Youlin Wang v. Forensic Professional Group USA, Inc.

Background

Youlin Wang petitioned to stop an arbitration that Richard Kahn and Forensic Professionals Group USA, Inc. (FPG) initiated to recover fees related to tax services associated with Wang’s sales of two Palo Alto properties. The arbitration relied on an arbitration provision in a Refund Disbursement Agreement, one of two agreements referred to as the Partially Deferred Retainer and Fee Agreement Agreements (the PDRFA Agreements).

The court had previously entered a default judgment concerning Wang’s former attorney, Derek Longstaff, and the clerk had entered default concerning FPG. The remaining claims against Kahn were tried to the court. Wang sought a permanent injunction based principally on his position that no valid agreement to arbitrate existed and, alternatively, under 9 U.S.C. § 206 based on alleged violations of American Arbitration Association rules.

Findings

The court found that Wang did not sign the PDRFA Agreements and did not authorize Longstaff to sign them. The court also found that Wang’s authorized agent, Guohua “Greg” Xiong, did not authorize Longstaff to enter the agreements. A November 2017 power of attorney that Longstaff used to appear to have authority was forged. The court found that the only power of attorney Wang had granted to Longstaff was an IRS Form 2848, which authorized Longstaff to act within the form’s stated scope.

The court found that Wang had not communicated with Kahn before Longstaff signed the agreements and had taken no action that would reasonably have led Kahn to believe Longstaff had authority to enter them. Kahn later met Wang in Beijing and had Wang sign a separate document, but Kahn did not show Wang the PDRFA Agreements, the purported November 2017 power of attorney, or any contract containing an arbitration clause. Kahn also did not tell Wang that signing the document would mean agreeing to arbitration.

The court rejected Kahn’s arguments that Wang had later ratified the agreements. It found that Wang lacked full knowledge of the agreements and their terms when the relevant payments and other events occurred. The court concluded that payments made without Wang’s or Xiong’s knowledge did not show ratification, and that Xiong’s later $107,500 payment was made under pressure to obtain release of Wang’s tax-refund checks, not to affirm the agreements. The court also found that Wang did not receive proven benefits under the agreements and, in any event, lacked knowledge of the contract from which any benefit would have arisen.

Legal conclusions

The court held that when a person disputes whether a contract containing an arbitration clause was ever formed, the court—not the arbitrator—decides whether the contract is valid. Kahn, as the party seeking to compel arbitration, had to prove the existence of a valid arbitration agreement by a preponderance of the evidence.

The court concluded that Longstaff had neither actual authority nor apparent authority to enter the PDRFA Agreements for Wang, and that Wang did not ratify them. Because the agreements were not formed, the court concluded that no agreement to arbitrate existed.

Disposition

The court found for Petitioner Youlin Wang and against Respondent Richard Kahn. It ordered that a judgment and permanent injunction issue. Specifically, Richard Kahn and FPG were enjoined from continuing the arbitration in Miami, Florida, before the American Arbitration Association in Case No. 01-19-004-1076, and from initiating arbitral proceedings under the PDRFA Agreements. Judge Freeman’s order therefore permanently stopped the specified arbitration and barred new arbitration proceedings under those agreements.