319 A.3d 310
Del.2024Background
- BitGo Holdings, Inc., a privately held digital asset custodian, and Galaxy Digital, a cryptocurrency financial services firm, entered into a merger agreement in May 2021, later amended in March 2022.
- The agreement required BitGo to submit audited financial statements for 2021 ("Company 2021 Audited Financial Statements") to Galaxy by a set deadline, in a form compliant with SEC Regulation S-X.
- BitGo timely submitted financials in April 2022, which Galaxy rejected, claiming they did not apply the SEC’s SAB 121 guidance, published shortly before the deadline.
- BitGo prepared a second submission in July 2022, this time applying SAB 121, but Galaxy rejected it for other reasons (notably a “restriction on use” legend in the audit report) and terminated the merger.
- BitGo sued for breach and wrongful repudiation; the Chancery Court dismissed the suit, siding with Galaxy’s interpretation of the agreement.
- BitGo appealed, arguing the agreement did not unambiguously require SAB 121 application or prohibit the audit legend, and that Galaxy failed to use commercially reasonable efforts to move the deal forward.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did BitGo have to apply SAB 121 to the April 2022 financials? | No; SAB 121 was not promulgated under Regulation S-X and did not apply as a matter of law at the submission date. | Yes; agreement required compliance with all SEC staff interpretations, including SAB 121. | The agreement is ambiguous; both readings are reasonable. |
| Did the "restriction on use" legend in the July 2022 submission violate the agreement? | No; the agreement did not prohibit such legends and required the auditor’s consent only later, upon SEC filing. | Yes; legend made the statements noncompliant under Regulation S-X, based on SEC staff guidance. | Ambiguous; both interpretations are reasonable. |
| Did Galaxy breach a duty to use commercially reasonable efforts regarding SEC pre-clearance? | Yes; Galaxy’s refusal materially contributed to any problems with BitGo’s financials and the legend. | No; BitGo’s auditor could have resolved the issue independently, and pre-clearance was not Galaxy's sole responsibility. | Not decided; should be determined after resolving the ambiguity. |
| Was dismissal appropriate given these ambiguities? | No; factual development and extrinsic evidence are needed. | Yes; Galaxy’s reading was correct as a matter of law. | Dismissal reversed and case remanded for further proceedings. |
Key Cases Cited
- Sunline Com. Carriers, Inc. v. CITGO Petroleum Corp., 206 A.3d 836 (Del. 2019) (contract ambiguity is a question of law reviewed de novo)
- Salamone v. Gorman, 106 A.3d 354 (Del. 2014) (Delaware contract interpretation employs objective theory of contracts)
- Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728 (Del. 2006) (reasonable third-party understanding governs contract meaning)
- Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192 (Del. 1992) (ambiguity exists when language is fairly susceptible to different interpretations)
- Vanderbilt Income and Growth Assocs., L.L.C. v. Arvida/JMB Managers, Inc., 691 A.2d 609 (Del. 1996) (court cannot choose between two reasonable interpretations on a motion to dismiss)