85 Cal.App.5th 167
Cal. Ct. App.2022Background
- Zhang, a full-interest partner at Dentons who lived and worked in California, signed a partnership agreement requiring arbitration (CPR rules) in Chicago or New York and incorporating a delegation clause for arbitrability.
- A multimillion-dollar contingency fee dispute arose over a client Zhang brought; Dentons terminated Zhang for cause and commenced arbitration in New York.
- Zhang sued in Los Angeles Superior Court for wrongful termination, obtained a TRO and preliminary injunction restraining the New York arbitration, and asserted California Labor Code §925 barred adjudication outside California if he is an employee.
- Dentons moved under Code Civ. Proc. §1281.4 to stay the California action pending a New York court’s motion to compel arbitration; the trial court granted the stay, finding the delegation clause clear and that arbitrability (including §925’s applicability) is for the arbitrator.
- Zhang sought writ relief; the Court of Appeal denied, the Supreme Court transferred the matter back for consideration, and the Court of Appeal again denied the petition, holding the New York forum competent and arbitrability delegated to the arbitrator.
Issues
| Issue | Zhang's Argument | Dentons' Argument | Held |
|---|---|---|---|
| Is a foreign court a "court of competent jurisdiction" under CCP §1281.4 when plaintiff invokes Labor Code §925? | §925 renders out-of-state courts incompetent to compel arbitration for California-resident employees. | §925 does not automatically strip jurisdiction; forum-selection consent and ordinary jurisdictional principles control. | NY is a court of competent jurisdiction; §925 does not automatically deprive foreign courts of competence. |
| Who decides arbitrability/gateway questions (including §925 applicability)? | The California court should decide whether §925 prevents NY adjudication. | Parties clearly and unmistakably delegated arbitrability to the arbitrator under the partnership agreement and CPR rules. | The delegation clause is clear and unmistakable; arbitrability (including whether Zhang is an employee under §925) is for the arbitrator. |
| Does invoking §925 conflict with or preempt the Federal Arbitration Act (FAA)? | §925 protects California employees and should allow courts to retain adjudication in California. | Applying §925 to bypass a delegation clause would undermine FAA principles and the parties’ agreement. | Construing §925 to let a party unilaterally nullify a delegation clause would conflict with the FAA; no facial conflict when arbitrability is decided by arbitrator. |
| If arbitrator finds Zhang is an employee, what is the remedy/venue? | If §925 applies, proceedings must occur in California. | If arbitrator so finds, Dentons concedes adjudication must occur in California. | If arbitrator finds Zhang an employee, claims are adjudicated in California; if not, arbitration proceeds in New York. |
Key Cases Cited
- Lightfoot v. Cendant Mortgage Corp., 580 U.S. 82 (2017) (defines a "court of competent jurisdiction" and discusses consent to personal jurisdiction)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) (if parties validly delegate arbitrability to arbitrator, courts may not decide arbitrability)
- Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (2022) (explains FAA preemption principles and that arbitration changes forum/procedure but not substantive rights)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (state rules that impede arbitration agreements can be preempted by the FAA)
- Preston v. Ferrer, 552 U.S. 346 (2008) (parties may agree to have statutory claims resolved in arbitration)
- Dream Theater, Inc. v. Dream Theater, 124 Cal.App.4th 547 (2004) (incorporation of rules vesting arbitrator with jurisdiction supports clear delegation)
- Dennison v. Rosland Capital LLC, 47 Cal.App.5th 204 (2020) (severability or judicial-power clauses can negate a clear and unmistakable delegation)
- Depuy Synthes Sales, Inc. v. Howmedica Osteonics Corp., 28 F.4th 956 (2022) (interprets §925 as affecting validity of forum-selection clauses but did not involve FAA/arbitration preemption)