Zhang v. Superior Court of L. A. Cnty.

85 Cal.App.5th 167

301 Cal.Rptr.3d 164

Jinshu "John" ZHANG, Petitioner,

v.The SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent;

Dentons US LLP et al., Real Parties in Interest.

B314386

Court of Appeal, Second District, Division 8, California.

Filed November 9, 2022

Murphy Rosen, Paul D. Murphy and Daniel N. Csillag, Santa Monica, for Petitioner.

No appearance for Respondent.

Gibson, Dunn & Crutcher, Richard J. Doren, James P. Fogelman, Kahn A. Scolnick, Dione Garlick and Daniel R. Adler, Los Angeles, for Real Parties in Interest.

GRIMES, J.

SUMMARY

Petitioner Jinshu "John" Zhang was an equity partner in Dentons U.S. LLP (real party in interest or Dentons), a major law firm with offices throughout the United States. A dispute arose between them over a multimillion dollar contingency fee from a client whom petitioner brought to the firm. The partnership agreement contains a clause providing for arbitration of all disputes in Chicago or New York. The partnership agreement also contains a clause delegating all questions of arbitrability to the arbitrator (delegation clause).

Dentons terminated petitioner for cause, asserting a breach of fiduciary duty, and initiated an arbitration in New York. Petitioner then sued Dentons for wrongful termination and other causes of action in Los Angeles Superior Court. Petitioner obtained a temporary restraining order (TRO) and then a preliminary injunction, enjoining the New York arbitration until the court could decide whether there was a clear and unmistakable delegation clause.

After the TRO was issued, Dentons filed a motion under Code of Civil Procedure section 1281.4, seeking a mandatory stay of the case based on its motion to compel arbitration that was then pending in a New York court, which the New York court later granted. In opposition, petitioner argued he was Dentons's employee, and Labor Code section 925 "render[ed] the courts of New York incompetent to rule on Dentons’ motion to compel arbitration." Section 925 prohibits an employer from requiring an employee who resides and works in California to agree to a provision requiring the employee to adjudicate outside California a claim arising in California.

Judge Sotelo granted Dentons's motion to stay petitioner's action in superior court pending completion of arbitration in New York. The court ruled the arbitration agreement clearly and unmistakably delegated arbitrability issues to the arbitrator, including the applicability of Labor Code section 925 to the dispute.

Petitioner sought a writ of mandate, which we denied. The Supreme Court granted review and transferred the case back to us, directing us to issue an order to show cause. We did so, and now again deny the petition. We agree with the trial court that the parties delegated questions of arbitrability to the arbitrator. The arbitrability issues in this case include whether petitioner is an employee who may invoke Labor Code section 925 and require the merits of the dispute to be resolved in California instead of New York. We reject petitioner's contention that, because he invoked section 925, the New York court is not "a court of competent jurisdiction" ( Code Civ. Proc., § 1281.4 ) that can order arbitration of this dispute.

FACTUAL AND PROCEDURAL BACKGROUND

1. Background Facts

Petitioner was a "full interest partner" in Dentons who worked and resided in California. He is a signatory to Dentons's partnership agreement. The partnership agreement has a broad arbitration clause. It covers "all disputes relating to the validity, breach, interpretation or enforcement of this Agreement, as well as all disputes of any kind between or among any of the Partners and/or the Partnership relating to the Partnership and/or the Business, including statutory claims of any kind ...." Those disputes "shall be resolved in accordance with the CPR Rules of Non-Administered Arbitration," and the place of arbitration "shall be either Chicago, Illinois or New York, New York." (CPR is the International Institute for Conflict Prevention & Resolution.) The CPR Rules also authorize the arbitrator to decide issues of arbitrability.

In 2018, petitioner brought a client to Dentons whom the firm agreed to represent for a fee contingent on the outcome. Petitioner was principally responsible for the matter and resolved it successfully in February 2021, entitling Dentons to the contingency fee. The fee could not be collected until a later date when certain transfer restrictions were to be removed and Dentons's exact percentages would become ascertainable. The fee is substantial; according to petitioner's complaint, when collected "it will be the single biggest contingency fee Dentons has ever earned."

Petitioner, whose compensation was determined by the Dentons board, believed the contingency fee "presented an opportunity to negotiate his compensation as it related to the Contingency Fee," but Dentons's chief executive officer, Michael McNamara, told him he would have to wait to negotiate his compensation until the Dentons board undertook its annual compensation review.

Matters thereafter deteriorated. Dentons asserts petitioner demanded that Dentons guarantee him 90 percent of the contingency fee and place him on the board, and when Dentons declined, petitioner "covertly went to the Client and negotiated an agreement to receive personally 85% of the proceeds of the contingency fee award, contrary to the terms of the Partnership Agreement." Petitioner asserts that at the end of April 2021, Mr. McNamara and Edward Reich, Dentons's general counsel, arranged the creation of a forgery, purporting to be a letter from the client's representative directing a third party to transfer certain client-held securities worth tens of millions of dollars directly to Dentons. Petitioner reported the alleged forgery to the board on April 30, 2021, demanding Mr. McNamara's immediate termination.

On May 5, 2021, the Dentons board voted unanimously to terminate petitioner's status as a partner for cause, and initiated an arbitration the same day, alleging petitioner breached the partnership agreement and his fiduciary duty of loyalty to Dentons.

2. Arbitration Proceedings in New York and Court Proceedings in California

Litigation in New York and California developed.

On May 14, 2021, Dentons requested an emergency arbitrator from CPR, the arbitral body. An emergency arbitrator was appointed, and a hearing was scheduled for May 24 to discuss petitioner's objections to jurisdiction. The emergency arbitrator issued several emergency awards over the following two weeks or so. Among other things, these awards rejected petitioner's challenges to jurisdiction; the final emergency award on June 10, 2021, required petitioner to make certain disclosures to Dentons about his efforts to collect the contingency fee and prohibited him from misusing confidential information.

Meanwhile, on May 24, 2021, petitioner filed a wrongful termination complaint in Los Angeles Superior Court, naming Dentons, Mr. McNamara and Mr. Reich as defendants. The next day, he notified the emergency arbitrator he was withdrawing from the arbitration and would apply to a court to stay the arbitration. On May 26, 2021, petitioner filed a first amended complaint that included a challenge to the arbitrator's jurisdiction.

On June 1, 2021, petitioner filed an application for a TRO and order to show cause why a preliminary injunction should not issue to restrain the New York arbitration. Among the grounds were that only a court could decide the parties’ dispute over whether the partnership agreement contained a valid delegation clause, and that Labor Code section 925 prohibits Dentons from arbitrating claims arising from petitioner's California employment in a New York arbitration.

On June 14, 2021, Dentons filed a petition to confirm the three emergency awards in a New York court.

On June 15, 2021, after various proceedings unnecessary to relate, Judge James C. Chalfant issued a TRO enjoining the New York arbitration.

On June 28, 2021, Dentons moved in the New York court to compel arbitration.

That same day, Dentons moved in the Los Angeles Superior Court to stay this case under Code of Civil Procedure section 1281.4. Section 1281.4 requires the court, upon motion, to stay a pending action if an application has been made to "a court of competent jurisdiction" for an order to arbitrate a controversy that is an issue in the pending action.

On July 13, 2021, Judge Chalfant granted petitioner's application for a preliminary injunction of the New York arbitration, stating: "The arbitration in New York is enjoined until the [independent calendar] court acts on [petitioner's] arbitrability claims that the delegation clause is not clear and unmistakable."

On August 17, 2021, the independent calendar court (Judge Sotelo) granted Dentons's motion to stay petitioner's lawsuit. The court concluded the arbitration agreement "clearly and unmistakably delegate[s] arbitrability issues to the arbitrator," and "[u]nder this Partnership Agreement, this Court has no jurisdiction to consider Partner Zhang's arguments against enforcement."

The court also ruled that Labor Code section 925 does not require the arbitration to occur in California instead of New York, rejecting petitioner's claim that New York is not a court of competent jurisdiction. The court explained it need not determine whether petitioner "was an employee or something else in his relationship as a Partner at Dentons, because the Partnership Agreement clearly states that ‘all disputes relating to the validity, breach, interpretation or enforcement’ are to be resolved by the arbitrator." The court further observed that a motion to compel arbitration was currently pending "before a court of competent jurisdiction in New York, New York," and "New York is a court of competent jurisdiction because the Partnership Agreement itself contains a venue provision allowing Dentons to bring an action there." The court also lifted and vacated...