647 B.R. 631
Bankr. S.D.N.Y.2023Background
- Celsius operated an "Earn" program with ~600,000 accounts holding roughly $4.2 billion in crypto as of July 10, 2022; Earn accounts included stablecoins (~$23M).
- Celsius presented eight versions of a clickwrap Terms of Use (Version 8 effective Apr. 15, 2022 is controlling for the motion); ~99% of Earn holders accepted Version 6 or later per Debtors’ evidence.
- Terms Versions 5–8 contain a Transfer of Title Clause: depositors “grant Celsius all right and title to such Digital Assets, including ownership rights,” and Celsius may pledge/reuse those assets.
- Debtors filed an amended motion seeking (i) a declaration that Earn assets are estate property under the Terms of Use and (ii) authorization to sell ≈$18M of stablecoins; many account holders, state regulators, the U.S. Trustee, and the Committee objected.
- The Court ruled the clickwrap Terms formed a valid contract, the Transfer of Title Clause is unambiguous, Earn Assets deposited pre-petition became property of the debtors’ bankruptcy estates (subject to individual defenses reserved for claims process), and approved sale of stablecoins outside the ordinary course under § 363(b).
Issues
| Issue | Debtors' Argument | Account Holders / Objectors' Argument | Held |
|---|---|---|---|
| Whether deposits into Earn transferred ownership of crypto to Celsius | Terms unambiguously transfer “all right and title…including ownership rights” to Celsius | Terms are ambiguous (use of “loan/lend”) and extrinsic statements (e.g., CEO) show customers retained title | Transfer-of-title clause unambiguous; title passed to Celsius and became estate property (subject to reserved defenses) |
| Whether a valid contract existed and could be modified | Clickwrap acceptance, consideration (Rewards), and documented affirmative re-acceptance of updates (esp. v6 onward) establish formation and valid modifications | Some account holders contest assent, contend oral/modifying statements or lack of notice; some say modifications required writing earlier | Clickwrap formation and modifications were valid; evidence supports mutual assent and consideration |
| Whether extrinsic evidence (CEO statements, advertising) can override written Terms | Parol evidence rule: unambiguous written terms control; extrinsic evidence inadmissible to create ambiguity | Mashinsky’s statements and marketing show different understanding and/or fraudulent inducement | Court rejects extrinsic evidence to vary unambiguous Terms; reserves individual defenses (fraud, unconscionability) for claims process |
| Whether sale of stablecoins required court approval and whether sale is ordinary course | Stablecoins are estate property; sale needed approval; Debtors show sound business reason to sell outside ordinary course to fund admin expenses | U.S. Trustee and states: sale premature, proceeds allocation unclear, request escrow until ownership/resolution | Court authorizes sale under § 363(b) outside ordinary course, finding sound business justification; did not resolve timing/escrow conditions urged by some objectors |
Key Cases Cited
- Register.com, Inc. v. Verio, Inc., 356 F.3d 393 (2d Cir. 2004) (online terms: traditional contract principles apply to web-based agreements)
- Meyer v. Uber Technologies, Inc., 868 F.3d 66 (2d Cir. 2017) (reasonably conspicuous presentation required for assent to online terms)
- W.W.W. Associates v. Giancontieri, 77 N.Y.2d 157 (N.Y. 1990) (extrinsic evidence is admissible only if contract language is ambiguous)
- Comm. of Equity Sec. Holders v. Lionel Corp., 722 F.2d 1063 (2d Cir. 1983) (requirement of good business reason for § 363(b) sales)
- In re Enron Corp., 292 B.R. 752 (Bankr. S.D.N.Y. 2003) (unambiguous contract terms are enforced as written)
- In re Lehman Bros. Holdings Inc., 422 B.R. 407 (Bankr. S.D.N.Y. 2010) (scope of estate property under § 541)