Opinion
Case No.: CV 19-06983-CJC (JCx)
2020-08-13
CRYPTO ASSET FUND, LLC and Digital Capital Management, LLC, Plaintiffs, v. OPSKINS GROUP INC., dba Worldwide Asset eXchange; Exposition Park Holdings SEZC; William Quigley ; Jonathan Yantis; John Brechisci, Jr.; Malcolm CasSelle; and Does 1-10, inclusive, Defendants.
Jeffrey N. Goldberg, Law Offices of Jeffrey Goldberg PC, Los Angeles, CA, for Plaintiffs. Caroline A. H Sayers, Lathrop GPM LLP, Los Angeles, CA, for Defendants OPSkins Group Inc., Exposition Park Holdings SEZC, William Quigley. Caroline A. H Sayers, Lathrop GPM LLP, Los Angeles, CA, Brian Wayne Fields, Pro Hac Vice, J Bradley Leitch, Pro Hac Vice, Lathrop Gage LLP, Kansas City, MO, for Defendants Jonathan Yantis, Malcolm CasSelle.
Jeffrey N. Goldberg, Law Offices of Jeffrey Goldberg PC, Los Angeles, CA, for Plaintiffs.
Caroline A. H Sayers, Lathrop GPM LLP, Los Angeles, CA, for Defendants OPSkins Group Inc., Exposition Park Holdings SEZC, William Quigley.
Caroline A. H Sayers, Lathrop GPM LLP, Los Angeles, CA, Brian Wayne Fields, Pro Hac Vice, J Bradley Leitch, Pro Hac Vice, Lathrop Gage LLP, Kansas City, MO, for Defendants Jonathan Yantis, Malcolm CasSelle.
ORDER GRANTING IN SUBSTANTIAL PART DEFENDANTS’ MOTIONS TO DISMISS (Dkts. 14, 24, 26, 40), STAYING CASE PENDING ARBITRATION, AND DENYING AS MOOT DEFENDANTS’ MOTION TO FILE SUPPLEMENTAL AUTHORITY [Dkt. 56]
CORMAC J. CARNEY, UNITED STATES DISTRICT JUDGE
I. INTRODUCTION
This case arises out of Plaintiffs Crypto Asset Fund, LLC ("CAF") and Digital Capital Management, LLC's ("DCM") $1.2 million purchase of digital utility tokens called WAX tokens in an Initial Coin Offering ("ICO"). Plaintiffs allege that Defendants’ sale of WAX tokens violated federal securities laws and various California state laws. Before the Court are four separate motions brought by different groups of Defendants asking the Court to dismiss Plaintiffs’ claims because they are subject to arbitration, or in the alternative, to stay the case pending arbitration. (Dkts. 14, 24, 26, 40.) The Court determined additional information was needed to resolve these motions, and therefore ordered the parties to submit additional evidence, including by deposing Thomas Graham, the person that purchased WAX tokens from Defendants on Plaintiffs’ behalf. (Dkt. 39.) Also before the Court, then, are the parties’ additional submissions in support of their positions on Defendants’ motions. (Dkts. 46, 54 [Plaintiffs], 55 [Defendants].) The last pending item is Defendants’ motion to file supplemental authority in support of their motions. (Dkt. 56.) For the following reasons, Defendants’ motions to dismiss are GRANTED IN SUBSTANTIAL PART and this case is STAYED pending arbitration. Defendants’ motion to file supplemental authority is DENIED AS MOOT. II. BACKGROUND
Having read and considered the papers presented by the parties, the Court finds this matter appropriate for disposition without a hearing. See Fed. R. Civ. P. 78 ; Local Rule 7-15. Accordingly, the hearing set for August 17, 2020 at 1:30 p.m. is hereby vacated and off calendar.
Worldwide Asset eXchange ("WAX") tokens are a digital currency used for trading virtual goods in video games. (Dkt. 1 [Complaint, hereinafter "Compl."] ¶ 16.) In the summer of 2017, Defendants began marketing their ICO of WAX tokens, which was scheduled for November 2017. (Id. ¶ 22.) Before the offering, Defendants held an invitation only, private presale. (Id. ¶ 23.) Defendants then conducted a public presale, and finally a "General Audience Main Sale." (Id. )
Plaintiffs purchased WAX tokens in the private presale. (Id. ¶¶ 23, 107.) Although Plaintiffs allege that they entered into a contract with Defendants to buy WAX tokens, they do not (a) allege how they entered into that contract, or (b) attach or otherwise describe the contract in their Complaint. (See id. ¶ 107 ["Pursuant to Defendants’ offer to sell WAX tokens, Plaintiffs and Defendants entered into an agreement whereby Plaintiffs purchased WAX tokens from Defendants."].) Rather, Plaintiffs allege only that in October 2017, Plaintiffs "caus[ed] to be electronically transmitted a total of 1.2 million U.S. dollars’ worth of Ether cryptocurrency through or to Defendants in exchange for WAX tokens." (Id. ¶ 7.) Graham added more detail in his deposition, explaining that Timothy Enneking of DCM sent Graham money (specifically, the cryptocurrency Ethereum) to buy WAX tokens. (Dkt. 54-1 [Excerpts from Graham Deposition Transcript] at 23–24.) Graham then sent to Enneking the WAX tokens he bought with the money Enneking gave him. (Id. )
Critical to these motions is a document called the Terms of Token Sale ("TOTS"). On September 30, 2017, Enneking received an email from Malcolm CasSelle of OPSkins advising that payment for private presale purchases of WAX tokens was due by 11:59 p.m. on October 2, 2017. (Dkt. 20-1 [Declaration of Timothy Enneking, hereinafter "Enneking Decl."] ¶ 3; id. Ex. 1.) Graham also received this email. (Dkt. 54-1 at 61, 63 [referencing Exhibit 28 to Graham Deposition].) The email also advised that the "DRAFT WAX Token Sale Agreement" was attached for "reference," and that a "subsequent email" would follow "containing the final version for signature." (Id. ¶ 3, Ex. 1.) This is the only version of the TOTS Plaintiffs contend that they saw. (Enneking Decl. ¶¶ 1, 3, 5, 7; Dkt. 20-3 [Enneking Decl. Ex. 2, hereinafter, "Draft TOTS"].) The Draft TOTS listed the date posted and last updated as "September [?] 2017." (Draft TOTS at 1; Enneking Decl. ¶ 3.) It contained an arbitration provision stating that the parties waived the right to resolve disputes between them in court, and instead would arbitrate disputes through binding arbitration, including disputes about whether the dispute was arbitrable. (Draft TOTS at 13, § 17.) The arbitration provision further provided that any arbitration would be conducted in Los Angeles County, California by a single arbitrator in accordance with the rules of the Judicial Arbitration and Mediation Services ("JAMS"). (Id. at 14, §§ 17.c., e.)
The Draft TOTS also contained a provision under the heading "Modification to the Terms" stating that the terms could be modified at any time by posting a revised version on Defendants’ website, and that it was the buyer's responsibility to check that website for modifications. (Id. at 15, § 20.) The modification provision further stated that the purchaser's continued use of WAX tokens after any modification to the terms becomes effective constitutes the purchaser's acceptance of the modification. (Id. ) On October 2, 2017, CasSelle sent Graham the address for sending payment for the WAX token presale, along with a version of the TOTS for Graham to sign. (Dkt. 54-4 [Exhibit 22 to Graham Deposition] at 3.) Graham signed the TOTS under his own name and sent the document back to CasSelle. (Id. at 1; Dkt. 54-8 [Exhibit 22-D to Graham Deposition].) CasSelle—signing on behalf of Defendant Exposition Park Holdings SEZC ("EPH")—returned from his OPSkins email address a countersigned version. (Dkt. 54-13 [Exhibit 30 to Graham Deposition, hereinafter "Signed TOTS"].) More specifically, the Signed TOTS consisted of (1) a letter agreement confirming purchases of WAX tokens in the presale, including the amount purchased and the price, and (2) a document detailing the terms of the sale of WAX tokens. (Id. ) The letter agreement stated that the purchaser "has reviewed and hereby agrees to the attached Terms of Token Sale." (Id. at 1.) The terms attached to the letter agreement Graham signed were labeled as posted September 30, 2017 and last updated October 2, 2017. (Id. at 4.) In a section titled "Representations and Warranties," the Signed TOTS state, "By purchasing Tokens, you represent and warrant that ... [i]f you are purchasing Tokens on behalf of any entity, you are authorized to accept these Terms on such entity's behalf." (Id. § 10.1.) The Signed TOTS contain a similar arbitration provision to the Draft TOTS, providing for binding arbitration instead of court decision, an arbitrator with exclusive authority to determine whether a dispute is arbitrable, and JAMS arbitration in Los Angeles, as well as a similar modification provision . (Id. § 17.)
The arbitration provision reads, in part:
Except for any disputes, claims, suits, actions, causes of action, demands or proceedings (collectively, "Disputes") in which either Party seeks injunctive or other equitable relief for the alleged unlawful use of intellectual property, including, without limitation, copyrights, trademarks, trade names, logos, trade secrets or patents, you and Company (i) waive your and Company's respective rights to have any and all Disputes arising from or related to these Terms resolved in a court, and (ii) waive your and Company's respective rights to a jury trial. Instead, you and Company will arbitrate Disputes through binding arbitration (which is the referral of a Dispute to one or more persons charged with reviewing the Dispute and making a final and binding determination to resolve it instead of having the Dispute decided by a judge or jury in court).
The full text of the modification provision is:
We may modify these Terms ... at any time by posting a revised version on the Company Site .... The modified provisions will become effective upon posting or the date indicated in the posting .... It is your responsibility to check the Company Site and other channels regularly for modifications. Your continued use of Tokens or the Company platform after any modification become[s] effective constitutes your acceptance of the modification. We last modified these Terms on the date listed at the beginning of these Terms.
After Graham and CasSelle executed the letter agreement, Defendants modified the TOTS. The modified version, labeled as posted October 17, 2017 and last updated November 7, 2017, also contains provisions requiring arbitration, including for arbitrability issues, and allowing for modification. (Dkt. 54-14 [Exhibit 31 to Graham Deposition, hereinafter "Modified TOTS"] at 13–15.) However, the Modified TOTS makes a few substantial changes. Specifically, the Modified TOTS state that the seat of arbitration is the Cayman Islands, rather than Los Angeles, and that the arbitration will be governed by the American Arbitration Association's Commercial Arbitration Rules, rather than the JAMS rules. (Modified TOTS at 14–15.)
After their purchase was complete, Plaintiffs waited for Defendants to release the WAX tokens to them. Although Defendants began releasing WAX tokens to certain investors on or before December 19, 2017, Defendants did not release Plaintiffs’ tokens until four days later. During those four days, "Plaintiffs watched the price of a WAX token peak at over $5 while other favored investors realized millions of dollars in profits of which Plaintiffs were deprived due to Defendants’ failure and refusal to timely release the tokens they had purchased." (Id. ¶ 37.) Plaintiffs also allege that Defendants withheld material information including "that they were offering and selling unregistered, non-exempt securities," and that "the WAX platform and the WAX token were developed for the specific purpose of facilitating Defendants’ online gambling" and are used "for underage and other illegal online gambling." (Id. ¶¶ 19–20, 30.)
Plaintiffs assert claims for violations of the Securities Act and Exchange Act, unlawful, unfair, and fraudulent business practices under California Business & Professions Code § 17200, breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, promissory estoppel, fraud, and negligent misrepresentation. They seek compensatory damages including lost profits, restitution and disgorgement of profits, punitive damages, attorney fees, and injunctive and declaratory relief.
III. DISCUSSION
Defendants ask the Court to dismiss Plaintiffs’ claims because they are subject to arbitration. The Court first considers whether a valid arbitration agreement exists. Then, it considers whether the Court or the arbitrator should decide the arbitrability of Plaintiffs’ claims. Finally, the Court considers whether to dismiss or stay the case.
A. Whether a Valid Arbitration Agreement Exists
Written arbitration agreements are "enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The Supreme Court has explained that "this provision [of the Federal Arbitration Act] requires federal courts to place arbitration agreements upon the same footing as other contracts." GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC , ––– U.S. ––––, 140 S. Ct. 1637, 1643, 207 L.Ed.2d 1 (2020) (cleaned up). Accordingly, "before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists." Henry Schein, Inc. v. Archer & White Sales, Inc. , ––– U.S. ––––, 139 S. Ct. 524, 530, 202 L.Ed.2d 480 (2019) (citing 9 U.S.C. § 2 ). In other words, "challenges to the existence of a contract as a whole must be determined by the court prior to ordering arbitration." Sanford v. MemberWorks, Inc. , 483 F.3d 956, 962 (9th Cir. 2007) ; see Kum Tat Ltd. v. Linden Ox Pasture, LLC , 845 F.3d 979, 983 (9th Cir. 2017) ("Although challenges to the validity of a contract with an arbitration clause are to be decided by the arbitrator, challenges to the very existence of the contract are, in general, properly directed to the court.").
Where, as here, the parties contest whether an agreement to arbitrate was formed, the court applies "general state-law principles of contract interpretation," without a presumption in favor of arbitrability. Goldman, Sachs & Co. v. City of Reno , 747 F.3d 733, 742 (9th Cir. 2014) (internal quotation omitted); see First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). The party seeking to compel arbitration bears the burden of proving by a preponderance of the evidence that there was an agreement to arbitrate. Norcia v. Samsung Telecomms. Am., LLC , 845 F.3d 1279, 1283 (9th Cir. 2017). However, the party opposing arbitration is entitled to the benefit of all reasonable doubts and inferences. Three Valleys Mun. Water Dist. v. E.F. Hutton & Co. , 925 F.2d 1136, 1141 (9th Cir. 1991).
1. Issues Related to Nonsignatories
"An essential element of any contract is the consent of the parties, or mutual assent." Donovan v. RRL Corp. , 26 Cal.4th 261, 109 Cal.Rptr.2d 807, 27 P.3d 702, 709 (2001) (citing Cal. Civ. Code §§ 1550, 1565 ); see Casa del Caffe Vergnano S.P.A. v. ItalFlavors, LLC , 816 F.3d 1208, 1212 (9th Cir. 2016) (noting that the "mutual intention to be bound by an agreement is the sine qua non of legally enforceable contracts and recognition of this requirement is nearly universal"). Here, the TOTS were signed by Graham and CasSelle (on behalf of EPH). Plaintiffs therefore argue that they and all Defendants except EPH are not parties to the TOTS, and that a nonsignatory cannot compel another nonsignatory to arbitrate. (Opp. at 24.) The Court is not persuaded.
a. Agency
First, Plaintiffs are bound to the TOTS because Graham was their agent. Under California law, an agent can enter a binding contract on behalf of its principal through actual or ostensible authority. Cal. Civ. Code §§ 2299 – 2230, 2316 – 2317. "[A]ctual authority exists when the principal allows the agent to believe that he has authority to act on its behalf." Snyder v. Bank of Am., N.A. , 2016 WL 109981, at *5 (N.D. Cal. Jan. 8, 2016) (citing Cal. Civ. Code §§ 2299, 2316 ). Ostensible authority exists to the extent that "a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess" such authority. Id. (citing Cal. Civ. Code § 2317 ).
The evidence shows Graham acted as Plaintiffs’ agent in securing the WAX tokens. First, contemporaneous emails show that Graham had actual authority to purchase WAX tokens from Defendants on Plaintiffs’ behalf. For example, in emails between late September and early October 2017, Enneking tells Graham how many WAX tokens CAF wants to purchase, and authorizes Clayton Ayers, another CAF employee, to send Graham Ether cryptocurrency to purchase those WAX tokens. (Dkt. 54-2 at 2–4.) On October 2, 2017, when Graham tells Enneking that CasSelle confirmed the presale payment deadline, Enneking assures Graham that CAF "can cover," and Ayers sends more Ether. (Id. at 5–7.) Graham confirms that he received the Ether and says he "will fund now ... [and] got the agreements. " (Id. [emphasis added].) During emails exchanged in the hours after the midnight deadline, Enneking never balks at Graham's statement about "the agreements." (See id. at 7–10.) It is plain that Enneking intended that Graham purchase WAX tokens on Plaintiffs’ behalf, with their Ether cryptocurrency, and that Enneking allowed Graham to believe that he had the authority to act on their behalf in order to do so. See Snyder , 2016 WL 109981, at *5.
Graham also had ostensible authority. Enneking multiple times represented to Defendants that Graham worked on CAF's behalf when it came to ICOs, and suggested that CasSelle and Quigley meet Graham in person. (See, e.g. , Dkt. 40-4 [September 22, 2017 email from Enneking to Quigley, CasSelle, and Quigley's assistant where Enneking describes Graham as "the head of our ICO team"]; Dkt. 40-1 [Declaration of William Quigley, hereinafter "Quigley Decl."] ¶¶ 6–7 [recounting that Enneking described Graham as CAF's head of ICO research]; id. ¶ 11 [recollecting Enneking representing that Graham was "completing his diligence on the WAX ICO"]; id. ¶ 12 [recalling how Enneking and Graham called Quigley together about an issue related to the WAX sale].)
Plaintiffs also indirectly caused Defendants to believe Graham had authority to act on their behalf. The clearest example is a December 2017 email chain where Enneking expresses frustration to CasSelle that their tokens had not been disbursed when other investors’ tokens had. (Dkt. 14-7.) Graham is copied on this chain, as Enneking goes back and forth with CasSelle (who signed the TOTS on behalf of EPH) to complete the purchase that Graham made. (Id. at 3–6.) Critically, when Enneking is asked to "reconfirm your wallet address for receipt of tokens," he replies all and asks Graham—in front of CasSelle, who represents EPH and OPSkins—to confirm the address. (Id. at 3.) Moreover, after Graham replies all with frustration about the situation, CasSelle asks Graham (in front of Enneking) what the best phone number is to reach him. (Id. at 2.) Enneking replies all after this question, expressing no qualms about CasSelle reaching out to Graham about Plaintiffs’ WAX token purchase. (Id. at 1–2.)
Plaintiffs argue that Defendants wrongly seek to show ostensible authority through "alleged actions of the alleged agent rather than the principal as required." (Dkt. 29 at 13; see id. at 22; Dkt. 54 at 2.) This email shows that Plaintiffs are wrong.
Plaintiffs do not directly dispute that Graham had authority to buy WAX tokens on their behalf. Rather, they argue that Graham did not have authority to sign any agreements on their behalf. (See, e.g. , Enneking Decl. ¶ 8 ["Neither DCM nor CAF authorized Mr. Graham to sign the purported letter agreement on their behalf."].) But "a plaintiff who dispatches an agent to deal with a defendant on his or her behalf is bound by an arbitration agreement entered into by the agent in the course of those dealings." Indep. Living Res. Ctr. San Francisco v. Uber Techs., Inc. , 2019 WL 3430656, at *3 (N.D. Cal. July 30, 2019). It is plain that Enneking sent Graham to buy WAX tokens on Plaintiffs’ behalf. Signing an arbitration agreement was a necessary step in making that purchase, and Plaintiffs are therefore bound by the agreement Graham entered into in purchasing the WAX tokens. (See Dkt. 14-2 [Declaration of Malcolm CasSelle] ¶ 5. )
Plaintiffs object that CasSelle's statement—that the TOTS governed all sales of WAX from September to November 2017—is (1) is argumentative, (2) constitutes an impermissible legal conclusion, (3) lacks foundation, (4) is not based on CasSelle's personal knowledge, and (5) is hearsay. (Dkt. 20-8.) They do not explain how any of this is so, and their objections are OVERRULED . See Cusack-Acocella v. Dual Diagnosis Treatment Ctr., Inc. , 2019 WL 2621920, at *1 (C.D. Cal. Apr. 8, 2019) (observing that "lodging excessive evidentiary objections" seems to be "a growing trend amongst federal litigants"); Doe v. Starbucks, Inc. , 2009 WL 5183773, at *1 (C.D. Cal. Dec. 18, 2009) (observing troubling trend that evidentiary objections filed are often "boilerplate recitations of evidentiary principles or blanket objections without analysis applied to specific items of evidence"). CasSelle's declaration adequately explains his personal knowledge and the foundation for his statements as an executive at EPH.
In short, Plaintiffs would have the Court believe that Graham was a rogue individual who had no authority to act on their behalf. The evidence simply does not support this contention. Rather, the evidence shows that Graham was Plaintiffs’ agent, with actual authority, ostensible authority, or both.
b. Equitable Estoppel
Even if Graham was not Plaintiffs’ agent, Defendants would be able to enforce the arbitration agreement Graham signed against Plaintiffs through equitable estoppel. See GE Energy , 140 S. Ct. at 1643–44 (explaining that nonsignatories may enforce arbitration agreements through equitable doctrines, including estoppel). Equitable estoppel "precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes." Comer v. Micor, Inc. , 436 F.3d 1098, 1101 (9th Cir. 2006). This doctrine has been used to hold nonsignatories to arbitration clauses where the nonsignatory knowingly exploits the agreement containing the arbitration clause despite having never signed the agreement. Id. Equitable estoppel also applies where the party's claims are "intimately founded in and intertwined with" the underlying contract, even if they do not directly depend on the contract itself. Kramer v. Toyota Motor Corp. , 705 F.3d 1122, 1128 (9th Cir. 2013).
Plaintiffs allege that they "entered into an agreement" with Defendants "whereby Plaintiffs purchased WAX tokens from Defendants." (Compl. ¶ 107.) They do not provide or otherwise identify that "agreement." Nevertheless, they allege they caused 1.2 million dollars’ worth of Ether cryptocurrency to be sent to Defendants and otherwise "did all, or substantially all, of the significant things that the agreement required," yet "Defendants breached their obligations under the agreement, including without limitation their obligation to release the WAX tokens in a fair and timely manner that did not give certain investors preference over others." (Id. ¶¶ 108–09.)
Defendants argue that the agreement to purchase WAX tokens and the agreement to arbitrate are contained in the same agreement—the Signed TOTS, as modified in the Modified TOTS—and that since Plaintiffs claim the benefit of the contract in their breach of contract and other claims, they are estopped from denying the contract to resist arbitration. (See, e.g. , Dkt. 14-1 at 10–11.) To evaluate this argument, the Court ordered Plaintiffs to submit the contract they allege was breached. (Dkt. 39.) Plaintiffs responded that "their agreement to purchase WAX tokens from Defendants was made through their own various, independent communications with Defendants which were extensive and both oral and written rather than through any formal, standalone contract that may have been used by Defendants in connection with other purchasers of WAX tokens." (Dkt. 46.) They maintain that their "claims do not necessarily rely upon the terms of token sale," (Opp. at 13 [emphasis in original]), but fail to identify what contract their claims do rely on.
Plaintiffs also refused to identify for Defendants the contract they allege was breached. (Dkt. 14-1 at 11 n.9.)
Every version of the TOTS available to the Court—both the draft Plaintiffs saw and the versions Plaintiffs allegedly did not see—is a single document governing the sale of WAX tokens to purchasers like Plaintiffs that includes an arbitration provision. For example, the Signed TOTS contains a letter agreement detailing the amount of WAX tokens Plaintiffs agreed to purchase and at what price, which incorporates a longer document that includes the arbitration provision. Expressly referencing Defendants’ estoppel argument, the Court offered Plaintiffs the opportunity to identify another contract that might form the basis of their claims. However, Plaintiffs have failed to provide one. Under these circumstances, the only reasonable conclusion is that the agreement Plaintiffs seek to use as a sword in their Complaint is the same agreement they attempt to use a shield against arbitration. Though Plaintiffs are entitled to the benefit of all reasonable doubts and inferences, any inferences to the contrary would be unreasonable. See Three Valleys , 925 F.2d at 1141.
At the very least, Plaintiffs’ claims are "intimately founded in and intertwined with" their obligations under the contract for the purchase of WAX tokens. See GE Energy Power , 140 S. Ct. at 1644 ; Kramer , 705 F.3d at 1128 ; see also Crypto Asset Fund, LLC v. MedCredits, Inc. , 2020 WL 1506220, at *6 n.5 (S.D. Cal. Mar. 30, 2020) (granting motion to compel arbitration and concluding that the claims against nonsignatories were "intimately founded in and intertwined with" the underlying contractual obligations related to another ICO in which CAF participated). Either way, estoppel applies to hold Plaintiffs to the arbitration clause.
2. Fraud and Unconscionability
Plaintiffs also argue the arbitration agreement is unenforceable on grounds of fraud, unconscionability, and public policy. (E.g. , Dkt. 20 at 14–17.) "Under California law, unconscionability has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results." Mohamed v. Uber Techs., Inc. , 848 F.3d 1201, 1210 (9th Cir. 2016) (internal quotations omitted) (quoting Armendariz v. Found. Health Psychcare Servs., Inc. , 24 Cal. 4th 83, 114, 99 Cal.Rptr.2d 745, 6 P.3d 669 (2000) ). For a contract to be unconscionable, there must be both substantive and procedural unconscionability. Id.
Plaintiffs argue that Defendants "employed a fraudulent bait and switch scheme," inducing them to buy WAX tokens by telling them their claims would be arbitrable by JAMS in Los Angeles, but then unilaterally changing the terms to AAA arbitration in the Cayman Islands. (Id. at 2.) Relatedly, they argue that the arbitration agreement is unconscionable because it is a "contract[ ] of adhesion that [was] allegedly presented to prospective investors in a substantially weaker bargaining position on a take it or leave it basis with no room for negotiation." (Id. at 15.)
But there is no evidence of procedural unconscionability here. The parties to this million-dollar exchange of cryptocurrency for a digital utility token were necessarily sophisticated individuals and entities. See Crypto Asset Fund, LLC v. MedCredits, Inc. , 2020 WL 1506220, at *5 (rejecting arguments of unconscionability and commenting on "the fact that both parties were sophisticated entities"). Even if it were true, as Plaintiffs contend, that Defendants had greater bargaining power, that would not be sufficient to invalidate the contract. See, e.g., Vierican, LLC v. Midas International, LLC f/k/a Midas International Corporation , 2020 WL 4430967 (D. Haw. July 31, 2020) ("Finally, even if one party had greater bargaining power, the agreement was still between two sophisticated entities. Plaintiff therefore has not shown procedural unconscionability.").
Nor is the Court persuaded by Plaintiffs’ argument that Defendants’ purported "bait and switch" scheme renders the contract unenforceable. Each version of the TOTS contained a provision stating that the terms could be modified at any time by posting a revised version on EPH's website. (Draft TOTS ¶ 20; Signed TOTS ¶ 20; Modified TOTS ¶ 20.) Accordingly, Plaintiffs’ "bait and switch" argument is really a challenge to the unilateral modification provision under which Defendants changed the terms of arbitration. However, even if the unilateral modification provision were unconscionable—an issue the Court need not decide—that would not "make[ ] the arbitration provision or the contract as a whole unenforceable." Tompkins v. 23andMe, Inc. , 840 F.3d 1016, 1033 (9th Cir. 2016) (noting that though the court did not consider whether the unilateral modification clause itself was unenforceable, the plaintiffs were free to make that argument in arbitration). Accordingly, the Court concludes that Defendants have met their burden to show by a preponderance of the evidence that there was a valid agreement to arbitrate. Norcia , 845 F.3d at 1283.
Plaintiffs’ contention that Defendants fail to present admissible evidence of an agreement to arbitrate is also unpersuasive. (See Dkt. 20 at 8–10; Dkt. 31 at 2.) The contracts are non-hearsay writings with independent legal significance. See, e.g., Pro-Com Prod. v. King's Express LA, Inc. , 2020 WL 1652277, at *3 (C.D. Cal. Feb. 13, 2020) (citing United States v. Rubier , 651 F.2d 628, 630 (9th Cir. 1981) ). Plaintiffs also insinuate that someone else might have signed the document and just written Graham's name. (Dkt. 20 at 9 ["Notably what Moving Defendants claim to be Graham's signature is not a wet, hand signature but rather appears to be an unauthenticated, electronic signature of his first and last name that could have been inserted by anyone."].) But Graham confirmed he signed the document. (See Dkt. 54-1 at 95–96; Dkt. 54-4 [email from Graham to CasSelle, "attached is my signed version"].)
B. Who Should Decide the Arbitrability of Plaintiffs’ Claims
If a valid arbitration agreement exists, a court may not decide arbitrability issues if the agreement delegates those issues to an arbitrator. Henry Schein , 139 S. Ct. at 530. Accordingly, having decided a valid arbitration agreement exists, the Court next considers whether arbitrability questions have been delegated to the arbitrator and, if so, whether the delegation clause is enforceable.
1. Whether Arbitrability Questions Have Been Delegated to the Arbitrator
"[P]arties may agree to have an arbitrator decide not only the merits of a particular dispute but also ‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy." Henry Schein , 139 S. Ct. at 528 (citing Rent–A–Center, W., Inc. v. Jackson , 561 U.S. 63, 68–70, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) ; First Options of Chi., Inc. v. Kaplan , 514 U.S. 938, 943–944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) ). Courts will not disturb such agreements as long as the agreement delegates these issues to the arbitrator by "clear and unmistakable" evidence. Id. Indeed, agreements to allow an arbitrator to decide issues of arbitrability are so sacred that courts may not override them and decide these issues even if the court thinks the application of the arbitration agreement is wholly groundless. Id. at 527–28.
The delegation clause here—which states that the arbitrator will have "exclusive authority" to determine whether a dispute is arbitrable (Signed TOTS), or that disputes concerning the arbitrability of the controversy will be decided through arbitration (Modified TOTS)—is clear and unmistakable evidence that Plaintiffs agreed to delegation. See Crypto Asset Fund, LLC v. MedCredits, Inc. , 2020 WL 1506220, at *5 (granting motion to compel arbitration where arbitration terms were nearly identical to those at issue here). Indeed, other courts in this district have found the following similar provisions to constitute clear and unmistakable delegation:
The full text of the delegation clauses is:
[T]he arbitrator will have ... the exclusive authority and jurisdiction to make all procedural and substantive decisions regarding a Dispute, including the determination of whether a Dispute is arbitrable .
(Signed Tots § 17.f. [emphasis added]; see Draft TOTS § 17.f.)
[Y]ou and Company will arbitrate all Disputes between you and us (including, without limitation, all Disputes concerning the interpretation and scope of this Section 17, the arbitrability of the controversy , dispute, demand, claim, or cause of action, or any related or prior agreement that you may have or have had with us) through binding and confidential arbitration ....
(Modified TOTS at § 17.a. [emphasis added].)
• "ANY DISPUTES AS TO THE RIGHTS AND OBLIGATIONS OF THE PARTIES, INCLUDING THE ARBITRABILITY OF DISPUTES BETWEEN THE PARTIES, SHALL BE FULLY RESOLVED BY ARBITRATION," Ratajesak v. New Prime, Inc. , 2019 WL 1771659, at *5 (C.D. Cal. Mar. 20, 2019),
• "The Arbitrator, and not any federal or state court, shall have the exclusive authority to resolve any issue relating to the interpretation, formation or enforceability of this Agreement, or any issue relating to whether a Claim is subject to arbitration under this Agreement," Lakhan v. U.S. Sec. Assocs., Inc. , 2019 WL 175043, at *6 (C.D. Cal. Jan. 11, 2019), and
• "Any and all disputes arising under or relating in any way to the interpretation or application of this Agreement concerning Employee's employment with the Company, payment from that employment and/or termination thereof shall be subject to arbitration," Dvorsky v. Axis Glob. Sys., LLC , 2017 WL 7079459, at *1 (C.D. Cal. June 15, 2017).
Consistent with this authority, the Court finds that Plaintiffs clearly and unmistakably agreed to the delegation of arbitrability issues to an arbitrator.
2. Whether the Delegation Clause is Unenforceable
"Because a court must enforce an agreement that, as here, clearly and unmistakably delegates arbitrability questions to the arbitrator, the only remaining question is whether the particular agreement to delegate arbitrability ... is itself unconscionable." Brennan v. Opus Bank , 796 F.3d 1125, 1132 (9th Cir. 2015). Plaintiffs argue that the delegation provision is unenforceable because it was (a) procured by fraud and is (b) unconscionable.
Although Plaintiffs state that the delegation provision was procured by fraud and is unconscionable, they make no arguments on this issue separate from whether the TOTS as a whole are unenforceable. (See, e.g. , Dkt. 20 at 6 ["the fraudulent bait and switch scheme employed by Defendants renders both the entire alleged arbitration agreement and the purported delegation provision within it unenforceable"]; id. ["the purported delegation provision itself—like the entire alleged arbitration agreement—is unconscionable and void as against public policy"]; id. at 14 [section heading claiming "The Alleged Arbitration Agreement, Including Specifically The Purported Delegation Provision Therein, Is Unenforceable On Grounds of Fraud"]; id. at 15 [section heading maintaining "The Alleged Arbitration Agreement, Including Specifically The Purported Delegation Provision Therein, Is Unconscionable and Violates Public Policy and is Therefore Unenforceable"]. These arguments do not persuade the Court that the delegation provision itself is not valid or enforceable. See Dvorsky , 2017 WL 7079459, at *3 (finding delegation provision valid and enforceable where none of the party's unconscionability arguments were aimed at that provision specifically); see also Brennan , 796 F.3d at 1132–33 ("[S]ince Brennan failed to make any arguments specific to the delegation provision, and instead argued that the Arbitration Clause as a whole is unconscionable under state law, we need not consider that claim because it is for the arbitrator to decide in light of the parties’ clear and unmistakable delegation of that question.") (cleaned up). And the Court finds nothing so harsh or one-sided about this delegation clause that "[n]o man in his senses and not under delusion would make [it] on the one hand, and as no honest and fair man would accept [it] on the other." See Ratajesak , 2019 WL 1771659, at *7 (citing Cal. Grocers Ass'n v. Bank of Am. , 22 Cal. App. 4th 205, 214, 27 Cal.Rptr.2d 396 (1994) ).
In sum, the Court concludes that the parties’ valid arbitration agreement delegates arbitrability issues to an arbitrator, and that the delegation clause is enforceable.
C. Whether to Dismiss or Stay the Case
Having concluded that the claims here are referable to arbitration, the Court must decide whether to dismiss or stay the case. See Johnmohammadi v. Bloomingdale's, Inc. , 755 F.3d 1072, 1074 (9th Cir. 2014). The FAA directs district courts to stay all proceedings pending completion of arbitration, 9 U.S.C. § 3, and there is a "preference for staying an action pending arbitration rather than dismissing it." MediVas, LLC v. Marubeni Corp. , 741 F.3d 4, 9 (9th Cir. 2014). Accordingly, the Court in its discretion will stay this case pending arbitration rather than dismiss it.
IV. CONCLUSION
For the foregoing reasons, Defendants’ motions to dismiss are GRANTED IN SUBSTANTIAL PART and this case is STAYED pending the outcome of arbitration. Defendants’ motion to file supplemental authority is DENIED AS MOOT.