Court Opinion

ID: 6318188
Source: CourtListenerOpinion
Date Created: 2022-02-28 22:15:39.005146+00
Date Added: 2024-06-11T09:01:35.055703
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

 MICHAEL ROUPP; ROUPP
 ENTERPRISES, INC.; ROUPP                            No. 81915-1-I
 ENTERPRISES 401(K); and ROUPP                       (consol. with nos. 81917-8-I,
 ENTERPRISES DEFINED BENEFIT                         81950-0-I, 81952-6-I, and
 PLAN,                                               81953-4-I)

                Respondents,
                                                     DIVISION ONE
                v.
                                                     UNPUBLISHED OPINION
 LUCIUS GREGORY MEREDITH;
 EVAN JENSEN; KENNY ROWE;
 NAVNEET SUMAN; IAN BLOOM;
 ALEKSANDR BULKIN; EDWARD M.
 EYKHOLT; and RCHAIN
 COOPERATIVE,

                Appellants.

       APPELWICK, J. — RChain appeals from the denial of its motion to compel

arbitration of the underlying action pursuant to the terms of its membership

agreement. We affirm.

                                        FACTS

       RChain Cooperative is a Washington cooperative association established

to develop a blockchain1 platform for electronic transactions. In 2017, anyone

       1  A “blockchain” is a “‘digital database consisting of a continuously growing
list of records, called blocks. These blocks of data are chained together using
cryptography, making it difficult to rewrite the older records. Further, a blockchain
and the data on it can be simultaneously used and shared within a large,
decentralized publicly available network.’” A.J. Bosco, Blockchain and the Uniform
Electronic Transaction Act, 74 BUS. LAW. 243, 243-44 (2018).

  Citations and pin cites are based on the Westlaw online version of the cited material.
No. 81915-1-I/2

interested in becoming a member of RChain was required to complete a

membership application, affirm agreement with the “Membership Agreement,” pay

a $20 membership fee, and complete an identity verification interview.          The

Membership Agreement contains an arbitration provision:

              Binding Arbitration. Except for any disputes, claims, suits,
      actions, causes of action, demands or proceedings (collectively,
      “Disputes”) in which either Party seeks to bring an individual action
      in small claims court or seeks injunctive or other equitable relief for
      the alleged unlawful use of intellectual property, including, without
      limitation, copyrights, trademarks, trade names, logos, trade secrets
      or patents, you and the [RChain] (i) waive your and the [RChain’s]
      respective rights to have any and all Disputes arising from or related
      to these Terms resolved in a court, and (ii) waive your and the
      [RChain’s] respective rights to a jury trial. Instead, you and the
      [RChain] will arbitrate Disputes through binding arbitration (which is
      the referral of a Dispute to one or more persons charged with
      reviewing the Dispute and making a final and binding determination
      to resolve it instead of having the Dispute decided by a judge or jury
      in court).

The Membership Agreement states that arbitration would be governed by the

Federal Arbitration Act, 9 U.S.C. § 1 et seq., and requires any arbitration to be

conducted in accordance with the rules of the Judicial Arbitration and Mediation

Services.

      To generate startup capital, RChain sold cryptocurrency tokens called

“RHOCs” that would eventually be converted into tokens called “REVs,” which

would allow users access to resources on the blockchain network. After becoming

a member, Michael Roupp2 purchased millions of RHOCs from RChain’s

underwriter, Pithia, Inc., f/k/a RChain Holdings, Inc. Roupp alleges that RChain

digitally tainted his RHOCs, making them ineligible for exchange to REVs when

      2 Purchases were made by Michael Roupp, Roupp Enterprises, Inc., Roupp
Enterprises 401(k), and Roupp Enterprises Defined Benefit Plan (collectively,
“Roupp”).

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No. 81915-1-I/3

the platform launched.    Roupp filed a lawsuit against RChain and the other

defendants3 for violations of the Securities Act of Washington, chapter 21.20 RCW,

and the Consumer Protection Act, chapter 19.86 RCW, as well as tortious

interferences with business expectancy.

      RChain and certain defendants4 moved to dismiss for failure to state a

claim. Roupp moved for partial summary judgment declaring that RHOCs are

securities within the meaning of RCW 21.20.005(17) based on the conclusions of

law in a Washington State Department of Financial Institutions consent order

signed by RChain. The trial court denied both motions on July 2, 2020.

      RChain subsequently located internal records indicating that Roupp

became a member of RChain in 2017. Roupp had applied to become a member

of RChain on August 29, 2017. He paid the $20 membership fee and received an

e-mail confirming his membership. On September 5, 2017, Jensen conducted a

Skype5 video call to confirm Roupp’s identity.

      Upon discovering this information, RChain6 filed a motion to compel

arbitration under the terms of the Membership Agreement. In response to the

motion to compel, Roupp argued that RChain waived its right to compel arbitration

and failed to demonstrate the existence of a valid agreement to arbitrate.

      3  Additional defendants, Lucius Gregory Meredith, Evan Jensen, Kenny
Rowe, Naveneet Suman, Ian Bloom, Aleksandr Bulkin, and Edward Eykholt have
held leadership roles within RChain.
       4 Defendants Meredith, Jensen, and RChain moved to dismiss. Defendant

Bulkin joined the motion.
       5 “Skype” is Microsoft Corporation’s video communication software.
       6 The motion was filed jointly by defendants Meredith, Jensen, Bloom, and

RChain. Bulkin and Rowe also joined the motion.

                                            3
No. 81915-1-I/4

According to Roupp, RChain could not demonstrate that he assented to the

Membership Agreement prior to being granted membership. The trial court denied

RChain’s motion to compel, concluding that while RChain had not waived its right

to assert arbitration, “[t]here is insufficient proof of a contract (offer and

acceptance) of the terms of arbitration.” The trial court “[did] not find that there is

sufficient proof that [Roupp] signed the terms of any agreement that would have

bound him to arbitration.”

       RChain7 appeals this decision.

                                    DISCUSSION

  I.   Motion to Compel Arbitration

       The trial court denied RChain’s motion to compel arbitration. We review de

novo a trial court’s denial of a motion to compel arbitration. Weiss v. Lonnquist,

153 Wn. App. 502, 510, 224 P.3d 787 (2009). “Arbitration is a matter of contract.”

Healy v. Seattle Rugby, LLC, 15 Wn. App. 2d 539, 544, 476 P.3d 583 (2020).

Parties cannot be compelled to arbitrate without an agreement.              Id.; RCW

7.04A.070(1). When parties disagree about the existence of an agreement, “the

court shall proceed summarily to decide the issue.” RCW 7.04A.070(1). The

threshold question is whether the parties entered into a valid agreement to

arbitrate. Weiss, 153 Wn. App. at 511. A valid contract requires mutual assent to

its essential terms, generally in the form of an offer and an acceptance. Id. But,

an express agreement is not required. Marcus & Millichap Real Est. Inv. Servs. of

       7Defendants Meredith, Jensen, Bloom, and RChain filed a joint notice of
appeal. Bulkin, Eyekholt, Rowe, and Suman all filed separate notices of appeal.

                                              4
No. 81915-1-I/5

Seattle, Inc. v. Yates, Wood & MacDonald, Inc., 192 Wn. App. 465, 474, 369 P.3d

503 (2016). “A party may consent to arbitration without signing an arbitration

clause, just as a party may consent to the formation of a contract without signing

a written document.” Romney v. Franciscan Med. Grp., 186 Wn. App. 728, 747,

349 P.3d 32 (2015). The party asserting the existence of a contract bears the

burden of proof. Weiss, 153 Wn. App. at 511.

      RChain8 contends that Roupp agreed to arbitrate as part of the Membership

Agreement. As the party asserting the existence of an agreement to arbitrate,

RChain has the burden of proof. Id. The record before the trial court did not

include a signed Membership Agreement. Instead, RChain relies on Roupp’s

concession that he joined as a member in 2017. According to RChain, Roupp had

to sign the Membership Agreement to become a member, therefore, Roupp agreed

to the terms of the Membership Agreement including binding arbitration. Other

than Roupp’s acknowledgement that he applied to become a member, RChain

failed to produce any evidence that Roupp signed the Membership Agreement.

      RChain argues that Roupp’s membership binds him to the arbitration

through the Membership Agreement, under Marcus & Millichap, 192 Wn. App at

475. In Marcus & Millichap, the parties were both real estate brokerage firms and

members of a member-owned trade association whose bylaws included an

arbitration provision for disputes among members. Id. at 469-70. In response to

a motion to compel arbitration, Marcus & Millichap claimed that it had no duty to

      8  Appellants RChain, Meredith, Jensen, and Bloom filed a joint opening
brief. Bulkin, Suman, Eykholt, and Rowe all submitted briefs in joinder.

                                           5
No. 81915-1-I/6

arbitrate because neither party had produced a signed membership agreement.

Id. at 471. This court determined that “voluntary membership in a professional

organization gives rise to a corresponding obligation to comply with that

organization’s bylaws.” Id. at 469. Accordingly, “[a]bsent an express bilateral

contract, voluntary membership in a professional organization establishes assent

to an arbitration agreement contained in that organization’s bylaws.” Id. at 475. In

Marcus & Millichamp, because the arbitration provision was included in the bylaws,

a signed membership application was not needed to prove agreement to arbitrate.

Id. at 477-78, 480

      RChain’s claims that Marcus & Millichap controls and no signed

Membership Agreement is required to prove Roupp’s assent to the agreement and

its arbitration provision. But, unlike Marcus & Millichap, RChain’s bylaws do not

include a provision to arbitrate. The RChain bylaws state,

             Membership will be open to all persons or business entities
      who make an application in the form prescribed, who pay a
      membership fee in the amount prescribed by the Board of Directors
      (the "RChain Board") at the time of application, and who sign a
      membership agreement with RChain[.] Applications are subject to
      approval by the RChain Board[.] Applications for membership are
      presumed approved by the RChain Board unless specifically
      disapproved in accordance with criteria to be developed by the
      RChain Board.

While the bylaws reference the requirement of a signed Membership Agreement,

they do not include an explicit arbitration provision themselves. RChain contends

the bylaws incorporate the Membership Agreement by reference.             However,

incorporation by reference must be clear and unequivocal. Satomi Owners Ass’n

v. Satomi, LLC, 167 Wn.2d 781, 801, 225 P.3d 213 (2009). “‘It must be clear that

                                            6
No. 81915-1-I/7

the parties to the agreement had knowledge of and assented to the incorporated

terms.’” W. Wash. Corp. of Seventh-Day Adventists v. Ferrellgas, Inc., 102 Wn.

App. 488, 494-95, 7 P.3d 861 (2000) (quoting 11 SAMUEL W ILLISTON, THE LAW OF

CONTRACTS § 30:25, at 234 (Richard A. Lord ed., 4th ed.1999)). A brief mention

of the bylaws in one of the provisions of a membership agreement is not a clear

and unequivocal intent to incorporate the terms of a separate agreement.

       Marcus & Millichap does not relieve RChain of the need to prove that Roupp

assented to the terms of the Membership Agreement.            RChain produced no

evidence that Roupp had access to, reviewed or affirmed agreement to the

Membership Agreement.        Because there is no proof of a binding contract to

arbitrate, the trial court properly denied the motion to compel.

       As an alternative argument, RChain contends the trial court should have

held an evidentiary hearing if it had any doubts about the existence of an arbitration

agreement. Marcus & Millichap suggests that an evidentiary hearing is appropriate

if material facts necessary to determine the issues are controverted by admissible

evidence.   192 Wn. App. at 472.        In this case, evidence of an enforceable

agreement to arbitrate is absent, rather than controverted. An evidentiary hearing

was not warranted.

 II.   Attorney Fees on Appeal

       Roupp requests fees and costs under RCW 4.84.185 for opposing a

frivolous appeal. RCW 4.84.185 allows a court to “require the nonprevailing party

to pay the prevailing party the reasonable expenses, including fees of attorneys,

incurred in opposing” a frivolous action. A frivolous action is one that cannot be

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No. 81915-1-I/8

supported by any rational argument on the law or facts. Alexander v. Sanford, 181

Wn. App. 135, 184, 325 P.3d 341 (2014).

       RCW 4.84.185 is not a basis for recovery of fees on appeal. Hanna v.

Margitan, 193 Wn. App. 596, 614-15, 373 P.3d 300 (2016). Moreover, the appeal

is not frivolous.   Although ultimately distinguishable, RChain’s argument that

Marcus v. Millichap, 192 Wn. App at 475, applies is not irrational and devoid of

merit. We decline to award Roupp his fees and costs on appeal.

       Affirmed.

WE CONCUR:

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