Wrongful termination suit against Dentons paused for arbitrability ruling

A Los Angeles judge agreed with a former Dentons' equity partner that his forgery and wrongful termination lawsuit against the firm should be paused while he wrestles with arbitrability and venue questions despite an out-of-state arbitrator already ruling in Dentons' favor.

Since it was filed last month, the wrongful termination suit has bounced from a New York arbitrator, to a California state court, to a federal court, then back to a state court while a parallel action proceeds in New York.

According to the lawsuit, former equity partner Jinshu "John" Zhang says he was unjustly fired from Dentons after raising concerns that the firm's CEO forged a document in an attempt to transfer tens of millions of dollars from a client.

The firm says the allegation is "an utter fabrication," and that it fired Zhang for trying to usurp 85% of a $34 million client contingency fee.

Arguing for a temporary restraining order to halt proceedings, Zhang's attorney, Paul Murphy of Murphy Rosen LLP, said if an arbitration had to occur, it would have to be in California. He said that according to Labor Code 925, any arbitration regarding a California employee or someone who can meet the definition of an employee has to be in California.

"It's important for one court, one place to get this case under control and allow everything to pause and brief these arguments," Murphy said during Tuesday's state court hearing. "If they're right, it will go back to wherever they believe it should be. If we're right, it will either be in a California court or in a California arbitration, but those are the issues."

After Dentons fired Zhang on May 5, the firm pursued arbitration, stating he breached his fiduciary duty. Three weeks later, an emergency arbitrator from New York issued an award in Dentons' favor, saying Zhang must dismiss his lawsuit, the arbitrator had jurisdiction, and that Zhang should be barred from sharing confidential client information he gathered before being fired.

Despite the arbitrator's order, Zhang filed his first amended complaint in Los Angeles County Superior Court and now seeks, among other things, a declaratory judgment from Judge James Chalfant that his arbitration agreement is unenforceable.

While Chalfant said he did not want to decide the merits of the dispute, he granted Zhang's temporary restraining order to halt proceedings, saying it was still unclear whether he or the arbitrator had authority to decide arbitrability.

"The issue is not whether there's going to be an arbitration; it is who decides what is arbitrable, the court or the arbitrator," Chalfant said.

Arguing for Dentons, Atlanta attorney Brian White of King & Spalding LLP said it would be unprecedented for Chalfant to issue a restraining order to stop an emergency arbitration proceeding. If Zhang wanted to challenge the arbitration award, he could do so in a New York State Court, White said.

"The proper way to do it and the way this whole system was set up by all the arbitration institutions is, arbitrate first and then figure out if the award is enforceable," White said. "The only time a court ever rules on who decides before the arbitrator is when the litigation started before the arbitration and the court has ruled on a motion to compel arbitration and denied it."

After hearing arguments, Chalfant set a hearing for July 13. Jinshu "John" Zhang v. Dentons U.S. LLP., 21STCV19442 (L.A. Sup. Ct., filed May 26, 2021).