In re Celsius Network LLC, No. 22-10964 (2023)

Case details
Country
United States
Jurisdiction
Federal
Decided
2023
Disposition
Motion Granted
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.1655 B.R. 301United States BankruptcyCourt, S.D. New York.IN RE: CELSIUS NETWORKLLC, et al., Debtors.Case No. 22-10964 (MG)|Signed November 9, 2023SynopsisBackground: Chapter 11 debtors thatoperated cryptocurrency lending platform andcommittee of unsecured creditors moved toconfirm plan and to exclude report andtestimony from creditor's valuation expert fromhearing.Holdings: The Bankruptcy Court, MartinGlenn, Chief Judge, held that:[1] valuation report written by artificialintelligence at instruction of valuation expertregarding value of utility token native todebtor's platform was not reliable, and thereforeit was not admissible;[2] report was not product of peer-reviewedprinciples and methods, and therefore it was notadmissible;[3] witness who had years of experiencein preparing research and developmentdocuments regarding various cryptocurrenciesand blockchain technologies and was able tospeak knowledgeably on those topics couldtestify as expert;[4] token native to debtors' cryptocurrencylending platform had only speculative value asof petition date;[5] best interests of creditors was satisfied bysettlement that valued utility token native tocryptocurrency lending platform operated bydebtors at $0.25 on date of petition;[6] Court did not have to make finding onwhether token was security in order to decidewhether settlement valuing token at $0.25 ondate of petition satisfied best interests test; and[7] contract clearly and unambiguouslytransferred ownership title of collateral todebtors.Motion to confirm plan granted, and motion toexclude expert report and testimony granted inpart and denied in part.Procedural Posture(s): Motion to ConfirmPlan; Objection to Confirmation of Plan;Motion to Exclude Expert Report or Testimony.West Headnotes (15)[1]BankruptcyEvidence;  witnessesA properly submitted expert reportis a reflection of the expert's ownknowledge, experience, expertise
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.2and methods used; it embodies hisor her testimony, and communicatestechnical and detailed explanationsto the finder of fact. Fed. R. Evid.702; Fed. R. Bankr. P. 9017.[2]BankruptcyConfirmation;  ObjectionsValuation report written by artificialintelligence at instruction ofvaluation expert regarding valueof utility token native to lendingplatform operated by Chapter 11debtors was not reliable, andtherefore it was not admissible athearing to confirm plan; althoughexpert reviewed report, report wasnot based on sufficient facts or databecause report contained almost nocitations to facts or data underlyingmajority of methods, facts, andopinions set forth therein, expertdid not review underlying sourcematerial for any sources cited andhe did not know what his teamdid or did not do to review andsummarize those materials, reportdid not contain any citations toinformation on token itself, at timessuggesting that it was important toconsider features that token neverhad, such as governance rights,there were no standards controllingoperation of artificial intelligencethat generated report, and reportcontained numerous errors, rangingfrom duplicated paragraphs tomistakes in its description of tradingwindow selected for evaluation. Fed.R. Evid. 702; Fed. R. Bankr. P. 9017.More cases on this issue[3]BankruptcyConfirmation;  ObjectionsValuation report written by artificialintelligence at instruction ofvaluation expert regarding valueof utility token native to lendingplatform operated by Chapter 11debtors was not product of reliableor peer-reviewed principles andmethods, and therefore it was notadmissible at hearing to confirmplan, since expert used “fair value”method that he personally developedthat was not widely accepted invaluing cryptocurrency, it had notbeen peer tested, and no investmentbank currently publicly reported“fair value” of any platform-specificcryptocurrency token, and reportdid not cite to any academicpapers or sources for its descriptionsof valuation methodologies or insupport of its chosen methodology.Fed. R. Evid. 702; Fed. R. Bankr. P.9017.More cases on this issue[4]BankruptcyEvidence;  witnesses
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.3Trial judges have the responsibilityof evaluating expert testimonyto protect juries from beingbamboozled by technical evidence ofdubious merit. Fed. R. Evid. 702;Fed. R. Bankr. P. 9017.[5]BankruptcyEvidence;  witnessesWhere the expert will opine on arelevant issue, and the factfinderand the gatekeeper are the same,a court does not err in admittingthe evidence subject to the abilitylater to exclude it or disregard it;thus, in a bench trial, the courtmay admit expert testimony, subjectto cross-examination, and determinehow much weight, if any, to giveto the expert's conclusions. Fed. R.Evid. 702; Fed. R. Bankr. P. 9017.[6]BankruptcyConfirmation;  ObjectionsWitness who had years ofexperience in preparing research anddevelopment documents regardingvarious cryptocurrencies andblockchain technologies and wasable to speak knowledgeably onthose topics could testify asexpert at hearing to confirmplan for Chapter 11 debtors thatoperated cryptocurrency lendingplatform; although witness didnot have any formal degreesfrom post-secondary educationalinstitutions, he demonstratedsufficient knowledge in field ofcryptocurrency, his testimony wouldbe admitted only for court toconsider at bench trial, his testimonywas consistent with other experton all relevant questions beforecourt, and parties would not beunfairly prejudiced because they hadopportunity to depose him prior tohis live testimony. Fed. R. Evid. 702;Fed. R. Bankr. P. 9017.More cases on this issue[7]BankruptcyEvidence;  witnessesIn determining whether an expert hassufficient qualifications to testify,courts look at the totality of thewitness qualifications to ensure thatthe expert is proffering opinionswithin the confines of his or herexpertise. Fed. R. Evid. 702; Fed. R.Bankr. P. 9017.[8]BankruptcyEvidence;  witnessesTestimony of experts qualifiednot only by education, but byknowledge, skill, and experience ispermitted. Fed. R. Evid. 702; Fed. R.Bankr. P. 9017.
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.4[9]BankruptcyValuationUtility token native tocryptocurrency lending platformoperated by Chapter 11 debtorspossessed only speculative value,and therefore valuing it at $0.25was reasonable, for purpose ofconfirmation of debtors' plan, sincemarket price on petition date wasuntethered from underlying value,underlying value was based onutilities it offered on debtors'network, and pause in tradingimposed by debtors rendered accountholders unable to make use of any oftoken's utilities.[10]BankruptcyProvisions forsatisfaction of claims;  relation torecovery in liquidationBest interests of creditors wassatisfied by settlement that valuedutility token native to cryptocurrencylending platform operated byChapter 11 debtors at $0.25 on dateof petition, allowing for confirmationof plan. 11 U.S.C.A. § 1129(a).[11]BankruptcyProvisions forsatisfaction of claims;  relation torecovery in liquidationCreditors dissenting to confirmationof a Chapter 11 plan are entitledat least to the amount they wouldreceive in liquidation. 11 U.S.C.A. §1129(a).[12]BankruptcyProvisions forsatisfaction of claims;  relation torecovery in liquidationUnder Chapter 11 plan or liquidation,creditors are entitled to their share ofvalue of debtors' estates on petitiondate, even when value cannot bereadily ascertained from price. 11U.S.C.A. § 1129(a).[13]BankruptcyProvisions forsatisfaction of claims;  relation torecovery in liquidationBankruptcy court did not have tomake finding on whether utilitytoken native to cryptocurrencylending platform operated byChapter 11 debtors was securityin order to decide whethersettlement valuing token at $0.25on date of petition satisfiedbest interests test, since creditorsoverwhelmingly accepted plan, andwith it, settlement, settlement wasreasonable and satisfied test withoutreaching issue of token's status assecurity, and issue was preserved forany claimant who wished to argue it.[14]BankruptcyConfirmation;  Objections
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.5Issue of account holders' collateralownership of digital assets was notbefore bankruptcy court with respectto any account holder who acceptedChapter 11 plan and retail borrowersettlement, and therefore issue didnot have to be decided at hearing toconfirm plan.[15]BankruptcyDeposits andsecurities;  bondsContract between account holdersand Chapter 11 debtors thatoperated cryptocurrency lendingplatform clearly and unambiguouslytransferred ownership title ofcollateral to debtors, where accountholders granted debtors “allattendant rights of ownership,” thataccount holders “may not be able toexercise certain rights of ownership,”and that debtors may exercise“all attendant rights” in collateraltransferred to debtors.Attorneys and Law Firms*303 KIRKLAND & ELLIS LLP, Attorneysfor the Debtors and Debtors in Possession,601 Lexington Avenue, New York, New York10022, By: Joshua A. Sussberg, Esq. 300 NorthLaSalle Street, Chicago, Illinois, 60654, By:Patrick J. Nash Jr., Esq., Ross M. Kwasteniet,Esq., Christopher S. Koenig, Esq., Dan Latona,Esq.WHITE & CASE LLP, Attorneys for theOfficial Committee of Unsecured Creditors,1221 Avenue of the Americas, New York, NY10020, By: David M. Turetsky, Esq., SamuelP. Hersey, Esq., Joshua D. Weedman, Esq.,111 South Wacker Drive, Suite 5100, Chicago,Illinois 60606, By: Michael C. Andolina, Esq.,Gregory F. Pesce, Esq., Gabriela Z. Hensley,Esq., 555 South Flower Street, Suite 2700,Los Angeles, CA 90071, By: Aaron Colodny,Esq., OFFICE OF THE UNITED STATESTRUSTEE, 1 Bowling Green, Room 534,New York, NY 10004, By: Shara Cornell,Esq., Mark Bruh, Esq., SECURITIES ANDEXCHANGE COMMISSION, 100 F Street,NE, Washington, DC 20549, By: Therese A.Scheuer, Esq., 950 East Paces Ferry Rd., N.E.,Suite 900, Atlanta, GA 30326, By: William M.Uptegrove, Esq., Alan Maza, Esq.VENABLE LLP, Attorneys for Ignat Tuganov,151 West 42nd St. New York, New York 10036,By: Jeffrey S. Sabin, Esq., 600 MassachusettsAvenue, NW Washington, DC 20001, By:Andrew Currie, Esq.MCARTER & ENGLISH, LLP, Attorneys forthe Ad Hoc Borrowers Group, WorldwidePlaza, 825 Eighth Avenue, 31st Floor, NewYork, NY 10019, By: David Adler, Esq.OFFIT KURMAN, P.A., Attorneys for theAd Hoc Group of Earn Account Holders,590 Madison Avenue, 6th Floor, New York,NY 10022, By: Jason A. Nagi, Esq., 1954
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.6Greenspring Drive, Suite 605, Timonium,Maryland 21093, By: Joyce A. Kuhns, Esq.TROUTMAN PEPPER HAMILTONSANDERS LLP, Attorneys for the Ad HocGroup of Withhold Account Holders, 4000Town Center, Suite 1800, Southfield, MI48075, By: Deborah Kovsky Apap, Esq.WEINBERG ZAREH MALKIN PRICE LLP,Attorneys for the Pending Withdrawal Ad HocGroup, 45 Rockefeller Plaza, Suite 2000, NewYork, New York 10111, By: Adrienne Woods,Esq., Omid Zareh, Esq.Pro Se Creditor Daniel FrishbergPro se Creditor Immanuel HerrmannPro se Creditor Richard PhillipsPro se Creditor Otis DavisPro se Creditor Dimitry KirsanovPro se Creditor Artur AbreuPro se Creditor Johan BrongePro se Creditor David SchneiderPro se Creditor Cathy LauCORRECTED MEMORANDUMOPINION APPROVING THECEL TOKEN SETTLEMENTAND RESOLVING ISSUE OFCOLLATERAL OWNERSHIP INTHE MODIFIED JOINT CHAPTER11 PLAN OF CELSIUS NETWORKAND ITS DEBTOR AFFILIATESMARTIN GLENN, CHIEF UNITED STATESBANKRUPTCY JUDGE*304 The Court has entered the Findingsof Fact, Conclusions of Law, and OrderConfirming the Modified Joint Chapter 11Plan of Celsius Network LLC and itsDebtor Affiliates (the “Confirmation Order,”ECF Doc. # 3972) and incorporates theConfirmation Order herein by reference.1 Aspart of the Confirmation Order, the Court (1)APPROVED the CEL Token settlement (the“CEL Settlement”) valuing the CEL Token at$0.25, and (2) found that the digital assetstransferred to the Debtors as collateral underVersion 7 of the retail Loan Terms andConditions by Retail Borrowers who objectedto the Plan, including Johan Bronge, wereproperty of the Debtors’ Estates.1All terms not otherwise defined hereinhave the definitions set forth in theConfirmation Order.The Court writes here separately to explain itsreasoning.22Mr. Bronge filed a letter on thedocket (ECF Doc. # 3954, amendedby ECF Doc. ## 3955, 3961) thatproposed modifications to paragraph269 of the Confirmation Order. Inthe alternative, he requested that theCourt explain its reasons for overrulinghis objection. The Court rejects the
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.7proposed modification. This Opinionexplains the reasons.I. THE CEL TOKEN SETTLEMENTA. Background on the CEL TokenThe CEL Token (“CEL” or “CEL Token”)was a utility token native to the CelsiusNetwork. A utility token is a “form ofcryptographic token[ ] whose primary purposeis to allow users to consume the platform's(smart contract) services.” *305 (CEL TokenBrief 25, citing Samuel Häfner, BlockchainPlatform Design under Market Frictions:Decentralization, Service Provision, and BlockRewards (September 4, 2023).) The CEL Tokenprovided its owners with various benefits onthe Celsius network, most notably discountson loan interest rates and increased rewards inCelsius’ Earn Program. (CEL Token Brief 6.)Celsius launched the CEL Token in Q4 2017,and commenced a private presale for its initialcoin offering (including presale, the “ICO”),offering CEL at $0.20/Token. (Id. 7.) In Q12018, Celsius conducted the crowdsale portionof the ICO, offering CEL at $0.30/Token. (Id.)Though its rewards and utilities were tied tothe Celsius Network, it was an “ERC-20”token, meaning it could be deployed on theEthereum blockchain and thus sent to anyaddress, wallet, exchange, or other softwarecompatible with this form of token. (InitialGalka Declaration 32.) Users could thusbuy and sell CEL Tokens via decentralizedexchanges, which facilitate direct peer-to-peertransactions; centralized exchanges, where anentity (similar to a broker) settles transactionson an internal ledger; and over-the-counter(“OTC”) desks, where the desk acts as anintermediary between the parties. (Id. 26.)Users could acquire CEL by opting to receiveinterest on their Earn Account balances inCEL, by purchasing it from the Celsius OTCdesk, or by purchasing it on a number ofother centralized and decentralized exchanges.(Initial Galka Declaration ¶¶ 39, 49, 51.) OnJune 12, 2022 (the “Pause Date”), Celsiuspaused all trading activity on its platform. (Id.¶¶ 127, 137). As a result, approximately 95%of CEL Tokens in circulation were locked onthe platform, while the remaining 5% continuedtrading on third-party platforms. (Id. ¶¶ 67,137.) On the Pause Date, CEL traded at $0.28.(Committee CEL Brief 34.) Between thePause Date and the Petition Date (July 13,2022), CEL rose in price to $0.81. (Id. 35.)In July 2023, various regulatory authoritiesmade allegations of securities fraud,commodities fraud, wire fraud, conspiracy tomanipulate the price of the CEL Token againstcertain of the Debtors and the former ChiefExecutive Officer, Alexander Mashinsky, andChief Revenue Officer, Roni Cohen-Pavon.(CEL Token Brief 16.) The Debtors reachedsettlements with the regulatory authorities. (Id. 17.) The Debtors did not agree that CELToken was an unregistered security, but didstipulate to “facts that could reasonably lead afact finder to determine that CEL Token [wasa security].” (Id., citing July 18, 2023 Hr'gTr. 32:11–13 (Debtors’ counsel describing theterms of their agreement with the SEC).)
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.81. The Valuation DisputeOne of the most contentious issues throughoutthese chapter 11 cases has been the valuationof the CEL Token. Some creditors immediatelyrallied against any return for CEL holders,describing the token as “destined-to-be-worthless.” (See, e.g., July 21, 2022 Letterfrom Jonathan Rabroker (ECF Doc. # 154);July 20, 2022 Letter from Immanuel Herrmann(ECF Doc. # 75) (arguing that the value ofCEL Token Deposit Claims should be “eitherentirely zeroed out” or “reduced in valueby 90-95%.”) Debtors initially filed a Planproposing a value of $0.20 per CEL Token. (SeeECF Doc. # 2358.)Many other creditors vigorously opposed thisproposal, arguing for a valuation of at least$0.81, the Petition Date price. (See, e.g., June26, 2023 Letter from Otis Davis (ECF Doc.# 2872) (arguing that a lower valuation was“outright theft”); June 26, 2023 Letter fromMarlowe *306 Bennett (ECF Doc. # 2874)(outlining reasons CEL Token Deposit Claimsshould not be subordinated); June 26, 2023Letter from Madhu Kutty (ECF Doc. # 2895)(same).)In response to these letters and many others,Debtors engaged in negotiations with theCommittee and certain pro se parties, whichculminated in the CEL Settlement. (CEL TokenBrief 18).2. The Terms of the CELSettlement and the Voting ResultsPursuant to the CEL Settlement, whichis incorporated into the Plan, Claims andCauses of Action arising out of or relatedto the CEL Token for, among otherthings, recharacterization and subordination,are settled according to the following terms:(i) first, except as provided in Article III.B.17of the Plan, all CEL Token Deposit Claims,other than Custody Claims that are CEL TokenDeposit Claims, shall be valued at $0.25/CEL Token, and shall otherwise receive thetreatment associated with the program in whichthey were deployed; and (ii) second, all Claimson account of CEL Token identified in theSchedule of Equitably Subordinated Claimswill be subordinated without distribution asprovided in Article III.B.16 or Article III.B.17of the Plan, as applicable. (Confirmation Brief 95.) All Other CEL Token Claims are classifiedas Class 15 Section 510(b) Claims (which willnot receive any distribution under the Plan).(Id.)The CEL Settlement does not release AccountHolders’ claims against third parties thatmanipulated the price of CEL Token. (CELToken Brief 18.) Lastly, the ConfirmationOrder provides that Account Holders who(1) timely opted out of the Class ClaimSettlement and (2) voted to reject the Planor abstained from voting on the Plan retaintheir rights to resolve their claims throughthe Claims allowance process. (ConfirmationOrder 262.)
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.9The CEL claims were not segmented as aseparate class under the plan; rather, every votein favor of the plan was counted as a votefor the CEL Settlement. (Confirmation Brief 109.) Debtors tabulated the votes of CEL TokenHolders within each Class to evaluate supportfor the CEL Settlement. (Id.) The acceptancerate of the Plan/CEL Settlement is 98.71%in number and 95.93% in amount. (AmendedDeclaration of Brian Karpuk, ECF Doc. #3574.)B. Debtors and Committee Support ofthe CEL SettlementThe Debtors briefed the basis for approvingthe CEL Settlement and the application ofthe Iridium factors thereto in the CEL TokenBrief (ECF Doc. # 3431) which reliedon the Ferraro Declaration (ECF Doc. #3435). Debtors further addressed the CELSettlement in the Confirmation Brief and theSupplemental Memo (Confirmation Brief ¶¶91–109; Supplemental Memo ¶¶ 26–29).In support of the CEL Settlement, theCommittee submitted the Committee CELBrief (ECF Doc. # 3432). During theConfirmation Hearing, the Debtors and theCommittee further relied on the experttestimony of Maxwell Galka and RobertCampagna. (See Initial Galka Declaration, ECFDoc. # 3580; Supplemental Galka Declaration,ECF Doc. # 3659; (and together, the“Galka Reports”); see also Initial CampagnaDeclaration, ECF Doc. # 3582; SupplementalCampagna Declaration, ECF Doc. # 3653.)The Debtors and the Committee argue that theCEL Settlement satisfies the Iridium factorsas fair, reasonable, and in the best interests ofthe estate because it (a) was overwhelminglyaccepted by creditors, and (b) avoids value-destructive litigation *307 on (1) whether theCEL Token a security, which could result inits complete subordination, and (2) the intrinsicvalue of CEL, an issue which is “notoriouslytime-intensive and expensive to litigate evenunder straightforward circumstances.” (CELToken Brief ¶¶ 2–3.) They argue that in thefirst case, CEL was likely a security, andshould be subordinated under Section 510(b)of the Bankruptcy Code; and if it was not,it was a worthless utility token of a defunctnetwork. (Id. ¶¶ 25–28.) They submit that a fairvalue is thus likely $0.00, but are “willing tocompromise with the CEL holders to providethem with a $0.25 recovery[ ].” (CommitteeCEL Brief 39.)Specifically, Mr. Galka's testimony establishesthat at the Petition Date, the market for CELwas dislocated, and thus (1) the market priceat the Petition Date was an unreliable indicatorof value, and (2) it would be impossible toascribe a specific value to CEL on the PetitionDate. (See Galka Reports.) Mr. Campagna'stestimony establishes that the value of CELmust be at or under $0.34 to satisfy the “bestinterests” test under section 1129(a), which theCEL Settlement satisfies. (See Celsius Ex. 70 at4–5; see also October 4, 2023 Hr'g Tr. 123:7–24 (Campagna).)
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.10C. Objections to the CEL SettlementSpearheading the objections to the CELSettlement was pro se creditor Otis Davis, whoobjected to the Galka Reports and maintainedthat the CEL Token should be valued at thePetition Date price of $0.81, or some higheramount. (See “Davis Objection,” ECF Docket# 3532; “Davis Opposition,” ECF Doc. # 3639;“Davis Statement,” ECF Doc. # 3769.) Headvanced three main arguments: (1) that priceof CEL was heavily influenced by “nakedshorts” made by FTX; (2) that the market priceof CEL on the Petition Date was fair, and thebest indicator of its value; and (3) that themarket price of CEL prior to the collapse of theTerraLuna coin, a major dislocation event in thecrypto market, was the best indicator of CEL'svalue.Mr. Davis argued first that the “upwards priceaction” of CEL between the Pause and PetitionDate was due to “illegal naked shorts” executedby FTX. (Davis Objection at 1.) In the sameparagraph, Mr. Davis then avers that “ ‘nakedshorts’ are the purest form of downward pricemanipulation.” (Id. at 2.) Despite his extensivearguments that the price of CEL was influencedby this “purest form of price manipulation,” (id.at 2), and without disputing the fact that 95% ofthe volume of CEL Token was locked followingthe Pause, Davis argues that the “free marketactivity in such high volume is the best expertwitness of all as to what the pegged priceshould be.” (Davis Opposition 7.) FollowingMr. Galka's testimony, Mr. Davis appeared toconcede that “a dislocation in the market canaffect what would be a fair market value,” butargues that the best data from which to measurethe price of CEL was prior to the TerraLunadislocation event, when CEL was priced at$2.01. (Davis Statement at 6.)In support of his objections, Mr. Davisproffered his own valuation expert, HusseinFaraj, with a corresponding expert report (the“Report” or “Faraj Report,” ECF Doc. # 3752).Debtors and Committee moved to exclude Mr.Faraj as an expert witness, including his Report.(See ECF Doc. # 3817.)For the reasons explained below, the CourtGRANTS the motion to exclude the FarajReport, but DENIES the motion to excludeMr. Faraj's testimony, which it will give suchweight as the Court deems appropriate.1. The Faraj Report is Excluded[1]Rule 702 of the Federal Rules of Evidence(“Rule 702”), made applicable to *308 theseproceedings by Rule 9017 of the Federal Rulesof Bankruptcy Procedure, provides that experttestimony may be given by a qualified witnessif: “(a) the expert's scientific, technical, or otherspecialized knowledge will help the trier offact to understand the evidence or to determinea fact in issue; (b) the testimony is based onsufficient facts or data; (c) the testimony isthe product of reliable principles and methods;and (d) the experts opinion reflects a reliableapplication of the principles and methods tothe facts of the case.” FED. R. EVID. 702. Aproperly submitted expert report is a reflectionof the expert's own knowledge, experience,
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.11expertise and methods used. It embodies theirtestimony, and communicates technical anddetailed explanations to the finder of fact.[2]The Faraj Report was not written by Mr.Faraj. Although Mr. Faraj directed and guidedits creation, the 172-page Report, which wasgenerated within 72 hours, was written byartificial intelligence at the instruction of Mr.Faraj. By his own testimony, a comprehensivehuman-authored report would have taken over1,000 hours to complete. (See October 17, 2023Hr'g Tr. 47:24–48:2 (Faraj); Celsius Ex. 113(“We completed the entire assessment within72 hours. In reality, this is usually a 6-to-8 weekjob.”); October 17, 2023 Hr'g Tr. 48:3–5 (Faraj)(“Q. So you did a 1,000-plus hour job in 72 inthis case. Is that your testimony? A. That's 100percent correct.”); October 17, 2023 Hr'g Tr.51:7–9 (Faraj) (“Q. Mr. Faraj, if it was goingto be comprehensive, 72 hours was not enoughto generate this report, true? A. Correct.”).) Infact, it took Mr. Faraj longer to read report thanto generate it. (See October 17, 2023 Hr'g Tr.46:4–6 (Faraj).) The Court therefore separatelyevaluates the Faraj Report and the testimony ofMr. Faraj. As discussed below, the Court willadmit Mr. Faraj's oral testimony, giving it suchweight as is appropriate. However, the Courtfinds that the Faraj Report is unreliable and failsto meet the standard for admission.The Faraj Report was not based on sufficientfacts or data. The Report contains almost nocitations to facts or data underlying the majorityof the methods, facts, and opinions set forththerein. (See Faraj Dep. Tr. at 239:11–20.)In preparing the report, Mr. Faraj did notreview the underlying source material for anysources cited, nor does he know what his teamdid (or did not do) to review and summarizethose materials. (See October 17, 2023 Hr'g Tr.83:16–84:22 (Faraj).) The Report contains nocitations to the information on the CEL Tokenitself, at times suggesting that it is importantto consider features that CEL Token never had,such as governance rights. (See Faraj Report at103–104.)There were no standards controlling theoperation of the artificial intelligence thatgenerated the Report. The Report containednumerous errors, ranging from duplicatedparagraphs to mistakes in its description ofthe trading window selected for evaluation.(See October 17, 2023 Hr'g Tr. 51:17–19(Faraj) (“Q. Do you agree with me, sir, thatthere are errors in your report, true? A. Iagree.”); October 17, 2023 Hr'g Tr. 51:20–22 (Faraj) (“Q. And in your view, it wouldbe impossible to prepare a report in 72 hourswithout introducing errors, correct? A. That'strue.”); October 17, 2023 Hr'g Tr. 51:23–53:11(Faraj) (discussing the inclusion of a duplicated92-word paragraph); October 17, 2023 Hr'gTr. 57:12–14 (Faraj) (describing incorrect tradedates).)[3]The Faraj Report was not the productof reliable or peer-reviewed principles andmethods. Mr. Faraj used a “fair value” methodthat he personally developed. (See October 17,2023 Hr'g Tr. *309 67:17–19 (Faraj) (“Q. Andthat's a method that you personally developed,correct? A. Correct.”).) That method is notwidely accepted in valuing cryptocurrency; it
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.12has not been peer tested; and no investmentbank today publicly reports the “fair value”of any platform-specific cryptocurrency token.(See October 17, 2023 Hr'g Tr. 67:20–69:5(Faraj).) It does not cite to any academic papersor sources for its descriptions of valuationmethodologies or in support of its chosenmethodology. (See Faraj Report at 103–104.)The Court finds and concludes that the Reportdoes not meet the standard set forth under Rule702. Accordingly, the Faraj Report is excluded.2. Faraj's Live Testimony is Admitted[4] [5]Daubert v. Merrell DowPharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct.2786, 125 L.Ed.2d 469 (1993) charges trialjudges with the responsibility of evaluatingexpert testimony to “protect juries from beingbamboozled by technical evidence of dubiousmerit.” New York v. Solvent Chem. Co., No.83-CV-1401C, 2006 WL 2640647, at *1, 2006U.S. Dist. LEXIS 65595 at *3 (W.D.N.Y. Sept.12, 2006). Where the expert will opine ona relevant issue, and “the factfinder and thegatekeeper are the same, the court does noterr in admitting the evidence subject to theability later to exclude it or disregard it.” Inre Salem, 465 F.3d 767, 777 (7th Cir. 2006).Thus, in a bench trial, the court may admitexpert testimony, subject to cross-examination,and determine how much weight, if any, to giveto the expert's conclusions. Victoria's SecretStores Brand Mgmt. v. Sexy Hair Concepts,LLC, No. 07 Civ. 5804, 2009 WL 959775, at*6 n.3, 2009 U.S. Dist. LEXIS 30458, at *17n.3 (S.D.N.Y. Apr. 8, 2009) (stating that “wherea bench trial is in prospect, resolving Daubertquestions at a pretrial stage is generally lessefficient than simply hearing the evidence”).[6] [7] [8]The Confirmation Hearing wasa bench trial, so admitting Faraj's testimonydid not run the risk of confusing a jury. Indetermining whether an expert has sufficientqualifications to testify, courts in the SecondCircuit look at “the totality of the witness”qualifications to ensure that the expert isproffering opinions within the confines ofhis or her expertise. Napolitano v. Synthes,Inc., 2014 WL 12867042, at *1, 2014 U.S.Dist. LEXIS 204087, at *3 (D. Conn. Apr.9, 2014). Rule 702 permits testimony ofexperts qualified not only by education, butby knowledge, skill and experience. AlthoughMr. Faraj does not have formal degrees, hehas years of experience in preparing researchand development documents regarding variouscryptocurrencies and blockchain technologiesand was able to speak knowledgably on thesetopics. (See October 17, 2023 Hr'g Tr. 40:4–19;id. at 41:20–25.) The Court finds that Faraj hasdemonstrated sufficient knowledge in the fieldof cryptocurrency for the Court to consider hisopinion.Notably, on all the relevant questions before theCourt—namely, those which shed light on thevalue of the CEL on the Petition Date—Farajagrees with Galka. Both experts agree that thevalue of CEL decreased between the PauseDate and the Petition Date. (See October 17,2023 Hr'g Tr. 70:5–8 (Faraj) (“Q. All right.You would agree with me that the fair value
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.13of CEL Token decreased between the pausedate, June 12th and the petition date July 13th,correct? A. As a value, myself, I would agreewith you.”); Supplemental Galka Declaration 15.) Both experts agree that the market for CELwas dislocated during that period. (See October17, 2023 Hr'g Tr. 70:17–22 (Faraj) (“Q. Andyou didn't look at how much [the value of CEL]decreased, correct? A. No, because I *310looked at that area and it was a dislocatedmarket”); Initial Galka Declaration 139.)Both experts agree that the CEL Token hadno intrinsic value on the Petition Date. (SeeOctober 17, 2023 Hr'g Tr. 71:3–5 (Faraj) (“Q.As of the petition date, CEL also had nointrinsic value, correct? A. I agree with you.”);Supplemental Galka Declaration 19.) Bothexperts agree that on the Petition Date, CELretained only speculative value. (See October17, 2023 Hr'g Tr. 71:11–14 (Faraj) (“Q. Andthe only remaining value for the CEL Tokenas of the Petition date is speculative value,correct? A. I agree a hundred percent withthat”); Supplemental Galka Declaration 13.)And neither expert proffered an opinion onwhat that speculative value was. (See October17, 2023 Hr'g Tr. 74:25–75:2 (Faraj) (“Q. Youdidn't put a price on the speculative value forCEL Token here, did you? A. No, I didn't.”);Supplemental Galka Declaration 19.)Admitting Mr. Faraj's testimony would notresult in any unfair prejudice to any parties. TheDebtors and the Committee had the opportunityto depose Mr. Faraj prior to his live testimony.(See generally Faraj Dep. Tr.) Any partywho wished to cross-examine Mr. Faraj wasgiven the opportunity to do so during theConfirmation Hearing, and many pro se partiesdid so. Accordingly, Mr. Faraj's live testimonyis admitted, and considered to the extent itsheds light on the relevant questions outlinedabove.D. The CEL Settlement is Approved[9]The Court, in considering the experttestimony of Mr. Galka and Mr. Faraj, finds that(1) the CEL Token had only speculative valueas of the petition date, and (2) a valuation of$0.25 is within (and indeed, likely on the higherend of) the range of reasonableness of thatspeculative value. For these reasons, explainedin more detail below, the CEL Settlement asembodied in the Plan is APPROVED.1. CEL had Only SpeculativeValue as of the Petition DateThe Court finds that the $0.81 Petition Dateprice was not indicative of CEL's value. TheDebtors have presented ample evidence thatthe market for CEL was severely dislocatedon the Petition Date, and both experts havetestified convincingly to that effect. The marketprice was untethered from the underlying value,and thus cannot serve as a reliable indicatortherefor.CEL was a utility token. Its underlying valuewas based on the utilities it offered on theCelsius Network. The price of CEL at anygiven time reflected (1) the value it possessedby virtue of any utility it offered its user, (2) the
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.14speculative value that any crypto asset on theblockchain possesses, and (3) the influence ofmarket fluctuations, whether from intentionalprice manipulation or other forces. Uponthe event of the Pause—rendering AccountHolders unable to make use of any of CEL'sutilities—any utility value evaporated. Thus,only speculative value remained, buffeted bythe chaotic market forces at play.The speculative value encompassedpossibilities that a holder of Celsius may haveconsidered at the time: namely, “the prospect ofCelsius restarting its business and utilizing theCEL Token in that restarted business,” or evena second life as a “memecoin.” (SupplementalGalka Declaration 13.) Galka opines that anyestimate thereof would be “pure conjecture”given the “severe” dislocation of the market.(Id. ¶¶ 13–14.) He believes that on Petition Date—roughly a month after the Pause Date—CELwas “likely worthless.” (Id. ¶¶ 13–14, 19.) Farajconcurs on both points. (See October 17, 2023Hr'g Tr. 78:14–17 (Faraj) (“Q. In your view,it's *311 close to impossible to differentiatebetween organic, legitimate price movementsfor a digital asset and movements based onmanipulation, correct? A. That's correct”); id. at71:3–5 (Faraj) (“Q. As of the petition date, CELalso had no intrinsic value, correct? A. I agreewith you.”).) Accordingly, the question beforethe Court is whether $0.25 is a reasonablesettlement for any remaining value that CELpossessed on the Petition Date.2. The CEL Settlement is ReasonableGiven that on the Petition Date CEL onlypossessed speculative value, the Court finds$0.25 to be an eminently reasonable, evengenerous, settlement.Two main sources of speculative value were(1) Account Holders’ hope that CEL wouldsuccessfully reorganize and redeploy CEL,restoring its previous utilities, and (2) itsvalue as deployed on other blockchains, as a“memecoin” or otherwise. Neither Galka norFaraj was willing to opine on an exact estimateof that value. (See October 17, 2023 Hr'gTr. 74:25–75:2 (Faraj); Supplemental GalkaDeclaration 19.) No objecting party presentedevidence that any source of speculative value,alone or in conjunction, could even approach,much less exceed, $0.25. The post-petitionhistory of the Debtors and of these cases,including the extensive evidence of fraudallegedly perpetrated by Alex Mashinskyand others (leading to a criminal indictmentof Mashinsky, and SEC, CFTC and FTCenforcement actions against Celsius andMashinsky) demonstrates that attempting toplace any speculative value on CEL on thePetition Date is completely unwarranted. If theCelsius platform could not operate in the future,as in fact is the case, the CEL Token as autility token on that platform would have novalue. Under the Plan overwhelming supportedby Celsius creditors, the Celsius platform willnot operate again. Accordingly, the Court findsthat the $0.25 valuation of the CEL Token to beeminently fair and reasonable.
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.15E. The Settlement Does Not ViolateSection 1129(a) of the Bankruptcy Code[10] [11]Many creditors objected to the CELSettlement on the grounds that it violatedsection 1129(a) of the Bankruptcy Code, theso-called “best interests of the creditors” test.Section 1129(a) provides that a dissentingcreditor of an accepting class must “receiveor retain under the plan on account of suchclaim or interest property of a value, as of theeffective date of the plan, that is not less thanthe amount that such holder would so receiveor retain if the debtor were liquidated underchapter 7 of this title on such date.” 11 U.S.C. §1129(a)(7)(A)(ii). In other words, such creditoris entitled to at least the amount they wouldreceive in liquidation.A&M's liquidation analysis shows approximaterecoveries of 67.0% under the NewCoTransaction, 61.2% under the Orderly WindDown (“OWD”), and 47.4% under liquidation.(See Celsius Ex. 70 at 4.) Certain dissenting3creditors argued that under liquidation, theywould be entitled to 47.4% of CEL's PetitionDate price of $0.81, for a recovery ofapproximately $0.38 per CEL Token. (See, e.g.,Objection Letter from Dimitry Kirsanov, ECFDoc. # 3772, at 3.)3Some non-dissenting creditors raisedthis objecting, maintaining that theywere dissenting creditors who hadvoted to reject the Plan (see, e.g.,ECF Doc. # 3877), despite havingaccepted the Custody Settlement werethus deemed to accept the Plan. TheCourt will nevertheless consider theobjection.*312 [12]This is a mistaken assumption.Whether under a chapter 11 plan or liquidation,creditors are entitled to their share of the valueof the Debtors’ Estates on the Petition Date.That remains true even when, as seen here, thevalue cannot be readily ascertained from theprice.The relevant comparison is thus not between47.4% of $0.81 and 61.2% of $0.25. Rather, theCourt must find that 61.2% of $0.25 (the OWDrecovery, $0.1530) is greater than 47.4% of thevalue of CEL on the Petition Date. The Courtfinds by a preponderance of the evidence thatthe value on the Petition Date did not exceed$0.25, and the CEL Settlement agrees to valueeach CEL Token at that amount. 47.4% of $0.25is $0.1185. $0.1185 is less than $0.1530. Thebest interests test is satisfied.The Debtors further presented evidenceregarding the “break-even point” at which thebest interests test would no longer be met. Forthe NewCo Transaction, CEL would have tobe worth 36 cents, and for the Orderly WindDown, CEL would have to be worth 34 cents.4(See Celsius Ex. 70 9; see also October4. 2023 Hr'g Tr. 123:7–24 (Campagna).) Thisanalysis is illustrated in Celsius Exhibit 70:
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.16(Celsius Ex. 70 at 5.)4Using the recovery percentages setforth in Celsius Ex. 70, to reach theNewCo recovery of $0.1675, CELwould have to be worth $0.3554($0.3554*0.474 = $0.1675), whichrounds to $0.36 at the nearest cent.However, to reach the OWD recoveryof $0.1530, CEL would have to beworth only $0.3228 ($0.3228*0.612= $0.1530), which rounds to $0.32at the nearest cent, not $0.34. TheCourt assumes that this is the resultof truncating the number of significantfigures in the recovery percentagesillustrated by Exhibit 70.Since the Court has found that value of CELwas at or below $0.25 as of the Petition Date,which is below the “break-even point,” the Plansatisfies the best interests test.*313 F. The Court Need Not DecideWhether CEL is a Security[13]For the avoidance of doubt, the Courtneeds not make a finding on whether CELis a security in order to decide whether theCEL Settlement satisfies the best intereststest. Creditors overwhelmingly accepted thePlan, and with it, the CEL Settlement. Tothose accepting creditors, the CEL Settlementtreatment is consensual. To the extent thatany dissenting creditor has raised the bestinterests test, the Court has found that the CELSettlement is reasonable and satisfies the testwithout reaching the issue of CEL's status as asecurity.Nevertheless, the Confirmation Orderpreserves the rights of “any Account Holderthat (1) timely opted out of the Class ClaimSettlement and (2) voted to reject the Plan orabstained from voting on the Plan” to litigatethese issues through the Claims allowanceprocess. (Confirmation Order 262.)The Court thus need not make a finding onwhether CEL is a security, as that issue isnot before the Court, and is preserved for anyclaimant who wishes to argue it.II. THE COLLATERALOWNERSHIP ISSUEA. The Retail Borrower Settlement[14]Debtors also seek to effectuate, throughthe Plan, the settlement of the adversaryproceeding brought by the Retail Borrower AdHoc Group and participating pro se creditorsas well as claims held by Retail Borrowers(the “Retail Borrower Settlement”). (Plan, Art.I.126; Confirmation Brief 50(g).)
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.17The Retail Borrower Settlement provides for,among other things, (i) in addition to any SetOff Treatment as provided for in the Plan, theoption for holders of Retail Borrower DepositClaims to elect to repay any obligations toDebtors in connection with advances madeby Debtors relating to the Borrow Programprior to the Effective Date in exchange for anequivalent amount of BTC or ETH and (ii)priority in electing a preference to exchangeequity in NewCo for cryptocurrency to bedistributed to holders of claims under the at a30% discount. (Plan, Art. IV.B.7.)B. The Bronge ObjectionOne of the principal objectors to the treatmentof Retail Borrower Deposit Claims under thePlan is Johan Bronge. (See “Bronge Response,”ECF Doc. # 3641, and “Bronge Objection,”ECF Doc. # 3908.) Mr. Bronge believesthat version seven of the retain Loan Termsand Conditions (“Version 7,” and subsequentVersions, “Version 8” and “Version 9”) didnot transfer ownership of his digital assets tothe Debtors. (Bronge Response at 2; see alsoOct. 16, 2023 Hr'g Tr. 48:12–16.) Mr. Brongeobjects to the Plan principally on these grounds.(See Bronge Response at 2.)The Debtors do not dispute that Mr. Bronge's$62,000 retail loan made in April 2021 (the“Bronge Loan”) was governed under Version7.5 (Supplemental Brief 16.) However, theDebtors argue that Version 7 unambiguouslytransferred to the Debtors title of the digitalassets that a Retail Borrower transferred tothe Borrow Program as collateral for a retailloan. (Id.) They cite to the following operativelanguage:*314 In considerationfor the Loan, you grantCelsius the right, subjectto applicable law, withoutfurther notice to you, to holdthe Digital Assets providedas Collateral in Celsius’name or in another name,and to pledge, re-pledge,hypothecate, rehypothecate,sell, lend, or otherwisetransfer or use anyamount of such DigitalAssets, separately or togetherwith other property, withall attendant rights ofownership, and for anyperiod of time, andwithout retaining in Celsius’possession and/or control alike amount of Digital Assetsor any other monies or assets,and to use or invest suchDigital Assets at Celsius’own risk.(Id., citing Version 7 at 14, “Consent to Celsius’Use of Your Digital Assets” (emphasis added)(the “Grant of Ownership Clause”).)5Mr. Bronge has four outstanding retailloans as of the Petition Date. Excluding
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.18the Bronge Loan, the other three are allgoverned by Version 9.Version 5 of the General Terms of Use, whichwas the operative General Terms of Use atthe time Mr. Bronge agreed to Version 7and was explicitly incorporated by reference,6provides:[N]otwithstanding the useof expressions such as“borrow,” “loan,” and“collateral” etc., which areused to reflect terminologyadopted in the market fortransactions of the kindprovided for pursuant to theLoan Agreement, title tothe Digital Assets shall passfrom you to CNL on the basisof an outright sale, subjectto your right to request ata later date the delivery ofequivalent (but not identical)Digital Assets to those soldto CNL.(Id. 17, citing General Terms of Use, Version5 at 8, “4. Nature of e-Services – B. Loans.”)6See, e.g., Version 7 at 1 (“In addition,our Network Terms and Conditions ...are incorporated into these LoanConditions by reference.”); see alsoDocket No. 393, ¶¶ 10, 21; Ex. B-7 at858.This language became more explicit insubsequent versions of the General Terms ofUse. Specifically, Version 8 of the GeneralTerms of Use provides:In consideration for ...[Celsius] entering into anyLoan agreement ... you grantCelsius, subject to applicablelaw and for the durationof the period during whichyou elect to utilize theEligible Digital Assets... ascollateral under the BorrowService ... all right andtitle to such Eligible DigitalAssets, including ownershiprights.(Id. 18, citing General Terms of Use, Version8 at 35, “13. Consent to Celsius’ Use of DigitalAssets”) (emphasis added).)C. The Bronge Objection is OverruledThe Court finds that the contract is clear andunambiguous, and therefore will give effect tothe plain meaning of the contract's terms andprovisions. For the avoidance of doubt, withrespect to any Account Holder who acceptedthe Plan and the Retail Borrower Settlement,the issue of their collateral ownership is notbefore the Court and therefore need not bedecided. (See Confirmation Order 269.) TheCourt finds that the digital assets pledged ascollateral under the Bronge Loan governed
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.19under Version 7 were property of the Debtors’Estates. Accordingly, for reasons set forth inmore detail below, the Bronge Objection isOVERRULED.[15]The contract clearly and unambiguouslytransferred ownership title of collateral toDebtors. (See General Terms of Use Version5, “Consent to Celsius’ Use of YourDigital Assets” (including substantially similarlanguage that Account Holders grant Debtors“all attendant rights of ownership” and thatAccount Holders “may not be able toexercise certain rights of ownership”).) Thesubstantially similar *315 Grant of OwnershipClause in Version 7 provides, in equallyunambiguous terms, that Debtors may exercise“all attendant rights” in collateral transferredto Debtors. (See Version 7 at 14, “Consent toCelsius’ Use of Your Digital Assets” (emphasisadded) (the “Grant of Ownership Clause”).)Mr. Bronge erroneously relies on both Version7's inclusion of “Your” in the title “Consentto Celsius’ Use of Your Digital Assets” and“certain” in the clause “you may not beable to exercise certain rights of ownership”as evidence that he “still hold ownershiptitle” (sic) but simply “may not exercise some[as opposed to all] property rights.” (BrongeResponse at 2.) Interpreting the phrase “youmay not be able to exercise certain rightsof ownership” as overriding the grant ofownership rights in the collateral renders theGrant of Ownership Clause superfluous. TheCourt has previously recognized in the EarnOpinion that “it is a bedrock principle ofcontract interpretation that courts should notadopt an interpretation of a contract that hasthe effect of rendering at least one clausesuperfluous or meaningless, but rather, to theextent possible, should seek to read contractualprovisions in harmony.” (“Earn Opinion,” ECFDoc. # 1822 at 42.) Accordingly, the Courtapplies the plain meaning of the Grant ofOwnership Clause to find that ownership ofthe collateral unambiguously transferred toDebtors.The additional language in Version 8 andVersion 9 pertaining to the transfer ofownership in collateral is not evidence thatthe applicable language used in Version 7is ambiguous. See Bennett Enters., Inc. v.Domino's Pizza, Inc., 45 F.3d 493 (D.C.Cir. 1995) (holding that subsequent formsof a franchise agreement that “expressly setforth violation of the tax laws a reason fordefault” is not admissible as evidence to showthat the previous form, which only requirescompliance with “all applicable laws,” isambiguous). The Grant of Ownership Clauseis substantially consistent across Versions 7, 8,and 9 in granting Debtors all attendant rights ofownership.When adding that “Digital Assets posted asCollateral shall be the exclusive property ofCelsius,” Version 8 and Version 9 also madespecific reference to the section containingthe Grant of Ownership Clause, makingclear that the new language was meantto reinforce and supplement the Grant ofOwnership Clause, not replace or otherwiserender such clause ambiguous. (See Version 9at 6, “Collateral” (“[Y]ou grant Celsius your
Williams, Jack 2/20/2025For Educational Use OnlyIn re Celsius Network LLC, 655 B.R. 301 (2023)123 Fed. R. Evid. Serv. 563 © 2025 Thomson Reuters. No claim to original U.S. Government Works.20explicit consent to use such Digital Assets inaccordance with Section 20 below.”).)Neither the revised nor additional languagein Version 8 and Version 9 are evidencethat Version 7 is ambiguous or leads to adifferent result. Accordingly, Mr. Bronge'sassets transferred to the Borrow Program underVersion 7 are property of the Debtors’ Estates.III. CONCLUSIONFor the foregoing reasons, the Court findsthat (1) the CEL Settlement satisfies the bestinterests test, and (2) Mr. Bronge's collateralpledged under Bronge Loan are assets of theDebtors’ Estates.A separate Order confirming the MODIFIEDJOINT CHAPTER 11 PLAN OF CELSIUSNETWORK LLC AND ITS DEBTORAFFILIATES has been entered.All Citations655 B.R. 301, 123 Fed. R. Evid. Serv. 563End of Document© 2025 Thomson Reuters. No claim to original U.S. Government Works.
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