Jinshu “John” Zhang was an equity partner in Dentons U.S. LLP, 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 Zhang brought to the firm. Bloomberg Law places the amount of this fee at about $35 million.
Zhang has been a partner at major law firms for two decades and led the China practice at Greenberg Traurig before joining Reed Smith in 2008, according to legal media coverage. He joined Dentons in 2014, his LinkedIn profile says. Zhang and the firm represented a China-based client who sought to enforce a foreign arbitral award in China, resulting in a multi-million dollar settlement for their client.
Dentons alleges it terminated Zhang for cause, asserting a breach of fiduciary duty, and initiated an arbitration in New York. 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 . . . .” The partnership agreement also contains a clause delegating all questions of arbitrability to the arbitrator, and a clause providing for arbitration of all disputes in Chicago or New York.
Zhang then sued Dentons for wrongful termination and other causes of action in Los Angeles Superior Court. He obtained a temporary restraining order 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, Zhang 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.
The California court granted Dentons’s motion to stay Zhang’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.
Zhang sought a writ of mandate, which the California Court of Appeal denied. The California Supreme Court granted review and transferred the case back to the Court of Appeal, directing it to issue an order to show cause, and after doing so, it again denied the petition in the published case of Zhang v. Super. Ct. -B314386 (November 2022).
Labor Code section 925 provides in part: “(a) An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following: [¶] (1) Require the employee to adjudicate outside of California a claim arising in California. [¶] (2) Deprive the employee of the substantive 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.
“The New York court is a court of competent jurisdiction to rule on Dentons’s motion to compel arbitration. The proposition that Labor Code section 925, when invoked by a plaintiff, automatically strips another state’s courts of jurisdiction is unsupported by legal authority, is antithetical to notions of comity, under which judges decline to exercise jurisdiction when matters are more appropriately adjudicated elsewhere, and is at odds with the animating purpose of the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.).”
The US Supreme Court’s most recent discussion of FAA preemption appears in Viking River Cruises, Inc. v. Moriana (2022) ___U.S.___ [142 S.Ct. 1906] (Viking), and explains: “Section 2’s mandate protects a right to enforce arbitration agreements. That mandate would be seriously compromised if we were to conclude that the invocation of section 925 permits a party to disregard his agreement that the arbitrator is to decide all issues of arbitrability.”
“Here, our enforcement of the parties’ agreement to delegate arbitrability decisions to the arbitrator does not “alter or abridge” petitioner’s substantive rights under Labor Code section 925; “it merely changes how those rights will be processed.” (Viking, supra, 142 S.Ct. at p. 1919.) Section 925 presents no conflict with the FAA when we give effect to the parties’ agreement to delegate arbitrability issues to the arbitrator. The arbitrator will decide, as agreed, all issues of arbitrability, including whether petitioner is an employee who is entitled to invoke the protections of section 925.”
“If the arbitrator decides petitioner is an employee for purposes of Labor Code section 925, then (as Dentons concedes), “none of his claims against Dentons, or Dentons’ claims against him, would ever be adjudicated outside of California.” If the arbitrator decides petitioner is not an employee, section 925 has no application, and the merits of the parties’ dispute will be decided by arbitration in New York, as agreed.”