Youlin Wang v. Forensic Professional Group USA, Inc.

Background

Kahn and Forensic Professionals Group USA, Inc. initiated an arbitration against Youlin Wang and Derek Longstaff to recover allegedly unpaid fees for tax services connected to two real-estate sales. The agreements at issue included a Refund Disbursement Service Agreement containing an arbitration clause.

Wang contended that Longstaff had created a fraudulent power of attorney and lacked authority to act for Wang. Kahn maintained that he believed Longstaff was authorized to act for Wang and that Wang had authorized Longstaff to enter fee agreements. Kahn also argued that Wang’s payments under the agreement showed that Wang had ratified it.

Wang filed this federal action seeking to stop the arbitration and to prevent Longstaff from representing Wang in it. The court had previously entered a preliminary injunction stopping the arbitration. Longstaff later faced default judgment, and the clerk entered default against FPG, leaving Kahn as the only remaining respondent.

Motion to Compel Arbitration

Under the Federal Arbitration Act, a court generally must determine whether an agreement to arbitrate exists and whether it covers the dispute. The court applies ordinary state-law principles governing contract formation to decide whether an arbitration agreement is valid.

The court concluded that there was a genuine dispute of material fact about whether Wang ratified the Refund Disbursement Service Agreement. Because that factual dispute prevented the court from determining that a valid contract existed, the court could not compel arbitration at that stage.

Other Arguments and Ruling

Kahn argued that Wang had submitted to the arbitrator’s jurisdiction and had failed to disclose the arbitration’s procedural history to the earlier judge. Kahn also argued that these circumstances supported reconsidering or dissolving the preliminary injunction and potentially imposing sanctions under Rule 11. Wang opposed those arguments.

The court rejected them. It found that Kahn’s request improperly sought reconsideration of, or dissolution of, the preliminary injunction; that the cited facts were known before the earlier injunction rulings; and that Kahn had not shown Wang submitted to arbitral jurisdiction. The court also found that the cited arbitration letter did not address the decisive question of whether a valid arbitration agreement existed.

The court denied Respondent’s Motion to Compel Arbitration, declined to dissolve the preliminary injunction, and declined to order Rule 11 sanctions. Judge Beth Labson Freeman stated that an evidentiary hearing set for April 10, 2023, should resolve the disputed facts.