Youlin Wang v. Forensic Professional Group USA, Inc.

Opinion

1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6 7 YOULIN WANG, Case No. 20-cv-08033-BLF

8 Petitioner, ORDER DENYING PETITIONER’S 9 v. MOTION FOR SUMMARY JUDGMENT 10 RICHARD KAHN, et al., [Re: ECF No. 138] 11 Respondents.

12 13 This action for injunctive relief arises from an arbitration regarding fees for the tax services 14 provided in association with two real estate sales in Palo Alto, California (the “Arbitration”). In 15 November 2019, Respondent Richard Kahn and Forensic Professionals Group USA, Inc. (“FPG”) 16 initiated the Arbitration to recover unpaid fees against Petitioner Youlin Wang, as well as 17 Petitioner’s former attorney Derek Longstaff. ECF No. 1 (“Pet.”) ¶¶ 24-25. After learning of the 18 Arbitration, Petitioner filed this action in the Northern District of California, seeking to enjoin the 19 Kahn Respondents from pursuing the Arbitration and to enjoin Longstaff from purporting to act 20 on Petitioner’s behalf in the Arbitration. Pet. ¶¶ 37-69. 21 Now before the Court is Petitioner’s motion for summary judgment. ECF No. 138 22 (“MSJ”); see also 151 (“Reply”). Respondent Richard Kahn opposes the motion. ECF No. 150 23 (“Opp.”). The Court held a hearing on the motion on December 1, 2022. See ECF No. 156. For 24 the reasons discussed on the record and explained below, the Court DENIES the motion for 25 summary judgment. 26 I. BACKGROUND 27 A. Factual Background 1 attorney Derek Longstaff to provide legal services for, inter alia, Petitioner’s 2017 and 2018 tax 2 returns. Declaration of Youlin Wang, ECF No. 23-4 Ex. A (“Wang Decl.”) ¶¶ 3, 5; Declaration of 3 Guohua “Greg” Xiong, ECF No. 117-2 (“Xiong Decl.”) ¶¶ 3-5. Longstaff subsequently secured 4 the tax services of Respondent Richard Kahn and FPG to assist with Petitioner’s tax refunds. 5 Xiong Decl. ¶¶ 8-9. 6 In the course of Longstaff’s interactions with the Kahn and FPG on behalf of Petitioner, 7 Longstaff created an allegedly fraudulent power of attorney (“POA”) dated November 13, 2017, 8 purportedly from Petitioner conferring Longstaff and his firm with broad authority to act on 9 Petitioner’s behalf. Wang Decl. ¶ 16, Ex. B (“November 2017 POA”). Petitioner asserts that he 10 did not sign the POA and did not give Longstaff authority to act on his behalf. Id. 11 After creating the alleged fraudulent November 2017 POA from Petitioner and presenting 12 himself as Petitioner’s attorney-in-fact, Longstaff entered into a Partially Deferred Retainer and 13 Fee Agreement (“PDRFA”) and a Refund Disbursement Service (“RDS”) Agreement with FPG 14 on or about August 16, 2018. See Pet. Exs. A (PDRFA), B (RDS Agreement). The RDS 15 Agreement contained the arbitration clause under which the Kahn Respondents initiated the 16 underlying Arbitration. RDS Agreement at 4. 17 On November 6, 2019, Xiong terminated Longstaff as attorney for Petitioner. Xiong Decl. 18 ¶ 20. 19 B. Arbitration History 20 On or around November 20, 2019, Kahn and FPG initiated the Arbitration with the 21 American Arbitration Association (“AAA”) against Wang and Longstaff, individually and as 22 purported power of attorney for Petitioner, alleging breach of the PDRFA and RDS Agreement for 23 unpaid fees. Declaration of Dhaivat Shah, ECF No. 138-2 (“Shah Decl.”) ¶ 2, Ex. A. Neither 24 Longstaff nor Kahn notified Petitioner or Xiong that the Arbitration had been filed. Id. ¶ 3. 25 On December 10, 2019, after he had been terminated as Petitioner’s attorney, Longstaff 26 appeared in the Arbitration and purported to file an answer and counterclaims on behalf of both 27 himself and Petitioner. Shah Decl. ¶ 4; see also Pet. Ex. E at 1-2. Longstaff further purported to 1 Around mid-September 2020, Longstaff sent a copy of the Arbitration’s Amended Claim 2 to Morgan, Lewis & Bockius LLP, former counsel to Petitioner’s company MagnoliaDrHomes 3 LLC. Shah Decl. ¶ 5. Petitioner alleges that this was the first time that a party to the Arbitration 4 attempted to provide the Arbitration pleadings to anyone affiliated with Petitioner. Id. ¶ 5. On 5 October 31, 2020, Petitioner’s current counsel, Grellas Shah LLP, informed AAA and the parties 6 to the Arbitration that Petitioner objected to arbitral jurisdiction. Id. ¶ 6. 7 C. Procedural History 8 On November 13, 2020, Petitioner filed the Petition in this Court to enjoin the Arbitration 9 and enjoin Longstaff from representing Petitioner in the Arbitration. ECF No. 1. On April 5, 10 2021, then-District Judge Koh granted an unopposed motion for preliminary injunction, enjoining 11 Respondents from continuing the Arbitration. ECF No. 45. On January 4, 2022, Circuit Judge 12 Koh sitting by designation reaffirmed the injunction by denying Kahn and FPG’s motion to vacate 13 the preliminary injunction and to dismiss for lack of personal jurisdiction, subject matter 14 jurisdiction, and venue. ECF No. 68. On June 10, 2022, Kahn and FPG filed their answer. ECF 15 No. 91. 16 The Court entered default judgment against Longstaff on August 26, 2022. ECF Nos. 106- 17 07. On August 31, 2022, the Court struck the answer as to FPG for failure to obtain counsel of 18 record. ECF No. 108. On September 2, 2022, the Clerk entered default as to FPG. ECF No. 110. 19 Kahn is thus the only remaining Respondent in the case. 20 Now before the Court is Wang’s motion for summary judgment. 21 II. LEGAL STANDARD 22 “A party is entitled to summary judgment if the ‘movant shows that there is no genuine 23 dispute as to any material fact and the movant is entitled to judgment as a matter of law.’” City of 24 Pomona v. SQM N. Am. Corp., 750 F.3d 1036, 1049 (9th Cir. 2014) (quoting Fed. R. Civ. P. 25 56(a)). “The moving party initially bears the burden of proving the absence of a genuine issue of 26 material fact.” In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010) (citing Celotex 27 Corp. v. Catrett, 477 U.S. 317, 323 (1986)). “Where the non-moving party bears the burden of 1 non-moving party's case.” Id. (citing Celotex, 477 U.S. at 325). 2 “Where the moving party meets that burden, the burden then shifts to the non-moving 3 party to designate specific facts demonstrating the existence of genuine issues for trial.” Oracle, 4 627 F.3d at 387 (citing Celotex, 477 U.S. at 324). “[T]he non-moving party must come forth with 5 evidence from which a jury could reasonably render a verdict in the non-moving party’s favor.” 6 Id. (citing Anderson v. Liberty Lobby, 477 U.S. 242, 252 (1986)). “The court must view the 7 evidence in the light most favorable to the nonmovant and draw all reasonable inferences in the 8 nonmovant's favor.” City of Pomona, 750 F.3d at 1049 (citing Clicks Billiards Inc. v. Sixshooters 9 Inc., 251 F.3d 1252, 1257 (9th Cir. 2001)). “Where the record taken as a whole could not lead a 10 rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.” Id. at 11 1049-50 (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 12 (1986)). 13 III. REQUEST TO STRIKE 14 The Court first considers Kahn’s request to “strike any inadmissible hearsay of Greg 15 Xiong.” Opp. at 6. The Court finds there are no inadmissible hearsay statements in the 16 declaration. See Fed. R. Evid. 801 (defining hearsay and identifying exceptions). The Court 17 therefore OVERRULES Kahn’s request to strike the declaration. 18 IV. ANALYSIS 19 A. Whether Kahn Has Standing to Enforce the Agreement 20 Wang argues that Kahn does not have standing to enforce the arbitration agreement. MSJ 21 at 8-10. He asserts that because the RDS Agreement was between Wang and FPG, only FPG 22 would have standing to enforce the agreement, and FPG has defaulted. Id. The Court must 23 evaluate whether Kahn, as a nonsignatory to the RDS Agreement, has standing to enforce its 24 arbitration clause. 25 “Generally, the contractual right to compel arbitration ‘may not be invoked by one who is 26 not a party to the agreement and does not otherwise possess the right to compel arbitration.’” 27 Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1126 (9th Cir. 2013) (quoting Britton v. Co-op 1 that a litigant who is not a party to an arbitration agreement may invoke arbitration under the 2 [Federal Arbitration Act] if the relevant state contract law allows the litigant to enforce the 3 agreement.” Id. at 1128 (citing Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 632 (2009)). 4 Therefore, “[s]tate law determines whether a non-signatory to an agreement containing an 5 arbitration clause may compel arbitration.” Ngo v. BMW of N. Am., LLC, 23 F.4th 942, 946 (9th 6 Cir. 2022). “Under California law, ‘[g]eneral contract and agency principles apply in determining 7 the enforcement of an arbitration agreement by or against nonsignatories.’” Levi Strauss & Co. v. 8 Aqua Dynamics Sys., Inc., No. 15-cv-04718-WHO, 2016 WL 6082415, at *5 (N.D. Cal. Oct. 18, 9 2016) (quoting Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042, 1045 (9th Cir. 2009)). “Among 10 these principles are ‘1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter 11 ego; and 5) estoppel.’” Mundi, 555 F.3d at 1045 (quoting Comer v. Micor, Inc., 436 F.3d 1098, 12 1101 (9th Cir. 2006)). “A nonsignatory also can seek to enforce an arbitration agreement as a 13 third party beneficiary.” Id. at 1045 n.2 (citing Comer, 436 F.3d at 1101). 14 Wang argues that Kahn cannot enforce the arbitration agreement because he is not a third- 15 party beneficiary of the contract. MSJ at 8-9. Kahn does not dispute that he is not a third-party 16 beneficiary. See Opp. But the case law makes clear a party need not be a third-party beneficiary 17 to enforce an arbitration agreement. The Court will therefore determine whether any of the other 18 avenues apply. 19 Kahn argues that he can enforce the arbitration agreement based on the RDS Agreement 20 and the Asset Purchase Agreement, which was part of the FPG Dissolution Package. Opp. at 12- 21 13, 15-16, 18-19; see ECF No. 112-2 Ex. 3 (FPG Dissolution Package). Kahn argues that by this 22 document, “[o]wnership of the arbitration was transferred to Kahn in exchange for Kahn paying 23 off FPG’s debts.” Opp. at 12. He also notes that he, as an individual, was named in the arbitration 24 complaint. Id. at 13. Finally, Kahn states that he was the “sole shareholder and sole practitioner 25 of FPG.” Id. at 19. Wang asserts that the language of the Asset Purchase Agreement did not 26 assign Kahn the right to pursue FPG’s claims in arbitration. Reply at 5-6. He notes that the Asset 27 Purchase Agreement assigns Kahn the “rights, title and interest to the amount due” to FPG in the 1 Agreement). 2 The Court finds that Kahn has standing to enforce the arbitration agreement as an agent of 3 FPG. See Mundi, 555 F.3d at 1045; see also Airtourist Holdings LLC v. HNA Grp., No. C 17- 4 04989 JSW, 2018 WL 3069444, at *3 (N.D. Cal. Mar. 27, 2018) (“Defendants are entitled to 5 enforce the agreements pursuant to an agency doctrine . . . .”). First, the Court notes that Kahn did 6 not frame his argument in terms of agency doctrine. See Opp. However, Kahn did argue that he 7 was the “sole shareholder and sole practitioner of FPG.” Id. at 19. And the Court filings by pro se 8 litigants are to be construed liberally. See Hebbe v. Pliler, 627 F.3d 338, 342 (9th Cir. 2010). The 9 Court will therefore evaluate Kahn’s standing to enforce the arbitration agreement as an agent. 10 “The status of [a party] as non-signator[y] is irrelevant where there is an agency 11 relationship with a signatory.” Airtourist Holdings, 2018 WL 3069444, at *3 (citing Amisil 12 Holdings, Ltd. v. Clarium Cap Mgmt., 622 F. Supp. 2d 825, 830 (N.D. Cal. 2007)). A court found 13 the that non-signatory parties had standing as agents of a signatory company where they “were 14 integral in the founding of [the company], they were its first and only employees, and [they] 15 executed contracts on behalf of [the company].” Id. Here, the facts are similar. Kahn was the 16 Director and sole shareholder of FPG. See Asset Purchase Agreement. He also executed contracts 17 on behalf of FPG, including the RDS Agreement that contains the arbitration clause. See RDS 18 Agreement. Under contract and agency principles, Kahn has standing to enforce the arbitration 19 agreement even though he was not a signatory. 20 B. Whether a Valid Contract Was Formed 21 “[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration 22 any dispute which he has not agreed so to submit.” AT&T Techs., Inc. v. Commc'ns Workers of 23 Am., 475 U.S. 643, 648 (1986) (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation 24 Co., 363 U.S. 574, 582 (1960)). A court “must first determine ‘whether a valid agreement to 25 arbitrate exists.’” Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279, 1283 (9th Cir. 2017) 26 (quoting Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000)). The 27 court will “‘apply ordinary state-law principles that govern the formation of contracts’ to decide 1 U.S. 938, 944 (1995)). The Court thus evaluates whether there is a genuine dispute of material 2 fact as to whether the RDS Agreement is a valid agreement to arbitrate. 3 1. Effect of FPG’s Dissolution 4 Wang argues that FPG’s default requires the Court deem true several allegations against 5 FPG and that “[t]hese allegations establish that the contract containing the arbitration agreement 6 was a product of fraud between Longstaff and FPG, of which Wang had no knowledge, and 7 require the Court to find that it was not validly formed.” MSJ at 10. But Wang then 8 acknowledges that the fact that FPG defaulted does not mean the allegations are admitted as 9 against Kahn, and he then argues that Kahn lacks standing. Id. 10 The Court already decided Kahn has standing to enforce the arbitration agreement. To the 11 extent that Wang is arguing that the Court must find the contract invalid because FPG defaulted, 12 that argument fails. As Wang notes, FPG’s default does not mean the allegations are deemed 13 admitted as against Kahn. Cf. Rutter Grp. Prac. Guide Fed. Civ. Proc. Before Trial, Calif. & 9th 14 Cir. Eds. Ch. 6-D, §§ 6:121-6:129.5 (discussing how, in some situations, entering default 15 judgment against one defendant while others remain could lead to inconsistent judgments). 16 Therefore, the Court will analyze whether there is a genuine dispute of material fact as to whether 17 the contract was formed. 18 2. Validity of Contract 19 The Court now turns to analyzing the validity of the RDS Agreement itself. Wang argues 20 that the agreement is invalid because (1) he did not sign the RDS Agreement; (2) he did not ratify 21 the RDS Agreement; and (3) he did not take actions giving Longstaff either actual or apparent 22 authority to enter into the RDS Agreement. MSJ at 10-17. 23 Longstaff signed the RDS Agreement on Wang’s behalf. See RDS Agreement. The 24 parties dispute whether Longstaff was authorized to do so under a Power of Attorney. As stated 25 above, Wang says that the November 2017 POA is fraudulent because Longstaff forged his 26 signature. Wang Decl. ¶ 16. Further, he provides evidence from two other individuals supporting 27 that the November 2017 POA was fraudulent. First, he provides a declaration from a handwriting 1 ECF No. 10-5 ¶¶ 16, 18. Second, he provides a declaration from the individual who purportedly 2 notarized a February 2019 POA, which Wang asserts was also fraudulent. Declaration of Jayesh 3 A. Patel, ECF No. 10-4 (“Patel Decl.”). The notary states that he did not notarize the February 4 2019 POA, and he provides a copy of the list of documents he notarized on that date, which does 5 not show the February 2019 POA. Patel Decl. ¶¶ 3-8, Ex. A. While the disputed agreement was 6 not signed pursuant to the February 2019 POA, the declaration as to that document’s fraudulence 7 tends to suggest that the February 2017 POA may be fraudulent as well. 8 In his Opposition, Kahn makes much of a different POA, signed in June 2018 (“June 2018 9 POA”). Opp. at 13-14; see ECF No. 151-1 Ex. A (June 2018 POA). Wang does not dispute that 10 the June 2018 limited POA was legitimate. Wang Decl. ¶ 14. But the June 2018 POA was a 11 limited POA for the purposes of filing Wang’s tax returns with the IRS, and it did not give 12 Longstaff the authority to enter the PDRFA or RDS Agreement. See June 2018 POA. Kahn does 13 not dispute that the November 2017 POA, pursuant to which the PDRFA and RDS Agreement 14 were signed, was fraudulent. Therefore, there is no dispute of fact as to whether the November 15 2017 POA was forged. 16 The Court next turns to ratification and apparent authority, both of which are related to 17 principles of agency. “Agency is the fiduciary relationship that arises when one person (a 18 ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the 19 principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise 20 consents so to act.” Restatement (Third) of Agency § 1.01 (2006). There are several ways to 21 establish an agency relationship, including actual authority, apparent authority, 22 and ratification. Id.; see also Henderson v. United Student Aid Funds, 918 F.3d 1068, 1073 (9th 23 Cir. 2019). “An agency relationship arises only when the elements stated in § 1.01 are 24 present. Whether a relationship is characterized as agency in an agreement between parties or in 25 the context of industry or popular usage is not controlling.” Restatement § 26 1.02; accord Henderson, 918 F.3d at 1073. 27 “Ratification is the affirmance of a prior act done by another, whereby the act is given 1 (2006). “The fundamental test of ratification by conduct is whether the [party], with full 2 || knowledge of the material facts permitting rescission, has engaged in some unequivocal conduct 3 || giving rise to a reasonable inference that he or she intended the conduct to amount to a 4 ratification.” Aikins v. Tosco Refin. Co., Inc., No. C 98-00755-CRB, 1999 WL 179686, at *4 5 (N.D. Cal. Mar. 26, 1999) (citing Union Pac. R. Co. v. Zimmer, 87 Cal. App. 2d 524, 532 (1948)). 6 The Court finds there is a genuine dispute of material fact as to whether Wang ratified the 7 contract. Kahn states in his declaration that Wang made several payments to FPG pursuant to the 8 || disputed contracts. Declaration of Richard Kahn, ECF No. 112-1 (“Kahn Decl.”) at 42-45. And 9 Kahn also states that Wang received refunds from the IRS pursuant to the disputed contracts. Id. 10 || If Wang took these actions, they could possibly be sufficient to constitute ratification. There is 11 thus a genuine issue of material fact as to whether Wang ratified the contract. Because the Court 12 || finds there is a genuine dispute of material fact as to ratification, it need not reach the issue of 5 13 apparent authority. 14 || V. ORDER 15 For the foregoing reasons, IT IS HEREBY ORDERED that Petitioner’s Motion for 16 Summary Judgment is DENIED.

|| Dated: December 15, 2022 fecuinfhacncan 19 BETH LABSON FREEMAN 20 United States District Judge 21 22 23 24 25 26 27 28