CleanSpark Inc. v. Discover Growth Fund, LLC, No. 20-cv-6164 (S.D.N.Y. Sept. 9, 2020) [click for opinion]
In 2018 and 2019, CleanSpark, Inc. (“CleanSpark”) and Discover Growth Fund, LLC (“Discover”) entered into a pair of securities purchase agreements (collectively, the “Older SPAs”). In each agreement, CleanSpark sold, among other things, a convertible debt instrument to Discover and agreed to convert, at Discover’s request, all or any portion of the face value of the debt instruments into shares of CleanSpark’s common stock.
The Older SPAs also included a “publicity clause,” giving Discover the right to review and approve certain of CleanSpark’s documents prior to publication or filing, and a broad arbitration provision, which provided in relevant part that any dispute of any kind “including any issues of arbitrability . . . [would] be resolved solely by final and binding arbitration.”
Thereafter, Discover purchased an additional $4 million in CleanSpark stock pursuant to a securities purchase agreement (the “2020 SPA”). The 2020 SPA contained a publicity clause that did not require CleanSpark to obtain Discover’s approval prior to certain filings, and a forum-selection clause, which provided that the parties submitted to the exclusive jurisdiction of the state and federal courts sitting in the City of New York.
After consummating the 2020 SPA, CleanSpark filed an 8-K and 10-Q without giving Discover the chance to review them. Based on these filings, Discover issued a conversion notice requiring CleanSpark to issue and deliver 733,334 shares of common stock at a conversion price of $1.50 per share. The next day, instead of issuing the shares, CleanSpark brought an action seeking a declaratory judgment that the 2020 SPA’s publicity clause superseded the Older SPAs’ publicity clauses, that CleanSpark had no obligation to provide Discover with the 8-K or the 10-Q before filing, and that Discover’s conversion notices were therefore “null and void.” CleanSpark also sought a permanent injunction restraining Discover from pursuing any remedies in connection with its conversion notices.
Discover argued in response that the court lacked personal jurisdiction over it. Faced with two contractual provisions—one establishing personal jurisdiction in the Southern District of New York and another requiring arbitration elsewhere—the court determined that whether the forum-selection clause in the 2020 SPA superseded the arbitration clauses in the Older SPAs was a question of arbitrability, and while questions of arbitrability are ordinarily determined by courts, the parties had presented clear and unmistakable evidence of their intention to arbitrate questions of arbitrability. Particularly, the arbitration provisions in the Older SPAs expressly provided that any dispute of any kind “including any issues of arbitrability . . . [would] be resolved solely by final and binding arbitration.” As a result, the court held it was up to an arbitrator, not the court, to decide the extent to which the arbitration clauses in the Older SPAs had been superseded by the forum selection clause in the 2020 SPA, and the court therefore lacked personal jurisdiction over Discover.