United States District Court, D. Colorado
ORDER
RAYMOND P. MOORE, UNITED STATES DISTRICT JUDGE
At
issue is whether the Court should confirm or vacate an
arbitration award in favor of Applicant Goldgroup Resources,
Inc. (“Goldgroup”) and against Respondents
DynaResource De Mexico, S.A. DE C.V.
(“DynaMexico”) and DynaResource, Inc.
(“DynaUSA”) (collectively,
“DynaResources”), none of whom are citizens of
Colorado. Goldgroup filed an application to confirm the
arbitration award, while DynaResources filed a motion to
vacate. (ECF Nos. 2, 21.) The Magistrate Judge issued a
recommendation (ECF No. 49) to grant DynaResources'
motion to vacate, to which Goldgroup has filed an objection
(ECF No. 54). At first glance a reader may pause and wonder
why this case is before the District of Colorado when none of
the parties are citizens of the state of Colorado and the
underlying events which gave rise to the parties' dispute
did not occur here. The answer is simple: the arbitration was
brought in Colorado pursuant to an Earn In/Option Agreement
which expressly provides that “the party desiring
arbitration shall refer the dispute to binding arbitration in
Denver, Colorado” and “the venue and jurisdiction
for any dispute related to this Agreement shall be in Denver,
Colorado.”[1]
I.
FACTUAL AND PROCEDURAL BACKGROUND
The
parties are well versed with the lengthy history of this
case, but the Court finds it must nonetheless discuss it more
than briefly to address the issues raised. The relevant
history of this case involves the following, in chronological
order:
•
September 1, 2006:
The
parties entered into an Earn/In Option Agreement
(“Option Agreement”) governing, among other
things, Goldgroup's option to purchase up to a 50%
shareholder interest in DynaMexico until March 15, 2011. The
Option Agreement contains an arbitration clause (the
“arbitration agreement”) which provides
arbitration is to be had “under the Rules of the
American Arbitration Association” in Denver, Colorado
(Article 8.16(a)(b))[2]; a forum selection clause choosing Denver,
Colorado as the forum for disputes “related to this
Agreement” (Art. 8.5); and a provision that
“Mexican law” applies “in respect to the
shares of DynaMexico and the acquisition thereof” (Art.
8.5).[3]
•
December 2012:
Disputes
arose between the parties and DynaResources sued Goldgroup in
Texas, No. DC-12-15031 (the “Texas Lawsuit”).
Goldgroup defended by arguing, alternatively and among other
things, the claims were subject to arbitration. DynaResources
subsequently dismissed this lawsuit in March 2014, and
refiled it thereafter in Mexico.[4] That subsequently refiled
lawsuit is discussed below as the “Mexico City
Lawsuit.”
•
December 2013:[5]
Goldgroup
filed a lawsuit against DynaResources in Mazatlán,
Mexico (the “Mazatlán Lawsuit”) over,
among other things, DynaMexico's alleged improper
issuance in May 2013 of 300 shares of stock to DynaUSA
thereby diluting Goldgroup's interest in DynaMexico. In
addition, this lawsuit also raised issues of the validity of
certain powers of attorney and of DynaMexico's 2012
financial statements.[6] In December 2013, the Mazatlán
Lawsuit Court issued an injunction relating to the 300
DynaMexico shares.[7]
•
March 10, 2014:
Goldgroup
made a demand for arbitration against DynaResources in
Denver, Colorado (the “Colorado Arbitration”)
before the International Centre for Dispute Resolution of the
American Arbitration Association (the “AAA”) and,
subsequently, an arbitrator (the “Arbitrator”)
was appointed to conduct the arbitration.[8]
•
April 2014:
On
April 25, 2014, the AAA acknowledged DynaResources' April
10, 2014, objection to the arbitration and stated it would
“continue to proceed with administrating this matter
unless and until a court order staying the arbitration is
presented, or the parties agreed to hold the arbitration in
abeyance. Otherwise, any matters with regard to jurisdiction
are reserved for the Tribunal to decide.”[9]
•
May 30, 2014:
DynaResources
filed a declaratory and injunctive relief lawsuit against
Goldgroup in the District of Colorado before then Chief Judge
Marcia S. Krieger, 14-cv-01527-MSK-KMT (the “Colorado
Federal Court Lawsuit”) seeking to prevent the Colorado
Arbitration from proceeding. DynaResources asked Judge
Krieger to stay the Colorado Arbitration pending resolution
of arbitrability by courts in Mexico; or, alternatively, to
declare the Option Agreement (and the arbitration agreement)
terminated when Goldgroup exercised its final option to
purchase DynaMexico's shares in March 2011, that the
claims are not covered under Article 8.16 of the Option
Agreement, and that Goldgroup's participation in and
instigation of pending litigation in Mexico constitutes a
waiver and estoppel to compel arbitration in
Colorado.[10] DynaResources' argument that a valid
arbitration agreement did not exist was premised on the
alleged termination of the Option Agreement upon
Goldgroup's and DynaMexico's full performance on
March 15, 2011.[11]
The
complaint was subsequently amended, but the relevant claims
are essentially the same, except DynaResources requested an
injunction until resolution of arbitrability by Judge Krieger
or “the judicial authorities in Mexico, ” and
argued waiver and estoppel due to Goldgroup's
Mazatlán Lawsuit and alleged “admissions”
in the Texas Lawsuit.[12]
•
August 28, 2014:
In the
Colorado Arbitration, DynaResources requested, subject to its
objection to arbitration, the Arbitrator to dismiss or stay
the arbitration pending judicial proceedings before the
Mazatlán Lawsuit and the Colorado Federal Court
Lawsuit “concerning the arbitrability” of
Goldgroup's claims.[13]
•
September 30, 2014:
By
Procedural Order No. 1, after briefing by the parties, the
Arbitrator determined that (1) he had jurisdiction to
determine jurisdiction under Article 15 of the AAA's June
1, 2010, International Dispute Resolution Procedures (the
“Rules”) because the parties incorporated those
Rules into the arbitration agreement; (2) Goldgroup's
claims for unjust enrichment and conversion are not subject
to arbitration; and (3) as permitted under the Rules, he
would defer ruling on all other objections to arbitrability
(including DynaResources' argument that Goldgroup waived
the right to arbitrate) until the merits.[14]
•
December2014:[15]
DynaResources
refiled the Texas Lawsuit as a lawsuit in Mexico City, File
No. 1120/2014 (the “Mexico City Lawsuit”) which
included a request, as relevant here, for “declaratory
relief as to the invalidity of the arbitration provision in
the 2006 Option Agreement in light of its inapplicability and
Goldgroup's litigation conduct in
Mexico”[16] or, as the Mexico City Court stated,
DynaMexico requested a ruling that the Agreement is
“ineffective and unenforceable” under Article
1424 of the Mexico Commercial Code. Thus, DynaResources filed
a second action asking another court to
determine whether it was subject to arbitration.
•
December 2014 - September 2015:
Apparently
all three matters (the Colorado Arbitration, the Colorado
Federal Lawsuit, and the Mexico City Lawsuit) were pending.
By now, the Arbitrator had determined he had jurisdiction to
determine jurisdiction; and DynaResources had asked Judge
Krieger and then the Mexico City Court to determine
whether the arbitration may proceed, including the issue of
waiver of the requirement to arbitrate under the arbitration
agreement.
•
September 29, 2015:
Judge
Krieger, applying federal law, [17] issued an order
(“Judge Krieger's Order”) finding that there
was no “expiration” of the Option Agreement and
the parties' agreement to arbitrate disputes remained
operative; that at least some of Goldgroup's claims were
subject to arbitration; and that DynaResources'
“litany of arguments” as to why the arbitration
should not proceed (including the issue of waiver) were
nearly all outside of that court's threshold
arbitrability determination but were to be addressed by the
arbitrator. DynaResources did not challenge whether
the arbitration agreement was valid, illegal, or void;
instead, the challenge was whether it was still
operative in light of Goldgroup's completion of
the option to purchase shares in DynaMexico, [18] which, as
stated, Judge Krieger found was still operative.
•
October 5, 2015:
In the
Mexico City Lawsuit, the Mexico City Court issued an order
(the “Mexico City Order”) finding that “the
Parties in several occasions have tacitly submitted to the
jurisdiction of jurisdictional courts, ” and declaring
the arbitration agreement “ineffective and impossible
[of] enforcement” as the parties by their voluntary
submission to the courts in Mexico had “waiv[ed] the
arbitration agreement.”[19] The Mexico City Court declared
the arbitration agreement “ineffective and impossible
of enforcement” and, based on Article 1424 of the
Mexican Commercial Code, it was “notoriously
inefficient and unenforceable.” The Mexico City Court
did not find the arbitration agreement was
“invalid.”[20]
•
November 3, 2015:
Goldgroup
filed an amparo action (the “Amparo Action”)
challenging the October 5, 2015 Mexico City Order and whether
service of process was effective in the Mexico City
Lawsuit.[21]
•
November 11, 2015:
After
being apprised of the Mexico City Order, the Arbitrator
issued Procedural Order No. 5, denying DynaResources'
application to suspend proceedings based on the Mexico City
Order. The Arbitrator found that, notwithstanding the Mexico
City Order, he could and would proceed with the arbitration,
providing essentially four reasons for his
decision.[22] First, the Arbitrator found the parties
were bound by Procedural Order No. 1, as the parties
submitted the arbitrability and jurisdiction question for his
decision. Second, the parties were bound by Judge
Krieger's September 29, 2015, decision of arbitrability
and the jurisdiction of the Arbitrator. Third, as to the
Mexico City Order, Goldgroup claimed it was never properly
served and did not participate; AAA was apparently never
properly served; this was DynaResources' third request in
a third forum for a decision regarding arbitrability; the
Mexico City Court was apparently not advised of Procedural
Order No. 1 or Judge Krieger's September 29, 2015, Order;
and it was directed at the AAA and not at the Arbitrator.
Fourth, and finally, the Arbitrator found DynaResources was
improperly forum shopping when it should have challenged the
Arbitrator's and Judge Krieger's orders via the New
York Convention or the Tenth Circuit, as appropriate.
•
November 16, 2015:
The
Arbitrator held a hearing on the merits in the arbitration.
DynaResources did not appear, apparently taking the position
that the Mexico City Court Order was “‘way more
mandatory than [the Arbitrator's] resolutions and even
the Denver
judge['s]…resolution.'”[23]
•
April 11, 2016:
DynaResources
voluntarily dismissed the Colorado Federal Lawsuit under
Fed.R.Civ.P. 41(a)(1)(A)(i), [24] effective without a court
order. There is nothing in the record to show the Arbitrator
was advised of this dismissal.[25]
•
August 24, 2016:
The
Arbitrator issued the Final Award (“Award”) in
favor of Goldgroup and against DynaResources. As relevant
here, the Arbitrator found/stated: (1) choice of law was not
material to the issue of arbitral jurisdiction; (2) Mexican
law applied to Goldgroup's substantive claims; (3)
pursuant to Article 15 of the Rules, he had jurisdiction to
resolve jurisdictional objections to the arbitration, the
parties submitted to him the question of arbitrability and
whether he had jurisdiction to decide the arbitrability
issue, he decided he had jurisdiction in Procedural Order No.
1 and that was binding; (4) after arbitration commenced,
DynaResources (for a third time, in a third forum) asked the
Mexico City Court to declare the arbitration claims are not
arbitrable[26] - DynaResources shuffled around until it
found a decision maker who would rule in favor of its
position; (5) after the hearing, DynaResources was given an
opportunity to provide written comments or submissions on
various matters but it did not do so; (6) Article 23 of the
Rules allowed a party's failure to participate to be
excused if there was sufficient cause, but there was not
here; (7) the Option Agreement and arbitration agreement are
valid and enforceable; (8) Mexican law did not prohibit the
Option Agreement (or arbitration agreement); (9) Goldgroup
did not waive its right, under Mexican or U.S. law, to
arbitrate by bringing the Mazatlán Lawsuit or
defending against the Texas Lawsuit; and (10) DynaResources
breached the Option Agreement and breached the duty of good
faith implied in the Option Agreement, and awarded Goldgroup
damages and attorney's fees.
The
Arbitrator found insufficient cause to excuse
DynaResources' failure to participate stating it
submitted arbitrability for his decision; had no right to
pursue arbitrability challenges in the Mexico City Lawsuit
due to Article 8.5 and 8.16 of the Agreement; and created the
situation of which it complained, i.e., that the
Mexican City Court's order allegedly precluded it from
participating.
•
This Lawsuit to Vacate or Confirm
After
the issuance of the Award, Goldgroup filed this action
seeking to confirm the award. DynaResources responded with
its request for vacatur and nonrecognition. Thereafter, by
Order dated August 24, 2017, Goldgroup's Amparo Action
was dismissed based on untimeliness of filing.[27] The
Recommendation was issued subsequently; Goldgroup's
Objection followed. Due to the Recommendation's reliance
on the Amparo Action, Goldgroup filed papers showing it was
appealing the dismissal of the Amparo Action. The status of
that appeal is unknown.
I.
LEGAL STANDARD
A.
Review of Magistrate Judge's Recommendation
When a
magistrate judge issues a recommendation on a dispositive
matter, Fed.R.Civ.P. 72(b)(3) requires that the district
court judge “determine de novo any part of the
magistrate judge's [recommendation] that has been
properly objected to.” In conducting its review,
“[t]he district court judge may accept, reject, or
modify the recommendation; receive further evidence; or
return the matter to the magistrate judge with
instructions.” Id. An objection is proper if
it is filed timely in accordance with the Federal Rules of
Civil Procedure and specific enough to enable the
“district judge to focus attention on those issues -
factual and legal - that are at the heart of the parties'
dispute.” United States v. One Parcel of Real
Property, 73 F.3d 1057, 1059 (10th Cir. 1996) (quoting
Thomas v. Arn, 474 U.S. 140, 147 (1985)). In the
absence of a timely and specific objection, “the
district court may review a magistrate's report under
any standard it deems appropriate.” Summers v.
Utah, 927 F.2d 1165, 1167 (10th Cir. 1991) (citations
omitted, emphasis added); see Fed. R. Civ. P. 72
Advisory Committee's Note (“When no timely
objection is filed, the court need only satisfy itself that
there is no clear error on the face of the record in order to
accept the recommendation.”).
B.
Review of Arbitration Award
The
parties apparently dispute the standard by which this court
reviews the Award. Goldgroup argues the general standards
apply while DynaResources contends a de novo review
is required when the issue is whether a valid and enforceable
arbitration agreement exists. As discussed below, that is not
an issue. Thus, the Court applies the general standards. But,
DynaResources should rest assure the Court will not
“rubberstamp” the Award.
A
court's review of an arbitration award under the Federal
Arbitration Act (“FAA”) is “strictly
limited”; a “highly deferential” standard
described as “among the narrowest known to the
law.” Bowen v. Amoco Pipeline Co., 254 F.3d
925, 932 (10th Cir. 2001) (quotation marks and citation
omitted). See also CEEG (Shanghai) Solar Science &
Tech. Co., Ltd. v. Lumos LLC, 829 F.3d 1201, 1206 (10th
Cir. 2016) (“among the narrowest known to the
law” (quotation marks and citation omitted)). Thus, the
reviewing court affords “maximum deference to the
arbitrators' decisions.” CEEG, 829 F.3d at
1206 (quotation marks and citation omitted).
“Errors
in either the arbitrator's factual findings or his
interpretation of the law (unless that interpretation shows a
manifest disregard of controlling law) do not justify review
or reversal on the merits of the controversy.” Dish
Network L.L.C. v. Ray, 900 F.3d 1240, 1243 (10th Cir.
2018) (brackets, quotation marks, and citation omitted).
While the arbitrator may not ignore the plain language of the
contract, “‘as long as the arbitrator is even
arguably construing or applying the contract and acting
within the scope of his authority, that a court is convinced
he committed serious error does not suffice to overturn his
decision.'” CEEG, 829 F.3d at 1206
(quoting United Paperworkers Int'l Union v. Misco,
Inc., 484 U.S. 29, 38 (1987)). “‘The
arbitrator's construction holds, however good, bad, or
ugly.'” THI of N. Mex. at Vida Encantada, LLC
v. Lovato, 864 F.3d 1080, 1084 (10th Cir. 2017) (quoting
Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 573
(2013)).
The
party defending against enforcement of the arbitral award -
the party seeking vacatur - bears the burden of proof.
Youngs v. American Nutrition, Inc., 537 F.3d 1135,
1141 (10th Cir. 2008) (citing Ormsbee Development Co. v.
Grace, 668 F.2d 1140, 1147 (10th Cir. 1982)). See
also Panama Convention, art. 5(1) (recognition of award
may be refused only if the requesting party is able to prove
one of the accepted bases for nonrecognition). “That
burden is very great.” Youngs, 537 F.3d at
1141 (citation omitted).
II.
ANALYSIS
A.
The Recommended Disposition
The
Magistrate Judge stated the issue was “‘Which
order prevails?'” and found the Mexico City Order
did. Accordingly, she recommended vacatur of the Award under
§ 10 of the FAA. As relevant here, the Recommendation
was based on the following findings and conclusions made by
the Magistrate Judge.
First,
that Procedural Order No. 5 was incorrect based on the
history of the litigation, “especially with the
clarification of proceedings provided by the Amparo Order to
which the Arbitrator was not privy.”[28] Thus, based
on the Magistrate Judge's factual findings, which were
contrary to that found by the Arbitrator, the Magistrate
Judge concluded (1) DynaResources did not engage in improper
forum shopping but, instead, properly brought the Mexico City
Lawsuit to contest the legality and applicability of the
arbitration clause; and (2) the Mexico City Lawsuit was
properly pending at the same time as the Colorado Federal
Court Lawsuit, and Goldgroup was well aware of both cases.
Next,
that Goldgroup voluntary and knowingly proceeded with the
ancillary proceeding (the Amparo Action) challenging service
rather than addressing the merits of the Mexico City Lawsuit.
Third,
that the Mexico City Court found the arbitration agreement
was unenforceable (i.e., invalid). And, “[w]ithout a
valid arbitration clause, ” neither the New
York nor Panama Convention were applicable. (ECF No. 49, p.
28 (emphasis added).)
Fourth,
that Judge Krieger's Order was not final (and was based
on a presumably valid Option Agreement with a presumably
valid arbitration clause) and the Mexico City Order changed
the Colorado Federal Court Lawsuit
dramatically.[29]
In
summary, the Recommendation stated the Mexico City Order
determined the parties waived their agreement to arbitrate
rendering the arbitration clause invalid; thus, the
arbitration was unauthorized and must be enjoined. Therefore,
according to the Recommendation, the Award is subject to
vacatur under 9 U.S.C. § 10(a)(3)[30] and (a)(4) as
the Arbitrator engaged in misconduct and exceeded his powers
in proceeding with the arbitration and entering an award.
B.
Goldgroup's Objection
Goldgroup
raises several arguments in its Objection, to which
DynaResources counters with more, including the argument that
Goldgroup waived some objections. Goldgroup's reply
asserts to the contrary. The Court addresses the arguments in
turn, but not necessarily in the order raised.
1.
Objections - No. Waiver by Goldgroup
DynaResources
asserts Goldgroup has waived several findings and conclusions
in the Recommendation because it failed to object to them.
Goldgroup argues no waiver has occurred. The Court agrees.
The
Court finds that while Goldgroup's objections may not
have specifically identified each and every one of the
Recommendation's findings and conclusions it challenged,
its Objection and Reply were specific enough to apprise the
Court of the heart of the parties' dispute. Moreover,
even in the absence of any objection, the Court may review
the Recommendation under any standard. As discussed herein,
the Court finds clear error in some of the findings and
conclusions, and elects to conduct a de novo review of other
findings and conclusions.
2.
The Lack of Any Standards
Goldgroup
argues the Recommendation fails to cite to, much less
correctly apply, the legal standards. The Court agrees, at
least in part. Here, the Recommendation fails to set forth
what standards were applied; hence, the Court is unable to
determine if the Recommendation applied the correct standards
and placed the proper burden on the proper party. This is
demonstrated by, for example, the Recommendation's
reliance on the Mexico City Order and finding the Mexico City
Court had authority to decide the issue of waiver without any
discussion as to how or why, especially when the parties
agreed that the forum for any dispute concerning the
Agreement was to be heard - and for any arbitration to be
held - in Denver, Colorado.
3.
The Mexico City Order - No. Finding of Invalidity
The
Court starts with the Mexico City Order, what the
Recommendation stated such Order found, and what the Court
finds, as it affects the merits of the parties' other
arguments.
DynaResources
argues the Recommendation found the Mexico City Court
determined the arbitration agreement was invalid and
unenforceable, and by failing to object to certain findings
and conclusions in the Recommendation, Goldgroup implicitly
concedes there was no enforceable arbitration agreement. The
Court finds otherwise.
First,
Goldgroup did not concede there was no enforceable
arbitration agreement.[31]Instead, its Objection argues the
issue is whether there was a waiver of the right to arbitrate
under the arbitration agreement, not whether a valid
arbitration agreement existed. Goldgroup sufficiently took
exception to the Recommendation's determination
otherwise, i.e., that the arbitration agreement no
longer existed.
Second,
whether a valid arbitration agreement ever existed was not at
issue in the Mexico City Lawsuit and the Mexico City Order
never found the arbitration agreement was invalid.
As the Recommendation recognized, the Mexico City Order
stated the arbitration agreement was “inefficient and
unenforceable” as it had been “tacitly
waived” by the parties. From this, the Recommendation
found the Mexico City Court determined the arbitration
agreement was “invalid” in the sense that it
never existed (or, if it did, it no longer did).
DynaResources took it one step further and said the
arbitration agreement was “void.”[32] DynaResources
speaks of “leapfrogs”[33] but the Court finds any
leaping here was performed by the Recommendation (leaping
from unenforceable to invalid) followed by DynaResources
(leaping to “void”). Accordingly, the Court finds
the Recommendation erred in determining the Mexico City Court
found the arbitration agreement was invalid, i.e.,
there was no agreement to arbitrate.[34] Instead, the Mexico City
Court discussed how an arbitration agreement that is
“created as valid” would “stop[] having
effect.”[35] And, one basis by which an arbitration
is ineffective is “if there is a waiver by both parties
thereto.”[36] And, based on its review, the Mexico
City Court determined the arbitration agreement was
“tacitly” waived under the Mexico Commercial Code
and, therefore, unenforceable.[37] There was no finding of
invalidity. Accordingly, the Recommendation is rejected on
this basis.
If this
were the sole basis for the Recommendation, the Court's
rejection of this finding would result in the rejection of
the Recommendation in toto.[38] But, as it was not, the Court
addresses the remaining arguments.
4.
The Recommendation engaged in improper independent fact
finding
Goldgroup
asserts this Court should not defer to any factual
findings made in the Recommendation as they are not tied to 9
U.S.C. §§ 10(a)(3) and 10(a)(4). Even if the Court
were to defer, Goldgroup asserts the Recommendation should
still be rejected because it improperly revisits the
Arbitrator's findings and makes inappropriate and clearly
erroneous recommendations. DynaResources argues Goldgroup
objects only to four findings.[39] As to the first three,
DynaResources contends, they are based on findings of
Goldgroup's “misleading ...