Inception Mining et al v. Danzig et al

Filing 49

MEMORANDUM DECISION AND ORDER granting 8 Motion for Preliminary Injunction as to Plaintiffs' claim that the Individual Plaintiffs are not proper parties to the Boston Arbitration: The Boston Arbitration is preliminarily enjoined as to the Individual Plaintiffs. Dfts' brief on the remaining 8 Motion for Permanent Injunction issue due by 4/30/18. Signed by Judge David Nuffer on 4/23/18 (alt)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
INCEPTION MINING, INC.; MICHAEL
AHLIN; and TRENT D’AMBROSIO,
Plaintiffs,

MEMORANDUM DECISION AND
ORDER GRANTING IN PART MOTION
FOR PRELIMINARY INJUNCTION, OR
ALTERNATIVELY A PERMANENT
INJUNCTION

v.
DANZIG, LTD.; ELLIOT FOXCROFT; and
BRETT BERTOLAMI,

Case No. 2:17-cv-00944-DN
District Judge David Nuffer

Defendants.

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”; collectively, the “Arbitrations”). 1 Plaintiffs
move for preliminary or permanent injunctive relief staying the Arbitrations until threshold
issues of arbitrability are resolved in this court. 2 Specifically, Plaintiffs seek a stay of the
Arbitrations until the resolution of their claims that (1) Plaintiffs Michael Ahlin and Trent
D’Ambrosio (the “Individual Plaintiffs”) are not proper parties to the Arbitrations; and (2)
Defendants’ claims under certain contracts are not subject to arbitration in the Boston
Arbitration. 3

1

Complaint, docket no. 4, filed Aug. 22, 2017.

2

Plaintiffs’ Motion for Preliminary Injunction, or Alternatively a Permanent Injunction (“Motion for Injunction”),
docket no. 8, filed Sept. 13, 2017.

3

Id. at 2.

Defendants sought dismissal of Plaintiffs’ Complaint on jurisdictional grounds. 4 A
Memorandum Decision determined that jurisdiction and venue are proper for this court to
determine whether the Individual Plaintiffs may be required to arbitrate in the SLC Arbitration. 5
A Second Memorandum Decision determined the same regarding the Boston Arbitration. 6
However, the Second Memorandum Decision also determined that subject matter jurisdiction
was lacking over Plaintiffs’ claims that Defendants’ claims under certain contracts are not
subject to arbitration in the Boston Arbitration. 7
A Third Memorandum Decision determined that entry of a preliminary injunction was
appropriate on Plaintiffs’ claim that the Individual Plaintiffs are not proper parties to the SLC
Arbitration. 8 But the Third Memorandum Decision stayed determination on Plaintiffs’ claims
concerning the Boston Arbitration pending resolution of a motion to dismiss filed in a related
federal case in the Western District of North Carolina (the “North Carolina Case”). 9 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. 10
On March 5, 2018, the parties filed a Joint Notice indicating that the motion to dismiss in
the North Carolina Case was granted. 11 The Joint Notice also indicated that Defendants would

4

Defendants’ Motion to Dismiss Plaintiffs’ Complaint (“Motion to Dismiss”), docket no. 14, filed Sept. 19, 2017.

5

Memorandum Decision and Order on Motion to Dismiss (“Memorandum Decision”) at 6-9, docket no. 38, filed
Jan. 24, 2018.
6

Memorandum Decision and Order on Motion to Dismiss (“Second Memorandum Decision”) at 5-8, docket no. 47,
filed Apr. 23, 2018.
7

Id. at 8-11.

8

Memorandum Decision and Order Granting in Part and Staying in Part Motion for Preliminary Injunction, or
Alternatively a Permanent Injunction (“Third Memorandum Decision”) at 3-21, docket no. 39, filed Feb. 27, 2018.

9

Id. at 22.

10

Id. at 23 ¶ 5.

11

Joint Notice to the Court (“Joint Notice”) at 2, docket no. 41, filed Mar. 5, 2018; see also Memorandum and
Recommendation and Order (“North Carolina Order”), docket no. 41-1, filed Mar. 5, 2018.

2

not challenge that ruling. 12 Therefore, the stayed portions of Plaintiffs’ Motion for Injunction are
now ripe for determination.
Plaintiffs’ Motion for Injunction 13 is MOOT as to Plaintiffs’ argument that Defendants’
claims under certain contracts are not subject to arbitration in the Boston Arbitration. 14 However,
because Plaintiffs have established the right to a preliminary injunction on their claim that the
Individual Plaintiffs are not proper parties to the Boston Arbitration, Plaintiffs’ Motion for
Injunction 15 is GRANTED in part.

Contents
DISCUSSION ................................................................................................................................. 4
Plaintiffs have shown a substantial likelihood of success on the merits of their claim that
the Individual Plaintiffs are not proper parties to the Boston Arbitration .............. 4
Utah law governs whether the Individual Plaintiffs may be required to arbitrate in
the Boston Arbitration................................................................................. 6
The Individual Plaintiffs did not agree to arbitrate in the Boston Arbitration ........ 8
The Individual Plaintiffs are not bound by the Danzig Agreement’s arbitration
clause through agency or estoppel .............................................................. 9
The Individual Plaintiffs will suffer irreparable injury if the Boston Arbitration is not
stayed as to them ................................................................................................... 21
The threatened injury to the Individual Plaintiffs if the Boston Arbitration is not stayed
outweighs any injury to Defendants by a stay ...................................................... 22
Staying the Boston Arbitration as to the Individual Plaintiffs is not adverse to the public
interest ................................................................................................................... 24
No bond is required of Plaintiffs for the preliminary injunctive relief ............................. 24
ORDER ......................................................................................................................................... 25

12

Joint Notice at 2.

13

Docket no. 8, filed Sept. 13, 2017.

14

Second Memorandum Decision at 8-11.

15

Docket no. 8, filed Sept. 13, 2017.

3

DISCUSSION
“[B]ecause a preliminary injunction is an extraordinary remedy, the right to relief must be
clear and unequivocal.” 16 “To prevail on a motion for a preliminary injunction, the movant must
establish that four equitable factors weigh in its favor: (1) it is substantially likely to succeed on
the merits; (2) it will suffer irreparable injury if the injunction is denied; (3) its threatened injury
outweighs the injury the opposing party will suffer under the injunction; and (4) the injunction
would not be adverse to the public interest.” 17 The standard for a permanent injunction is
essentially the same, with the exception that the movant must show actual success rather than a
likelihood of success on the merits of its claim. 18
Plaintiffs have shown a substantial likelihood of success on the merits of their claim
that the Individual Plaintiffs are not proper parties to the Boston Arbitration
“[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.” 19 Therefore, “a party who has not
agreed to arbitrate will normally have a right to a court’s decision about the merits of its
dispute[.]” 20 “But, where the party has agreed to arbitrate, he or she, in effect, has relinquished
much of that right’s practical value.” 21

16

Beltronics USA, Inc. v. Midwest Inventory Distribution, LLC, 562 F.3d 1067, 1070 (10th Cir. 2009).

17

Id. (quoting Greater Yellowstone Coal. v. Flowers, 321 F.3d 1250, 1256 (10th Cir. 2003)).

18

Amoco Prod. Co. v. Vill. of Gambell, AK, 480 U.S. 531, 546 n.12 (1987).

19

Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (internal quotations omitted).

20

First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995).

21

Id.

4

The Boston Arbitration involves claims relating to three contracts: 22
•

a consulting agreement entered between Gold American Mining Corp. and
Danzig, Ltd. on February 25, 2013 (the “Danzig Agreement”); 23

•

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”); 24 and

•

a debt exchange agreement entered between Gold American Mining Corp. and
Bret Bertolami on February 25, 2013 (the “Debt Exchange Agreement”). 25

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. 26
Plaintiffs argue that the Individual Plaintiffs are not proper parties to the Boston
Arbitration because they did not execute the Danzig Agreement in a corporate or individual
capacity and did not agree to be bound by the contract’s arbitration clause. 27 Defendants
acknowledge that the Individual Plaintiffs are not signatories to the Danzig Agreement, but argue
that the Individual Plaintiffs are nevertheless bound by the arbitration clause based on common
law principles of agency and estoppel. 28

22

Complaint ¶¶ 22-23, 29; Initial Statement of Claim ¶¶ 61-95, docket no. 8-1, filed Sept. 13, 2017.

23

Docket no. 8-2, filed Sept. 13, 2017. Gold American Mining Corp. is now known as Inception Mining, Inc.
Complaint ¶¶ 25, 27-28, 32a.
24

Docket no. 8-3, filed Aug. 22, 2017.

25

Docket no. 8-4, filed Aug. 22, 2017.

26

Complaint ¶¶ 22-23, 29; Initial Statement of Claim ¶¶ 61-95.

27

Motion for Injunction at 2, 13-14.

28

Defendants’ Opposition to Plaintiffs’ Motion for Preliminary Injunction (“Response”) at 22-28, docket no. 19,
filed Sept. 27, 2017. Defendants also argue that Plaintiffs failed to properly serve their Motion for Injunction, and
that jurisdiction over Plaintiffs’ claims is lacking or should be declined. Id. at 15-20. These arguments have already
been addressed and rejected. Docket Text Order Denying [18] Motion to Strike, docket no. 37, filed Dec. 20, 2017;
Second Memorandum Decision at 2, 5-8.

5

Utah law governs whether the Individual Plaintiffs may be required to arbitrate in the
Boston Arbitration
“The question who may be bound to an arbitration provision is governed by state law
relating to contracts in general.” 29 The Danzig Agreement is silent as to which state’s laws
govern the contract. Therefore, the choice of law provisions of the forum state—Utah—must be
applied to resolve the choice of law question. 30
In Utah, “courts apply the ‘most significant relationship’ analysis to determine the choice
of law in a contract cause of action.” 31 Factors considered in applying this test include:
(1) the place of contracting; (2) the place of negotiation of the contract; (3) the
place of performance; (4) the location of the subject matter of the contract; and (5)
the domicile, residence, nationality, place of incorporation and place of business
of the parties. 32
The Danzig Agreement is a consulting agreement wherein Gold American Mining Corp.
engaged and retained Danzig, Ltd. as a business consultant for a term of six months. 33 Gold
American Mining Corp. was a Nevada corporation and its operations were in Utah during the
term of the Danzig Agreement. 34 Danzig, Ltd. is a North Carolina corporation with its principal
place of business in Iredell County, North Carolina. 35 Gold American Mining Corp. was never
registered, headquartered, or actively engaged in business in North Carolina. 36

29

Lenox MacLaren Surgical Corp. v. Medtronic, Inc., 449 Fed. App’x 704, 708 (10th Cir. 2011) (citing Arthur
Andersen, LLP v. Carlisle, 556 U.S. 624, 630-32 (2009)).
30
Rocky Mountain Helicopters, Inc. v. Bell Helicopter Textron, Inc., 24 F.3d 125, 128 (10th Cir. 1994) (“In making
choice of law determinations, a federal court sitting in diversity must apply the choice of law provisions of the
forum state in which it is sitting.”).
31

Id. at 129.

32

Id. (citing Restatement (Second) of Conflict of Laws § 188).

33

Danzig Agreement §§ I, VIII.A.

34

Complaint ¶ 26; North Carolina Order at 2; Asset Purchase Agreement at 1.

35

Complaint ¶ 4; Initial Statement of Claim ¶ 15; North Carolina Order at 2.

36

North Carolina Order at 2, 6.

6

The negotiations for the Danzig Agreement, and the two related simultaneously-entered
contracts, 37 occurred over telephone and email. 38 These negotiations were primarily between
Elliott Foxcroft on behalf of Brett Bertolami, and the Individual Plaintiffs. 39 Elliott Foxcroft is
the principal of Danzig, Ltd. and is a North Carolina resident. 40 Mr. Foxcroft executed the
Danzig Agreement on behalf of Danzig, Ltd. 41 Brett Bertolami was the president and majority
shareholder of Gold American Mining Corp., and is a North Carolina resident. 42 Mr. Bertolami
does business in Utah and with Utah companies, 43 and executed the Danzig Agreement on behalf
of Gold American Mining Corp. 44 The Individual Plaintiffs are residents of Utah, and have no
contacts with North Carolina other than their telephone and email communications during the
contract negotiations. 45
Based on these facts, either Utah or North Carolina is the state having the most
significant relationship to the Danzig Agreement. Plaintiffs argue that Utah law applies. 46
Defendants do not respond to this argument, effectively conceding the issue. Given this
concession, and considering the above-listed factors, including that Danzig, Ltd.’s consulting
services were for a term during which Gold American Mining Corp.’s operations were in Utah, 47

37

Asset Purchase Agreement; Debt Exchange Agreement.

38

North Carolina Order at 2.

39

Id.

40

Id.; Complaint ¶ 5; Initial Statement of Claim ¶ 16.

41

Danzig Agreement at 8.

42

North Carolina Order at 2; Complaint ¶ 6; Asset Purchase Agreement at 1.

43

Complaint ¶ 6.

44

Danzig Agreement at 8.

45

Complaint ¶ 3; Initial Statement of Claim ¶¶ 18-19; North Carolina Order at 2.

46

Motion for Injunction at 10.

47

Complaint ¶ 26.

7

Utah has the most significant relationship to the Danzig Agreement. Therefore, Utah law governs
whether the Individual Plaintiffs may be required to arbitrate in the Boston Arbitration.
Under Utah law, “[i]n order to require a party to submit to arbitration, there must be an
agreement to arbitrate.” 48 “The minimum threshold for enforcement of an arbitration agreement
is direct and specific evidence of an agreement between the parties.” 49 “Direct and specific
evidence requires non-inferential evidence [and] an agreement between the particular parties
regarding arbitration of future disputes.” 50
The Individual Plaintiffs did not agree to arbitrate in the Boston Arbitration
The Danzig Agreement contains the following arbitration clause:
All disputes in any manner relating to or arising out of this Agreement which the
parties cannot resolve themselves shall be resolved first through mediation, and
second through arbitration before a single experienced arbitrator, under the
Commercial rules of Arbitration of the American Arbitration Association. The
location of the arbitration shall be determined by Danzig[, Ltd.]. The decision or
award of any arbitrator shall be binding upon the parties and shall be enforceable
in a court having jurisdiction over the party against whom enforcement is
sought. . . . Any arbitrator appointed under this Agreement shall have authority to
order such equitable relief and such limited discovery as may be appropriate
under the circumstances. 51
The Danzig Agreement identifies Gold American Mining Corp. and Danzig, Ltd. as
parties. 52 No other entities or individuals are identified as parties to the contract. The Individual
Plaintiffs’ names do not appear in the contract, and neither of them executed the contract in their
corporate or individual capacity. The Danzig Agreement also contains no reference to rights or

48

Ellsworth v. Am. Arbitration Ass’n, 148 P.3d 983, 987 (Utah 2006).

49

Id. (internal quotations and punctuation omitted).

50

Id. at 987-88 (emphasis in original).

51

Danzig Agreement § IX.F.

52

Id. § I.

8

obligations of the Individual Plaintiffs under the contract, or benefits flowing from the contract
to the Individual Plaintiffs in their individual capacity.
There is no direct and specific evidence on the face of the Danzig Agreement that the
Individual Plaintiffs agreed to arbitration. Rather, under the plain language of the Danzig
Agreement, only Gold American Mining Corp. and Danzig, Ltd. agreed to arbitrate their claims.
The Individual Plaintiffs are not bound by the Danzig Agreement’s arbitration clause
through agency or estoppel
“[N]o signature is required for a person to become party to a contract.” 53 Utah law
recognizes that “under certain circumstances, a nonsignatory to an arbitration agreement can
enforce or be bound by an agreement between other parties.” 54 “Traditionally, five theories for
binding [or allowing enforcement by] a nonsignatory to an arbitration agreement have been
recognized: (1) incorporation by references; (2) assumption; (3) agency; (4) veil-piercing/alter
ego; and (5) estoppel.” 55 “Sometimes a sixth theory, third-party beneficiary, is added, but it is
closely analogous to the estoppel theory.” 56
Defendants argue that agency and estoppel bind the Individual Plaintiffs—who are
nonsignatories—to the Danzig Agreement’s arbitration clause. 57 But Defendants arguments, the
selection of their cited authorities, and some of the authorities themselves overlook an important
distinction between cases in which a nonsignatory seeks the benefit and protection of an
arbitration clause and cases in which a signatory seeks to impose arbitration on a nonsignatory.

53

Ellsworth, 148 P.3d at 988.

54

Id. at 989.

55

Id. at 989 n.11 (citing Int’l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 417 (4th
Cir. 2000)).
56

Id. (citing Bridas S.A.P.I.C. v. Gov’t of Turkm., 345 F.3d 347, 356, 362 (5th Cir. 2003)). The third-party
beneficiary status is often revealed by suit brought by the nonsignatory against the signatory, or actual receipt of
benefits from the contract by the nonsignatory, both of which may lead to estoppel.
57

Response at 22-28.

9

When considering the five or six instances in which a nonsignatory may be benefitted or bound
by an arbitration clause, courts must remember the distinction between a nonsignatory seeking to
enforce an arbitration clause and a signatory seeking to force a nonsignatory into arbitration.
Principles of agency do not bind the Individual Plaintiffs to the Danzig Agreement
Defendants assert that “around the time that the parties entered into the Danzig
Agreement, the Individual Plaintiffs were significant controlling players in the actions of [Gold
American Mining Corp.]” 58 Defendants maintain that because of this, the Individual Plaintiffs
were Gold American Mining Corp.’s agents and should be bound by the Danzig Agreement’s
arbitration clause. 59 Defendants misread the law and therefore misconstrue the legal effect of the
Individual Plaintiffs’ status as the company’s agents. Defendants identify no persuasive authority
that an agent is bound by its principal’s agreement to arbitrate. Defendants cite only authority
holding that agents may enforce their principal’s agreement to arbitrate.
Defendants correctly assert that the claims against the Individual Plaintiffs in the Boston
Arbitration are closely intertwined with the claims against Inception Mining, Inc. 60 But
Defendants rely on case law inapplicable to the posture of our case. The inapplicable case law
holds, or states in dicta, that an agent who is a nonsignatory to its principal’s arbitration
agreement may compel arbitration of claims made against it by a signatory to the agreement. 61 In
those instances, the nonsignatory compels the signatory to arbitrate.

58

Id. at 23.

59

Id.

60

Id. at 24-25.

61

Id. at 14-15, 23 (citing Long v. Silver, 248 F.3d 309, 319-21 (4th Cir. 2001); Int’l Paper Co., 206 F.3d at 416-18;
J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 320-21 (4th Cir. 1988); Ellison v. Alexander,
700 S.E.2d 102, 110-12 (N.C. Ct. App. 2010)).

10

Defendants’ cases stand for the proposition that “[u]nder the theory of agency, an agent
can assume the protection of the contract which the principal has signed [and c]ourts have
applied this principle to allow for non-signatory agents to avail themselves of the protection of
their principal’s arbitration agreement.” 62 This “prevent[s] . . . circumvention of valid arbitration
agreements by [signatories]. If [signatories] could sue individual [non-signatory] defendants
[whose principal had signed and opted for protection of arbitration agreements], they could too
easily avoid the arbitration agreements that they signed with corporate entities.” 63
The cases Defendants rely on are the inverse of our facts, where Danzig, Ltd., a signatory
to the Danzig Agreement, is seeking to compel the Individual Plaintiffs, nonsignatory agents of
Gold American Mining Corp., to arbitrate. While a nonsignatory agent may compel a signatory
to arbitrate, a signatory may not use the agency relationship to compel a nonsignatory agent to
arbitrate.
Under the agency theory, “it matters whether the party resisting arbitration is a signatory
or not.” 64 This is because “the fact that the defendant corporations entered into [arbitration
agreements does] not cause their agents . . . who acted only as officers on behalf of the
corporations, to be personally bound by those agreements.” 65 “[S]tatus as the CEO and CFO and
agents of the defendant corporations is insufficient to personally bind [agents] to the
[corporations’] arbitration agreements.” 66 “[O]nly the [signatory] corporation and not its

62

Ellison, 700 S.E.2d at 110 (quoting Brown v. Centex Homes, 615 S.E.2d 86, 88 (N.C. Ct. App. 2005)) (emphasis
added).

63

Id. (quoting Collie v. Wehr Dissolution Corp., 345 F.Supp.2d 555, 562 (M.D. N.C. 2004)).

64

DK Joint Venture 1 v. Weyand, 649 F.3d 310, 316 (5th Cir. 2011) (quoting Pritzker v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 7 F.3d 1110, 131 (3d Cir. 1993)).
65

Id. at 314.

66

Id. at 317.

11

individual directors[,] officers [and agents are] bound by an arbitration agreement, because the
directors[,] officers [and agents have] not personally agreed to arbitrate. 67
Therefore, “an agent of a disclosed principal, even one who negotiates and signs a
contract for her principal, does not become a party to the contract.” 68 And “under traditional
agency principles, the only other way . . . that an agent can be bound by the terms of a contract is
if she is made a party to the contract by her principal acting on her behalf with actual, implied, or
apparent authority.” 69
Defendants point to only a single case, Lee v. Chica, 70 in which a nonsignatory agent that
resisted arbitration was bound by its principal’s arbitration agreement. But Lee is distinguishable
and unpersuasive.
In Lee, a customer opened a securities account with a corporation, and signed a customer
agreement containing an arbitration clause. 71 After a dispute arose concerning the management
of the account, the customer filed a demand for arbitration against the corporation and against the
employee that was responsible for transactions in the customer’s account. 72 The employee had
not signed the customer agreement and did not appear or participate in the arbitration
proceeding. 73 The arbitration panel awarded damages to the customer against both the

67

Id. at 316 (citing Bel-Ray Co., 181 F.3d at 446).

68

Bel-Ray Co. v. Chemrite (Pty) Ltd., 181 F.3d 435, 445 (3d Cir. 1999).

69

Id.; see also Ellsworth, 148 P.3d at 989-90 (holding that a nonsignatory husband was not bound by an arbitration
agreement entered by his wife in the absence of evidence that the wife had authority to act as an agent for the
husband).

70

983 F.2d 883 (8th Cir. 1993).

71

Id. at 884.

72

Id. at 884-85.

73

Id. at 885.

12

corporation and the employee. 74 The award was confirmed by the district court. 75 The employee
then appealed on grounds that he was not a proper party to the arbitration because he did not sign
the customer agreement and state law would not enforce the terms of the contract against him. 76
The Eighth Circuit Court of Appeals upheld the district court’s confirmation of the
arbitration award against the employee. The opinion confirmed its factual setting: “[T]he present
case is an action seeking to confirm an award already made by an arbitration panel in accordance
with a provision in a contract. It is not an issue of validity, revocability or enforceability of the
arbitration agreement within the contract.” 77 Thus, the procedural posture and standard of review
of Lee is distinguishable. In our case, the Boston Arbitration remains pending and Defendants
seek to enforce the Danzig Agreement’s arbitration clause against the nonsignatory Individual
Plaintiffs.
Beyond the factual distinctions in Lee, the analysis in Lee is unpersuasive and
distinguishable. The Eighth Circuit did state that “[f]ederal courts have found that an arbitration
agreement between a customer and a brokerage firm can . . . be binding on the agent who
represented or traded in the customer’s account even if the agent had not signed the customer
agreement.” 78 But in each of the cases cited for this proposition, the nonsignatory agent sought to

74

Id.

75

Id.

76

Id. at 885-86.

77

Id. at 886.

78

Id.

13

compel arbitration of claims made against it by a signatory. 79 And each case was in the securities
setting. 80
Lee’s reliance on these cases glosses over the distinction between situations in which a
nonsignatory is resisting, rather than seeking to enforce arbitration. Nonsignatory agents may
compel, but may not be compelled. They may adopt the protection contracted by their principal,
but may not be forced to arbitrate against their will. Putting aside Lee’s post-award setting, Lee
supported its single sentence with cases inapplicable to Lee’s factual setting. Therefore, Lee is
not persuasive authority.
The Individual Plaintiffs’ status as “significant controlling players” or agents of Gold
American Mining Corp. does not bind them to the Danzig Agreement’s arbitration clause. While
the claims against the Individual Plaintiffs in the Boston Arbitration may be intertwined with
Danzig, Ltd.’s claims against Inception Mining, Inc., this intertwining cannot compel the
Individual Plaintiffs to arbitrate. This is because an intertwining claims analysis applies only
when a nonsignatory seeks to compel a signatory to arbitrate, not when a signatory seeks to
compel a nonsignatory to arbitrate. “[I]t matters whether the party resisting arbitration is a
signatory or not.” 81
The Individual Plaintiffs did not sign the Danzig Agreement in their individual capacity
and did not personally agree to arbitrate. And there is no suggestion that Gold American Mining
Corp.—with actual, implied, or apparent authority—entered the Danzig Agreement on behalf of

79

Letizia v. Prudential Bache Secur., Inc., 802 F.2d 1185, 1188 (9th Cir. 1986); Scher v. Bear Stearns & Co., 723
F.Supp. 211, 216 (S.D. N.Y. 1989); Brener v. Becker Paribas, Inc., 628 F.Supp. 442, 451 (S.D. N.Y. 1985);
Nesslage v. York Secur., Inc., 823 F.2d 231, 233 (8th Cir. 1987).
80

Letizia, 802 F.2d at 1188; Scher, 723 F.Supp. at 216; Nesslage, 823 F.2d at 233.

81

DK Joint Venture 1, 649 F.3d at 316 (quoting Pritzker, 7 F.3d at 131).

14

the Individual Plaintiffs. Therefore, the Individual Plaintiffs are not bound by the Danzig
Agreement’s arbitration clause through agency.
Estoppel does not apply to the Individual Plaintiffs
Defendants also urge application of estoppel. The estoppel theory is at times referred to
as “nonsignatory estoppel.” However, use of this term can be problematic, as demonstrated by
Defendants and some of their cited authorities’ misreading of the law relating to the term.
Nonsignatory estoppel is used to refer to situations where a nonsignatory is “estopped from
avoiding arbitration when the nonsignatory seeks to benefit from some portions of the contract
but avoid the arbitration provisions.” 82 But the term is also used to refer to situations where a
nonsignatory is invoking estoppel against a signatory that is resisting arbitration. The
applicability of the estoppel theory depends on the situation, i.e., whether the nonsignatory is
suing or being sued and whether the nonsignatory is seeking to compel or resisting arbitration.
“The Utah Supreme Court has recognized three circumstances in which nonsignatory
estoppel applies.” 83 The first two circumstances involve “cases where estoppel [is] implemented
against a nonsignatory[.]” 84 In the first, “the nonsignatory has sued a signatory on the contract
[for a] benefit but [the nonsignatory seeks] to avoid the arbitration provision of the same
contract.” 85 In the second, “[a] nonsignatory will . . . be estopped when it receive[d] a ‘direct
benefit’ from the contract which contains the arbitration clause.” 86 “This variety of nonsignatory
estoppel [is] employed only when the nonsignatory sues the signatory on the agreement after [the

82

Ellsworth, 148 P.3d at 989.

83

Belnap v. Iasis Healthcare, 844 F.3d 1272, 1294 (10th Cir. 2017).

84

Ellsworth, 148 P.3d at 989 (emphasis in original).

85

Id.

86

Id.

15

nonsignatory] receiv[ed] ‘direct benefits’ but [then] seeks to avoid arbitration.” 87 In both these
factual settings, the nonsignatory either seeks to benefit or has already obtained a benefit from
the contract—and thus is estopped from avoiding the contractual arbitration clause.
The third “variety of nonsignatory estoppel [recognized in Utah] is that enforced by a
nonsignatory when the signatory plaintiff sues a nonsignatory defendant on the contract but
seeks to avoid the contract-mandated arbitration by relying on the fact that the defendant is a
nonsignatory.” 88 In this factual setting, the signatory is estopped from denying the clause applies.
The nonsignatory makes himself the beneficiary of the arbitration clause, and seeks to enforce
the clause against the signatory.
None of the three fact settings in which forms of nonsignatory estoppel have been
recognized in Utah apply to our case—where a signatory plaintiff seeks to compel arbitration of
its claims against a nonsignatory defendant. The first two fact scenarios “do[] not apply to . . . a
nonsignatory who is not suing on the contract and who has not received direct benefits from the
contract.” 89 And the third estops a signatory when a nonsignatory defendant seeks to resist
litigation, but the signatory plaintiff resists arbitration. 90
The Individual Plaintiffs have not sued Defendants under the Danzig Agreement or
asserted claims against Defendants in the Boston Arbitration. And they do not seek to compel
Defendants to arbitrate in the Boston Arbitration. Rather, it is the signatory—Danzig, Ltd.—that
has asserted claims in the Boston Arbitration under the Danzig Agreement against the
nonsignatory Individual Plaintiffs, who are resisting that arbitration.

87

Id.

88

Id. at 989 n.12 (emphasis in original).

89

Id. at 989; accord Solid Q Holdings, LLC v. Arenal Energy Corp., 362 P.3d 295, 298 (Utah Ct. App. 2015).

90

Ellsworth, 148 P.3d at 989 n.12.

16

Defendants argue for the application of two additional forms of nonsignatory estoppel
that Utah has not recognized. Defendants argue these doctrines should bind the Individual
Plaintiffs to the Danzig Agreement’s arbitration clause. 91 The first comes from Thomas H.
Oehmke’s treatise on commercial arbitration, which states:
A nonsignatory (who is not otherwise subject to an arbitration agreement) will be
compelled to arbitrate (i.e., equitably estopped from avoiding arbitration) when a
signatory[:]
• must rely on a written agreement to assert its claims against the nonsignatory[;]
• asserts claims which are intimately founded in and intertwined with the
underlying contract[;] or
• alleges substantially interdependent and concerted misconduct by the
nonsignatory and another signatory and the allegations of interdependent
misconduct are founded in or intimately connected with the obligations of the
underlying agreement[.] 92
The treatise relies on the Ninth Circuit Court of Appeals in Murphy v. DirecTV, Inc. But the
treatise misstates the holding of Murphy.
The paraphrased quote the treatise takes from Murphy says nothing about compelling a
nonsignatory to arbitrate. The scenarios identified in Murphy are about a nonsignatory seeking to
enforce an arbitration clause:
Where a nonsignatory seeks to enforce an arbitration clause, the doctrine of
equitable estoppel applies in two circumstances: (1) when a signatory must rely
on the terms of the written agreement in asserting its claims against the
nonsignatory or the claims are intimately founded in and intertwined with the
underlying contract, and (2) when the signatory alleges substantially
interdependent and concerted misconduct by the nonsignatory and another
signatory and the allegations of interdependent misconduct are founded in or
intimately connected with the obligations of the underlying agreement. 93
The estoppel described in Murphy is applied against the signatory, not the nonsignatory.

91

Response at 13-14, 26-28.

92

Thomas H. Oehmke, 1 Commercial Arbitration § 8.15 (Dec. 2017) (citing Murphy v. DirecTV, Inc., 724 F.3d
1218 (9th Cir. 2013)).
93

Murphy, 724 F.3d at 1229 (quoting Kramer, 705 F.3d at 1128-29) (emphasis added).

17

Murphy specifically notes that “[t]his rule reflects the policy that a [signatory] plaintiff
may not, ‘on one hand, seek to hold the non-signatory liable pursuant to duties imposed by the
agreement, which contains an arbitration provision, but, on the other hand, deny arbitration’s
applicability because the defendant is a non-signatory.’” 94 Therefore, the treatise misstates
Murphy.
Clearly, Murphy and the cases it relies on—Goldman v. KPMG, LLP 95 and Kramer v.
Toyota Motor Corp. 96—do not stand for the proposition that a signatory may compel arbitration
of its claims against a nonsignatory if one of the enumerated circumstances exist. Rather, these
cases stand for the inverse—that a nonsignatory may compel arbitration of claims brought
against it by a signatory. 97 The treatise is not persuasive authority.
Most importantly, in Solid Q Holdings, LLC v. Arenal Energy Corp., 98 the Utah Court of
Appeals rejected the precise form of estoppel that Defendants are urging:
[This form of estoppel] applies only to prevent a signatory from avoiding
arbitration with a nonsignatory when the issues the nonsignatory is seeking to
resolve in arbitration are intertwined with the agreement that the estopped party
has signed. [B]ecause arbitration is guided by contract principles, the reverse is
not also true: a signatory may not estop a nonsignatory from avoiding arbitration
regardless of how closely affiliated that nonsignatory is with another signing
party. 99
Therefore, the first variant fact setting that Defendants argue should estop the Individual
Plaintiffs and bind them to the Danzig Agreement’s arbitration clause does not apply.

94

Id. (quoting Goldman, 173 Cal.App.4th at 220) (emphasis added).

95

173 Cal.App.4th 209 (2009).

96

705 F.3d 1122 (9th Cir. 2013).

97

Murphy, 724 F.3d at 1229; Kramer, 705 F.3d at 1128; Goldman, 173 Cal.App.4th at 217-18.

98

362 P.3d 295.

99

Id. (quoting Bridas S.A.P.I.C, 345 F.3d at 361) (emphasis in original).

18

Defendants also argue a second line of precedent should apply to estop the Individual
Plaintiffs from avoiding the Boston Arbitration. The Second Circuit Court of Appeals in
American Bureau of Shipping v. Tencara Shipyard S.P.A. held that a signatory plaintiff may
compel arbitration of its claims against a nonsignatory defendant when the nonsignatory
defendant has received “direct benefits” from a contract containing an arbitration clause. 100
However, this authority is contrary to Utah law, not persuasive, and inapplicable to the facts of
this case.
The form of nonsignatory estoppel recognized in American Bureau of Shipping is the
inverse of the “direct benefits” form of nonsignatory estoppel recognized in Utah. In Ellsworth v.
American Arbitration Association, the Utah Supreme Court recognized that a signatory
defendant may compel arbitration of claims brought against it by a nonsignatory plaintiff when
the nonsignatory plaintiff has received direct benefits from the contract on which it is suing. 101
The Utah Supreme Court cited to American Bureau of Shipping when initially discussing the
issue, but ultimately held that “direct benefits” nonsignatory estoppel is to be “employed only
when the nonsignatory sues the signatory on the agreement after receiving ‘direct benefits’ but
seeks to avoid arbitration.” 102 It does not apply to “a nonsignatory who is not suing on the
contract and who has not received direct benefits from the contract.” 103 Thus, American Bureau
of Shipping is contrary to Utah law, even though it was cited in Ellsworth.
Additionally, the authority the Second Circuit relied on in American Bureau of Shipping
does not support its holding. American Bureau of Shipping cites to Thomson-CSF, S.A. v.

100

170 F.3d 349, 353 (2d Cir. 1999).

101

148 P.3d at 989

102

Id.

103

Id.

19

American Arbitration Association 104 for the proposition that a signatory plaintiff may compel
arbitration of its claims against a nonsignatory defendant who received direct benefits from a
contract. But Thomson-CSF, S.A. and the authority it relies on involve the inverse—where
nonsignatory plaintiffs sue signatory defendants, and the signatory defendants seek to compel
arbitration based on the direct benefits the nonsignatory plaintiffs received from contracts
containing arbitration clauses. 105 Thomson-CSF, S.A. does not apply estoppel to a nonsignatory
who does not make a claim under the agreement containing the arbitration clause. American
Bureau of Shipping does not discuss or analyze the principles of nonsignatory estoppel or why
the analysis of Thomson-CSF, S.A. applies to its differing fact setting. Thus, American Bureau of
Shipping is not persuasive.
Even if a direct benefits analysis were applied in our case, Defendants have not identified
any direct benefits the Individual Plaintiffs received from the Danzig Agreement. “Direct
benefits estoppel applies when a nonsignatory ‘knowingly exploits the agreement containing the
arbitration clause.’” 106 “The benefits must be direct—which is to say, flowing directly from the
agreement.” 107 Defendants baldly assert that that Danzig Agreement was part of a larger set of
agreements and transaction which allowed the Individual Plaintiffs to be installed as directors
and officers of Inception Mining, Inc. 108 And Defendants conclude that as shareholders,
directors, and officers of Inception Mining, Inc., the Individual Plaintiffs directly received the

104

64 F.3d 773, 778-79 (2d Cir. 1995).

105

Id. (citing Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993)).

106

Bridas S.A.P.I.C, 345 F.3d at 362 (quoting E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin
Intermediates, S.A.S., 269 f.3d 187, 199 (3d Cir. 2001)); accord Jacks v. CMH Homes, Inc., 856 F.3d 1301, 1306
(10th Cir. 2017).

107

MAG Portfolio Consult, GMBH v. Merlin Biomed Group, LLC, 268 F.3d 58, 61 (2d Cir. 2001).

108

Response at 27.

20

benefits that Gold American Mining Corp., and later Inception Mining, Inc., received from the
Danzig Agreement. 109 These benefits do not flow directly from the Danzig Agreement to the
Individual Plaintiffs. Rather, any benefits the Individual Plaintiffs received are indirect, i.e.,
“where the nonsignatory exploits the contractual relation of parties to an agreement, but does not
exploit (and thereby assume) the agreement itself.” 110 Therefore, the second novel form of
nonsignatory estoppel argued by Defendants to bind the Individual Plaintiffs to the Danzig
Agreement’s arbitration clause cannot apply on the facts in this record.
Because the Individual Plaintiffs are not parties to the Danzig Agreement and did not
agree to be bound by its arbitration clause, and because the Individual Plaintiffs cannot be bound
by the contract’s arbitration clause through agency or estoppel, Plaintiffs have shown a
substantial likelihood of success on the merits of their claim that the Individual Plaintiffs are not
proper parties to the Boston Arbitration.
The Individual Plaintiffs will suffer irreparable injury
if the Boston Arbitration is not stayed as to them
“[P]urely speculative harm does not amount to irreparable injury[.]” 111 “An ‘irreparable
harm requirement is met if a plaintiff demonstrates a significant risk that he or she will
experience harm that cannot be compensated after the fact by monetary damages.’” 112 Therefore,
“a plaintiff who can show a significant risk of irreparable harm has demonstrated that the harm is
not speculative” and has met its burden to obtain a preliminary injunction. 113

109

Id.

110

Ellsworth, 148 P.3d at 989 (citing MAG Portfolio Consult, 268 F.3d at 61).

111

Greater Yellowstone Coal., 321 F.3d at 1258.

112

Id. (quoting Adams v. Freedom Forge Corp., 204 F.3d 475, 484-85 (3d Cir. 2000)) (emphasis in original).

113

Id.

21

Courts of the District of Utah have found that “the injury to a party who is forced to
submit to arbitration when it did not agree to do so constitutes per se irreparable harm[.]” 114 The
rationale is that the party “will be required to participate in discovery and resolution of a case in
a forum lacking the substantive and procedural safeguards provided in our courts.” 115 Moreover,
because “court[s] will set [an arbitrator’s] decision aside only in very unusual
circumstances[,]” 116 forcing a party to submit to arbitration severely limits the scope of a court’s
review of that party’s claims and defenses. Therefore, “the time, energy, costs and fees
associated with defending an unnecessary arbitration, as well as the potential cost of setting aside
an unfavorable arbitration result, rise to the level of ‘irreparable harm.’” 117
This rationale is persuasive. Because Plaintiffs have shown a substantial likelihood of
success on the merits of their claim that the Individual Plaintiffs are not proper parties to the
Boston Arbitration, they will suffer irreparable harm if the Boston Arbitration is not stayed
pending a final determination as to whether the Individual Plaintiffs are proper parties to the
Boston Arbitration.
The threatened injury to the Individual Plaintiffs
if the Boston Arbitration is not stayed outweighs any injury to Defendants by a stay
In analyzing whether the balance of hardships favors the moving party, a court must
determine whether the identified irreparable harm outweighs the harm to the opposing party if a
preliminary injunction is granted. 118 Therefore, the question is whether the irreparable harm of

114

Monavie, LLC v. Quixtar, Inc., 741 F.Supp.2d 1227, 1242 (D. Utah 2009); accord UBS Bank USA v. Hussein,
2014 WL 1600375, *4 (D. Utah Apr. 21, 2014); Orchard Sec., LLC v. Pavel, 2013 WL 4010228, *5 (D. Utah Aug.
6, 2013).
115

UBS Bank USA, 2014 WL 1600375, *4; Orchard Sec., LLC, 2013 WL 4010228, *5.

116

First Options of Chicago, Inc., 514 U.S. at 942.

117

Monavie, LLC, 741 F.Supp.2d at 1241.

118

Fish v. Kobach, 840 F.3d 710, 754 (10th Cir. 2016).

22

forcing the Individual Plaintiffs to submit to arbitration when they did not agree to do so
outweighs the harm that a preliminary injunction staying the Boston Arbitration would have on
Defendants.
Defendants do not identify any harm they would suffer if the Boston Arbitration is stayed
until this action determines whether the Individual Plaintiffs are proper parties to the Boston
Arbitration. Plaintiffs do not argue that the Boston Arbitration is improper as to Inception
Mining, Inc., so a preliminary injunction staying the Boston Arbitration would be limited to only
Danzig, Ltd.’s claims against the Individual Plaintiffs. And the stay would simply preserve the
status quo between Danzig, Ltd. and the Individual Plaintiffs as of the “last peaceable
uncontested status existing between the parties before the dispute developed[,]” i.e., prior to
Danzig, Ltd.’s initiation of the Boston Arbitration. 119
Defendants do argue that entering a permanent injunction regarding the Boston
Arbitration will cause them harm by forcing them to litigate the same issues twice—once in the
arbitration against Inception Mining, Inc. and once in court against the Individual Plaintiffs. 120
This inefficiency arises because “arbitration 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.” 121 “[T]he basic
objective in this area is not to resolve disputes in the quickest manner possible, no matter what
the parties’ wishes, but to ensure that commercial arbitration agreements, like other contracts, are
enforced according to their terms, and according to the intentions of the parties.” 122 Therefore,
Defendants’ argument is not compelling.

119

Schrier v. Univ. of Colorado, 427 F.3d 1253, 1260 (10th Cir. 2005) (internal quotations omitted).

120

Response at 29.

121

Howsam, 537 U.S. at 83 (internal quotations omitted).

122

First Options of Chicago, Inc., 514 U.S. at 947 (internal quotations omitted).

23

In balancing the equities, the irreparable harm of forcing the Individual Plaintiffs to
submit to arbitration to which they did not agree outweighs any harm to Defendants caused by a
preliminary stay of the Boston Arbitration.
Staying the Boston Arbitration as to the Individual Plaintiffs
is not adverse to the public interest
There is a “liberal federal policy favoring arbitration agreements.” 123 However, it is
equally important policy that “arbitration 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.” 124 “Forcing parties to
arbitrate when they did not agree to arbitrate would generate powerful disincentives to
participate in arbitration and would lower the public’s confidence in arbitration as an avenue for
dispute resolution.” 125
A preliminary injunction staying the Boston Arbitration as to the Individual Plaintiffs
serves the public interest. The stay minimizes the risk that the Individual Plaintiffs will suffer
irreparable harm from arbitrating a dispute they did not agree to arbitrate. Therefore, a
preliminary injunction is not adverse to the public interest.
No bond is required of Plaintiffs for the preliminary injunctive relief
Under Rule 65(c) of the Federal Rules of Civil Procedure, “[t]he court may issue a
preliminary injunction . . . only if the movant gives security in an amount that the court considers
proper to pay the costs and damages sustained by any party found to have been wrongfully
enjoined[.]” 126

123

Howsam, 537 U.S. at 83 (internal quotations omitted).

124

Id. (internal quotations omitted).

125

Orchard Sec., LLC, 2013 WL 4010228, *5 (citing Morgan Keegan & Co., Inc. v. Louise Silverman Trust, 2012
WL 113400, *6 (D. Md. Jan. 12, 2013); Berthel Fisher & Co. Fin. Servs., Inc. v. Larmon, 2011 Wl 3294682, *8 (D.
Minn. Aug. 1, 2011))
126

Fed. R. Civ. P. 65(c).

24

Neither party has identified any specific costs or damages that may accrue to Defendants
from the preliminary injunction. While Danzig, Ltd.’s claims against the Individual Plaintiffs
may be delayed by the injunctive relief, that delay is inherent in a battle fought on two fronts and
does not result from the stay but from the contracts. The delay until resolution of the final
decision on a permanent injunction should be minimal and not result in significant costs or
damages. Therefore, no bond is required of Plaintiffs for the preliminary injunctive relief.
ORDER
IT IS HEREBY ORDERED that:
1)

Plaintiffs’ Motion for Injunction 127 is MOOT as to Plaintiffs’ argument that

Defendants’ claims under certain contracts are not subject to arbitration in the Boston
Arbitration.
2)

Plaintiffs’ Motion for Injunction 128 is GRANTED as to Plaintiffs’ claim that the

Individual Plaintiffs are not proper parties to the Boston Arbitration.
3)

The Boston Arbitration is preliminarily enjoined as to the Individual Plaintiffs.

Danzig, Ltd.’s claims against the Individual Plaintiffs in the Boston Arbitration are stayed
pending a final determination on Plaintiffs’ claim that the Individual Plaintiffs are not proper
parties to the Boston Arbitration. This preliminary injunction does not affect the proceedings on
Danzig, Ltd.’s claims against Inception Mining, Inc. in the Boston Arbitration.
4)

Defendants are directed to file a brief by no later than Monday, April 30, 2018,

showing cause as to why the preliminary injunction should not be made permanent and

127

Docket no. 8, filed Sept. 13, 2017.

128

Id.

25

declaratory judgment should not be granted in favor of Plaintiffs on their claim that the
Individual Plaintiffs are not proper parties to the Boston Arbitration.
Signed April 23, 2018.
BY THE COURT

________________________________________
District Judge David Nuffer

26