Kahn Decl. ¶ 27.

Longstaff entered into a Partially Deferred Retainer and Fee Agreement (“PDRFA”) and a Refund Disbursement Service (“RDS”) Agreement with FPG on or about August 16, 2018. Kahn Decl. ¶ 28; see Pet. Exs. A (PDRFA), B (RDS Agreement). Kahn states that Wang made several payments on the contracts. Kahn Decl. ¶¶ 31-41, 87-91.

As stated above, on November 20, 2019, Kahn, on behalf of himself and FPG, filed the complaint for arbitration based on Wang's failure to make the final payment. Kahn Decl. ¶ 58. The RDS Agreement contained the arbitration clause under which the he initiated the underlying Arbitration. See RDS Agreement at 4.

On November 6, 2019, Xiong terminated Longstaff as attorney for Petitioner. Xiong Decl. ¶ 20.

B. Arbitration History

On or around November 20, 2019, Kahn and FPG initiated the Arbitration with the American Arbitration Association (“AAA”) against Wang and Longstaff, individually and as purported power of attorney for Petitioner, alleging breach of the PDRFA and RDS Agreement for unpaid fees. Declaration of Dhaivat Shah, ECF No. 138-2 (“Shah Decl.”) ¶ 2, Ex. A. Kahn states that he sent Longstaff and Jiayin Liao, another attorney representing Wang, a demand to arbitrate letter on November 20, 2019. Kahn Decl. ¶ 54. Wang claims that neither Longstaff nor Kahn notified Petitioner or Xiong that the Arbitration had been filed. Shah Decl. ¶ 3.

On December 10, 2019, after he had been terminated as Petitioner's attorney, Longstaff appeared in the Arbitration and purported to file an answer and counterclaims on behalf of both himself and Petitioner. Shah Decl. ¶ 4; see also Pet. Ex. E at 1-2; Kahn Decl. ¶ 59. Longstaff further purported to make appearances and select an arbitrator. Shah Decl. ¶ 4.

Around mid-September 2020, Longstaff sent a copy of the Arbitration's Amended Claim to Morgan, Lewis & Bockius LLP, former counsel to Petitioner's company MagnoliaDrHomes LLC. Shah Decl. ¶ 5. Petitioner alleges that this was the first time that a party to the Arbitration attempted to provide the Arbitration pleadings to anyone affiliated with Petitioner. Id. ¶ 5. In October 2020, Petitioner's current counsel, Grellas Shah LLP, informed AAA and the parties to the Arbitration that Petitioner objected to arbitral jurisdiction. Id. ¶ 6; Kahn Decl. ¶ 62. On December 2, 2020, after filing the instant action, Wang submitted a request to the arbitrator for leave to file a motion to stay the arbitration. Kahn Decl. ¶¶ 63, 68-69; Declaration of Dhaviat Shah, ECF No. 117-1 (“Shah Decl. II”) ¶ 8, Ex. B. It was denied. Shah Decl. II ¶ 9; Kahn Decl. ¶ 65. On February 18, 2021, Wang submitted objections to the AAA's Administrative Review Council (“ARC”) requesting that it vacate the arbitration and disqualify the arbitrator. Shah Decl. II ¶ 10, Ex. C; see Kahn Decl. ¶¶ 66, 70. On March 10, 2021, the ARC issued a letter (“March 2021 ARC Letter”) stating that “in the absence of an agreement by the parties or a court order staying the case, the AAA will proceed with the administration of the arbitration.” Shah Decl. II ¶ 11, Ex. D (letter); Kahn Decl. ¶ 75.

C. Procedural History

On November 13, 2020, Petitioner filed the Petition in this Court to enjoin the Arbitration and enjoin Longstaff from representing Petitioner in the Arbitration. ECF No. 1. On April 5, 2021, then-District Judge Koh granted an unopposed motion for preliminary injunction, enjoining Respondents from continuing the Arbitration. ECF No. 45. On January 4, 2022, Circuit Judge Koh sitting by designation reaffirmed the injunction by denying Kahn and FPG's motion to vacate the preliminary injunction and to dismiss for lack of personal jurisdiction, subject matter jurisdiction, and venue. ECF No. 68. On June 10, 2022, Kahn and FPG filed their answer. ECF No. 91.

The Court entered default judgment against Longstaff on August 26, 2022. ECF Nos. 10607. On August 31, 2022, the Court struck the answer as to FPG for failure to obtain counsel of record. ECF No. 108. On September 2, 2022, the Clerk entered default as to FPG. ECF No. 110. Kahn is thus the only remaining Respondent in the case.

Now before the Court is Kahn's motion to compel arbitration.

II. LEGAL STANDARD

The Federal Arbitration Act (“FAA”) applies to arbitration agreements affecting interstate commerce and governs the enforceability and scope of an arbitration clause. See 9 U.S.C. §§ 1402. The FAA embodies a “national policy favoring arbitration and a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 345-46 (2011) (internal quotations and citations omitted). “[A]s a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Benson v. Casa de Capri Enters., LLC, 980 F.3d 1328, 1330 (9th Cir. 2020) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)). A moving party need only prove by a preponderance of the evidence that an agreement to arbitrate the claims exists. See Bridge Fund Cap. Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 1005 (9th Cir. 2010). “[T]he party resisting arbitration bears the burden of establishing that the arbitration agreement is inapplicable.” Wynn Resorts, Ltd. v. Atl.-Pac. Cap., Inc., 497 Fed.Appx. 740, 742 (9th Cir. 2012).

Section 2 of the FAA makes agreements to arbitrate “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. “Generally, in deciding whether to compel arbitration, a court must determine two ‘gateway' issues: (1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute.” Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015). “If the response is affirmative on both counts, then the Act requires the court to enforce the arbitration agreement in accordance with its terms.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000).

III. ANALYSIS

Kahn argues that the case should proceed to arbitration because there is a valid agreement to arbitrate. MTC at 11-15. “[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” AT&T Techs Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648 (1986) (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960)). A court “must first determine ‘whether a valid agreement to arbitrate exists.'” Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279, 1283 (9th Cir. 2017) (quoting Chiron Corp. v. Ortho Diagnostic...