The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
PITTSBURGH
JASON BROWN, DANIEL )
STADELMANN, LYNN BROWN, )
) 2:23-CV-00554-CRE
ROBERT L. BROWN, )
)
Plaintiffs, ) )
vs. )
)
POWER BLOCK COIN, LLC, AARON )
TILTON, )
)
Defendants, )
)
MEMORANDUM AND ORDER1
CYNTHIA REED EDDY, United States Magistrate Judge.
I. INTRODUCTION
This civil action was filed on April 3, 2023 by Plaintiffs Jason Brown, Daniel Stadelmann,
Lynn Brown, and Robert L. Brown (collectively “Plaintiffs”) against Defendants Power Block
Coin, LLC d/b/a SmartFi, a cryptocurrency company and Aaron Tilton, its founder and CEO
(collectively “SmartFi”), alleging that Defendants failed to honor a buyback agreement for
Plaintiffs’ investment in SmartFi’s cryptocurrency and seek the return of $1,868,261.46 invested
with SmartFi. Plaintiffs bring a breach of contract claim (Count I), a fraud in the inducement claim
(Count II), a negligent misrepresentation claim (Count III), claims for violations of the 1933
Securities Act, 15 U.S.C. § 771 (Counts IV, XI), claims for violations of the Securities Exchange
1 Motions to compel arbitration are non-dispositive motions under 28 U.S.C. § 636(b). See
Virgin Islands Water & Power Auth. v. Gen. Elec. Int'l Inc., 561 F. App'x 131, 133–34 (3d Cir.
2014) (“motions to compel arbitration and stay the proceedings” are not dispositive motions and
there is “no exercise of Article III power when a Magistrate Judge rules on a motion to compel
arbitration.”).
Act, 15 U.S.C. § 78j(b) (Counts V, XI), claims for violations of the Pennsylvania Securities Act
of 1972, 70 P.S. §§ 1-401, 1-501, 1-201, 1-502, 1-503 (Counts VI, VIII, X), claims for violations
of the Utah Uniform Securities Act, Utah Code Ann. § 61-1-1 (Counts VII, IX), an unjust
enrichment claim (Count XII), a conversion claim (Count XIII), a trespass to chattel claim (Count
XIV) and a claim for declaratory relief (Count XV).
Presently before the Court is a motion to compel arbitration by SmartFi pursuant to Federal
Rule of Civil Procedure 12(b)(6)2 (ECF No. 15). The motion is fully briefed and ripe for
consideration. (ECF Nos. 18, 4, 25). The Court has jurisdiction pursuant to 28 U.S.C. § 1332(a)(2)
because the parties are of diverse citizenship and the amount in controversy exceeds the statutory
amount, and under 28 U.S.C. §§ 1331 and 1367.
For the reasons that follow, Defendants’ motion to compel arbitration is denied without
prejudice to refile upon the completion of limited discovery related to the arbitrability of Plaintiffs’
claims.
II. BACKGROUND
The crux of Plaintiffs’ complaint involves a contractual dispute between Plaintiffs and
SmartFi regarding a contractual right to a buyback guarantee for Plaintiffs’ investment in
SmartFi’s cryptocurrency. SmartFi offers loans in which borrowers receive money from SmartFi
in exchange for posting cryptocurrency, including Bitcoin, as collateral. Am. Compl. (ECF No.
12) at ¶ 16. SmartFi advertised that it would begin to sell SmartFi tokens called “SMTF” to the
public and that these tokens were designed to be “speculative” and tied to SmartFi’s success. Id.
at ¶ 17. SmartFi stated that it would raise funds by selling SMTF tokens to customers in exchange
2 Alternatively, SmartFi moves to dismiss the complaint for failure to state a claim. No
decision will be made as to the substance of Plaintiffs’ claims until the arbitration issue is resolved.
for USDC stablecoin or United States Dollars, and therefore raised money from users by selling
SMTF and loaned that money to borrowers, whom it charged interest. Id. at ¶¶ 18-19. Plaintiffs
allege that before deciding to purchase SmartFi’s cryptocurrency, that they relied on SmartFi’s
promise in presentations, webcasts, and conversations that the purchase of SMTF tokens came
with a 100% buyback guarantee after 12 months. Id. at ¶ 27. Therefore, Plaintiffs believed that
their investment in SmartFi would, if requested, be fully refunded by SmartFi, and they would be
able to get their investment back even if SMTF’s value did not appreciate. Id. at ¶ 30. Plaintiffs
collectively purchased $1,858,261.46 in SMTF tokens. Id. at ¶ 90. After waiting one year,
Plaintiffs requested a buyback of their SMTF tokens and SmartFi has ignored and/or refused their
request. Id. at ¶¶ 95-96.
SmartFi claims that its website where Plaintiffs purchased the SMTF tokens contains terms
and conditions, including an arbitration agreement that provides as follows:
If we cannot resolve the dispute through the Formal Complaint Process, you and
we agree that any dispute arising out of or relating to these Terms or the Services,
including, without limitation, federal and state statutory claims, common law
claims, and those based in contract, tort, fraud, misrepresentation, or any other legal
theory, shall be resolved through binding arbitration, on an individual basis (the
“Arbitration Agreement”). . . . Arbitration shall be conducted in accordance with
the American Arbitration Association’s rules for arbitration of consumer-represent
disputes (accessible here).
This Arbitration Agreement includes, without limitation, disputes arising out of or
related to the interpretation or application of the Arbitration Agreement, including
the enforceability, revocability, scope, or validity of the Arbitration Agreement or
any portion of the Arbitration Agreement. All such matters shall be decided by an
arbitrator and not by a court or judge.
SmartFi’s Br. (ECF No. 18) at 10-11. Therefore, SmartFi argues that this case should be compelled
to arbitration.
Plaintiffs respond that the arbitration provision is unenforceable under Pennsylvania law
because under Pennsylvania law, an agreement to arbitrate must explicitly include in its terms that
the user is waiving their right to a jury trial, and because the SmartFi Arbitration Agreement does
not include such language, it is void. Plaintiffs also argue that there are disputes of fact regarding
what arbitration provision applies and whether Plaintiffs agreed to arbitrate.
III. DISCUSSION
a. Motion to Compel Arbitration
While SmartFi argues that the standard set forth in Federal Rule of Civil Procedure 12(b)(6)
should be applied to decide this motion to compel arbitration, when determining whether a valid
arbitration agreement exists, courts must initially determine whether to apply the standard set forth
in Rule 12(b)(6) or the summary judgment standard set forth in Rule 56. Guidotti v. Legal Helpers
Debt Resol., L.L.C., 716 F.3d 764, 771–76 (3d Cir. 2013). In so deciding, courts apply the
following framework:
[W]hen it is apparent, based on “the face of a complaint, and documents relied upon
in the complaint,” that certain of a party's claims “are subject to an enforceable
arbitration clause, a motion to compel arbitration should be considered under a Rule
12(b)(6) standard without discovery's delay.” But if the complaint and its
supporting documents are unclear regarding the agreement to arbitrate, or if the
plaintiff has responded to a motion to compel arbitration with additional facts
sufficient to place the agreement to arbitrate in issue, then “the parties should be
entitled to discovery on the question of arbitrability before a court entertains further
briefing on [the] question.” After limited discovery, the court may entertain a
renewed motion to compel arbitration, this time judging the motion under a
summary judgment standard.
Guidotti, 716 F.3d at 776 (citations omitted). “The centerpiece of that framework is whether the
existence of a valid agreement to arbitrate is apparent from the face of the complaint or
incorporated documents.” Singh v. Uber Techs. Inc., 939 F.3d 210, 218 (3d Cir. 2019) (citing
Guidotti, 716 F.3d at 774–76). While “the enforceability of web-based agreements will often
depend on a ‘fact-intensive inquiry,’ the Court may determine that a web-based agreement to
arbitrate exists where notice of the agreement was ‘reasonably conspicuous and manifestation of
assent unambiguous as a matter of law.’ ” HealthplanCRM, LLC v. AvMed, Inc., 458 F. Supp. 3d
308, 331 (W.D. Pa. 2020) (quoting Meyer v. Uber Techs., Inc., 868 F.3d 66, 76 (2d Cir. 2017)).
Here, the summary judgment standard must apply to the motion to compel arbitration
because it is not apparent from the face of the complaint, or documents attached thereto that a valid
arbitration agreement exists. SmartFi has only included by reference in its brief the text of the
alleged arbitration agreement, and has not included, for example, any screen shots of the webpage
in which this arbitration agreement is included, or any signature page in which Plaintiffs assented
to these terms.3 Moreover, it is unknown whether the arbitration provision was included in a click-
wrap or browse-wrap agreement, or whether the provision was included elsewhere during the
purchasing process. Plaintiffs have also raised sufficient facts to place the agreement to arbitrate
in issue. Plaintiffs point out that they have reason to believe that the terms set forth on SmartFi’s
website were changed following their purchase of SMTF tokens such that it is not possible to know
whether the Arbitration Agreement was even part of the website when Plaintiffs’ purchased their
SMTF, that SmartFi has not registered its arbitration clause with the American Arbitration
Association (“AAA”), and that Plaintiffs Jason Brown and Stadelmann did not purchase their
tokens on the SmartFi website, so they would not be subject to its Terms of Use provision. It
3 Even if SmartFi included this information in its brief, the issues would still have to be
decided after a period of discovery to afford Plaintiffs the opportunity to conduct discovery as to
the veracity of SmartFi’s assertions. Generally, materials attached to a motion to compel arbitration
should not be considered under the Rule 12(b)(6) standard. Hosang v. Midland Credit Mgmt., Inc.,
No. 19CV21740BRMJAD, 2020 WL 8366284, at *3 (D.N.J. Dec. 15, 2020), report and
recommendation adopted, No. CV2:19-21740 (BRM/JAD), 2021 WL 307544 (D.N.J. Jan. 29,
2021); Powell v. Midland Credit Mgmt., Inc., No. CV2119836KMWMJS, 2022 WL 3681257, at
*4 (D.N.J. Aug. 25, 2022); Nicasio v. L. Offs. of Faloni & Assocs., LLC, No. 2:16-0474 (WJM),
2016 WL 7105928 (D.N.J. Dec. 5, 2016), at *2 (citing Guidotti, 716 F.3d at 774).
would therefore be improper for the Court to consider these allegations without record evidence
supporting them, and the Court cannot make the determination at this juncture as to whether an
agreement to arbitration existed, or whether Plaintiffs unambiguously assented to the terms as a
matter of law. See Meyer, 868 F.3d at 76. “Because the question of arbitrability cannot be resolved
without considering evidence extraneous to the pleadings, it would be inappropriate to apply a
Rule 12(b)(6) standard in deciding the instant motion.” Torres v. Rushmore Serv. Ctr., LLC, No.
CV189236SDWLDW, 2018 WL 5669175, at *2 (D.N.J. Oct. 31, 2018). Therefore, the parties
should be afforded the opportunity to conduct discovery to determine the arbitrability of this
matter.
Based on the foregoing, SmartFi’s motion to compel arbitration is denied without prejudice
to refile once the parties have completed limited discovery on the arbitrability of Plaintiffs’ claims.
An appropriate Order follows.
ORDER
AND NOW, this 4th day of April, 2024, it is hereby ORDERED that SmartFi’s motion to
compel arbitration (ECF No. 15) is denied without prejudice to refile after the parties have
conducted limited discovery into the arbitrability of Plaintiffs’ claims.
IT IS FURTHER ORDERED that discovery for this limited purpose shall be concluded by
May 6, 2024. SmartFi’s renewed motion to compel arbitration is due by June 6, 2024 with brief
limited to fifteen (15) pages.4 Plaintiffs’ response is due by July 8, 2024 with brief limited to
fifteen (15) pages. SmartFi’s reply is due by July 22, 2024 with brief limited to five (5) pages.
4 Alternatively, if discovery reveals that the arbitration agreement does not apply, SmartFi
may renew its motion to dismiss for failure to state a claim by that same date.
BY THE COURT:
s/Cynthia Reed Eddy
United States Magistrate Judge
cc: counsel of record via CM/ECF electronic filing