Oeschger v. Genethera, Inc.

386 F.Supp.3d 376

Fredric OESCHGER, Plaintiff,

v.GENETHERA, INC., Defendant.

Case No. 5:19-cv-41

United States District Court, D. Vermont.

Signed April 24, 2019

Andre D. Bouffard, Esq., Downs Rachlin Martin PLLC, Burlington, VT, for Plaintiff.

John J. Kennelly, Esq., Pratt Vreeland Kennelly Martin & White, Ltd., Rutland, VT, Justin C. Berg, Esq., Pro Hac Vice, Berg Hill Greenleaf Ruscitti LLP, Boulder, CO, for Defendant.

ORDER

(Docs. 8, 9, 19, 27)

Geoffrey W. Crawford, Chief Judge United States District

This case concerns a dispute over an agreement to invest $5,000,000 in a start-up company called GeneThera, Inc. ("GeneThera"), which seeks to develop the use of genetic technology in medicine. There is no dispute that plaintiff Fredric Oeschger created a single purpose entity called FOGT, LLC ("FOGT") for the purpose of investing in GeneThera. It is also undisputed that FOGT signed an agreement to invest in GeneThera and that the agreement contains an arbitration clause providing for arbitration in Colorado and delegating issues of arbitrability to the arbitrator. FOGT and GeneThera are currently involved in an arbitration proceeding captioned In re: GeneThera, Inc. v. FOGT, LLC , Case No. 01-19-0000-5391 (the "Arbitration"). The principal issue before this court is whether Mr. Oeschger must arbitrate the separate claim that he is personally liable for the obligations of FOGT because FOGT functioned as his alter ego.

Mr. Oeschger has filed a complaint in this court against GeneThera seeking a declaration: "(i) that he is not liable to GeneThera or its shareholders for any actions or failures to act in the capacity of a member of the Board of Directors of GeneThera, and (ii) that he is not personally liable on obligations, if any, owed by FOGT, LLC to GeneThera, or otherwise."

(Doc. 7 ¶ 5.) Mr. Oeschger also seeks "preliminary and permanent injunctive relief precluding GeneThera from taking actions to compel him to arbitrate in the Arbitration any of the claims that are the subject of this judicial action." (Id. )

Multiple motions are currently pending. The court held a hearing on April 9, 2019 and ordered expedited briefing on the three recently filed motions: Mr. Oeschger's April 2, 2019 motion for a preliminary injunction staying the Arbitration (Doc. 4); GeneThera's April 8, 2019 motion to dismiss for lack of subject matter and personal jurisdiction, motion to transfer, or motion to stay (Doc. 8); and GeneThera's April 8, 2019 emergency motion to stay and vacate the hearing (Doc. 9). The court entered a temporary restraining order (TRO) on April 11, 2019 enjoining GeneThera from taking any action in furtherance of the prosecution of the Arbitration or enforcing the emergency arbitrator's April 10, 2019 order compelling Mr. Oeschger to arbitrate the claims against him and to make an immediate payment of $25,186.50 to GeneThera. (Doc. 16.)

Briefing is now complete on the three motions listed above. In addition, GeneThera filed an April 12, 2019 motion to dissolve the TRO. (Doc. 19.) Mr. Oeschger filed a conditional motion for limited jurisdictional discovery and a motion for extension of the TRO on April 18, 2019. (Doc. 27.)

Background

GeneThera and FOGT entered into a "Milestones Investment Agreement" ("MIA") on March 1, 2018. (Doc. 8-4 at 3.) Mr. Oeschger's signature appears on the agreement as "Manager" of FOGT. (Id. at 10.) In a provision regarding the "governing law," the MIA states, in pertinent part: "The parties hereto hereby submit to the exclusive jurisdiction of the United States federal courts located in Denver, Colorado with respect to any dispute arising under this agreement ...." (Id. at 6.)

The agreement also includes the following provision: "Any claim or controversy arising out of or relating to the performance of this Agreement, which has not been settled by mediation, shall be settled by arbitration in Denver, Colorado, in accordance with the Commercial Arbitration Rules of the American Arbitration Association [AAA], as herein amended." (Id. at 9.) The relevant AAA arbitration rules include the following provisions:

R-7. Jurisdiction

(a) The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.

(b) The arbitrator shall have the power to determine the existence or validity of a contract of which an arbitration clause forms a part. Such an arbitration clause shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitrator that the contract is null and void shall not for that reason alone render invalid the arbitration clause.

American Arbitration Association, Commercial Arbitration Rules and Mediation Procedures, Rule 7 (amended and effective Oct. 1, 2013).

On or about February 19, 2019, GeneThera filed a demand against FOGT for arbitration in Colorado with the AAA. (See Doc. 8-1 ¶ 9.) In an order entered on March 8, 2019, an emergency arbitrator found that GeneThera had a reasonable probability of success on its contract claim. (Doc. 8-13 at 3.) The emergency arbitrator found that GeneThera had presented undisputed evidence that FOGT had refused to make a $1.2 million payment under the MIA, and that GeneThera was accordingly unable to pay $25,186.50 in rent under a lease. (See id. at 3–4.) The emergency arbitrator found that if FOGT "is not held to its obligations under the MIA, Claimant will become insolvent and be forced to close its doors, resulting in catastrophic loss that cannot be remedied by money alone." (Id. ) The emergency arbitrator enjoined FOGT from breaching the MIA and ordered it to immediately pay $25,186.50 to GeneThera so that GeneThera could satisfy its rent obligations. (Id. at 4.)

GeneThera submitted a First Amended Demand for Arbitration to the AAA on or about March 12, 2019. (Doc. 8-14.) The demand named FOGT as the sole respondent. The First Amended Demand added a new claim for "Piercing the Corporate Veil / Alter Ego," alleging that FOGT is the alter ego of Mr. Oeschger and asserting that Mr. Oeschger is personally liable for GeneThera's alleged damages. (Id. at 9–10.)

FOGT filed for bankruptcy under Chapter 7 on March 15, 2019. (See Doc. 8-16 at 3.) Mr. Oeschger filed his complaint in the district court on March 18, 2019. (Doc. 1.) Then, in the bankruptcy action, GeneThera filed an emergency motion for relief from the automatic stay on March 22, 2019. (Doc. 8-16 at 1.) GeneThera submitted a Second Amended Demand for Arbitration to the AAA on or about March 22, 2019. (Doc. 8-15.) The Second Amended Demand was "to add Respondent Fred Oeschger as a captioned party and to clarify Claimant's claims against Respondent Fred Oeschger individually." (Id. at 2.) In an order dated April 5, 2019, the Bankruptcy Court granted GeneThera relief from the automatic stay so that it could pursue its claims in the Arbitration. (Doc. 8-18 at 2.)

Having been granted relief from the automatic stay, GeneThera returned to the Arbitration and requested emergency injunctive relief against Mr. Oeschger. (See Doc. 14-3 at 2.) In an order dated April 9, 2019, the emergency arbitrator found as follows:

In light of Mr. Oeschger's control of FOGT, its thin capitalization, its representations to Claimant that it had the resources to meet its obligations to Claimant, Mr. Oeschger's knowledge of those representations, and financial transactions in which the interests of Mr. Oeschger and FOGT were not kept separate, the Arbitrator concludes that Claimant has a reasonable probability of success on the merits of its alter ego claims against Mr. Oeschger.

(Doc. 14-3 at 2–3.) The arbitrator accordingly amended the March 8, 2019 order "to include Fred Oeschger as a Respondent" and ordered that Mr. Oeschger "immediately pay $25,186.50 to Claimant so that Claimant may satisfy its rent obligations under the Lease." (Id. at 3.) This court issued its TRO on April 11, 2019, enjoining enforcement of the arbitrator's April 9, 2019 order. (Doc. 16.)

Analysis

I. Emergency Motion to Stay and Vacate Hearing (Doc. 9)

GeneThera filed an emergency motion (Doc. 9) to stay or vacate the hearing on Mr. Oeschger's motion for a preliminary injunction (Doc. 4). In that emergency motion, GeneThera argues that the court cannot enter a preliminary injunction without subject matter and personal jurisdiction and without finding that Vermont is a proper venue. In opposition, Mr. Oeschger maintains that the court can address GeneThera's motion to dismiss and Mr. Oeschger's motion for injunctive relief concurrently. (Doc. 22 at 1.) In reply, GeneThera notes that the emergency motion is moot insofar as the court already held a hearing on April 9, 2019. (Doc. 24 at 1.) As to the order in which the court should address the pending motions, GeneThera maintains that the court cannot enter any injunctive relief without first deciding that subject matter jurisdiction, personal jurisdiction, and venue are present. (Id. )

The court concludes that the emergency motion is moot insofar as it sought to stay the April 9, 2019 hearing. The court addresses the dispute over the order of operations below.

II. Subject Matter Jurisdiction (Doc. 8)

GeneThera seeks dismissal for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1), for lack of personal jurisdiction under Fed. R. Civ. P. 12(b)(2), and for improper venue under Fed. R. Civ. P. 12(b)(3). Alternatively, GeneThera moves for transfer of this action to Colorado or to stay the action pending completion of the AAA arbitration. (See Doc. 8.) The court begins its analysis with the question of subject matter jurisdiction.

"A district court properly dismisses an action under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction if the court ‘lacks the statutory or constitutional power to adjudicate it ....’ " Cortlandt St. Recovery Corp. v. Hellas Telecomms., S.À.R.L. , 790 F.3d...