Dekrypt Capital, LLC v. Uphold Ltd.
| Decision Date | 10 January 2022 |
| Docket Number | 82606-9-I |
| Court | Court of Appeals of Washington |
| Parties | DEKRYPT CAPITAL, LLC, a Delaware company, DEKRYPT MASTER FUND L.P., a British Virgin Islands company, DEKRYPT VENTURES I L.P., a British Virgin Islands company, ARRINGTON XRP CAPITAL CAYMAN SPV, LTD., a Cayman Islands company, and ARRINGTON CAPITAL MANAGEMENT, LLC, a Washington Company, Respondents, v. UPHOLD LTD., a Cayman Islands exempted limited liability company, UPHOLD, INC., a Washington corporation, UPHOLD HQ INC., a South Carolina corporation, JUAN PABLO THIERIOT, individually and the marital community comprised thereof, and DANIEL SCHATT, individually and the marital community comprised thereof, Appellants. |
UNPUBLISHED OPINION
Uphold Ltd., two affiliated companies, Juan Pablo Thieriot Uphold's chief executive officer, and Daniel Schatt, a member of Uphold's board (collectively Uphold), appeal a trial court order denying their motion to compel arbitration of claims asserted by five companies who contracted with Citations and pin cites are based on the Westlaw online version of the cited material.
Uphold to purchase units of cryptocurrency (the Buyers). We conclude the arbitrability of the Buyers' claims is governed by the Federal Arbitration Act (FAA), [1]and that under this federal statute, we refer to state law to interpret the agreement to decide who may compel arbitration. We further conclude there is no conflict between Singapore law, the choice of law of the contract, and Washington law, and that under both jurisdictions, Uphold has the right to compel arbitration of the Buyers' claims. We therefore reverse and remand for the entry of an order compelling arbitration.
In November 2020, five companies-Dekrypt Capital LLC, Dekrypt Master Fund L.P., Dekrypt Ventures L.P. (the Dekrypt Companies), Arrington XRP Capital Cayman SPV, Ltd., and Arrington Capital Management LLC (the Arrington Companies)-initiated a lawsuit against Uphold.[2] The lawsuit alleges that Uphold represented that it intended to universalize the process of trading cryptocurrencies by building a "Universal Protocol Platform, a digital reserve ecosystem that provides interoperability for blockchain-based assets," and was raising money for the project through the sale of cryptocurrency tokens. It further alleges that the Dekrypt Companies and the Arrington Companies entered into "Token Sale Agreements" (TSAs) with Uphold for the purchase of these tokens, that the tokens were "securities" under the Washington State Securities Act (WSSA), chapter 21.20 RCW, and that Uphold violated the WSSA by selling unregistered securities and making materially false representations in the sales. These Buyers seek to rescind the TSAs and to recover damages for violations of the WSSA and for negligent misrepresentations.
The Buyers' claims arise out of three separate, but identical TSAs. Each TSA provided:
On August 3, 2018, Uphold executed the first TSA with the Arrington Companies. The TSA recitals stated that the "Parties" to the agreement were "the Buyer" and "the Vendor." The "Buyer" was identified as Arrington XRP (AXRP). In Schedule 1 to the TSA, AXRP agreed to transfer $2 million to Uphold and, in exchange, Uphold promised to transfer 250, 000, 000 digital tokens to AXRP at a price of $0.008 per token.
On September 4, 2018, Uphold executed a TSA with two Dekrypt Companies. The TSA identified the "Buyer" as Dekrypt Master Fund L.P. Dekrypt Capital LLC, the general partner of Dekrypt Master Fund, executed the agreement on behalf of the limited partnership. The Dekrypt Companies agreed to transfer $1 million to Uphold and, in exchange, Uphold promised to transfer 125, 000, 000 tokens to them.
Finally, on October 24, 2018, Uphold executed a TSA with Dekrypt Ventures I L.P., in which Uphold agreed to transfer 62, 500, 000 tokens to that Buyer in exchange for $500, 000.
The TSA defined the "Vendor" as a yet-to-be formed "company incorporated in Singapore to be named 'Universal Protocol Pte. Ltd.' (or if such name is unavailable, such other similar name as determined by the Project Group)." It provided that Uphold "is entering into this Agreement in the capacity of a proxy on behalf of the Vendor prior to the Vendor's incorporation with the intention that this Agreement will be ratified by the Vendor after its Incorporation," as allowed under section 41 of Singapore's Companies Act. Thieriot signed the TSAs on behalf of Uphold, with Uphold signing on behalf of the yet-to-be incorporated company, Universal.
Uphold moved to compel arbitration of the Buyers' claims under section 7.12. The Buyers argued that only the "Vendor," Universal-and not its proxy, Uphold, nor any of its affiliated companies, officers or directors-could invoke the arbitration clause of the TSA. The trial court denied Uphold's motion on April 20, 2021. Uphold appeals.
Uphold challenges the trial court's order denying its motion to compel arbitration. We review this decision de novo. Satomi Owners Ass'n v. Satomi, LLC, 167 Wn.2d 781, 797, 225 P.3d 213 (2009). The party opposing arbitration bears the burden of showing that the agreement is not enforceable. Zuver v. Airtouch Commc'ns, Inc. 153 Wn.2d 293, 302, 103 P.3d 753 (2004).
Uphold argues that the FAA governs the arbitrability of the Buyers' claims. We agree. The FAA provides:
A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
9 U.S.C. § 2. This section declares a national policy favoring arbitration of claims that parties contract to settle in that manner. Satomi, 167 Wn.2d at 798. The effect of this section is to create a body of federal substantive law of arbitrability, applicable to any agreement within the coverage of the act. Id. Both state and federal courts must enforce this body of law. Id.
The FAA applies to transactions involving economic activity in interstate commerce. Id. at 799 (). The FAA applies to the Buyers' token sales because, like Satomi, the transactions involve interstate commerce. AXRP is a Cayman Islands corporation. Dekrypt Master Fund and Dekrypt Ventures are British Virgin Islands limited partnerships. They each agreed to purchase "BTC," defined as "bitcoin, the cryptographic token associated with the Bitcoin cash blockchain." Each designated a "Buyer Token Receiving Address" on the "Ethereum blockchain" to which Uphold Ltd., a Cayman Islands limited liability company, agreed to transfer the digital tokens.[5] The Ethereum blockchain is an open source, decentralized platform on the Internet used to issue custom digital assets. U.S. Sec. & Exch. Comm'n v. Kik Interactive, Inc., 492 F.Supp.3d 169, 174 (S.D.N.Y. 2020). Virtual currencies, such as Bitcoin, are commodities in interstate commerce. McDonnell, 287 F.Supp. at 228 (). The nature of the transactions here make the arbitration provision in the TSA subject to the FAA.
Under the FAA, arbitration is a matter of contract and courts must enforce arbitration contracts according to their terms. Henry Schein, Inc. v. Archer & White Sales, Inc., __ U.S. __, 139 S.Ct. 524, 529, 202 L.Ed.2d 480 (2019); AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). But a party cannot be required to submit to arbitration any dispute which it did not agree to resolve in that forum. AT&T Techs., Inc. v. Commc'ns. Workers of Am., 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). Thus, a court must resolve any issue that calls into question the validity or applicability of an arbitration clause. Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 297, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010).
The court's role under the FAA is to determine (1) whether a valid agreement to arbitrate exists, and (2) whether the agreement encompasses the dispute at issue. Shivkov v. Artex Risk Solutions, Inc., 974 F.3d 1051, 1058 (9th Cir. 2020).[6]
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