Crypto Asset Fund, LLC v. Opskins Grp. Inc.
| Citation | 478 F.Supp.3d 919 |
| Decision Date | 13 August 2020 |
| Docket Number | Case No.: CV 19-06983-CJC (JCx) |
| Parties | 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. |
| Court | U.S. District Court — Central District of California |
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]
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.1
Worldwide Asset eXchange ("WAX") tokens are a digital currency used for trading virtual goods in video games. 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 [].) 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 (, 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. 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 (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,2 an arbitrator with exclusive authority to determine whether a dispute is arbitrable, and JAMS arbitration in Los Angeles, as well as a similar modification provision3 . (Id. § 17.)
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.
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...
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...provision. That individual, in turn, was to receive the crypto currency from the seller and forward it to the purchasing entity. (Id. at p. 923.) In a titled" 'Representations and Warranties,'" the terms of sale stated that" 'By purchasing Tokens, you represent and warrant that . . . [i]f y......
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The Regents of the Univ. of Cal. v. Buttgenbach
...provision. That individual, in turn, was to receive the crypto currency from the seller and forward it to the purchasing entity. (Id. at p. 923.) In a titled" 'Representations and Warranties,'" the terms of sale stated that" 'By purchasing Tokens, you represent and warrant that . . . [i]f y......