Wang v. Ehang Holdings Limited

Background

Gary Wang sued EHang Holdings Limited, Guangzhou EHang Intelligent Technology Co., Ltd., and corporate officers Huazhi Hu, Derrick Yifang Xiong, Shang-Wen Hsiao, and Richard Jian Liu. Wang’s claims arose from his former employment with related companies he collectively called EHang or EHang Group.

EHang Intelligent offered Wang the position of General Manager of its United States office in Silicon Valley, California. The July 23, 2015 offer letter stated that his compensation would include restricted share units representing 516,428 ordinary shares and said that the equity grants would be governed by the company’s employee stock option plans and Wang’s award agreements. Wang understood the offer to refer to shares of EHang Holdings.

Wang resigned effective August 31, 2016. He alleged that 129,107 shares had vested by then, but that defendants never issued the related stock certificates. He brought claims for breach of contract, fraud, and unpaid wages.

Motion to Compel Arbitration

Defendants moved to compel arbitration, dismiss the action, or alternatively stay the proceedings pending arbitration. They relied on an arbitration clause in EHang Holdings’ 2015 Share Incentive Plan, also called the ESOP. The plan provided for arbitration in Hong Kong under the UNCITRAL Arbitration Rules and was governed by Cayman Islands law.

The parties’ discovery responses established that the ESOP was not adopted until December 2016, several months after Wang left his employment. Defendants argued that the offer letter incorporated the later ESOP because it referred to the company’s ESOP plans.

Wang argued that he never agreed to arbitrate, that enforcing the clause would be procedurally and substantively unfair, that his unpaid-wage claim was exempt from arbitration, and that defendants had given up any right to compel arbitration by litigating the case for more than a year.

Court’s Analysis

The court explained that arbitration is based on agreement. A party cannot be required to arbitrate a dispute unless the party agreed to do so. Because defendants sought to compel arbitration, they had the burden of proving by a preponderance of the evidence that an arbitration agreement existed.

The court applied California law to determine whether the offer letter incorporated the ESOP’s arbitration provision. Under that law, an arbitration clause may be incorporated by reference only when the reference is clear and unequivocal and the incorporated document was known or easily available to the person who would be bound.

The court held that the offer letter did not meet that standard. Its reference to “the Company’s ESOP plans” contemplated multiple plans and did not clearly identify the specific ESOP on which defendants relied. In addition, the ESOP did not yet exist when Wang signed the offer letter, so its terms could not have been known or easily available to him at that time. The court also noted that defendants offered no evidence that Wang knew about or agreed to the arbitration provision when he signed the offer letter.

Disposition

The court denied defendants’ motion to compel arbitration because defendants failed to prove that an agreement to arbitrate existed. The court therefore did not address Wang’s other arguments. The court’s order states that defendants’ motion to compel arbitration and dismiss the action or, alternatively, stay proceedings pending arbitration, is denied.