Gramercy Distressed Opportunity Fund II LP et al v. Bakhmatyuk et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF WYOMING
Gramercy Distressed Opportunity Fund II,
L.P., Gramercy Distressed Opportunity
Fund III, L.P., Gramercy Distressed
Opportunity Fund III-A, L.P., Gramercy
Funds Management, LLC, Gramercy EM
Credit Total Return Fund, and
Roehampton Partners LLC,
Plaintiffs,
vs. 	Case No. 2:21-CV-00223-KHR
Oleg Bakhmatyuk, Nicholas Piazza, SP
Capital Management, LLC, Oleksandr
Yaramenko, and TNA Corporate
Solutions, LLC,
Defendants.
ORDER DENYING MOTION TO COMPEL ARBITRATION AND MOTION
TO STAY OR LIMIT DISCOVERY
This matter comes before the Court on Defendants’ Motion to Compel Arbitration.
[ECF No. 132] and Motion to Stay or Limit Discovery [ECF No. 128]. Defendants argue
that Plaintiffs are bound to arbitration because their claims fall within their contracted
arbitration provisions. In their related Motion to Stay or Limit Discovery, Defendants ask
the Court to stay the case pending certiorari, or to limit discovery to the arbitration issue.
Plaintiffs oppose both motions. The Court, being fully advised by the parties’ filings and
the hearing on August 7 th , 2024, denies both of Defendants’ Motions.
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BACKGROUND
Plaintiffs sue Defendants under the Racketeer Influenced and Corrupt Organizations
Act (RICO) and under several state law theories. The Court does not attempt to recite the
entire, lengthy factual record. In essence, Plaintiffs hold notes (a type of debt security) in
two companies owned by Mr. Bakhmatyuk and affiliated with Nicholas Piazza, Oleksandr
Yaramenko, 	SP 	Capital 	Management, 	LLC, 	and 	TNA 	Corporate 	Solutions, 	LLC
(collectively “the Piazza Defendants”), and claim that Defendants conspired to devalue
those notes. Related to the notes are trust deeds (documents establishing rights and duties
of the issuer, surety provider, and trustee), the prospectuses (an offering document that
describes the nature of the notes and potential risks involved in note ownership), and the
subscription agreements (documents establishing obligations of the joint lead manager (or,
the underwriter), as to the marketing and sale of the notes).
Mr. Bakhmatyuk and the Piazza Defendants each separately moved to dismiss. They
all claim that because the dispute concerning the notes fell within the arbitration provisions
in the trust deeds, the case should be arbitrated. In the same motions, both groups of
Defendants argued that the Complaint should be dismissed with prejudice. This Court
denied those motions and Defendants appealed under the Federal Arbitration Act (“FAA”).
The Tenth Circuit dismissed for lack of jurisdiction, holding that Defendants’ motion was
not exclusively and explicitly brought under the FAA as is required under § 16(a).1
1 The Tenth Circuit also noted the possibility of waiver. See Gramercy Distressed Opportunity Fund II, L.P. v
Piazza, No’s 22-8050, 22-8063, 2023 WL 6296948, at *2 (10th Cir. May 10, 2023) (“[I]f ‘the movant in the district
court requests a judicial remedy that is inconsistent with the position that the issues involved may be decided only
by the arbitrator, the movant is no longer proceeding exclusively under the FAA and has forfeited [its] right to
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In the present motion, Defendants again argue that judicial consideration of this case
is foreclosed by the arbitration provisions in the Trust Deeds, notes, and other supporting
documents. They ask the Court to reconsider its prior holding concerning the availability
of equitable estoppel. Plaintiffs respond that there is no arbitration provision in the notes,
Trust Deeds, or any other document to which both Plaintiffs and Defendants are bound.
Plaintiffs also argue that Defendants waived their right to compel arbitration.
R ELEVANT LAW
A motion to compel arbitration is governed by a summary judgment-like standard.
Hancock v. Ame. Tel. & Tel. Co., Inc., 701 F.3d 1248, 1261 (10th Cir. 2012). “The party
moving to compel arbitration bears the initial burden of presenting evidence sufficient to
demonstrate the existence of an enforceable agreement.” Campbell Invs., LLC v. Dickey’s
Barbecue Rests., Inc., 784 F. App’x 627, 634 (10th Cir. 2019). If there is a dispute as to
the existence of an agreement to arbitrate, granting the motion is appropriate where “there
are no genuine issues of material fact regarding the parties’ agreement” while giving “the
opposing party the benefit of all reasonable doubts and inferences that may arise.” Avedon
Eng’g, Inc. v. Seatex, 126 F.3d 1279, 1283 (10th Cir. 1997). If it is clear that no arbitration
agreement exists, the court may “decide the arbitration question as a matter of law.”
Howard v. Ferellgas Partners, L.P., 748 F.3d 975, 978 (10th Cir. 2014).
interlocutory review under § 16(a)’”) (quoting Conrad v. Phone Directories Co., Inc., 585 F.3d 1376, 1386 (10th
Cir. 2009)).
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R ULING OF THE C OURT
The Court first addresses Defendants’ argument that they and Plaintiffs are both
party to an arbitration agreement. The Court then addresses whether Defendants waived
their right to compel arbitration in their motion to dismiss. The Court will note that a
majority of Defendants’ arguments are effectively requests for reconsideration, which are
“not appropriate to revisit issues already addressed.” Servants of Paraclete v. Does, 204
F.3d 1005, 1012 (10th Cir. 2000). Because Defendants do not convincingly show the
existence of any circumstances that would cause the Court to reconsider their prior
holdings, the Court here primarily refers back to those holdings in disposing of Defendants’
claims. The Court then briefly disposes of Defendants’ Motion to Stay or Limit Discovery.
I. 	There is no privity of contract between the parties with respect to an
arbitration agreement.
This Court has twice held that the parties did not agree to arbitrate anything among
themselves. [ECF No. 67, at 11-18 & ECF No. 97, at 9]. Defendants, together this time,
renew their argument that this dispute belongs in arbitration. They contend that even if
Plaintiffs are not directly party to the trust deeds, they are party to the notes. This much
was held by this Court in a prior order. However, the Defendants now offer affidavits that
purport to show that Bakhmatyuk purchased notes, making them party to the notes as well.
Defendants argue that because Plaintiffs and Defendants are both noteholders, they are
both bound by the arbitration provisions in the notes. But nowhere do they explain why an
individual note, which by its express terms binds only the issuer, the surety provider, and
a noteholder, would bind an entirely different noteholder to arbitration. In other words,
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while Plaintiffs and Bakhmatyuk may be parties to notes generally, they are not bound to
the same arbitration provision and clearly did not agree to arbitrate with one another.
At the hearing, Defendants argued that because the notes incorporate the trust deeds
and the same trust deed governs all the notes, the parties are bound to the arbitration
provision in that trust deed. This Court did hold that Plaintiffs are bound by the arbitration
provisions in the trust deed, as those provisions are incorporated in the notes by reference.
See [ECF No. 97, at 12]. However, the Court also held that the only parties to the trust
deeds are those expressly defined as the issuer, the trustee, and the surety provider. The
trust deeds create a flow of obligations between each noteholder and those expressly
defined parties. They do nothing to establish privity between holders of different notes.
Defendants, again, offer GE Energy Power Conversion France SAS Corp. v. Outokumpu
Stainless USA, LLC for the proposition that someone can be a party to an agreement even
when they are not signatories. 140 S. Ct. 1637 (2020). The Court has already discussed the
irrelevance of GE Energy to this case. [ECF No. 97, at 12-14]. The Court will not go
through each of Defendants’ repeat arguments and explain, for the second or even third
time, why they do not hold water.
Defendants’ Motion is a patchwork of references to documents that allegedly
contain arbitration provisions, seemingly offered in the hopes that from those fragments
this Court will piece together an arbitration provision that binds both parties. Holding for
Defendants 	on 	almost 	any 	of 	their 	points 	would 	either 	be 	a 	reconsideration, 	the
inappropriateness of which was discussed above, or it would effectively nullify the
purposes of the motion to dismiss phase. The simple deficiency in Defendant’s Motion is
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that Gramercy did not agree to arbitrate with Bakhmatyuk or any of the other Defendants.
Defendants’ continued efforts to rehash the same arguments are unavailing, and the Court
will summarily deny any future efforts to do the same.
a. Arbitration of arbitrability is not required under the LCIA.
As an initial matter, the parties disagree about whether the delegation of arbitrability
to an arbitrator means that we are required, under the LCIA, to send this case to arbitration.
Defendants cite Goldgroup Resources, Inc. v. DynaResource de Mexico, S.A. de C.V. and
Belnap v. Iasis Healthcare to argue that where the parties have expressly delegated
questions concerning the scope of arbitrability to an arbitrator, a court must respect that
delegation. 994 F.3d 1181, 1191 (10th Cir. 2021); 844 F.3d 1272, 1281 (10th Cir. 2021).
Goldgroup did not involve the issue of whether an agreement to arbitrate existed between
the parties in the first place and is of little instructive value here. However, this Court has
previously referenced Belnap in holding that arbitration of arbitrability was not required
where a nonsignatory is involved. [ECF No. 97, at 9-10]. In their Motion and at the hearing,
Defendants spent much of their time addressing the breadth of the arbitration agreements
and cite cases to that effect. But the scope of the arbitration agreement is beside the point
if Defendants cannot show that Plaintiffs are actually bound to arbitrate their dispute with
Defendants.
As this Court already held, the issue of whether the parties agreed to be bound to an
arbitration provision precedes the application of the LCIA regulations. See also Wakaya
Perfection, LLC v. Youngevity Int’l, Inc., 910 F.3d 1118, 1128 (10th Cir. 2018) (holding
that the district court erred in not determining whether parties were subject to arbitration
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agreement before sending the case to arbitration). This was the subject of a prior ruling
which found that the issue of whether Plaintiffs and Defendants are both parties to an
arbitration agreement is a threshold issue that requires resolution before the LCIA
regulations apply. [ECF No. 67, at 12]. The Court explained that because “[t]he parties to
this case did not agree to arbitrate anything amongst themselves,” the Court “does not defer
to the contract’s agreement to arbitrate arbitrability.” Id. We see no reason to revise this
holding. It is inapposite for a court, when asked by a plaintiff to exercise authority over a
dispute, to defer its power to hear the case to an arbitrator before it has determined that an
arbitration agreement exists.
b. The new evidence does not alter prior rulings.
Defendants style their Motion as concerning novel issues because the Court can now
consider the prospectuses, subscription agreements, and relationship agreements; which
they argue show that the parties are bound to arbitrate their dispute. They contend that the
change in posture from a motion to dismiss to a motion to compel arbitration, coupled with
Bakhmatyuk’s affidavits, makes a significant difference. Specifically, Defendants argue
that the prospectuses, the subscription agreements, and the relationship agreements, which
the Court was unable to consider at the motion to dismiss phase, incorporate the notes and
contain an arbitration provision of their own. Defendants contend that because Plaintiffs’
suit arises out of the notes and falls within the arbitration provisions, the Court is required
to order arbitration. These arguments are without merit.
As discussed, the affidavits, even if they did prove that Bakhmatyuk owned notes,
do nothing to establish privity between the parties. While it is true that the Court’s previous
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Orders declined to take judicial notice of the supporting documents, it also held that, even
if it had, “the subscription agreements, prospectuses, and relationship agreement do not
make Bakhmatyuk a party to the notes or the trust deeds” and therefore do not make him
“a party…for purposes of the arbitration clauses.” [ECF No. 75, at 20]. Here, as there,
Defendants did not cite any authority or part of the record that would indicate how being a
party to those supporting documents would make them a party to either the trust deeds or
the notes. The differing evidentiary standard does little to change this outcome. Even a
cursory glance at the subscription agreements reveals that only the issuer, the surety
providers, and the joint lead managers are signatories. They do not purport to bind the
parties involved in this case to one another. The same is true of the prospectuses.
As for the Piazza Defendants, what evidence there is that Piazza and Yaramenko
own notes “through SP Capital Management” cannot change the outcome because this
Court has already explained that “it is black-letter American law that corporate entities are
legally distinct from their individual owners, officers, and directors.” [ECF No. 97, at 14].
SP Capital’s alleged ownership of notes alone does nothing to show that any Defendant in
this case owns notes. However, even if the brokerage statements did prove that SP Capital
owned notes, and even if that ownership were somehow transferred to Piazza and
Yaramenko in their personal capacities, their Motion would fail for the same reasons it fails
as to Bakhmatyuk.
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c. Equitable estoppel is still unavailable to Defendants.
Defendants reprise their argument that Plaintiffs should not be able to make claims
that allegedly arise under the notes while disclaiming any obligation to arbitrate those
claims. This argument appears to be based on equitable estoppel, which this Court already
held was unavailable to enforce an agreement against nonsignatories under English law.
[ECF No. 97, at 32]. Defendants acknowledge this earlier holding but advise the Court that
it “has the discretion to revise that interlocutory order.” [ECF No. 132, at 15]. The Court
sees no reason to do so. In the hearing, Defendants pointed specifically to the tortious
interference claim as being somehow distinct from the other claims in this regard, but
tortious interference is a tort claim and Defendants, still, have “not show[n] that English
law allows nonsignatories to enforce arbitration clauses when a contract party brings tort
claims.” [ECF No. 97, at 27]. Further, these claims do not arise out of the notes or trust
deeds in the way that Defendants claim because Plaintiffs do not bring contract claims.
Accordingly, the Court declines to revisit its holding that equitable estoppel does not apply.
II. 	Defendants waived their right to compel arbitration.
Plaintiffs argue that, even if Plaintiffs and Defendants were both bound by an
arbitration agreement, Defendants waived their right to arbitration when they requested
merits relief within their motion to dismiss.
The Tenth Circuit, in responding to Defendant’s claim that the Motion to Dismiss
was presenting arguments in the alternative and therefore should be understood as
proceeding exclusively under the FAA, said the following:
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[E]ven when a party pleads in the alternative, there may come a point at
which a choice must be made. In particular, a party can waive the right to
pursue arbitration by simultaneously pursuing merits relief in the courts.
After all, one seeking arbitration is contending that judicial review is
inappropriate. To pursue adjudication on the merits by the court is contrary
to the purported desire to have the claims resolved by an arbitrator in the first
instance. We made this very point in Conrad, saying that if “the movant in
the district court requests a judicial remedy that is inconsistent with the
position that the issues involved may be decided only by the arbitrator, the
movant is no longer proceeding exclusively under the FAA and has forfeited
[its] right to interlocutory review under § 16(a)” … A defendant should not
be permitted to see whether the district court is receptive to its merits
arguments before deciding whether to appeal the denial of a request to
compel arbitration.
Gramercy Distressed Opportunity Fund II L.P. v. Piazza, Nos. 22-8050, 22-8063, 2023
WL 6296948, at *2 (10th Cir. May 10, 2023) (quoting Conrad v. Phone Directories Co.,
Inc., 585 F.3d 1376, 1386 (10th Cir. 2009)). The Tenth Circuit stopped short of explicitly
holding that waiver applies here. This Court does so now.
“[A] party should not be permitted to demand arbitration when it has previously
waived its 	right to 	arbitrate…where a waiver is ‘an intentional 	relinquishment or
abandonment of a known right.’” Hill v. Ricoh Americas Corp., 603 F.3d 766, 773 (10th
Cir. 2010) (quoting United States v. Olano, 507 U.S. 725, 733 (1993)). However, waiver
is “hardly limit[ed] to…intentional relinquishment…” and can apply where the movant has
negligently waived its right. Id. (citing Reid Burton Const. Inc. v. Carpenters Dist. Council
of Southern Colo., 614 F.2d 698, 701 (10th Cir. 1980)).
The Tenth Circuit has enumerated several factors to guide courts in finding waiver
in the arbitration context:
(1) whether the party's actions are inconsistent with the right to arbitrate; (2)
whether “the litigation machinery has been substantially invoked” and the
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parties “were well into preparation of a lawsuit” before the party notified the
opposing party of an intent to arbitrate; (3) whether a party either requested
arbitration enforcement close to the trial date or delayed for a long period
before seeking a stay; (4) whether a defendant seeking arbitration filed a
counterclaim without asking for a stay of the proceedings; (5) “whether
important intervening steps [e.g., taking advantage of judicial discovery
procedures not available in arbitration] had taken place”; and (6) whether the
delay “affected, misled, or prejudiced” the opposing party.
Peterson v. Shearson/American Exp., Inc., 849 F.2d 464, 467-468 (10th Cir. 1988) (quoting
Reid Burton Constr., Inc., 614 F.2d at 702). By demanding arbitration, a party is stating
that “the issues involved may only be decided by the arbitrator”, a position that is
inconsistent with a request for relief on the merits in a court of law. Conrad, 585 F.3d at
1386.
Therefore, a motion that “by its nature ‘goes to the merits of the case’” is “a
conscious decision to have the substance of [that party’s] claims decided by a court” and
can constitute waiver. Khan v. Parsons Global Services, Ltd., 521 F.3d 421, 427 (D.C. Cir.
2008) (quoting Nat’l Found. for Cancer Rsch. v. A.G. Edwards & Sons, Inc., 821 F.2d 772,
776 (D.C. Cir. 1987). In Khan, the Defendant filed a motion styled as a “motion to dismiss
or, alternatively, for summary judgment or to compel arbitration.” Id. at 424. The district
court treated the motion as for summary judgment, which it granted. The D.C. Circuit
reversed. The defendant then moved to compel arbitration, which the district court granted.
The D.C. Circuit again reversed, holding that the defendant had waived their right to
compel 	arbitration 	by 	seeking 	merits 	relief 	in 	its 	motion 	for 	summary 	judgment.
Specifically, the court held that the defendant’s affirmative defense that plaintiff’s claims
fell under worker’s compensation addressed the merits of those claims. Id.
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Defendants have filed two Motions to Dismiss under Rule 12(b)(6), each of which
contain defenses that go to the merits of Plaintiffs’ claims. [ECF Nos. 43 & 75].
Defendants’ first motion argued that the lawsuit should be dismissed because Plaintiffs are
bound to the “no-action” provisions in the trust deeds. The second motion argued that the
Plaintiff’s RICO claims are barred by the Private Securities Litigation Reform Act. These
are claims for relief on the merits that are independent of the alleged requirement to
arbitrate. While Khan addressed a motion for summary judgment, which involves a greater
investment of time and resources, nothing about its language was necessarily limited to
that context. The thrust of the caselaw provides that seeking merits relief is inconsistent
with an assertion of the right to arbitrate and applies in the context of a motion to dismiss.
Defendants cannot tiptoe the line between an FAA motion and a 12(b)(6) motion and, as
the parties put it, “have it both ways.” Defendants claim that they are being punished for
raising the arbitration issue too early and too often, but this characterization misunderstands
the law of waiver. The problem is that Defendants jumped the gun on seeking merits relief.
Their waiver of the arbitration issue is no one’s fault but their own.
At the hearing, Defendants cited the Peterson factors as reflected in Healy v. Cox
Communications, Inc. to point out that the third factor contemplates that a party might raise
the right to arbitrate near in time to trial. 790 F.3d 1112, 1116 (10th Cir. 2015). Defendants
presumably mean that a party could “fail” the third factor but avoid a finding of waiver
based on the other factors, since raising the right to arbitrate near in time to trial would
weigh in favor of waiver. However, it seems a slight distortion to imply that, based on
Healy, it is broadly permissible for a party to raise the arbitration issue close to trial.
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Regardless, Defendants’ assertion tells us little about whether they have waived the right
to arbitrate because it does not consider the other factors. Healy is neutral for Defendants’
argument, at best.
Many of the remaining Peterson factors support finding waiver. The “machinery of
litigation” has certainly been invoked, as this litigation has been ongoing since 2021. We
have found that Defendants actions are inconsistent with the right to arbitrate because they
sought merits relief in both their motions to dismiss. The Court therefore finds that
Defendants waived their right to compel arbitration.
III. 	The Court denies the Motion to Stay or Limit Discovery
Defendant’s Motion to Stay is based almost entirely on arbitration-related grounds
and is mostly rendered moot by this Court’s denial of the Motion to Compel Arbitration.
The sole remaining issue is the alleged incongruity between the Tenth Circuit’s approach
to Defendant’s FAA appeal under Conrad v. Phone Directories Co., Inc. as to 1) Supreme
Court precedent and 2) other circuits. Put simply, neither of these grounds are relevant to
this Court’s decision to grant a stay. The Tenth Circuit’s decision binds this Court, and
alleged error on their part or the ostensible presence of a circuit split does not vitiate that
flow of authority. The authority of appellate courts over trial courts is a bedrock principle
of the American legal system, and one that this Court follows today. Defendants’ Motion
to Stay or Limit Discovery is denied.
CONCLUSION
This Court finds that Defendants failed to show any factual issue as to the existence
of an arbitration agreement that binds the parties. This Court further finds that Defendants
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have waived their right to compel arbitration. This Court holds that Defendants did not
offer any legitimate basis for why the case should be stayed pending certiorari.
NOW, THEREFORE, IT IS ORDERED Defendants’ Motion to Compel Arbitration
is DENIED.
IT IS FURTHER ORDERED Defendants’ Motion to Stay or Limit Discovery is
DENIED.
Dated this 26th day of August, 2024.
Kelly H. Rankin
United States District Judge
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