More KISS's for legal minds. Keep it Simple Stuff

 In the case of the law partner suing the firm that fired him without the $30 million fee owed him.

A Partner by definition cannot be fired only bought out of his/her share by the other partners.  Only an employee can be fired. 

That this case is entering a State vs, State vs. Federal government is ridiculous. But follow the money to find the motive. 

(Reuters) - It started out as just a viciously ugly fight over a giant contingency fee. But a new order from the California Supreme Court has transformed a dispute between Dentons and onetime partner Jinshu “John” Zhang into a landmark test of a state law mandating California jurisdiction for employment disputes involving California employees.

And that’s not even the final twist: Zhang’s fight with Dentons may well provoke a clash between New York and California courts, with possible constitutional implications under the Full Faith and Credit Clause.

This, folks, is no run-of-the-mill fee dispute.

The backstory, in brief, is that Zhang, a California-based equity partner at Dentons, landed a big contingency fee assignment in 2018. Dentons won the case and secured a fee that Zhang has described as "$30+ million." But when Zhang tried to renegotiate his annual compensation based on the windfall fee, his relationship with Dentons’ leadership deteriorated into utter acrimony. The firm’s board voted in 2021 to oust Zhang for breaching his partnership agreement.  The ensuing litigation between Zhang and Dentons has been mind-bogglingly complex, as I’ve already told you, with parallel proceedings in New York and California to determine the enforceability of the arbitration agreement and the nature of Zhang’s relationship with Dentons.

That threshold question is important because of a California statute known as Labor Code Section 925, which bars employers from requiring California employees to litigate employment disputes outside of California. So if Zhang can show he was a Dentons employee (despite his equity partner title), then he is entitled to fight with Denton's under California's jurisdiction, where he can take advantage of employee-friendly precedent to challenge the enforceability of the entire Dentons arbitration agreement.

Zhao's two-track litigation in New York and California culminated at the end of 2022 in a pair of appellate decisions rejecting his protests against New York's jurisdiction. First, an intermediate California appeals court ruled in November that under the delegation clause of Zhang’s arbitration agreement with Dentons, it’s up to a New York arbitrator to decide the threshold question of whether Zhang was an employee.

The appeals court, as I reported at the time, said that to hold otherwise and allow Californians to strip other states of jurisdiction just by claiming rights under the California Labor Code, “is antithetical to notions of comity and is at odds with the animating purpose of the Federal Arbitration Act.”

Zhang filed a long-shot petition asking the California Supreme Court to review the appellate decision. His lawyers argued that the appeals court had given employers a “roadmap” to evade California’s employee-friendly precedent by requiring workers to delegate threshold disputes to out-of-state arbitrators.

Less than two weeks after Zhang filed his petition at the California Supreme Court, New York’s Appellate Division, First Department issued a decision that aligned with the November ruling from its California counterpart. The New York appellate court said Zhang’s arbitration clause “clearly and unmistakably” delegated the question of whether Zhang was an employee to an arbitrator in New York. The court also held that New York has personal jurisdiction over Zhang because of his agreement to arbitrate in New York.

Dentons cited the New York appellate decision in its Jan. 4 brief opposing California Supreme Court review of the appellate ruling from November. Every court to have heard Zhang’s arguments, argued Dentons' lawyers at Gibson, Dunn & Crutcher, agreed with the firm that it’s up to an arbitrator in New York to decide if Zhang was an employee or a partner.

Zhang’s contrary theory that California law requires a California decision-maker to determine if he was an employee, Dentons said, “turns Section 925 into a wrecking ball, destroying an arbitration agreement, forum-selection clause, or delegation clause whenever someone claiming to be a California employee invokes it, and requiring California courts to tell the courts of other states that normal jurisdiction rules don’t apply.”

The California Supreme Court nevertheless granted Zhang’s petition on Thursday. Zhang counsel Dan Csillag of Murphy Rosen said the order shows the broad importance of his client's arguments.

“We’ve been saying all along that whether employers can circumvent Section 925 the way Dentons did here is an issue that will impact all of California’s employees working for out-of-state employers,” Csillag said via email. “The California Supreme Court’s decision to grant review vindicates our position.”

But here’s where things get really interesting. The California Supreme Court also stayed a trial court order lifting an injunction against the New York arbitration. It’s complicated, but my understanding is that the California Supreme Court has basically barred the parties from arbitrating the case in New York.

But the New York appellate ruling in December removed all impediments to the arbitration – and time has run out for Zhang to appeal that decision to New York’s highest court.

So under the New York decision, the arbitration is supposed to take place. But under the California order, it cannot.

Dentons’ only statement on these developments, via its counsel James Fogelman at Gibson Dunn, is: “We now have a final judgment in New York.” Fogelman didn’t respond to my follow-up query, but his statement appears to be a hint that Dentons will call on California to honor a final ruling from New York courts under the Full Faith and Credit Clause.

Zhang counsel Csillag said via email that if the California Supreme Court finds that Zhang was entitled to California jurisdiction under the state labor law, then New York never had jurisdiction to begin with, so “there is no Full Faith and Credit issue.”

This case was worth watching when it was just a $30 million fee fight. Now you can’t look away.