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Inception Mining Inc. v. Danzig Ltd.

United States District Court, D. Utah, Central Division

April 23, 2018

INCEPTION MINING, INC., a Nevada Corporation; MICHAEL AHLIN, an individual; and TRENT D'AMBROSIO, an individual, Plaintiffs,
v.
DANZIG, LTD., a North Carolina Corporation; ELLIOT FOXCROFT, an individual; and BRETT BERTOLAMI, an individual, Defendants.

          MEMORANDUM DECISION AND ORDER DENYING IN PART AND GRANTING IN PART MOTION TO DISMISS

          David Nuffer District Judge

         Plaintiffs assert claims for declaratory judgment and injunctive relief relating to arbitration proceedings pending in Salt Lake City, Utah and Boston, Massachusetts (respectively, the “SLC Arbitration” and the “Boston Arbitration”).[1] Defendants seek dismissal of Plaintiffs' Complaint arguing (1) subject matter jurisdiction is lacking or venue is improper based on the Federal Arbitration Act and the parties' binding agreements to arbitrate; and (2) jurisdiction should be declined in favor of a first-filed federal case pending in the Western District of North Carolina (the “North Carolina Case”).[2]

         A prior Memorandum Decision resolved Defendant's Motion to Dismiss as to Plaintiffs' claims concerning the SLC Arbitration.[3] However, the Motion to Dismiss was stayed as to Plaintiffs' claims concerning the Boston Arbitration pending the resolution of a motion to dismiss filed in the North Carolina Case.[4] The parties were directed to file a joint status report upon the issuance of a ruling on the motion to dismiss in the North Carolina Case.[5]

         On March 5, 2018, the parties filed a Joint Notice indicating that the motion to dismiss in the North Carolina Case was granted.[6] The Joint Notice also indicated that Defendants would not challenge that ruling.[7] Therefore, the stayed portions of Defendants' Motion to Dismiss are now ripe for determination.

         Because the North Carolina Case was dismissed, [8] Defendants' Motion to Dismiss is MOOT as to whether jurisdiction over Plaintiffs' claims should be declined in favor of the North Carolina Case. Additionally, because subject matter jurisdiction exists and venue is proper for Plaintiffs' claims concerning Michael Ahlin and Trent D'Ambrosio (the “Individual Plaintiffs”), Defendants' Motion to Dismiss[9] is DENIED in part. But because issues of arbitrability are to be decided by the arbitrator in the Boston Arbitration, Defendants' Motion to Dismiss[10] is GRANTED in part.

         Contents

         BACKGROUND ............................................................................................................................ 3

         The Contracts ...................................................................................................................... 3

         The Boston Arbitration ....................................................................................................... 3

         Plaintiffs' Complaint ........................................................................................................... 4

         DISCUSSION ................................................................................................................................. 5

         Subject matter jurisdiction exists and venue is proper for Plaintiffs' claims concerning the Individual Plaintiffs .............. 5

         The arbitrator determines issues of arbitrability concerning the signatories to the Danzig Agreement, the Asset Purchase Agreement, and the Debt Exchange Agreement .......... 8

         ORDER ............................... 11

         BACKGROUND[11]

The Contracts

         Plaintiffs' claims relate to three contracts:

• a consulting agreement entered between Gold American Mining Corp. and Danzig, Ltd. on February 25, 2013 (the “Danzig Agreement”);[12]
• an asset purchase agreement entered between Inception Resources, LLC and Gold American Mining Corp., Inception Development, Inc., and Brett Bertolami on February 25, 2013 (the “Asset Purchase Agreement”);[13] and
• a debt exchange agreement entered between Gold American Mining Corp. and Bret Bertolami on February 25, 2013 (the “Debt Exchange Agreement”).[14]

         The Boston Arbitration

         On June 12, 2017, Danzig, Ltd. initiated the Boston Arbitration with the American Arbitration Association (“AAA”).[15] In the Boston Arbitration, Danzig, Ltd. alleges claims against Inception Mining, Inc. and the Individual Plaintiffs for federal securities fraud; North Carolina securities fraud; breach of contract; unjust enrichment; common law fraud; breach of fiduciary duty; and negligent misrepresentation.[16]

         Plaintiffs' Complaint

         Plaintiffs initiated this case on August 22, 2017.[17] Plaintiffs' second and third causes of action (respectively “Second Claim” and “Third Claim”) pertain to the Boston Arbitration, the Danzig Agreement, the Asset Purchase Agreement, and the Debt Exchange Agreement.[18] In their Second Claim, Plaintiffs seeks declaratory judgment that:

• the Individual Plaintiffs are not proper parties to the Boston Arbitration;
• claims under the Asset Purchase Agreement and the Debt Exchange Agreement are not properly the subject of the Boston Arbitration;
• the exclusive dispute resolution forum under the Danzig Agreement is arbitration; and
• the exclusive dispute resolution forum for claims under the Asset Purchase Agreement is arbitration in Salt Lake City, Utah before an arbitrator with five years of experience in the gold mining industry.[19]

         In their Third Claim, Plaintiffs seek, among other things, injunctive relief:

• enjoining Defendants Danzig, Ltd. and Brett Bertolami from asserting claims under the Asset Purchase Agreement in any court;
• enjoining Defendants Danzig, Ltd. and Brett Bertolami from asserting claims under the Danzig Agreement in any court;
• enjoining Defendants from asserting claims under the Debt Exchange Agreement in any arbitration brought under the Danzig Agreement or the Asset Purchase Agreement; and
• enjoining Defendants from asserting any claims under the Danzig Agreement, the Asset Purchase Agreement, or the Debt Exchange Agreement against the Individual Plaintiffs.[20]

         DISCUSSION

         “[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.”[21] “[A] party who has not agreed to arbitrate will normally have a right to a court's decision about the merits of its dispute[.]”[22] “But, where the party has agreed to arbitrate, he or she, in effect, has relinquished much of that right's practical value.”[23] And “[w]hen a plaintiff's claim is subject to arbitration, federal courts lack subject matter jurisdiction to entertain the action.”[24]

         Subject matter jurisdiction exists and venue is proper for Plaintiffs' claims concerning the Individual Plaintiffs

         Portions of Plaintiffs' Second Claim and Third Claim seek declaratory judgment and injunctive relief to determine whether the Individual Plaintiffs are proper parties to the Boston Arbitration, and whether Defendants may assert claims under the Danzig Agreement, the Asset Purchase Agreement, and the Debt Exchange Agreement against the Individual Plaintiffs.[25]Defendants argue that subject matter jurisdiction over these claims is lacking or venue is improper because they raise issues of arbitrability that should be decided by the arbitrator in the Boston Arbitration.[26]

         “[W]ho-court or arbitrator-has the primary authority to decide whether a party has agreed to arbitrate can make a critical difference to a party resisting arbitration.”[27] This is because when a party “ask[s] a court to review the arbitrator's decision . . . the ...


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