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 RESPONDENT’S 9 v. MOTION TO COMPEL ARBITRATION 10 RICHARD KAHN, [Re: ECF No. 114] 11 Respondent.
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 19 Kahn and FPG from pursuing the Arbitration and to enjoin Longstaff from purporting to act on 20 Petitioner’s behalf in the Arbitration. Pet. ¶¶ 37-69. 21 Now before the Court is Respondent Richard Kahn’s motion to compel arbitration. ECF 22 No. 114 (“MTC”); see also ECF No. 124 (“Reply”). Petitioner Youlin Wang opposes the motion. 23 ECF No. 117 (“Opp.”). For the reasons explained below, the Court DENIES the motion to 24 compel arbitration. 25 I. BACKGROUND 26 A. Factual Background 27 The following facts are submitted by Respondent Kahn. Kahn was the principal of FPG. 1 naming himself and FPG as claimants, filed an arbitration action against Petitioner Wang for 2 breach of contract for failure to make a payment under a contract. Id. ¶ 14. The underlying 3 contract arose when Wang’s attorney Derek Longstaff, hired through his brother-in-law and 4 authorized agent Greg Xiong, hired FPG to assist with Wang’s tax returns in association with 5 certain of Wang’s properties in California. Id. ¶¶ 24-26; see also Declaration of Youlin Wang, 6 ECF No. 23-4 Ex. A (“Wang Decl.”) ¶¶ 3, 5; Declaration of Guohua “Greg” Xiong, ECF No. 117- 7 2 (“Xiong Decl.”) ¶¶ 3-5, 8-9. 8 Kahn “believed that Longstaff was the attorney duly licensed and authorized by Wang to 9 act as Wang’s power of attorney (POA) on all matters relating to the properties 3880/3878 10 Magnolia Drive and 2017/2018 tax matters as well as entering enforceable fee agreements for FPG 11 services.” Kahn Decl. ¶ 24. Kahn also states that Wang authorized Longstaff to receive his tax 12 refunds and settle any fees with FPG. Id. But Wang claims that, in the course of Longstaff’s 13 interactions with the Kahn and FPG on behalf of Petitioner, Longstaff created a fraudulent power 14 of attorney (“POA”) dated November 13, 2017, purportedly from Petitioner, conferring Longstaff 15 and his firm with broad authority to act on Petitioner’s behalf. Wang Decl. ¶ 16, Ex. B 16 (“November 2017 POA”). Petitioner asserts that he did not sign the POA and did not give 17 Longstaff authority to act on his behalf. Id. Kahn states that he did due diligence to confirm the 18 POA was legitimate. Kahn Decl. ¶ 27. 19 Longstaff entered into a Partially Deferred Retainer and Fee Agreement (“PDRFA”) and a 20 Refund Disbursement Service (“RDS”) Agreement with FPG on or about August 16, 2018. Kahn 21 Decl. ¶ 28; see Pet. Exs. A (PDRFA), B (RDS Agreement). Kahn states that Wang made several 22 payments on the contracts. Kahn Decl. ¶¶ 31-41, 87-91. 23 As stated above, on November 20, 2019, Kahn, on behalf of himself and FPG, filed the 24 complaint for arbitration based on Wang’s failure to make the final payment. Kahn Decl. ¶ 58. 25 The RDS Agreement contained the arbitration clause under which the he initiated the underlying 26 Arbitration. See RDS Agreement at 4. 27 On November 6, 2019, Xiong terminated Longstaff as attorney for Petitioner. Xiong Decl. B. Arbitration History 1 On or around November 20, 2019, Kahn and FPG initiated the Arbitration with the 2 American Arbitration Association (“AAA”) against Wang and Longstaff, individually and as 3 purported power of attorney for Petitioner, alleging breach of the PDRFA and RDS Agreement for 4 unpaid fees. Declaration of Dhaivat Shah, ECF No. 138-2 (“Shah Decl.”) ¶ 2, Ex. A. Kahn states 5 that he sent Longstaff and Jiayin Liao, another attorney representing Wang, a demand to arbitrate 6 letter on November 20, 2019. Kahn Decl. ¶ 54. Wang claims that neither Longstaff nor Kahn 7 notified Petitioner or Xiong that the Arbitration had been filed. Shah Decl. ¶ 3. 8 On December 10, 2019, after he had been terminated as Petitioner’s attorney, Longstaff 9 appeared in the Arbitration and purported to file an answer and counterclaims on behalf of both 10 himself and Petitioner. Shah Decl. ¶ 4; see also Pet. Ex. E at 1-2; Kahn Decl. ¶ 59. Longstaff 11 further purported to make appearances and select an arbitrator. Shah Decl. ¶ 4. 12 Around mid-September 2020, Longstaff sent a copy of the Arbitration’s Amended Claim 13 to Morgan, Lewis & Bockius LLP, former counsel to Petitioner’s company MagnoliaDrHomes 14 LLC. Shah Decl. ¶ 5. Petitioner alleges that this was the first time that a party to the Arbitration 15 attempted to provide the Arbitration pleadings to anyone affiliated with Petitioner. Id. ¶ 5. In 16 October 2020, Petitioner’s current counsel, Grellas Shah LLP, informed AAA and the parties to 17 the Arbitration that Petitioner objected to arbitral jurisdiction. Id. ¶ 6; Kahn Decl. ¶ 62. On 18 December 2, 2020, after filing the instant action, Wang submitted a request to the arbitrator for 19 leave to file a motion to stay the arbitration. Kahn Decl. ¶¶ 63, 68-69; Declaration of Dhaviat 20 Shah, ECF No. 117-1 (“Shah Decl. II”) ¶ 8, Ex. B. It was denied. Shah Decl. II ¶ 9; Kahn Decl. ¶ 21 65. On February 18, 2021, Wang submitted objections to the AAA’s Administrative Review 22 Council (“ARC”) requesting that it vacate the arbitration and disqualify the arbitrator. Shah Decl. 23 II ¶ 10, Ex. C; see Kahn Decl. ¶¶ 66, 70. On March 10, 2021, the ARC issued a letter (“March 24 2021 ARC Letter”) stating that “in the absence of an agreement by the parties or a court order 25 staying the case, the AAA will proceed with the administration of the arbitration.” Shah Decl. II ¶ 26 11, Ex. D (letter); Kahn Decl. ¶ 75. 27 C. Procedural History 1 On November 13, 2020, Petitioner filed the Petition in this Court to enjoin the Arbitration 2 and enjoin Longstaff from representing Petitioner in the Arbitration. ECF No. 1. On April 5, 3 2021, then-District Judge Koh granted an unopposed motion for preliminary injunction, enjoining 4 Respondents from continuing the Arbitration. ECF No. 45. On January 4, 2022, Circuit Judge 5 Koh sitting by designation reaffirmed the injunction by denying Kahn and FPG’s motion to vacate 6 the preliminary injunction and to dismiss for lack of personal jurisdiction, subject matter 7 jurisdiction, and venue. ECF No. 68. On June 10, 2022, Kahn and FPG filed their answer. ECF 8 No. 91. 9 The Court entered default judgment against Longstaff on August 26, 2022. ECF Nos. 106- 10 07. On August 31, 2022, the Court struck the answer as to FPG for failure to obtain counsel of 11 record. ECF No. 108. On September 2, 2022, the Clerk entered default as to FPG. ECF No. 110. 12 Kahn is thus the only remaining Respondent in the case. 13 Now before the Court is Kahn’s motion to compel arbitration. 14 II. LEGAL STANDARD 15 The Federal Arbitration Act (“FAA”) applies to arbitration agreements affecting interstate 16 commerce and governs the enforceability and scope of an arbitration clause. See 9 U.S.C. §§ 1- 17 402. The FAA embodies a “national policy favoring arbitration and a liberal federal policy 18 favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the 19 contrary.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 345–46 (2011) (internal quotations 20 and citations omitted).
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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 RESPONDENT’S 9 v. MOTION TO COMPEL ARBITRATION 10 RICHARD KAHN, [Re: ECF No. 114] 11 Respondent.
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 19 Kahn and FPG from pursuing the Arbitration and to enjoin Longstaff from purporting to act on 20 Petitioner’s behalf in the Arbitration. Pet. ¶¶ 37-69. 21 Now before the Court is Respondent Richard Kahn’s motion to compel arbitration. ECF 22 No. 114 (“MTC”); see also ECF No. 124 (“Reply”). Petitioner Youlin Wang opposes the motion. 23 ECF No. 117 (“Opp.”). For the reasons explained below, the Court DENIES the motion to 24 compel arbitration. 25 I. BACKGROUND 26 A. Factual Background 27 The following facts are submitted by Respondent Kahn. Kahn was the principal of FPG. 1 naming himself and FPG as claimants, filed an arbitration action against Petitioner Wang for 2 breach of contract for failure to make a payment under a contract. Id. ¶ 14. The underlying 3 contract arose when Wang’s attorney Derek Longstaff, hired through his brother-in-law and 4 authorized agent Greg Xiong, hired FPG to assist with Wang’s tax returns in association with 5 certain of Wang’s properties in California. Id. ¶¶ 24-26; see also Declaration of Youlin Wang, 6 ECF No. 23-4 Ex. A (“Wang Decl.”) ¶¶ 3, 5; Declaration of Guohua “Greg” Xiong, ECF No. 117- 7 2 (“Xiong Decl.”) ¶¶ 3-5, 8-9. 8 Kahn “believed that Longstaff was the attorney duly licensed and authorized by Wang to 9 act as Wang’s power of attorney (POA) on all matters relating to the properties 3880/3878 10 Magnolia Drive and 2017/2018 tax matters as well as entering enforceable fee agreements for FPG 11 services.” Kahn Decl. ¶ 24. Kahn also states that Wang authorized Longstaff to receive his tax 12 refunds and settle any fees with FPG. Id. But Wang claims that, in the course of Longstaff’s 13 interactions with the Kahn and FPG on behalf of Petitioner, Longstaff created a fraudulent power 14 of attorney (“POA”) dated November 13, 2017, purportedly from Petitioner, conferring Longstaff 15 and his firm with broad authority to act on Petitioner’s behalf. Wang Decl. ¶ 16, Ex. B 16 (“November 2017 POA”). Petitioner asserts that he did not sign the POA and did not give 17 Longstaff authority to act on his behalf. Id. Kahn states that he did due diligence to confirm the 18 POA was legitimate. Kahn Decl. ¶ 27. 19 Longstaff entered into a Partially Deferred Retainer and Fee Agreement (“PDRFA”) and a 20 Refund Disbursement Service (“RDS”) Agreement with FPG on or about August 16, 2018. Kahn 21 Decl. ¶ 28; see Pet. Exs. A (PDRFA), B (RDS Agreement). Kahn states that Wang made several 22 payments on the contracts. Kahn Decl. ¶¶ 31-41, 87-91. 23 As stated above, on November 20, 2019, Kahn, on behalf of himself and FPG, filed the 24 complaint for arbitration based on Wang’s failure to make the final payment. Kahn Decl. ¶ 58. 25 The RDS Agreement contained the arbitration clause under which the he initiated the underlying 26 Arbitration. See RDS Agreement at 4. 27 On November 6, 2019, Xiong terminated Longstaff as attorney for Petitioner. Xiong Decl. B. Arbitration History 1 On or around November 20, 2019, Kahn and FPG initiated the Arbitration with the 2 American Arbitration Association (“AAA”) against Wang and Longstaff, individually and as 3 purported power of attorney for Petitioner, alleging breach of the PDRFA and RDS Agreement for 4 unpaid fees. Declaration of Dhaivat Shah, ECF No. 138-2 (“Shah Decl.”) ¶ 2, Ex. A. Kahn states 5 that he sent Longstaff and Jiayin Liao, another attorney representing Wang, a demand to arbitrate 6 letter on November 20, 2019. Kahn Decl. ¶ 54. Wang claims that neither Longstaff nor Kahn 7 notified Petitioner or Xiong that the Arbitration had been filed. Shah Decl. ¶ 3. 8 On December 10, 2019, after he had been terminated as Petitioner’s attorney, Longstaff 9 appeared in the Arbitration and purported to file an answer and counterclaims on behalf of both 10 himself and Petitioner. Shah Decl. ¶ 4; see also Pet. Ex. E at 1-2; Kahn Decl. ¶ 59. Longstaff 11 further purported to make appearances and select an arbitrator. Shah Decl. ¶ 4. 12 Around mid-September 2020, Longstaff sent a copy of the Arbitration’s Amended Claim 13 to Morgan, Lewis & Bockius LLP, former counsel to Petitioner’s company MagnoliaDrHomes 14 LLC. Shah Decl. ¶ 5. Petitioner alleges that this was the first time that a party to the Arbitration 15 attempted to provide the Arbitration pleadings to anyone affiliated with Petitioner. Id. ¶ 5. In 16 October 2020, Petitioner’s current counsel, Grellas Shah LLP, informed AAA and the parties to 17 the Arbitration that Petitioner objected to arbitral jurisdiction. Id. ¶ 6; Kahn Decl. ¶ 62. On 18 December 2, 2020, after filing the instant action, Wang submitted a request to the arbitrator for 19 leave to file a motion to stay the arbitration. Kahn Decl. ¶¶ 63, 68-69; Declaration of Dhaviat 20 Shah, ECF No. 117-1 (“Shah Decl. II”) ¶ 8, Ex. B. It was denied. Shah Decl. II ¶ 9; Kahn Decl. ¶ 21 65. On February 18, 2021, Wang submitted objections to the AAA’s Administrative Review 22 Council (“ARC”) requesting that it vacate the arbitration and disqualify the arbitrator. Shah Decl. 23 II ¶ 10, Ex. C; see Kahn Decl. ¶¶ 66, 70. On March 10, 2021, the ARC issued a letter (“March 24 2021 ARC Letter”) stating that “in the absence of an agreement by the parties or a court order 25 staying the case, the AAA will proceed with the administration of the arbitration.” Shah Decl. II ¶ 26 11, Ex. D (letter); Kahn Decl. ¶ 75. 27 C. Procedural History 1 On November 13, 2020, Petitioner filed the Petition in this Court to enjoin the Arbitration 2 and enjoin Longstaff from representing Petitioner in the Arbitration. ECF No. 1. On April 5, 3 2021, then-District Judge Koh granted an unopposed motion for preliminary injunction, enjoining 4 Respondents from continuing the Arbitration. ECF No. 45. On January 4, 2022, Circuit Judge 5 Koh sitting by designation reaffirmed the injunction by denying Kahn and FPG’s motion to vacate 6 the preliminary injunction and to dismiss for lack of personal jurisdiction, subject matter 7 jurisdiction, and venue. ECF No. 68. On June 10, 2022, Kahn and FPG filed their answer. ECF 8 No. 91. 9 The Court entered default judgment against Longstaff on August 26, 2022. ECF Nos. 106- 10 07. On August 31, 2022, the Court struck the answer as to FPG for failure to obtain counsel of 11 record. ECF No. 108. On September 2, 2022, the Clerk entered default as to FPG. ECF No. 110. 12 Kahn is thus the only remaining Respondent in the case. 13 Now before the Court is Kahn’s motion to compel arbitration. 14 II. LEGAL STANDARD 15 The Federal Arbitration Act (“FAA”) applies to arbitration agreements affecting interstate 16 commerce and governs the enforceability and scope of an arbitration clause. See 9 U.S.C. §§ 1- 17 402. The FAA embodies a “national policy favoring arbitration and a liberal federal policy 18 favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the 19 contrary.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 345–46 (2011) (internal quotations 20 and citations omitted). “[A]s a matter of federal law, any doubts concerning the scope of 21 arbitrable issues should be resolved in favor of arbitration.” Benson v. Casa de Capri Enters., 22 LLC, 980 F.3d 1328, 1330 (9th Cir. 2020) (quoting Moses H. Cone Mem’l Hosp. v. Mercury 23 Constr. Corp., 460 U.S. 1, 24-25 (1983)). A moving party need only prove by a preponderance of 24 the evidence that an agreement to arbitrate the claims exists. See Bridge Fund Cap. Corp. v. 25 Fastbucks Franchise Corp., 622 F.3d 996, 1005 (9th Cir. 2010). “[T]he party resisting arbitration 26 bears the burden of establishing that the arbitration agreement is inapplicable.” Wynn Resorts, 27 1 Section 2 of the FAA makes agreements to arbitrate “valid, irrevocable, and enforceable, 2 save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 3 2. “Generally, in deciding whether to compel arbitration, a court must determine two ‘gateway’ 4 issues: (1) whether there is an agreement to arbitrate between the parties; and (2) whether the 5 agreement covers the dispute.” Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015). “If 6 the response is affirmative on both counts, then the Act requires the court to enforce the arbitration 7 agreement in accordance with its terms.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 8 1126, 1130 (9th Cir. 2000). 9 III. ANALYSIS 10 Kahn argues that the case should proceed to arbitration because there is a valid agreement 11 to arbitrate. MTC at 11-15. “[A]rbitration is a matter of contract and a party cannot be required to 12 submit to arbitration any dispute which he has not agreed so to submit.” AT&T Techs., Inc. v. 13 Commc'ns Workers of Am., 475 U.S. 643, 648 (1986) (quoting United Steelworkers of Am. v. 14 Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960)). A court “must first determine 15 ‘whether a valid agreement to arbitrate exists.’” Norcia v. Samsung Telecomms. Am., LLC, 845 16 F.3d 1279, 1283 (9th Cir. 2017) (quoting Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 17 1126, 1130 (9th Cir. 2000)). The court will “‘apply ordinary state-law principles that govern the 18 formation of contracts’ to decide whether an agreement to arbitrate exists.” Id. (quoting First 19 Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). The Court thus must evaluate whether 20 there is a genuine dispute of material fact as to whether the RDS Agreement is a valid agreement 21 to arbitrate. 22 Respondent argues that the fact that Wang made payments under the RDS Agreement 23 shows that it is valid. See MTC at 10-11. As the Court previously determined in its Order on the 24 motion for summary judgment, there is a genuine dispute of material fact as to whether Wang 25 ratified the contract, thus rendering it valid. See ECF No. 158 (“MSJ Order”). Because of this 26 dispute of fact, the Court cannot determine that there was a valid contract. 27 Respondent’s other arguments are to no avail. Respondent argues that the Court should 1 [Petitioner] failed to bring to the attention of Judge Koh when [Petitioner] filed [his] motion for a 2 preliminary injunction.” MTC at 1-7. This “new” fact is the fact that Petitioner received a letter 3 from the AAA’s ARC on March 10, 2021 claiming arbitral jurisdiction (the “March 2021 ARC 4 Letter”). Id. at 1. Further, Kahn argues that Petitioner did not inform Judge Koh that he had 5 “submitted to arbitral jurisdiction” for over five months. Id. at 5. Kahn points to several filings in 6 the arbitration proceeding. Id. at 3-4. And he argues that a federal court should not enjoin “an 7 arbitration over which the arbitrator has made a decision accepting jurisdiction.” Id. at 6. 8 Respondent later asserts that the fact that Wang “knowingly failed to advise Judge Koh of the true 9 extent of [his] pleadings into arbitration for 4-5 months . . . may be considered unclean hands by 10 the Court.” Id. at 15-16. And he requests that if the Court decides Wang’s attorney violated Rule 11 11 and chooses to impose sanctions, he would request $20,500 in monetary sanctions in addition 12 to the Court vacating the temporary injunction, dismissing the case, or compelling arbitration. Id. 13 at 7. Petitioner counters that (1) Kahn is improperly bringing a motion for reconsideration of or a 14 motion to dissolve the preliminary injunction order; (2) Wang never submitted to arbitral 15 jurisdiction; and (3) unclean hands is inapplicable because Wang did not engage in wrongdoing. 16 Opp. at 1-2. 17 The Court declines to dissolve the preliminary injunction on the bases provided by Kahn. 18 The Court agrees with Petitioner that this is an improper motion for reconsideration or motion to 19 dissolve the preliminary injunction. See Opp. at 8-9. A motion for reconsideration requires leave 20 of court to be filed. Civ. L.R. 7-9(a). And under Civil Local Rule 7-9(b), a motion for leave to 21 file a motion for reconsideration must show reasonable diligence in bringing the motion and one 22 of the following: (1) That at the time of the motion for leave, a material difference in 23 fact or law exists from that which was presented to the Court before entry of the interlocutory order for which reconsideration 24 is sought. The party also must show that in the exercise of reasonable diligence the party applying for reconsideration did 25 not know such fact or law at the time of the interlocutory order; or 26 (2) The emergence of new material facts or a change of law occurring 27 after the time of such order; or dispositive legal arguments which were presented to the Court 1 before such interlocutory order. 2 || Civ. L.R. 7-9(b). Similarly, a motion to dissolve a preliminary injunction requires “a significant 3 change in facts or law.” Sharp v. Weston, 233 F.3d 1166, 1170 (9th Cir. 2000). As argued by 4 || Wang, Kahn has shown no new material fact. See Opp. at 10, 12. The presented facts are not 5 new, as the procedural history of the arbitration proceeding was known to Kahn and his attorney 6 || prior to the Court’s entry of the preliminary injunction order on April 5, 2021, or its entry of the 7 order denying the motion to vacate the preliminary injunction order on January 4, 2022. See ECF 8 || Nos. 45, 68. And the facts are not material nor significant. Kahn has not shown that Wang 9 submitted to arbitral jurisdiction; in fact, the declaration from Wang’s attorney indicates the 10 || opposite. Shah Decl. II Jj 5-12, Exs. A-D. And the Court does not agree that the Court would 11 have made a different decision on the preliminary injunction order based on the March 2021 ARC 12 || Letter, as that letter did not address the dispositive issue of whether there was a valid arbitration 5 13 agreement. See Opp. at 11; Shah Decl. II J 11, Ex. D (letter); ECF No. 45 (preliminary injunction 14 || order). The Court therefore declines to dissolve the preliminary injunction or to order sanctions 3 15 || under Rule 11. 16 || IV. ORDER 3 17 For the foregoing reasons, IT IS HEREBY ORDERED that Respondent’s Motion to 18 Compel Arbitration is DENIED. The Court has set an evidentiary hearing on April 10, 2023, 19 which should resolve the disputed facts. 20 21 || Dated: January 18, 2023 fecuinfhacncan 22 BETH LABSON FREEMAN 23 United States District Judge 24 25 26 27 28