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Goldgroup Resources, Inc. v. Dynaresource De Mexico, S.A. De C.V.

United States District Court, D. Colorado

May 9, 2019

GOLDGROUP RESOURCES, INC., Applicant,
v.
DYNARESOURCE DE MEXICO, S.A. DE C.V., and DYNARESOURCE, INC., Respondents.

          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 ...


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