Dentons’ fee fight with ex-partner is now a constitutional battle between N.Y., Calif

Signage is seen outside of the law firm Dentons in Washington, D.C.
Signage is seen outside of the law firm Dentons in Washington, D.C., U.S., August 30, 2020. REUTERS/Andrew Kelly

(Reuters) - In what has to be the most intensely litigated jurisdictional dispute in the history of fee fights between law firms and their ex-partners, Dentons has invoked the U.S. Constitution’s Full Faith and Credit Clause in an attempt to shut down Jinshu “John” Zhang's last-ditch bid at the California Supreme Court to halt New York arbitration with his former firm.

I told you last month that the viciously nasty, $30 million fee fight seemed to have put the courts of New York and California on a collision course, thanks to overlapping timelines in parallel litigation in the two states. The looming problem, as I explained at the time, was that New York courts had reached a final determination that Zhang is subject to New York jurisdiction just weeks before California’s Supreme Court granted Zhang’s petition for the justices to decide essentially the same question.

Now Dentons has brought the interstate conflict to the fore, arguing in a dismissal motion filed this week at the California Supreme Court that the Full Faith and Credit Clause requires California to defer to New York’s final determination. Even if California disagrees with New York’s interpretation of California policy, wrote Dentons’ lawyers at Gibson, Dunn & Crutcher, the California justices are constitutionally bound to respect New York’s already-entered judgment on its jurisdiction over Zhang.

The situation might be different, Dentons said, if it had merely obtained a default judgment against Zhang in New York. But the law firm told the California justices that Zhang and his counsel zealously litigated the jurisdictional issue in New York, after Dentons launched arbitration there and sued Zhang to enforce preliminary arbitral decisions.

Zhang’s argument, in a nutshell, is that he was a Dentons employee (even though his title was equity partner) and is therefore entitled to have his fight with the firm heard in California. He is relying on a provision of the California labor code that prohibits employers from requiring California employees to submit to out-of-state jurisdiction in employment disputes. Ultimately, Zhang seems to be hoping that he can use California’s worker-friendly precedent to challenge the entire Dentons arbitration agreement.

At the moment, however, the question is just whether New York or California has jurisdiction to decide the threshold matter of Zhang’s employment status. Zhang has argued that unless California clarifies its right to decide who is entitled to the protection of its labor code, employers can evade California law by forcing workers to sign arbitration agreements mandating out-of-state arbitration. He failed in November to convince an intermediate California appeals court to block the New York arbitration -- but then managed in February to entice the California Supreme Court with his policy argument.

Even as he litigated in California to halt the New York arbitration, Zhang fought the jurisdictional issue through an intermediate appellate court in New York. In December, the appeals court sided with Dentons, holding that New York has jurisdiction over Zhang because he signed an agreement to arbitrate in New York. The court ruled that it's up to an arbitration panel in New York to determine if Zhang was in fact a Dentons employee.

Zhang could have appealed the intermediate court’s ruling to New York’s highest court but chose not to, Dentons said. As a result, the law firm argued in this week’s brief before the California Supreme Court, the intermediate New York court decision became a final judgment in late January – and Zhang can’t attempt to “reopen that closed door” in California, Dentons said.

“No doubt he disagrees with the New York court’s analysis—but the whole point of full faith and credit is that another state’s final order must be fully enforced even if a court in the forum state disagrees with its reasoning,” the Dentons brief said.

I reached out to Zhang’s California counsel, Dan Csillag of Murphy Rosen, and New York counsel Joshua Slocum of Wollmuth Maher & Deutsch about the Denton’s motion. Neither got back to me. Zhang did not immediately respond to my query via LinkedIn.

When I asked Csillag last month about potential Full Faith and Credit arguments by Dentons, he said that if Zhang is right about his status as an employee who is entitled to California jurisdiction, then New York courts never had jurisdiction to decide the jurisdictional issue at all, so “there is no Full Faith and Credit issue.”

That argument encapsulates the mind-bending circularity of this fight over which state has jurisdiction to decide the threshold question of whether Zhang is entitled to California jurisdiction.

And that, of course, is before anyone – a court or arbitrator, in New York or California – gets anywhere close to the merits of the fight between Zhang and Dentons, which includes some shocking allegations. Dentons, for instance, contends that after the firm won a huge contingency case for Zhang’s client, Zhang tried to go behind the firm’s back to siphon off most of the fat contingency fee for himself. (Zhang has said the fee topped $30 million.) For his part, Zhang alleges that other Dentons lawyers tried to defraud his client in order to secure the contingency fee and that he was fired for blowing the whistle on their chicanery.

It should certainly make for an interesting merits proceeding. But it might still be a while until Zhang and Dentons know who will hear it.

Read more:

Dentons' $30 million fight with ex-lawyer could put New York, California courts on collision course

Ex-Dentons partner can’t dodge arbitration by claiming he was employee: Calif. appeals court

Dentons squares off with fired partner over Chinese client fees

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Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.