JINSHU “JOHN” ZHANG, Petitioner, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; DENTONS US LLP et al., Real Parties in Interest.
B314386
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION EIGHT
Filed 11/9/22
CERTIFIED FOR PUBLICATION; Los
ORIGINAL PROCEEDINGS in mandate. David Sotelo, Judge. Petition denied.
Murphy Rosen, Paul D. Murphy and Daniel N. Csillag for Petitioner.
No appearance for Respondent.
Gibson, Dunn & Crutcher, Richard J. Doren, James P. Fogelman, Kahn A. Scolnick, Dione Garlick and Daniel R. Adler for Real Parties in Interest.
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
Judge Sotelo granted Dentons‘s motion to stay petitioner‘s action in superior court pending completion of arbitration in New York. The court
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
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
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
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
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
3. The Writ Proceedings
On August 19, 2021, petitioner challenged Judge Sotelo‘s order staying the matter by filing a petition for writ of mandate with this court. The petition asked us to hold that
receiving preliminary briefing, we concluded petitioner had not established entitlement to extraordinary relief, and denied the petition.
Petitioner sought review in the Supreme Court, and on February 16, 2022, the Supreme Court granted the petition. The court transferred the matter to us with directions to vacate our order denying mandate and issue an order to show cause why the relief sought should not be granted. The court also granted a stay of the trial court‘s order lifting its injunction against the New York arbitration, subject to our further consideration. We issued an order to show cause and received further briefing. We again deny the petition.
DISCUSSION
The New York court is a court of competent jurisdiction to rule on Dentons‘s motion to compel arbitration. The proposition that
The parties to the partnership agreement clearly and unmistakably delegated questions of arbitrability to the arbitrator. A solid body of law provides that delegation clauses are enforceable. Consequently, the New York arbitrator must decide whether petitioner is an employee and therefore entitled to the protections of
If the arbitrator decides petitioner is an employee for purposes of
arbitrator decides petitioner is not an employee,
For case of reference, we set out the pertinent texts of the two relevant statutory provisions.
protection of California law with respect to a controversy arising in California. (b) Any provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.”2
2. The New York Court Is a Court of Competent Jurisdiction.
Petitioner contends that “when an employee invokes [
“A court of competent jurisdiction is a court with the power to adjudicate the case before it.” (Lightfoot v. Cendant Mortgage Corp. (2017) 580 U.S. 82, 91.) By signing the partnership agreement which expressly vests jurisdiction in New York courts, petitioner consented to the jurisdiction of the New York court. It is obviously a court of competent jurisdiction. As petitioner‘s counsel stated to the New York court that granted Dentons‘s motion to compel arbitration, “in 99 percent of cases [an agreement] constitutes consent to jurisdiction.” It does so here as well.
Petitioner insists that
But we need not decide whether an employee can simply declare a provision void, because this is a case where petitioner‘s status as an employee is a substantial issue. Petitioner‘s theory that he may unilaterally deprive the New York courts of jurisdiction to rule on a motion to compel arbitration, by merely invoking
Of course, as Dentons admits, it would be equally wrong to assume that petitioner is not an employee, as that would allow an employer to evade
3. The Parties Delegated Arbitrability Issues to the Arbitrator
a. Petitioner‘s irrelevance claim
Preliminarily, petitioner contends the trial court erred “in considering the existence of a delegation clause” in connection with Dentons‘s motion for a stay of litigation under
Throughout his briefing, petitioner evades articulating the fundamental issue. When Dentons filed its motion to stay the litigation here, petitioner opposed that motion with the claim that
Several courts have held the applicability of
arbitration of various wage claims on an individual basis under arbitration agreements the defendant contended were governed by Missouri law. (Id. at p. *9.) The plaintiffs claimed the agreements could not be enforced under California Labor Code provisions, including
Specifically, Ratajesak found the agreements clearly and unmistakably provided that disputes, including arbitrability of disputes between the parties, would be resolved by arbitration, and both Missouri and California law required enforcement of the delegation clause. (Ratajesak, supra, 2019 U.S.Dist. Lexis 70506 at pp. *13-*14.) The court concluded: “[The] Plaintiffs’ arguments regarding the scope of the arbitration agreement; the application of
agree to arbitrate’ “; California courts have determined that “whether
Petitioner says that Ratajesak “proves the point” that Dentons‘s motion to stay did not present an arbitrability question. This is a mystifying contention, in support of which petitioner simply repeats his claim that, unlike Ratajesak, arbitrability is “not the issue in this proceeding.” As we have explained, petitioner‘s claim to be an employee who can automatically void an agreement to arbitrate in a foreign court is precisely the issue, and in the posture of this case, petitioner‘s status as an employee (or not) is necessarily a gateway question of arbitrability.
Petitioner claims, “separately,” that the trial court “lacked jurisdiction to determine whether a delegation clause exists“; the trial court “was deeply confused about the issues before it,” and “under well-established law, it lacked the authority” to analyze the delegation and arbitration clauses in a
which he claims the court “lacked the authority” to rule on the delegation clause.3
As described in part 1 of the Facts, ante, the arbitration clause in the partnership agreement covers “all disputes relating to the validity, breach, interpretation or enforcement of this Agreement,” and requires those disputes to be resolved “in accordance with the CPR Rules of Non-Administered Arbitration then currently in effect.”
Judge Sotelo‘s decision granting Dentons‘s motion to stay first quotes rule 8.1 of the CPR Rules as stating “that ‘[t]he Tribunal shall have the power to hear and determine challenges to its jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement. This authority extends to jurisdictional challenges with respect to both the subject matter of the dispute and the parties to the arbitration.’ ” The court further stated that there “appears to be no ambiguity that the Partnership Agreement also clearly and unmistakably delegates arbitrability issues to the arbitrator.”
There is no dispute over the applicable principles of law on questions of arbitrability. ” ‘Under California law, it is presumed the judge will decide arbitrability, unless there is clear and unmistakable evidence the parties intended the arbitrator to decide arbitrability.’ ” (Nelson v. Dual Diagnosis Treatment Center, Inc. (2022) 77 Cal.App.5th 643, 654 (Nelson).) Federal law is the same. (Henry Schein, Inc. v. Archer & White Sales, Inc. (2019) ___U.S.___ [139 S.Ct. 524, 530]; ibid. [“But if a valid agreement exists, and if the agreement delegates the arbitrability issue to an arbitrator, a court may not decide the arbitrability issue.“].)
” ‘[T]he best indicator of the parties’ intent in a written contract is the words they chose for the agreement.’ ” (Nelson, supra, 77 Cal.App.5th at p. 654.) ” ‘Even broad arbitration clauses that expressly delegate the enforceability decision to arbitrators may not meet the clear and unmistakable test, where other language in the agreement creates an uncertainty in that regard.’ ” (Id. at p. 656.)
Here, we have a broad arbitration clause that expressly delegates the enforceability decision to the arbitrator. In addition, the CPR Rules to which the parties agreed are crystal clear on the point. “[W]here the Contract
In his reply, petitioner asserts that the partnership agreement “also empowers courts to adjudicate issues,” suggesting those provisions create the uncertainty referred to in Nelson, and he has been “denied . . . his right to make these arguments.” Petitioner says he cited five provisions of the partnership agreement in his reply to Dentons‘s preliminary opposition. He does not describe or discuss those provisions in his reply to Dentons‘s return, requiring us to consult his reply to Dentons‘s preliminary opposition to find out what they are. We have done so, and our review of the partnership agreement provisions petitioner cited confirms those provisions do not create the “uncertainty” to which Nelson refers.4
Nelson and the other cases petitioner cites involve express statements in the arbitration agreement showing or suggesting “dual delegation.” In Nelson, the incorporation in the agreement of arbitration rules authorizing the arbitrator to determine arbitrability did not result in a clear and unmistakable delegation, because the agreement itself contained a “simultaneous express statement of broad judicial power to hold ‘any provision’ of their agreement ‘invalid or unenforceable for any reason.’ ” (Nelson, supra, 77 Cal.App.5th at p. 657; ibid. [“At best, the dual delegation presented by the facts here—to the
party to pay the party‘s own attorney fees if any party brings “any legal action, arbitration, or other proceeding with respect to the breach, interpretation, or enforcement of this Agreement.” He cites a provision (§ 12.6) on the severability of any provision that is “adjudicated to be void, illegal, invalid, or unenforceable.” He cites the dispute resolution provision itself (§ 12.10), which states that the arbitrator “shall have no power or authority to add to, amend, modify or disregard any of the provisions of this Agreement.” He cites a section of the dispute resolution provisions entitled “Determinations by the DUS Board” (§ 12.10.1) that states all issues and disputes “relating to the construction and interpretation” of the partnership agreement are to be determined by the board, and refers to “any arbitration or other legal proceeding” concerning such determinations by the board. Finally, he cites the “Confidentiality” section of the dispute resolution provisions (§ 12.10.3) that deems all proceedings and documents concerning any arbitration to be “Confidential Information,” and goes on to say that all “documents filed in any federal or state court in connection with the enforcement, interpretation or breach of any provision of this Agreement to be filed under seal.” None of these provisions creates any uncertainty about whether the arbitrator—and not the court—is empowered to determine arbitrability issues.
arbitrator by reference to AAA rules, and to the court expressly—created uncertainty.“].)
There is no such ambiguity or uncertainty in this case (see fn. 4, ante), so petitioner‘s claim he was “denied . . . his right to make these arguments” is meritless.
4. Other Considerations: Comity and Preemption
As previously mentioned (see fn. 1, ante, at p. 9), the New York court granted Dentons‘s motion to compel arbitration on August 20, 2021, expressly finding it had jurisdiction over petitioner by virtue of his execution of the partnership agreement. Our conclusion the arbitrator must decide whether the arbitration may proceed in New York preserves principles of
comity, under which judges decline to exercise jurisdiction when matters are more appropriately adjudicated elsewhere. Indeed, we find it difficult to imagine, in the circumstances here, how a California court could justify overriding the New York court‘s order compelling arbitration.
More important, however, is that petitioner‘s proposed construction of
agreements.” (Viking, at pp. 1917–1918, italics added.)5 That mandate would be seriously compromised if we were to conclude that the invocation of
Viking explains the point. “The FAA‘s mandate is to enforce ‘arbitration agreements.’ [Citation.] And as we have described it, an arbitration agreement is ‘a specialized kind of forum-selection clause that posits not only the situs of suit but also the procedure to be used in resolving the dispute.’ [Citations.] An arbitration agreement thus does not alter or abridge substantive rights; it merely changes how those rights will be processed. And so we have said that ’ “[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral . . . forum.” ’ ” (Viking, supra, 142 S.Ct. at p. 1919, quoting Preston v. Ferrer (2008) 552 U.S. 346, 359; see Preston, at p. 359 [“So here, Ferrer relinquishes no substantive rights . . . California law may accord him. But under the contract he signed, he cannot escape resolution of those rights in an arbitral forum.“]; id. at pp. 349–350 [“when parties agree to arbitrate all questions arising under a contract, state laws lodging primary jurisdiction in another forum, whether judicial or administrative, are superseded by the FAA“].)
Here, our enforcement of the parties’ agreement to delegate arbitrability decisions to the arbitrator does not “alter or abridge” petitioner‘s substantive rights under
But if
Petitioner insists “[t]here is no credible preemption issue here,” because the “issue underlying the stay motion is whether the New York court is a court of competent jurisdiction,” and “not whether the dispute is arbitrable or even whether there is a delegation clause.” As already discussed at length, petitioner‘s articulation of the issue is simply wrong. He once again evades the fundamental question of who is to decide whether he is an
employee entitled to the protections of
Petitioner points out
Finally, petitioner cites Depuy Synthes Sales, Inc. v. Howmedica Osteonics Corp. (9th Cir. 2022) 28 F.4th 956, describing it as “a similar preemption challenge to Section 925.” There is no real similarity. Depuy concerns
Depuy rejected the claim that a federal law on change of venue (
To summarize the point: We agree with Dentons that
CONCLUSION
In sum: New York is a court of competent jurisdiction. The parties delegated questions of arbitrability to the arbitrator. The arbitrator in New York must decide if petitioner is an employee. If the arbitrator decides petitioner is an employee, the merits of the dispute must be decided in California. If the arbitrator decides petitioner is not an employee, then the merits of the dispute must be arbitrated in New York, as agreed. These conclusions preserve comity and avoid undermining the freedom of parties to determine the issues they agree to arbitrate, in consonance with longstanding FAA principles.
DISPOSITION
The petition is denied. Costs are awarded to Dentons.
GRIMES, J.
WE CONCUR:
STRATTON, P. J.
WILEY, J.