Veribi, LLC v. Compass Mining, Inc.
| Decision Date | 20 January 2023 |
| Docket Number | 2:22-cv-04537-MEMF-JPR |
| Parties | VERIBI, LLC, a Nevada limited liability company, Plaintiff, v. COMPASS MINING, INC., a Delaware corporation, Defendant. |
| Court | U.S. District Court — Central District of California |
ORDER DENYING DEFENDANT'S MOTION TO COMPEL ARBITRATION [ECF NO. 15]
Before the Court is the Motion to Compel Arbitration (ECF No. 15) filed by Defendant Compass Mining, Inc. For the reasons provided below, the Court hereby DENIES the Motion to Compel Arbitration.
Plaintiff Veribi, LLC (“Veribi”) brings this suit against Defendant Compass Mining, Inc. (“Compass”). Veribi is a Nevada limited liability company engaged in the business of bitcoin mining. Compl. ¶¶ 3, 5. Compass is a Delaware corporation that provides hosting services and mining systems for bitcoin mining. Id. ¶ 7. Bitcoin mining is the process of applying computing power to solve cryptographic problems to produce or “mint” new bitcoins, a process that is “energy intensive” and typically located in places with low energy costs and high production capacity. Id. ¶¶ 5, 8. Compass provides its customers with the necessary means to mine cryptocurrency, which includes selling computers required to mine cryptocurrency (“miners”) and provision of hosting services for a customer's miners. Declaration of Thomas Heller, ECF No. 15-1 (“Heller Decl.”) ¶ 5. Hosting services include providing access to facilities sufficient to support the operation of miners, as well as electricity to run the miners. Id.
Compass contracted with BitRiver, a major Russian hosting company incorporated in Switzerland, to provide hosting services in Russia for Compass's North American clients. Compl. ¶¶ 9, 15. Executive Order 14024 was issued on April 15, 2021, mandating, in relevant part:
31 C.F.R. § Pt. 587, App. A (2022) (emphasis added).
Between May 2021 and January 2022, Veribi purchased 140 bitcoin mining servers and service plans from Compass for approximately 1.5 million dollars, which Compass managed at BitRiver's facility in Russia. Id. ¶ 16. In November 2021, satellite images showed an ongoing buildup of Russian forces near Ukraine. Id. ¶ 18. On March 3, 2022, Compass issued a statement to ease customer concerns regarding the Russian invasion and sanctions, stating “business as usual.” Id. ¶ 21. On April 20, 2022, the U.S. Department of the Treasury's Office for Foreign Assets Control (OFAC) designated BitRiver AG, Compass's hosting partner in Russia, and other affiliated companies as subject to Executive Order 14024. Id. ¶ 22.
On April 21, 2022, Compass issued a notice via email to customers that it “terminated contractual relationship and business dealings with BitRiver” due to the designation of BitRiver as subject to Executive Order 14024. Id. ¶ 24. Concerned with its investments, Veribi contacted BitRiver to attempt to remove its miners from Russia or sell them to a non-sanctioned third party. Id. ¶ 26. On May 6, 2022, BitRiver responded to Veribi's email, stating that Compass was the owner of its customers' miners in BitRiver's possession and control and, as a result, Veribi was instead required to direct all queries regarding the equipment to Compass. Id. On May 9, 2022, Veribi advised Compass to instruct BitRiver to prepare its miners for shipment out of Russia. Id. ¶ 27. However, Compass responded that it was unable to conduct or facilitate any business dealings with BitRiver pursuant to the U.S. government's prohibition against conducting business with BitRiver. Id.
1. Veribi's Purchases
Veribi made five separate purchases and received invoices for miners and hosting services it purchased from Compass on May 18, 2021, June 9, 2021, August 5, 2021, January 14, 2022, and January 26, 2022. Heller Decl. ¶ 12; see also ECF No. 15-2 (“Compass Invoices”). The invoices issued to Veribi from June 2021 to January 2022 included the following notice in a footnote: See generally Compass Invoices.[2]
Veribi also made two purchases of miners online through the Compass website, on March 31, 2021, and July 30, 2021. Heller Decl. ¶¶ 29-30. Customers completing an online transaction via Compass's website are required to scroll through the CHSA, click “Ok, I agree,” and then check a box affirming: “I have read and agree to the Compass Hosting Service Agreement.” Id. ¶ 32. On the website's checkout page, the “pay with” options are disabled until the customer checks the box next to the statement, “I have read and agree to the Compass Hosting Service Agreement.” Id. ¶ 34. Customers who try to click on a payment option without checking the box are blocked by an error, and a message in red appears, stating, “You need to accept the Compass Hosting Service Agreement.” Id. When a customer clicks the box next to “I have read and agree to the Compass Hosting Service Agreement,” the Agreement automatically pops up on the customer's screen. Id. Once the Agreement pops up, a customer cannot accept or agree to the Agreement until they scroll to the bottom of the document.[3] Id.
Beginning in July 2021, the CHSA included a provision labeled “Disputes” that provides in relevant part:
To the fullest extent permitted by law, the parties hereto (the “Parties”) agree to waive their right to seek remedies in court, including but not limited to rights to a trial by jury. The Parties agree that any dispute between or among them or their subsidiaries, affiliates or related entities arising out of, relating to or in connection with this Agreement, will be resolved in accordance with a confidential two-step dispute resolution procedure involving: (1) non-binding mediation, and (2) binding arbitration under the Federal Arbitration Act, 9 U.S.C. 1, et seq., or state law, whichever is applicable . . . .
ECF No. 15-7, Ex. F (“July 2021 CHSA”), at 10 (emphasis added). The subsequently revised versions of the CHSA, dated August 2021 and January 2022, contain substantially the same arbitration provision as the July 2021 CHSA.[4]
On July 1, 2022, Veribi filed its Complaint against Compass, alleging: (1) breach of contract, (2) negligence, (3) conversion, and (4) fraud. See generally Compl. On August 10, 2022, Compass filed a Motion to Dismiss and a Motion to Compel Arbitration. ECF Nos. 13 (“MTD”), 15 (“MTCA”). The Motion to Compel Arbitration was fully briefed on August 23, 2022. ECF Nos. 24 (“MTCA Opp'n”), 31 (“MTCA Reply”). On September 1, 2022, the Motion to Dismiss was fully briefed. ECF Nos. 27 (“MTD Opp'n”), 32 (“MTD Reply”). On November 10, 2022, Compass filed an Application for Leave to File Notice of Supplemental Authority in Support of its Motion to Compel Arbitration. ECF No. 34. The Court granted leave on November 11, 2022. ECF No. 35. The Court heard oral argument on the Motions on November 17, 2022.
Under Section 2 of the Federal Arbitration Act (“FAA”), arbitration clauses in contracts “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. The FAA reflects the “fundamental principle that arbitration is a matter of contract.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (quoting Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010)). Morgan v. Sundance, Inc., 142 S.Ct. 1708, 1713 (2022).
“[T]he party seeking to compel arbitration[] has the burden of proving the existence of an agreement to arbitrate by a preponderance of the evidence.” Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 2014). In determining whether to compel arbitration, the court must consider two gateway factors: (1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute. Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015) (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 84 (2002)). Moreover, arbitration agreements may be invalidated by “generally...
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