Dentons $34M fee dispute may head to NY arbitrator

LOS ANGELES -- A lawsuit alleging former Dentons U.S. CEO Mike McNamara forged a client document to transfer $34 million to the firm might be headed to a New York arbitrator after a Los Angeles judge tentatively ruled to stay the state action Tuesday.

Former Dentons partner Jinshu "John" Zhang says in the lawsuit he was unjustly fired after raising concerns that McNamara, who stepped down from his leadership position last month, forged a document in an attempt to transfer certain client-held securities directly to the firm without client authorization.

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 award.

Zhang wants the lawsuit heard before a state court judge in California while Dentons wants it heard before an arbitrator in New York.

Tentatively ruling for Dentons on Tuesday, Judge David Sotelo found New York to be a court of competent jurisdiction because the arbitration agreement Zhang signed when Dentons hired him contained a venue provision allowing the firm to bring an action there.

Zhang's Santa Monica attorney, Daniel N. Csillag of Murphy Rosen LLP, said Sotelo's ruling would essentially repeal California Labor Code Section 925.

It says: "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" among other things, "require the employee to adjudicate outside of California a claim arising in California."

Arguing remotely Tuesday, Csillag said: "What the court's ruling essentially does is force Mr. Zhang, and employees like him, to do exactly what the Legislature has predicted, which is to be forced to litigate in a foreign jurisdiction, employment claims arising out of his employment," Csillag said. "The whole point of the statute was to prohibit employers from doing this."

Sotelo found none of the case law Zhang relied on indicates that Section 925 automatically applies and that a court in a similar dispute "found that the parties had delegated the application of Labor Code 925 to the arbitrator."

Dentons, through its Los Angeles attorney, Peter A. Strotz of King & Spalding LLP, said under California Code of Civil Procedure 1281.4, the trial court is required to "stay an action pending before it while an application to arbitrate the subject matter of the action is pending in a court of competent jurisdiction."

"The arguments that plaintiffs are making provided no exception to CCP 1281.4," Strotz said Tuesday. "Labor Code 925 really deals only with where the arbitration ought to occur and what law should be applied; 1281.4 says once a motion to stay arbitration has been filed, this court must stay the litigation here in California."

Csillag said no court has ever reconciled Labor Code Section 925 with 1281.4, and that this is a matter of first impression in California courts.

Dentons, and McNamara fired Zhang in May 2021. In the same month, Dentons initiated arbitration in New York. Three weeks later, Zhang filed a wrongful termination lawsuit in Los Angeles County Superior Court. After a federal judge denied Dentons' attempt to move the suit to a federal court in Los Angeles, the suit moved back to superior court where Judge James C. Chalfant granted a preliminary injunction, staying the New York arbitration. After that, Dentons moved to stay the Los Angeles action so the dispute could move forward before a judge or arbitrator in New York. Jinshu "John" Zhang v. Dentons U.S. LLP., 21STCV19442 (L.A. Sup. Ct., filed May 26, 2021).

Dentons, with 12,000 lawyers in more than 200 offices in 80 countries, is generally regarded as the largest law firm in the world.

McNamara stepped down as CEO last month but Dentons Chicago partner Keith Moskowitz said the move had nothing to do with the Zhang suit. Zhang's other attorney, Paul Murphy, said he views McNamara's move away from the CEO position as "a complete vindication of what we've been saying all along."

While the timing and circumstances regarding Zhang's firing remain disputed, both sides allege a conflict arose relating to how a $34 million contingency fee award should be divided.

Dentons said Zhang was fired after he "went around the firm" and attempted to enter into an improper fee agreement with a client from the People's Republic of China after Zhang successfully negotiated the enforcement of a multimillion-dollar arbitration award. Only after Dentons refused to grant him 85% on the contingency fee award did Zhang respond with "slanderous and false allegations" against the firm's leadership, according to Dentons. Zhang alleges McNamara plotted to seize the contingency fee through a forgery prematurely.

After the hearing Tuesday, Csillag said he was disappointed with Sotelo's tentative decision but he was pleased with how Tuesday's arguments went.

"We felt like the court was receptive to what we had to say and we're hopeful that the court will

reverse its tentative and deny the stay motion," Csillag said.

Dentons did not respond to a request for comment Tuesday.