Celsius Network Limited v. Tether LimitedCelsius Network Limited v. Tether Limited
A P P E A R A N C E S:
HERBERT SMITH FREEHILLS KRAMER (US) LLP
Attorneys for Tether Limited, Tether Holdings Limited, Tether International Limited, and Tether Operations Limited
1177 Avenue of the Americas
New York, New York 10036
By: Daniel M. Eggerman, Esq.
David E. Blabey Jr., Esq.
Gabriel Eisenberger, Esq.
2000 K Street NW
Fourth Floor
Washington, D.C. 20006
By: Ariel N. Lavinbuk, Esq.
Brandon L. Arnold, Esq.
Jane Jacobs, Esq.
Attorneys for Blockchain Recovery Investment Consortium, LLC, Litigation Administrator, and Complex Asset Recovery Manager, as Representative for the Post-Effective Date Celsius Debtors
295 Fifth Avenue
New York, New York, 10016
By: Benjamin I. Finestone, Esq.
Anil Makhijani, Esq.
Mario O. Gazzola, Esq.
Arman Cuneo, Esq.
300 West Sixth Street
Suite 200
Austin, Texas 78701
By: Matthew Scheck, Esq.
MARTIN GLENN
CHIEF UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is the contested motion (the “Motion,” ECF Doc. # 32) of defendants Tether Limited (“TLTD“), Tether Holdings Limited (“THL“), Tether International Limited (“TIL“), and Tether Operations Limited (“TOL” and, together with TLTD, THL, and TIL, the “Defendants” or “Tether“). The Motion seeks dismissal of all counts asserted in the amended adversary complaint (the “Amended Complaint” or “AC,” ECF Doc. # 25) filed by Celsius Network Limited (“CNL“), and Celsius Network LLC (Post-Effective Date Debtors) (“CNLLC” and, together with CNL, the “Plaintiffs” or “Celsius“)1 (i) without prejudice for lack of personal jurisdiction pursuant to
On March 11, 2025, the Plaintiffs filed an opposition to the Motion (the “Opposition,” ECF Doc. # 38), to which the Defendants filed a reply (the “Reply,” ECF Doc. # 39).3
For the reasons discussed below, the Court GRANTS in part and DENIES in part the Motion.
I. BACKGROUND
A. Relevant Background4
1. The Parties
a. Celsius
Founded in 2017 by Alex Mashinsky, Shlomi “Daniel” Leon, and Nuke Goldstein, Celsius operated as a “consumer-facing cryptocurrency company” that maintained, as its primary
The Plaintiffs to this adversary proceeding are comprised of CNL and CNLLC. Plaintiff CNL is a private limited company incorporated under the laws of England and Wales with a principal place of business in London, United Kingdom. (Id. ¶ 12.) Meanwhile, plaintiff CNLLC is a Delaware limited liability company with a principal place of business in Hoboken, New Jersey. (Id. ¶ 13.)
b. Tether
Tether controls and markets USDT, the “world‘s most popular stablecoin,” as well as the EURT token. (Id. ¶ 28.) Each USDT and EURT token is purportedly backed by assets that allow such tokens to hold values equivalent to one U.S. dollar and one Euro, respectively. (Id.) At the time of Celsius‘s founding, billions of Tether‘s USDT tokens were in circulation, and Celsius indicates that it relied on both USDT and EURT to “operate critical parts of its business.” (Id. ¶¶ 28–29.)
The Defendants to this adversary proceeding are comprised of four entities: TLTD, THL, TIL, and TOL. THL, along with TOL and TIL, is incorporated in, and is a citizen of, the British
2. The Initial Token Agreement
The Amended Complaint alleges that the relationship between Celsius and Tether, the lead investor for Celsius‘s Series A investment round, was premised on a “basic bargain.” (Id. ¶ 29.) Pursuant to this bargain, “Tether would provide Celsius with the funding and connections it would need to grow” in the crypto space while Celsius would provide Tether with access to the United States cryptocurrency market. (Id.; see also id. ¶ 30 (discussing instances showing how Celsius and Tether put this “bargain into practice“).)
The Plaintiffs argue that, in connection with the foregoing, Celsius and Tether entered into a lending arrangement to “pursue their joint objectives.” (Id. ¶¶ 31–32.) Specifically, the Amended Complaint alleges that these joint objectives include the provision of (i) access for Celsius and Tether‘s U.S. customers to Tether‘s USDT (and later, Tether Gold (“XAUt“) and EURT) through Celsius, and (ii) liquidity to Celsius to operate its U.S. business through Tether. (Id. ¶ 31.) This, the Amended Complaint contends, reflects the parties’ recognition of the “centrality of their lending arrangement to their broader purpose of exploiting the United States market.” (Id.)
On February 1, 2020, CNL entered into the Token Agreement (the “Initial Token Agreement,” ECF Doc. # 1-1, Schedule 2) with TLTD that allowed CNL to borrow USDT from TLTD, which CNL would collateralize by posting collateral equal to a percentage of the number of USDT made available to CNL and pay certain interest. (Id. ¶ 32; see Initial Token Agreement §§ 3, 7.) To the extent collateral was provided in Ether (ETH), XAUt tokens, or Bitcoin (BTC), the Initial Token Agreement specified certain percentages for the collateral as well as interest rates to be used. (See, e.g., id. § 3 (indicating that if ETH were posted as collateral, the
Among other things, the Initial Token Agreement made clear that its terms could not be changed or modified unless it was in writing and signed by CNL and TLTD. (Id. § 1.4.) Section 1.5 of the Initial Token Agreement also provided that the agreement and its terms are governed by the laws of BVI. (Id. § 1.5.)
Harumi Urata-Thompson, Celsius‘s Chief Financial Officer, executed the Initial Token Agreement on behalf of CNL. (Id. at 5.) The Plaintiffs indicate that CNL‘s signatory was an employee based in the United States at the time. (AC ¶ 43.)
3. The Amended Token Agreement and Related Borrowings
On January 20, 2022, CNL and TLTD entered into an amendment of the Initial Token Agreement (as amended, the “Amended Token Agreement,” ECF Doc. # 1-1). The Amended Token Agreement, the Plaintiffs state, was the “centerpiece of the parties’ broader relationship” that served as the basis for a “long-term collaborative relationship” between Celsius and Tether. (AC ¶ 41.) Specifically, the Plaintiffs allege that the fundamental purpose of the Amended Token Agreement was to “allow Tether to avail itself of the United States market.” (Id. ¶ 44.) Like the Initial Token Agreement, the Amended Token Agreement allowed CNL to borrow USDT or EURT to the extent Celsius posted the requisite collateral. (Id. ¶ 42.) The Plaintiffs indicate that the signatories to the Amended Token Agreement on behalf of CNL were Alexander Mashinsky and Shlomi “Daniel” Leon, directors at Celsius, both of whom were based in the United States. (Id. ¶ 43.)
Among other things, the Amended Token Agreement provided that, in the event of a decrease in the value of the collateral below a certain percentage threshold, “TLTD shall provide [CNL] notice of such occurrence . . . and [CNL] shall, within ten (10) hours of such Margin Call
The Amended Token Agreement also contained other notable provisions. First, the Amended Token Agreement provided for the return of excess proceeds from CNL‘s collateral to CNL in the event of liquidation. (Amended Token Agreement § 10B (providing that, in the event of liquidation of the Collateral, any surplus was to be paid to CNL after payment of certain fees, costs, expenses of TLTD and amounts CNL owed to TLTD); see also AC ¶ 40 (stating that the parties resolved this issue in favor of Celsius).) Second, the Amended Token Agreement indicated that the Collateral pledged was to be held “for the benefit of” CNL. (See Amended Token Agreement § 3 (“TLTD shall hold the Collateral in a segregated account . . . for the benefit of [CNL].“)
Pursuant to the Amended Token Agreement, Celsius borrowed USDT and posted collateral in the form of BTC or ETH. (Id. ¶ 45.) As of April 14, 2022, the date the section 547(b) period commenced in this case, Celsius had $512,330,000 in outstanding borrowings in USDT (i.e., 512,330,000 USDT) pursuant to the Amended Token Agreement.6 (Id. ¶¶ 45–46.)
4. The Top-Up and Cross-Collateralization Transfers
Beginning in April 2022, BTC pricing began a “violent downward slide” that continued through early July 2022, around the time Celsius filed for chapter 11 on July 13, 2022 (the “Petition Date“). (Id. ¶ 47.) In response to the fall in BTC prices, Tether initiated a series of demands under the Amended Token Agreement, which the Plaintiffs allege were to improve its security on the antecedent debt Celsius owed to it. (Id. ¶ 48.) Each of these demands, the Amended Complaint alleges, was directed at Celsius employees located in the United States. (Id.) In response, Celsius made the following BTC transfers to Tether as additional collateral on account of alleged antecedent debt during the relevant preference period:
- approximately 1,633.35 BTC on or about May 3, 2022;
- approximately 2,044.00 BTC on or about May 7, 2022;
- approximately 2,214.00 BTC on or about May 9, 2022;
- approximately 2,398.29 BTC on or about May 11, 2022;
- approximately 2,598.15 BTC on or about May 12, 2022;
- approximately 2,807.75 BTC on or about June 10, 2022; and
- approximately 3,041.73 BTC on or about June 12, 2022.
(Id. ¶¶ 49–55.) The Plaintiffs indicate that, in sum, Celsius transferred a total of approximately 16,737.27 BTC across these seven transfers to Tether during the preference period. Less the
In addition to the Top-Up Transfers, Celsius also borrowed additional USDT from Tether on three occasions during the preference period:
- 100,000,000 USDT from Tether on or about April 20, 2022 secured by a transfer of 3,095.00 BTC from Celsius;
- 100,000,000 USDT from Tether on or about May 5, 2022 secured by a transfer of 3,288.00 BTC from Celsius; and
- 100,000,000 USDT from Tether on or about June 9, 2022 secured by a transfer of 4,317.00 BTC from Celsius.
(Id. ¶ 57.) In total, Celsius made transfers of 10,700.00 BTC, which like the Top-Up Transfers, was commingled with Celsius‘s prior collateral postings. (Id.) This BTC cross-collateralized Celsius‘s existing loan from Tether. (Id.) Approximately 2,228.01 of this BTC was excess collateral and Celsius‘s transfer of this excess to Tether (the “Cross-Collateralization Transfers“), the Plaintiffs assert, was preferential and subject to avoidance. (Id.)
The Top-Up and Cross-Collateralization Transfers, the Plaintiffs indicate, are separate and distinct from the principal and interest payments Celsius made to Tether during the preference period, the former of which the Plaintiffs argue were made on account of antecedent debt. (Id.) The Amended Complaint alleges that these transfers “dramatically improved Tether‘s position as a creditor” as absent receipt of such, Tether would not have been able to
As of March 2022, the Amended Complaint indicates that Celsius had a negative net capital position of $60 million and was insolvent at the time these transfers were made. (Id. ¶ 59.) Additionally, as a result of the precipitous decrease in value of Celsius‘s assets—which was comprised of various cryptocurrencies, including BTC, ETH, and the CEL token, Celsius‘s own cryptocurrency token—the value of Celsius‘s liabilities far exceeded the value of its assets during April through June of 2002. (Id. ¶¶ 59–60.)
Aside from being balance sheet insolvent, the Amended Complaint further alleges that Celsius was unable to pay its debts when they came due and lacked sufficient capital to operate its business. (Id. ¶ 61.) Moreover, the Plaintiffs contend that each Top-Up and Cross-Collateralization Transfer constituted a transfer of Celsius‘s own interest in property to Tether on account of antecedent debt while Tether provided no contemporaneous value to Celsius in exchange. (Id. ¶ 62.)
Relevant here, the Amended Complaint alleges that several of these transfers were initiated from the United States by U.S.-based Celsius employees, and U.S.-based Celsius employees gave notice of these transfers to Tether. (Id. ¶ 63.) It further alleges that each of these transfers was ultimately overseen and approved by Alexander Mashinsky, Celsius‘s Chief Executive Officer, who was based in Hoboken, New Jersey at the time of the transfers. (Id.)
5. The Application Transfer and Alleged Retention of Collateral
Celsius alleges that Tether embarked on a three-part plan to improve its position during the “run on the bank” situation Celsius faced in July 2022 when its customers began withdrawing deposits at an alarming rate, placing the company under “immense financial distress.” (Id. ¶¶ 64–69.)
Tether, the Plaintiffs assert, made misrepresentations to Celsius throughout the “fire sale,” which they believe were designed as a “ruse” to allow Tether to appropriate Celsius‘s collateral for itself below prevailing market prices. (Id. ¶ 73; see also id. ¶¶ 74–78 (detailing statements Tether made suggesting that it was proceeding with legitimate, arm‘s-length sales of Celsius‘s collateral through its OTC desk and that it sold the entirety of Celsius‘s collateral (i.e.,
The Amended Complaint contends that the Top-Up Transfers, Cross-Collateralization Transfers, and Application Transfers improved Tether‘s position as of the application date. (Id. ¶ 78 (stating also that without the benefit of the Top-Up and Cross-Collateralization Transfers, Tether would have only had 21,656.20 BTC in collateral and faced a $364,980,517.43 deficiency at the prices it claims to have applied).) Tether applied Celsius‘s BTC against obligations owed to it for an average price of $20,656.88 each, which was considerably less than the $22,487.39 market price at the time on Bitfinex, a crypto exchange controlled by Tether‘s parent company at around the time the collateral was allegedly liquidated. (Id. ¶ 80.)
Moreover, Tether‘s failure to comply with the Amended Token Agreement‘s 10-hour waiting period requirement prevented Celsius from “avoid[ing] the disposition of its [BTC] at near the bottom of the cryptocurrency market.” (Id. ¶ 79.) Rather, the Plaintiffs contend that Celsius could have retained the pledged BTC that would have been worth more than $4 billion today. (Id.) The Amended Complaint further alleges that Tether‘s disposition of Celsius‘s collateral was “arbitrary, irrational, and commercially unreasonable.” (Id. ¶ 80.)
B. The Amended Adversary Complaint
On December 5, 2024, the Plaintiffs filed the Amended Complaint, which asserts six causes of action relating to the Amended Token Agreement, Top-Up Transfers, Cross-Collateralization Transfers, and the Application Transfer. The causes of action are as follows:
- Count I – A claim asserted against all Defendants that seeks avoidance of the Top-Up Transfers totaling 15,658.21 BTC, Cross-Collateralization Transfers totaling 2,228.01 BTC, and Application Transfer totaling 39,542.42 BTC as preferential transfers pursuant to
11 U.S.C. § 547 (Id. ¶¶ 86–113.) - Count II – A claim asserted against all Defendants that seeks, without duplication, the return of the 15,658.21 BTC (Top-Up Transfers), 2,228.01 BTC (Cross-Collateralization Transfers), and 39,542.42 BTC (Application Transfer) or its equivalent value as Plaintiffs’ property pursuant to
11 U.S.C. § 550 plus interest and costs. (Id. ¶¶ 114–17.) - Count III – A breach of contract claim under BVI law asserted against TLTD in connection with the Amended Token Agreement and TLTD‘s alleged improper application of Plaintiffs’ collateral to their antecedent debt prior to the expiration of the 10-hour waiting period, resulting in an alleged $100 million or more in damages as well as expectation, reliance, and consequential damages in an amount to be proven at trial. (Id. ¶¶ 118–23.)
- Count IV – A claim under BVI law alleging breach of the covenant of good faith and fair dealing against TLTD as a result of the improper liquidation of Plaintiffs’ collateral and
- Count V – A claim against all Defendants for (i) avoidance of the Application Transfer in the amount of 39,542.42 BTC as a constructive fraudulent transfer pursuant to
11 U.S.C. § 548(a)(1)(B) , and (ii) the return of the BTC or, in the alternative, the value of such property pursuant to11 U.S.C. § 550 plus interest and costs. (Id. ¶¶ 128–33; id. at 37.) - Count VI – A claim against all Defendants for (i) avoidance of the Application Transfer in the amount of 39,542.42 BTC as a constructive fraudulent or otherwise avoidable transfer pursuant to
11 U.S.C. § 544(b) and other applicable law, including the laws of New York, New Jersey, and Delaware, and (ii) the return of the BTC or, in the alternative, the value of such property pursuant to11 U.S.C. § 550 plus interest and costs. (Id. ¶¶ 134–40; id. at 37.)
C. The Motion
The Defendants seek dismissal of the Amended Complaint on several grounds.
1. The Amended Complaint Fails to Allege Claims Held by CNLLC
As an initial matter, they contend that the Amended Complaint fails to allege any claim entitling CNLLC, a U.S. entity that is not a party to the Amended Token Agreement, to any relief from the Defendants. (MOL at 11.) This, they believe, puts CNLLC‘s standing to sue for breach into question. (Id.) The Plaintiffs’ grouping of CNLLC with CNL, a U.K. entity, does not remedy this deficiency, they argue and, at most, CNL is the only proper plaintiff for the claims asserted. (Id. at 11–12.)
2. The Court Lacks Personal Jurisdiction Over the Defendants
The Defendants further argue that dismissal of the Amended Complaint in its entirety is appropriate as the Court lacks personal jurisdiction over the Defendants who are Hong Kong and BVI entities. (See id. at 1, 13.) In support, they contend that the Plaintiffs have failed to satisfy their requisite prima facie burden to establish the existence of personal jurisdiction over each claim asserted. (Id. at 12.) Specifically, the Defendants maintain that the Amended Complaint
Personal jurisdiction also does not exist, the Defendants contend, because the Amended Complaint fails to allege any basis for quasi in rem jurisdiction. Specifically, the Plaintiffs do not offer any link between the Defendants’ bank accounts in New York to their claims, which the Defendants indicate, have not been attached or otherwise seized. (Id. at 25.)
3. The Complaint Fails to State a Claim for Which Relief May be Granted
Turning to the individual claims, the Defendants further argue that dismissal is appropriate because the Plaintiffs have failed to state claims upon which relief may granted.
a. Breach of Contract Claim (Count III)
With respect to Count III, the Plaintiffs’ breach of contract claim under BVI law, the Defendants believe that claim fails for the following reasons: (i) section 1.1(b)(4) of the Amended Token Agreement, by its plain language, did not “require[] a ten-hour standstill before TLTD could act at CNL‘s direction” and, in any event, the Plaintiffs concede that Celsius gave TLTD permission to liquidate; (ii) CNL‘s insolvency, as pled in the Amended Complaint, provided TLTD with an independent basis for liquidation pursuant to section 1.1(e)(4) of the Amended Token Agreement; and (iii) the Plaintiffs’ theory of causation would violate the terms of the Amended Complaint and, in any event, also fails as a matter of BVI law that does not permit a party to rest a contract claim on its own breach of an agreement. (Id. at 25–28.)
b. Breach of the Covenant of Good Faith and Fair Dealing (Count IV)
As for Count IV, which alleges breach of the covenant of good faith and fair dealing under BVI law, the Defendants argue such claim must be dismissed since BVI law does not recognize any general duty of good faith in commercial contracts. (Id. at 30.) Rather, only two possible duties under BVI law are relevant here, neither of which, they believe, the Amended
c. All Avoidance Claims (Counts I, II, V, and VI)
The avoidance claims asserted in the Amended Complaint (Counts I, II, V, and VI) may also be separately dismissed as they pertain to the avoidance of transfers of intangible property between U.K. and Hong Kong entities pursuant to a foreign law agreement. (Id. at 31.) This, the Defendants maintain, constitutes an “impermissible extraterritorial application[]” of the avoidance provisions. (Id.) In support, the Defendants state that the Bankruptcy Code‘s avoidance provisions lack any indication of extraterritorial application notwithstanding policy considerations that might suggest otherwise. (Id. at 31–34 (arguing that policy considerations cannot overcome the presumption against extraterritoriality).) Moreover, the Top-Up and Cross-Collateralization Transfers and the Application Transfer were all foreign. (Id. at 34–35.)
d. Preference Claims Only (Counts I and II)
As for the preference claims in particular (Counts I and II), such claims may also be dismissed since TLTD was fully secured at the time of each alleged preferential transfer, a fact supported by market data. (Id. at 36–37.) None, therefore, would have resulted in TLTD receiving more than it would have in a chapter 7 liquidation, and the Amended Complaint lacks any allegation that TLTD ever became undersecured. (Id. at 37; see also id. at 38–41 (arguing also that the focus should be on the value of the collateral as of the transfer date as opposed to the petition date and that there is no reason for the Court to deviate from prior rulings holding otherwise).)
Moreover, the Defendants argue that the Plaintiffs have otherwise failed to properly plead that the Cross-Collateralization Transfers were made “for or on account of antecedent debt.” (Id.
D. The Opposition
The Plaintiffs oppose the Motion and the dismissal of their Amended Complaint, asserting that the Defendants have improperly “ignore[d] or mischaracterize[d]” their “well-pled allegations.” (Opposition at 2.) Each of their arguments is summarized in turn.
1. The Court Has Personal Jurisdiction Over All Defendants
The Plaintiffs contest the Defendants’ contention that the Court lacks personal jurisdiction over the Defendants, arguing instead that the Amended Complaint alleges a prima facie case of personal jurisdiction over each Defendant. (Id. at 12.) Based on a totality of the circumstances, the Plaintiffs believe that Tether maintained sufficient minimum contacts with the United States to justify a finding that such jurisdiction exists. (Id.) In support, they highlight the
2. The Defendants’ Extraterritoriality Arguments Fail
The Plaintiffs also argue that the Defendants’ extraterritoriality arguments fail for two independent reasons: (i) the avoidance claims are predicated on transfers that are “domestic” and do not raise any extraterritoriality concerns, and (ii) Congress has made clear that the relevant provisions of the Bankruptcy Code do have “extraterritorial reach.” (Id. at 23.)
As to the former, the Plaintiffs maintain that the Top Up and Cross-Collateralization Transfers were domestic because the relevant conduct here, Celsius‘s conduct (i.e., the alleged fraudulent or preferential transfer of property), was “plainly domestic.” (Id. at 24 (indicating also that the focus is on whether it was plausible that the transfers occurred in the United States and the Amended Complaint‘s statement that transfers were made from a U.S.-based account is a factual allegation entitled to the presumption of truth).) The Opposition adopts the position that transactions involving cryptocurrency connected to a U.S.-based person or entity can be considered a domestic transaction and notes, in any event, that Celsius‘s cryptocurrency was located in the United States. (Id. at 25.) The Amended Complaint, the Plaintiffs state, contains specific facts that show that the relevant transfers took place domestically. (Id.) Moreover, despite Tether‘s contention that CNL is not a domestic entity, the Plaintiffs indicate that, at the time of the transfers, all of Celsius‘s entities were “functionally based in the United States,” rendering it a U.S.-based company at the time of the transfers. (Id. at 25–26.)
The Plaintiffs further argue that the Bankruptcy Code‘s avoidance provisions apply extraterritorially in line with Congress‘s clear intent. (Id. at 27–28.) Specifically, when the Code‘s avoidance provisions are read in “context” with its corresponding “recovery provisions,” the Plaintiffs believe that it is evident that Congress intended the avoidance provisions to extend extraterritorially. (Id. at 28–29 (urging the Court to adopt a “common sense” reading of the Bankruptcy Code and find that its avoidance provisions apply extraterritorially).)
3. The Parties Are Properly Named
The Opposition also contests the Defendants’ contention that the Amended Complaint has improperly named CNLLC as a plaintiff and the Tether entities as defendants. With respect to CNLLC, the Plaintiffs make clear that CNLLC and CNL were both controlled by one set of executives that were based in the United States. (Id. at 29.) As further support, the Plaintiffs cite to the Court‘s substantive consolidation for purposes of the Plan. (Id. at 30.) CNLLC, therefore, was a proper plaintiff, they contend. (Id.) As for the Tether entities, the Amended Complaint, the Plaintiffs indicate, properly alleges a “unified course of conduct by three wholly owned subsidiaries and their common parent,” providing sufficient notice to the Defendants of claims asserted against them as required under
The Plaintiffs also contest the Defendants’ assertion that the Amended Complaint fails to properly allege preferential transfers. As an initial matter, they indicate that the Amended Complaint has adequately alleged that the Defendants received more than they would otherwise have in a chapter 7 liquidation and, therefore, a preference claim. (Id. at 32 (indicating that the Amended Complaint alleged that the challenged transfers improved the Defendants’ position as a creditor).) Specifically, the Defendants’ receipt of additional, new collateral that, absent such, would have rendered them undersecured as of the Petition Date they argue, resulted in them receiving less than they would in a hypothetical liquidation. (Id. at 38.)
Tether‘s secured status at the time of the transfers, they maintain, is irrelevant, and the “hypothetical liquidation” test is measured as of the Petition Date as opposed to the transfer date. (Id. at 32-34; see also id. at 35-38 (arguing also that
As for the Cross-Collateralization Transfers specifically, the Plaintiffs maintain that the Amended Complaint clearly alleges they are on account of antecedent debt. (Id. at 41.) Indeed, it is the cross collateralization, they argue, that “renders the collateral ‘for or on account of’ the antecedent debt,” something unaltered by the fact that the new collateral was to be provided in connection with new borrowings. (Id.)
Similarly, with respect to the Application Transfer, the Plaintiffs argue that because the Defendants’ liens on the collateral were themselves preferential, the “new value” defense fails as
5. The Amended Complaint Adequately Alleges a Claim for Breach of Contract (Count III)
With respect to Count III, the Plaintiffs argue that the 10-hour waiting period set forth in the Amended Token Agreement could not, by the agreement‘s own terms, be modified by an alleged oral waiver from Alexander Mashinsky. (Id. at 42.) Rather, only a signed writing between the parties could modify the Amended Token Agreement, and the agreement makes clear that the 10-hour waiting period was to be provided to Celsius “without exception.” (Id.) The Plaintiffs contend that the Defendants “misinterpret BVI law” and “misconstrue” the allegations set forth in the Amended Complaint. (Id. (suggesting that the most plausible interpretation of the alleged oral waiver was that he wanted a “commercially reasonable sale process” that would maximize value for Celsius).)
In addition, the Opposition further asserts that Celsius‘s insolvency did not provide Tether an “independent basis” for liquidation as the Defendants elected to continue receiving benefits under the Amended Token Agreement notwithstanding that their knowledge of Celsius‘s financial state. (Id. at 43.) In any event, the Plaintiffs believe that factual questions surround the Defendants’ knowledge of and potential contribution to Celsius‘s insolvency and, therefore, cannot be a basis to dismiss the breach of contract claim. (Id. at 44.)
6. The Amended Complaint Adequately Alleges a Claim for Breach of the Covenant of Good Faith and Fair Dealing (Count IV)
As for Count IV, the Plaintiffs argue that the Amended Complaint states a claim under both of the duties under BVI law that the Defendants have highlighted as being
E. The Reply
The Reply reiterates arguments asserted in the Motion, including arguing, as an initial matter again, that CNL is the only entity relevant to the Plaintiffs’ claims and, as a U.K. entity, renders the Plaintiffs’ characterization of Celsius collectively as a U.S.-based entity to be without merit. (Reply at 2-4 (indicating that the Plaintiffs’ appeal to substantive consolidation does not help them in this instance).)
They further assert that the Plaintiffs have failed to establish a prima facie case of personal jurisdiction. (Id. at 4-6 (distinguishing cases the Defendants have relied on).) Specifically, they argue that all of the Plaintiffs’ claims arise out of specific transfers of cryptocurrency from one foreign entity to another, pursuant to a foreign law contract that neither contemplated nor required any performance or activity by either party in the United States and contained both foreign forum-selection and choice-of-law clauses. (Id. at 6.) In addition, the Plaintiffs’ reliance on actions taken by CNL do not provide, in their mind, a basis to exercise personal jurisdiction over the Defendants. (Id.) Lastly, neither of the Plaintiffs’ proffered arguments—the Defendants’ alleged plans to “exploit” the U.S. market or the parties’ course of dealing under the Amended Token Agreement—supports a finding of jurisdiction, the Reply maintains. (Id. at 7-10 (asserting that a mere allegation that a defendant‘s purpose was to exploit
As for the individual claims, the Reply argues that the Plaintiffs’ preference and fraudulent transfer claims—Counts I, II, V, and VI—are predicated on impermissible extraterritorial applications of the Bankruptcy Code. (Id. at 14.) The Defendants state that Congress did not express any clear intent to apply the Code‘s avoidance provisions extraterritorially. (Id. at 14-15.) Additionally, the avoidance claims, the Defendants indicate, are predicated on foreign transfers only; none are domestic. (Id. at 15-18 (asserting that the Top-Up and Cross-Collateralization Transfers were foreign as they were made by a foreign debtor and no domestic bank accounts were involved in these transfers); id. at 18-19 (arguing, similarly, that the Application Transfer was foreign since it involved the transfer of an interest in the collateral of one foreign entity to another foreign entity).)
The Amended Complaint, the Defendants indicate, also fails to state a claim with respect to Counts I, II, III, and IV. With respect to the Plaintiffs’ preference claims comprising Counts I and II in particular, they contend that none of the Top-Up and Cross-Collateralization Transfers and Application Transfer are voidable. (See id. at 22 (indicating that the Application Transfer is not independently voidable since it was predicated on “new value“); id. at 23 (asserting that the Cross-Collateralization Transfers were made on account of antecedent debt); id. at 23-24 (arguing that, because TLTD was fully secured at the time of each transfer, the Top-Up Transfers are also not voidable as the proper time to measure valuation is not the Petition Date but rather, the time each transfer was made).)
A. Rule 12(b)(2) of the Federal Rules of Civil Procedure
On motions to dismiss pursuant to
In addressing a pretrial motion to dismiss, the Second Circuit has made clear that “a district court has considerable procedural leeway” and “may determine the motion on the basis of affidavits alone; . . . permit discovery in aid of the motion; or . . . conduct an evidentiary hearing on the merits of the motion.” Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013) (quoting Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981)). However, determination of the sufficiency of a plaintiff‘s showing is a “sliding scale” that will “var[y] depending on the procedural posture of the litigation.” Id. (quoting Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990)).
In deciding whether a court can exercise personal jurisdiction over a foreign defendant, it must first be determined whether a defendant has the “requisite minimum contacts with the United States at large.” Motors Liquidation, 565 B.R. at 286; see also Fairfield Sentry, 669 B.R. at 137 (“In adversary proceedings, courts must determine whether the defendant has minimum contacts with the United States, rather than with the forum state.“) (citations omitted).
In turn, determination whether a defendant has the necessary “minimum contacts” requires a finding of either specific personal or general personal jurisdiction.8 In re Terrorist
Following the “minimum contacts” inquiry, a court then needs to determine whether the “assertion of personal jurisdiction comports with ‘traditional notions of fair play and substantial justice‘—that is, whether it is reasonable under the circumstances of the particular case.” Id. (citing Int‘l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). Reasonableness requires consideration of five factors: “(1) the burden that the exercise of jurisdiction will impose on the defendant; (2) the interests of the forum state in adjudicating the case; (3) the plaintiff‘s interest
B. Rule 12(b)(6) of the Federal Rules of Civil Procedure
To survive a motion to dismiss under
“Where a complaint pleads facts that are merely consistent with a defendant‘s liability, it stops short of the line between possibility and plausibility of entitlement to relief.” Off. Comm. of Unsecured Creditors of Vivaro Corp. v. Leucadia Nat‘l Corp. (In re Vivaro Corp.), 524 B.R. 536, 547 (Bankr. S.D.N.Y. 2015) (quoting Iqbal, 556 U.S. at 678). Plausibility “is not akin to a probability requirement,” but rather requires “more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (citation and internal quotation marks omitted). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citations omitted); see also Twombly, 550 U.S. at 555 (stating that a pleading that offers “labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do“). Rather, pleadings “must create the possibility of a right to relief that is more than speculative.” Spool v. World Child Int‘l Adoption Agency, 520 F.3d 178, 183 (2d Cir. 2008) (citation omitted). “A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 663 (citing Twombly, 550 U.S. at 556).
Generally, courts use a two-pronged approach when considering a motion to dismiss. Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgmt., 712 F.3d 705, 717 (2d Cir. 2013) (stating that motion to dismiss standard “creates a ‘two-pronged approach’ . . . based on ‘[t]wo working principles‘“) (alterations in original) (quoting Iqbal, 556 U.S. at 678-79)); McHale v. Citibank, N.A. (In re 1031 Tax Grp., LLC), 420 B.R. 178, 189-90 (Bankr. S.D.N.Y. 2009) (stating that courts use a two-prong approach when considering a motion to dismiss). First, a court must accept all factual allegations in the complaint as true, discounting legal conclusions clothed in factual garb. See, e.g., Iqbal, 556 U.S. at 677-78; Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111, 124 (2d Cir. 2010) (stating that a court must “assum[e] all well-pleaded, nonconclusory factual allegations in the complaint to be true“) (citing Iqbal, 556 U.S. at 678). Second, a court must determine if these well-pleaded factual allegations state a plausible claim for relief—“a context-specific task that requires the reviewing court to draw on its judicial
Courts deciding motions to dismiss must draw all reasonable inferences in favor of the nonmoving party and must limit their review to facts and allegations contained in (i) the complaint; (ii) documents either incorporated into the complaint by reference or attached as exhibits; and (iii) matters of which the court may take judicial notice—such as public records, including complaints filed in state courts. Blue Tree Hotels Inv. (Canada), Ltd. v. Starwood Hotels & Resorts Worldwide Inc., 369 F.3d 212, 217 (2d Cir. 2004) (citations omitted).
III. DISCUSSION
A. Determination as to CNLLC‘s Standing Cannot Be Made at This Time
As an initial matter, the Defendants contend that the Amended Complaint fails to allege any claim entitling Plaintiff CNLLC, the U.S. entity, to relief from the Defendants since CNLLC is not a party to the Initial or Amended Token Agreement that serves as the basis for the Amended Complaint. (MOL at 11.) Accordingly, they maintain that CNLLC lacks standing to sue and cannot be a proper plaintiff. (Id.)
a. Standing in Bankruptcy Court
Generally, to have standing in bankruptcy court, a party must possess: (i) constitutional standing; (ii) prudential standing; and (iii) standing under
Constitutional standing, also commonly referred to as Article III standing, generally requires that a plaintiff have “suffered an injury in fact that is fairly traceable to the challenged conduct of defendant and is likely to be redressed by a favorable court decision in order to bring suit in the federal courts.” Astra Oil Trading v. PRSI Trading Co. LP, 794 F. Supp. 2d 462, 471 (S.D.N.Y. 2011) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). Specifically, an injury in fact is “an invasion of a legally protected interest which is (a) concrete and particularized . . . and (b) actual or imminent, not conjectural or hypothetical.” Lujan, 504 U.S. at 560 (internal citations and quotation marks omitted).
Meanwhile, a plaintiff must also demonstrate prudential standing pursuant to which a party must generally “assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties.” In re Genesis Glob. Holdco, LLC, 660 B.R. 439, 496 (Bankr. S.D.N.Y. 2024) (quoting In re Quigley, 391 B.R. 695, 702 (Bankr. S.D.N.Y. 2008). In other words, “[c]ourts should therefore hesitate before resolving a controversy on the basis of a third party‘s rights that are not involved in the litigation.” Id.
Lastly,
b. Determination as to CNLLC‘s Standing Cannot Be Made at This Time
Here, the Amended Complaint is predicated on the Amended Token Agreement—which, as the Defendants have indicated, CNLLC is not a party to—as well as certain related transfers. (See Opposition at 13 (stating that the Defendants admit that the Amended Token Agreement “‘gave rise to’ all of Celsius‘s claims“); Initial Token Agreement at 1 (reflecting that the parties to the Initial Token Agreement are TLTD and CNL only); Amended Token Agreement at 1 (same).) Therefore, at a minimum, a determination whether CNLLC could have suffered an “injury in fact” and/or asserted its own legal rights and interests that would afford it standing is required. See Astra Oil, 794 F. Supp. 2d at 471 (indicating that constitutional standing requires a plaintiff to suffer an injury in fact); Genesis, 660 B.R. at 496 (stating that a demonstration of prudential standing requires the assertion of one‘s own legal rights and interests).
As a general matter, “[p]laintiffs bear the burden of establishing standing.” All. for Open Soc‘y Int‘l, Inc. v. U.S. Agency for Int‘l Dev., 651 F.3d 218, 227 (2d Cir. 2011). Typically, “a non-party to a contract that does not contain unambiguous language manifesting an intent to make the non-party a beneficiary of that contract lacks prudential standing to litigate issues related to that contract.” In re Motors Liquidation Co., 580 B.R. at 340. (See also Carrington Decl. ¶¶ 109-111 (indicating that BVI common law recognizes privity of contract and will not “give relief in relation to contractual claims for or against entities or individuals related to those entities because such persons are not parties to the contract in issue“; Webster Decl. ¶ 23 (stating that he is in “broad agreement with Mr. Carrington‘s opinions on the sources of BVI law and the rules of contractual interpretation“).) The language of the Initial and Amended Token Agreements, in fact, limits the ability of CNL to “assign, delegate, or otherwise transfer, in
The Plaintiffs argue that CNLLC is a proper plaintiff because CNLLC and CNL were “both controlled by one set of executives” and operated without “corporate distinction.” (Opposition at 29.) Moreover, the Court, the Plaintiffs further indicate, had substantively consolidated CNLLC and CNL in connection with confirmation of the Plan that would permit it to be a proper plaintiff for purposes of this proceeding. (Id. at 29-30 (citing Findings of Fact, Conclusions of Law, and Order Confirming the Modified Joint Chapter 11 Plan of Celsius Network LLC and its Debtor Affiliates, ECF Doc. # 3972 (the “Confirmation Order“) at 84-85).)
As to the first argument, the Plaintiffs cite to In re Adler, 494 B.R. 43 (Bankr. E.D.N.Y. 2013), as support for the notion that CNLLC and CNL‘s lack of “individuality” warrants the treatment of the two entities as a “single true entity.” (Opposition at 31.) The Adler court reached this conclusion, however, after it pierced the corporate veil with respect to the defendants and applied the doctrine of alter ego under New York law. See Adler, 494 B.R. at 58 (applying the remedy of alter ego to deem the various corporation entities as one). Indeed, under New York‘s alter ego theory:
[A]n entity may be liable for a breach of the contract even where it is not a formal party or signatory to the contract. For example, a contract may bind a party that did not sign the contract where the contract was signed by the party‘s agent, the contract was assigned to the party, or the signatory is in fact the ‘alter ego’ of the party.
Alter ego doctrine, however, is typically asserted by a plaintiff against a defendant. See, e.g., Emeraldian Ltd. P‘ship v. Wellmix Shipping Ltd., No. 08 CIV. 2991 (RJH), 2009 WL 3076094, at *3 (S.D.N.Y. Sept. 28, 2009) (“To state a prima facie claim for alter ego liability, plaintiffs must make specific factual allegations from which alter ego status can be inferred; conclusory allegations are insufficient.“). It is unclear whether this doctrine is similarly recognized under BVI law, which governs both the Initial and Amended Token Agreements, and can be used by a plaintiff to support a finding of standing to assert claims on account of a contract it was not a party.9 Instead, the Plaintiffs rely on the Court‘s substantive consolidation
The Confirmation Order provides, in relevant part, that CNLLC, CNL, Celsius Lending LLC, and Celsius Networks Lending LLC (collectively, the “Consolidated Debtors“) are substantively consolidated only ”for purposes of the Plan, including for purposes of voting, confirmation, and Plan distributions.” (Confirmation Order ¶ 287 (emphasis added); see also Plan, Art. IV(A) (providing for the substantive consolidation of CNLLC and CNL along with Celsius Lending LLC and Celsius Networks Lending LLC as a means for implementation of the Plan).) This substantive consolidation includes, among other things, the treatment of “all assets and all liabilities of the Consolidated Debtors . . . as though they were merged.” (Confirmation Order ¶ 287.) This substantive consolidation and the “deemed merger effected pursuant to the Plan,” however, “shall not affect . . . (x) the legal and organizational structure of the Consolidated Debtors, except as provided in the Transaction Steps Memorandum” or “(y) defenses to any Causes of Action.”10 (Id.) Moreover, the Post-Effective Date Debtors’ rights to commence and pursue “any and all Causes of Action of the Debtors, including, without limitation, any actions specifically enumerated in the Schedule of Retained Causes of Action” is separately preserved. (Id. ¶ 307.) As set forth in the Plan, the “applicable Post-Effective Date
Under the Plan, the Litigation Administrator is tasked with “prosecut[ing], settl[ing] or otherwise resolv[ing] any remaining Disputed Claims (including any related Causes of Action that are not released, waived, settled, or comprised pursuant to [the] Plan) [and] the Recovery Causes of Action.” (Id., Art. IV.L).) It is unclear whether substantive consolidation “for Plan purposes” would extend to the manner with which Causes of Action will be prosecuted and could confer CNLLC rights under an agreement it was not party to. Indeed, the Plaintiffs do not include the other Consolidated Debtors as plaintiffs in this present action, and the Amended Complaint itself makes no specific mention of substantive consolidation itself. The language of the Initial and Amended Token Agreements, in fact, limits the ability of CNL to “assign, delegate, or otherwise transfer, in whole or in part, any or all of its rights or obligations under [the] Agreement without the express written consent of TLTD.” (Initial Token Agreement § 17; Amended Token Agreement § 5.) There is no indication in the Amended Complaint that TLTD consented to CNL‘s assignment or transfer of its rights and obligations under the Amended Token Agreement. Moreover, as with alter ego theory, it is also unclear whether substantive consolidation is generally recognized under BVI law and, if so, whether it would be sufficient to confer CNLLC standing under a contract that it was not a party to.
Accordingly, this issue cannot be resolved on the current record, and the Court declines to make a determination whether CNLLC is a proper plaintiff at this time. Further briefing,
B. The Court Declines to Dismiss the Amended Complaint Against Defendants THL, TOL, and TIL on Rule 8 Grounds
In addition to CNLLC, the Defendants assert that the Amended Complaint should be dismissed against THL, TOL, and TIL. With respect to THL and TOL, the Defendants argue, other than an assertion that these entities are affiliated with TLTD, the Amended Complaint lacks allegations specific to them. (MOL at 14.) Therefore, they believe that the Plaintiffs have improperly grouped the Defendants together, thereby precluding the Court from performing a proper personal jurisdiction and
“Whether Plaintiffs have ‘lump[ed] all the defendants together in each claim and provid[ed] no factual basis to distinguish their conduct’ is a group-pleading issue under Rule 8.” Han v. InterExchange, Inc., No. 1:23-CV-07786 (JLR), 2024 WL 3990770, at *11 (S.D.N.Y. Aug. 28, 2024) (quoting Atuahene v. City of Hartford, 10 F. App‘x 33, 34 (2d Cir. 2001)) (alterations in original). Among other things,
Typically, dismissal pursuant to
The Defendants cite to Plusgrade L.P. v. Endava Inc., No. 1:21-CV-1530 (MKV), 2023 WL 2402879 (S.D.N.Y. Mar. 8, 2023) as support. The court there, however, only concluded that dismissal of a complaint was appropriate on group-pleading grounds because the complaint failed to provide “fair notice of which claims pertain to which defendants.” Plusgrade, 2023 WL 2402879, at *4. As already noted, in addition to alleging joint action and individual liability, the Amended Complaint also clearly identifies the applicable Defendants for each claim, sufficiently providing each with notice of claims asserted against them.
Accordingly, the Court concludes that there is no basis for dismissal of the Amended Complaint against THL, TOL, and TIL pursuant to
C. Personal Jurisdiction Over the Defendants
The Defendants assert that the Court lacks personal jurisdiction over each of the four Defendants, rejecting the Plaintiffs’ position that the Court has specific personal and quasi in-rem jurisdiction. Specifically, the Amended Complaint states that the Court has personal jurisdiction over the Defendants pursuant to
As the Plaintiffs do not address the Defendants’ arguments with respect to quasi in-rem jurisdiction, the Court will focus solely on whether specific personal jurisdiction exists. See Piuggi, 739 F. Supp. 3d at 168 (indicating that failure to address an issue in a response to a
1. In General
In determining whether a court can exercise specific personal jurisdiction over a foreign defendant, a determination must first be made that a defendant has the “requisite minimum contacts with the United States at large.” Motors Liquidation, 565 B.R. at 286 (quoting Off. Comm. of Unsecured Creditors of Arcapita Bank B.S.C. (c) et al. v. Bahrain Islamic Bank, 549 B.R. 56, 63 (Bankr. S.D.N.Y. 2016)). To exercise specific personal jurisdiction over a non-resident defendant, three requirements must be satisfied: (i) a defendant must have “purposefully availed itself of the privilege of conducting activities within the forum State or have purposefully directed its conduct into the forum State“; (ii) the plaintiff‘s claim raises out of or relates to the defendant‘s forum conduct; and (iii) the exercise of jurisdiction must be “reasonable under the circumstances.” U.S. Bank Nat‘l Ass‘n v. Bank of Am. N.A., 916 F.3d 143, 150 (2d Cir. 2019) (citations omitted). The focus of the inquiry is on the “affiliation between the forum and the underlying controversy.” Arcapita, 549 B.R. at 63 (quoting Goodyear Dunlop Tires Operations S.A. v. Brown, 564 U.S. 915 (2011)).
2. Purposeful Availment
Turning to the first requirement, to establish minimum contacts necessary to support a finding of specific personal jurisdiction, it must be that a defendant has “purposefully availed itself of the privilege of doing business in the forum and could foresee being hauled into court there.” Charles Schwab Corp. v. Bank of Am. Corp., 883 F.3d 68, 82 (2d Cir. 2018) (quoting Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161, 170 (2d Cir. 2013)). “Although a defendant‘s contacts with the forum state may be ‘intertwined with [its] transactions or interactions with the plaintiff or other parties . . . [,] a defendant‘s relationship with a . . . third party, standing alone, is an insufficient basis for jurisdiction.‘” Fairfield Sentry, 669 B.R. at 139 (quoting U.S. Bank, 916 F.3d at 150). Moreover, it is further insufficient to “rely on a defendant‘s random, fortuitous, or attenuated contacts or on the unilateral activity of a plaintiff with the forum to establish specific jurisdiction.” Id. (citation omitted). Rather, the contacts “must be the defendant‘s own choice” and “show that the defendant deliberately reached out beyond its home—by, for example, exploi[ting] a market in the forum State or entering a contractual relationship centered there.” Ford Motor, 592 U.S. at 359 (citations and internal quotation marks omitted) (alterations in original).
Here, the Amended Complaint alleges that “Tether . . . began planning to use Celsius to exploit the United States cryptocurrency market,” expressing a desire for Celsius to “service all their US clients.” (AC ¶ 30; see id. (noting further that Mashinsky planned for Di Stefano to introduce Tether‘s top five U.S. customers and for Bitfinex to provide a buy/sell order book to allow U.S. clients to trade).) It further indicates that this desire to exploit ultimately served as the underlying basis for the Initial and Amended Token Agreements that governed the lending arrangement between the parties. (See id. ¶ 31 (stating that the lending arrangement was central to “their broader purpose of exploiting the United States market“).) This arrangement, the Amended Complaint makes clear, was intended to be mutually beneficial and to specifically benefit Tether by making USDT available to Celsius and Tether‘s customers in the United States.12 (Id.; see also id. ¶ 44 (alleging that Tether was aware that (i) the USDT transferred to
The Defendants argue that a mere allegation that a defendant‘s purpose was to exploit a market is simply “conclusory” and not enough to establish purposeful availment. (Reply at 7.) However, the Defendants fail to note that the Amended Complaint also sets forth specific actions that Tether took to carry out its alleged intent to exploit the U.S. market, including that Tether “coordinated with Celsius to make introductions to Tether‘s U.S. clients” and notified “Celsius that it was taking steps to ‘lower borrow rates for USDT so [Celsius] can push it harder’ to those same U.S. clients.”13 (AC ¶ 31 (alteration in original).) These clearly arise to the level of defendant conduct “that . . . form[s] the necessary connection with the forum State that is the basis for its jurisdiction over him.” Walden v. Fiore, 571 U.S. 277, 285 (2014). Such actions do not appear “random, fortuitous, or attenuated or the unilateral activity of another party or a third person” but rather intentional and directed at carrying out the parties’ intended purpose. See Burger King, 471 B.R. at 475 (citations and quotation marks omitted). This case is unlike AJ Ruiz Consultoria Empresarial S.A. v. Banco Bilbao Vizcaya Argentaria, S.A., 2024 WL 460482 (Bankr. S.D.N.Y. Feb. 6, 2024), where the court was “unpersuaded by [a] [p]laintiff‘s conclusory statement” that the defendants had exploited a market. Consultoria, 2024 WL 460482, at *25. There, the court concluded such because the plaintiff offered nothing more than an allegation
Aside from an intent to exploit the U.S. markets, the Amended Complaint further alleges that the Defendants had “continuous and systematic contact with Celsius‘s United States-based personnel.” (AC ¶ 45.) Specifically, in performing under the Amended Token Agreement and to “execute on the parties’ broader vision to allow Tether to get broader access to United States markets through Celsius,” the parties, the Plaintiffs state, began meeting in 2020 “on a monthly basis with Celsius‘s United States-based representatives” where they discussed “many aspects of their business relationship, including the Amended Token Agreement.” (Id.) Transactions under the Amended Token Agreement were “at times initiated and executed by Celsius employees based in the United States, and transfers under the agreement were often made from United States-based accounts.” (Id.)
The Defendants’ projection of themselves into the United States, the Amended Complaint alleges, also extends to the negotiation, execution and performance under the Amended Token Agreement. (See id. ¶ 37.) Indeed, much of the Amended Token Agreement‘s principal terms, the Amended Complaint notes, were “agreed to during an all-hands call in December of 2021” where U.S.-based Celsius employees—Alexander Mashinsky, Ron Deutsch, and Joseph Golding-Ochsner—were present. (Id.) Moreover, both the Initial and Amended Token Agreements, the Amended Complaint indicates, were signed on behalf of CNL by employees based in the United States. (Id. ¶ 43.) Indeed, the Amended Complaint makes clear that it was not unknown to Tether that these employees were based in the United States. Rather, Tether was aware, it alleges, that “Celsius‘s top decision-makers have been based in, and its central
Accordingly, the Court concludes that the Defendants had sufficient contacts with the forum.
3. Defendant‘s Forum Conduct
In addition to having contact with the forum, it must be the case that the underlying cause of action “arise[s] out of or relate[s]” to that contact. Arcapita, 549 B.R. at 63 (quoting Burger King, 471 U.S. at 472). “Courts typically require that the plaintiff show some sort of causal relationship between a defendant‘s U.S. contacts and the episode in suit, and the plaintiff‘s claim must in some way ‘arise from the defendants’ purposeful contacts with the forum.‘” Schwab, 883 F.3d at 84 (quoting Waldman v. Palestine Liberation Org., 835 F.3d 317, 341, 343 (2d Cir. 2016)) (quotation marks omitted). Moreover, the Supreme Court has clarified that a suit that “relate[s] to [a] defendant‘s contacts with the forum” may also suffice. See Ford Motor, 592 U.S. at 362 (indicating that the specific jurisdiction inquiry has not been framed “as always requiring proof of causation” and the “most common formulation of the rule demands that the suit ‘arises out of or relates to the defendants’ contacts with the forum‘” (internal citation omitted) (emphasis added)); see also Fairfield Sentry, 592 B.R. at 149 (citing to Ford Motor).
As the Initial and Amended Token Agreements, which serve as the basis for the Amended Complaint and all claims asserted, memorialize the parties’ intent to exploit the U.S. market, there appears to be “an affiliation between the forum and the underlying controversy.” Ford Motor, 592 U.S. at 359–60. Indeed, it is only necessary for a nonresident‘s contacts to “relate to” the forum state, and there is no need for proof of causation. Id. at 362 (rejecting the assertion that “only a strict causal relationship between [a] defendant‘s in-state activity and [a]
4. Reasonable Exercise of Jurisdiction
Once there has been a sufficient showing of minimum contacts, it must be then determined “whether the assertion of personal jurisdiction comports with ‘traditional notions of fair play and substantial justice‘—that is, whether it is reasonable under the circumstances of the particular case.” Fairfield Sentry, 669 B.R. at 150 (quoting Bank Brussels Lambert, 305 F.3d at 129). In making a determination, courts will consider “the burden on the defendant, the interests of the forum in adjudicating the case, the plaintiff‘s interest in obtaining convenient and effective relief, the interstate judicial system‘s interest in obtaining the most efficient resolution of controversies, and the shared interest of the states in furthering fundamental substantive social policies.” Id.
Here, neither party has addressed whether the Court‘s exercise of personal jurisdiction would be reasonable. (See Opposition at 17 n.8 (noting only that if New York‘s long-arm statute
D. Failure to State a Claim
1. Count III (Breach of Contract Under BVI Law)
Count III of the Amended Complaint asserts a cause of action for breach of contract against TLTD under BVI law. Specifically, it alleges that the Amended Token Agreement is a binding contract, which TLTD breached when it “improperly appl[ied] Plaintiffs’ collateral to Plaintiffs’ antecedent debt prior to the contractually required ten-hour waiting period after sending a notice of demand.” (AC ¶¶ 119, 121.) By contrast, the Plaintiffs have “fully performed . . . and satisfied any conditions precedent under the Amended Token Agreement.” (Id. ¶ 120.) On account of Count III, the Plaintiffs allege that they have been “harmed by billions of dollars” and, at a very minimum, have suffered $100 million in damages, a “proximate result” of TLTD‘s breaches of contract as well as additional expectation, reliance, and consequential damages in an amount to be proven at trial.14 (Id. ¶¶ 122–23.)
Should the value of the Collateral fall below a percentage (the “Margin Call Point“) of the number of Tokens made available to [CNL] at any time, TLTD shall provide [CNL] notice of such occurrence (“Margin Call Notice“) and [CNL] shall, within ten (10) hours of such Margin Call Notice, provide additional amounts to TLTD‘s satisfaction to increase the Collateral to an amount equal to or greater than a percentage, equal to the applicable Initial Margin, of the number of Tokens made available to the Recipient. . . . If [CNL] has not posted sufficient additional Collateral in accordance with the foregoing, should the value of the Collateral fall below a percentage (the “Liquidation Point“) of the number of Tokens made available to [CNL] at any time following the time that is ten (10) hours from the delivery of the applicable Margin Call Notice, TLTD shall have the right, in its sole and absolute discretion, and without further notice to [CNL], to sell, dispose of, and liquidate the Collateral. . . .
(Amended Token Agreement § 1.1(b)(4) (emphasis added).) Therefore, by its plain language, the Amended Token Agreement grants TLTD the right in its “sole and absolute discretion” and without further notice to sell, dispose, and liquidate the collateral where (i) CNL has not posted sufficient additional collateral within 10 hours of receiving the Margin Call Notice, and (ii) the value of the collateral has fallen below the Liquidation Point “at any time following the time that is ten . . . hours from the delivery of the applicable Margin Call Notice.” (Id. (emphasis added).)
Meanwhile, section 1.1(e)(14) of the Amended Token Agreement provides, in relevant part:
In the event that: (i) [CNL] fails to return any Tokens when due and/or fails to pay any interest payable hereunder (whether by scheduled maturity, demand or otherwise); (ii) [CNL] breaches any covenant or condition of this Agreement; or (iii) any representation or warranty made on behalf of [CNL] pursuant to, or in connection with, this Agreement, shall have been incorrect or misleading in any material respect when made or deemed repeated, then TLTD may: (a) demand return of all Tokens (and payment of all other amounts accrued and outstanding hereunder (including any
interest accrued thereon) with immediate effect; (b) terminate this Agreement; and/or (c) sell, dispose of, and liquidate the Collateral.
(Id. § 1.1(e)(14) (emphasis added).) Section 4 of the Amended Token Agreement sets forth the representations of TLTD and CNL, indicating that CNL “represents and warrants in favour of TLTD on each Representation Date by reference to the facts and circumstances then existing that the Recipient is: (i) able to pay its debts as they fall due, and: (ii) not otherwise insolvent under the terms of the laws of its jurisdiction of incorporation or continuation.”15 (Id. § 4.2.)
Here, the Defendants contest that section 1.1(b)(4) “required a ten-hour standstill before TLTD could act at CNL‘s direction” because the language of the provision granted TLTD the ability to take unilateral action, and the Amended Complaint, in any event, states that “[a]midst the chaos of June 13, 2022, Celsius‘s CEO Alex Mashinsky allegedly gave Tether permission to liquidate Celsius‘s collateral in an ‘orderly’ manner.” (MOL at 25–26; AC ¶ 58.) As to the first argument, while section 1.1(b)(4) provides TLTD a unilateral right to liquidate, such right is conditioned upon whether (i) CNL has posted sufficient additional collateral within 10 hours of receiving a Margin Call Notice, and (ii) the value of the collateral has fallen below the Liquidation Point “at any time” after 10 hours from the delivery of the applicable Margin Call Notice. (See Amended Token Agreement § 1.1(b)(4).) Therefore, by its clear and plain language, the Amended Token Agreement required a 10-hour waiting period to be provided to CNL, which the Amended Complaint alleges TLTD failed to do. (See AC ¶ 72 (“Celsius was never provided the full 10-hour period to which it was contractually entitled to.“); see also Carrington Decl. ¶¶ 26–27 (indicating that the BVI courts apply an “objective, ‘reasonable reader’ standard in determining the meaning of the clauses of a contract,” which is “what the
As to the second, section 1.4 provides that “[n]o change or modification of this Agreement is valid unless it is in writing and signed by the Parties.” (Amended Token Agreement § 1.4 (set forth in the Initial Token Agreement and was not otherwise modified when the agreement was amended).) The Defendants concede that the Amended Token Agreement “was silent on what was to happen if Celsius were to authorize Tether [to] liquidate its Collateral.” (Carrington Decl. ¶ 49.) Therefore, Mashinsky‘s permission to liquidate, which would modify the 10-hour waiting requirement, would need to satisfy the requirements of section 1.4. The Defendants have not contended that a written agreement was entered into to change or modify the Amended Token Agreement. (See generally MOL 26–27.) Instead, they argue that a distinction exists between a waiver of a requirement versus an amendment or modification, the latter of which could require more formality. (See Carrington Reply Decl. ¶ 9.) However, the language of section 1.4 includes the word “change” in addition to “modification,” which the Court believes can encompass waivers. Therefore, Alexander Mashinsky‘s alleged oral permission to liquidate was insufficient, and Amended Complaint has adequately alleged that TLTD was in breach of section 1.1(b)(4) of the Amended Token Agreement. (See Webster Decl. ¶ 36 (indicating that the “modern view” under BVI law is “where the parties to a written contract stipulate the procedure for amending the contract, the procedure must be followed.“).)
Notwithstanding, TLTD possesses a right to “sell, dispose of, and liquidate the Collateral” pursuant to section 1.1(e)(14) of the Amended Token Agreement to the extent CNL
To address this, the Plaintiffs instead argue that the Amended Complaint alleges that Tether was fully aware of Celsius‘s insolvency “throughout the period” and yet continued to perform and receive benefits under the Amended Token Agreement. (Opposition at 43–44; see also Webster Decl. ¶ 58 (suggesting that doctrines of estoppel may apply).) Moreover, the Plaintiffs further argue that, “to the extent Tether materially contributed to Celsius‘s insolvency . . . [it] cannot rely on that insolvency to excuse its continued performance under the contract.” (Opposition at 44.) The Amended Complaint suggests that the Defendants did have knowledge of Celsius‘s financial situation when (i) BTC prices began to fall beginning in April 2022 (AC ¶ 48 (suggesting Tether‘s concern for exposure to Celsius‘s insolvency)); (ii) Celsius announced its pause on withdrawals and transfers between accounts in June 2022 (id. ¶¶ 64–65 (stating
However, it is unclear which doctrine of estoppel under BVI law the Plaintiffs seek to apply here, and the Plaintiffs appear to acknowledge that there are open factual questions concerning whether Tether was aware of Celsius‘s financial situation and elected to proceed under the Amended Token Agreement notwithstanding. (See, e.g., Carrington Reply Decl. ¶ 10 (suggesting that BVI law “recognizes various kinds of estoppel at common law and in equity” and Webster, the Plaintiffs’ declarant, failed to identify “which kind of estoppel he seeks to refer“); Webster Decl. ¶ 58 (stating that “there are factual questions whether, even if Tether was insolvent, Tether would be able to assert rights under clause 1.1(e)(14) . . . . For example, if Tether was aware of Celsius‘s financial distress. . . . and chose to continue to request (and accept) collateral from Celsius under the Amended Token Agreement . . . Tether may be barred from asserting a breach under the principals of estoppel.“); Reply at 20 (suggesting that the Amended Complaint does not allege facts showing that the Defendants knew that CNL or any specific Celsius entity was insolvent, including for the entire three-month period).)
Accordingly, whether Count III can be dismissed cannot be determined at this time since it is unclear that estoppel can adequately bar TLTD from asserting its rights under section 1.1(e)(14) of the Amended Token Agreement.
2. Count IV (Breach of Covenant of Good Faith and Fair Dealing Under BVI Law)
Count IV of the Amended Complaint asserts a claim for breach of the covenant of good faith and fair dealing under BVI law against TLTD. Specifically, the Amended Complaint alleges that TLTD breach its duty of good faith and fair dealing under the Amended Token
As an initial matter, the Defendants dispute that a general duty of good faith in commercial contracts exists under BVI law. (See MOL at 29–30; Carrington Decl. ¶ 70 (asserting that the statement in the Amended Complaint was “too widely worded to reflect the current position under BVI law“).) Rather, they assert that BVI law implies, instead, “two potentially relevant duties,” neither of which the Plaintiffs have adequately pled a violation of: (i) the duty to not exercise a discretionary power in an arbitrary or irrational way (the “Braganza Duty“), and (ii) the duty for equitable mortgagees to seek the best price reasonably obtainable at the time that the mortgagee decides to sell. (MOL at 30.) The Plaintiffs have characterized this as the Defendants having conceded that these “closely analogous duties apply” and argue that, in any event, the Amended Complaint states a claim under both of these duties. (Opposition at 44.) It does not. As the Plaintiffs do not contest the Defendants’ assertion that there is no general duty of good faith in commercial contracts under BVI law, which serves as the basis for Count IV, it is irrelevant whether the Amended Complaint‘s allegations satisfy other “potentially relevant” or “closely analogous” duties. (See AC ¶ 125 (alleging that “[t]he law of the British Virgin Islands implies a duty of good faith and fair dealing in the performance of the Amended Token Agreement” that TLTD breached).)
3. Avoidance Claims
Counts I, II, V, and VI of the Amended Complaint assert various claims concerning the avoidance of the Top-Up Transfers, Cross-Collateralization Transfers, and Application Transfer (collectively, the “Transfers“) against all Defendants. Specifically, the Plaintiffs seek the avoidance of the Transfers as preferential transfers under
a. The Amended Complaint Sufficiently Alleges That the Transfers Are Domestic
As an initial matter, the Defendants contend that dismissal of Counts I, II, V, and VI is appropriate as the causes of action rely on impermissible extraterritorial applications of the avoidance provisions of the Bankruptcy Code. (See MOL at 31.) The presumption against extraterritoriality, a “basic premise of our legal system,” provides that “[a]bsent clearly expressed congressional intent to the contrary, federal laws will be construed to have only
Accordingly, in examining extraterritoriality, courts will engage in a two-step process that can be examined in any order. See id. (“To determine whether the presumption against extraterritoriality applies, the Court addresses two questions that can be examined in either order.“). The first inquiry looks to “whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially.” Nabisco, 579 U.S. at 337. “The standard is not, however, a ‘clear statement rule.‘” Arcapita, 575 B.R. at 243 (quoting Morrison, 561 U.S. at 265). Rather, “[t]he context of the statute, including surrounding provisions of the Bankruptcy Code, may be consulted ‘to give the most faithful reading of the text . . . .‘” Id.; see also In re Lyondell Chem. Co., 543 B.R. 127, 151 (Bankr. S.D.N.Y. 2016) (stating that the presumption is not a “clear statement rule” and, instead, “courts may look to ‘context,’ including surrounding provisions of the Bankruptcy Code, to determine whether Congress nevertheless intended that statute to apply extraterritorially“). To the extent it is determined that a statute applies extraterritorially, then “the inquiry is complete.” Arcapita, 575 B.R. at 243.
Here, the Court concludes that the Amended Complaint contains sufficient allegations that the Transfers were domestic. In general, the Court must assess whether “the relevant conduct . . . ‘sufficiently touch[ed] and concern[ed] the territory of the United States.‘” Arcapita, 575 B.R. at 244 (alterations in original). With respect to the Top-Up and Cross-Collateralization Transfers, the Defendants argue that these transfers are foreign because they (i) came from CNL, a U.K. entity, and (ii) “did not involve bank ‘accounts’ at all.” (See MOL at
While it remains to be seen whether, after discovery, the Transfers truly constitute domestic transfers, the Amended Complaint has set forth enough factual allegations that establish that they plausibly are, which is all that is required at this stage. See Twombly, 550 U.S. at 560 (indicating that the requirement is one of “plausibility“). As the Court has concluded that the Plaintiffs have sufficiently alleged that the Transfers are domestic, it need not reach the issue of extraterritoriality. See Picard, 917 F.3d at 95 (providing that “[a]n action may proceed if either the statute indicates its extraterritorial reach or the case involves a domestic application of the statute” (emphasis added)); see also Arcapita, 575 B.R. at 248, n.12 (stating that the court was not reaching the issue of whether the Bankruptcy Code‘s avoidance provisions apply extraterritorially since it had concluded that the transfers were domestic rather than foreign).
Counts I and II of the Amended Complaint seek the avoidance of the Transfers as preferential transfers pursuant to
Meanwhile,
(a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section . . . 544 . . . 547 [or] 548 . . . of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from—
- the initial transferee of such transfer or the entity for whose benefit such transfer was made; or
- any immediate or mediate transferee of such initial transferee.
As a general matter, the hypothetical chapter 7 liquidation test set forth in
The Defendants argue that dismissal is appropriate because the Amended Complaint fails to allege that TLTD was undersecured “at the time of any of the challenged transfers.” (MOL at 37.) However, the Amended Complaint does allege that the Transfers “clearly improved Tether‘s position as of the application date (just as it did as measured as of the Petition Date).” (AC ¶ 78.) Moreover, the Plaintiffs’ burden to “refute” the Defendants’ assertion that TLTD was oversecured at the time of each challenged transfer only arose after the Defendants raised the argument. See Residential Cap., 501 B.R. at 619 (indicating that the plaintiffs had the burden to prove the defendants were not oversecured during the relevant preference period as it was defendants’ position that they were “[t]hroughout [the] case“). Therefore, dismissal of Counts I and II on grounds that the Amended Complaint failed to include an allegation that TLTD was undersecured at the time of each Transfer is premature at this juncture.
In addition to the foregoing, the Defendants further contend that (i) the Plaintiffs have failed to plead that the Cross-Collateralization Transfers were made “for or on account of
As for the second argument,
(c) The trustee may not avoid under this section a transfer—
- to the extent that such transfer was—
- intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and
- in fact a substantially contemporaneous exchange.
The Defendants maintain that the Application Transfer effectively resulted in a release of TLTD‘s lien, providing “new value.” (MOL at 44.) In response, the Plaintiffs contend that the Amended Complaint has alleged that the “challenged transfers granted Tether liens on otherwise free-and-clear assets, thus greatly increasing Tether‘s collateral pool at the expense of unsecured creditors and enabling Tether to receive more than it would have in a hypothetical chapter 7.” (Opposition at 34.) Tether cannot use its preferential liens, they argue, as a defense to satisfaction of the same. (Id.)
Even assuming that new value was provided, “success on a contemporaneous exchange defense requires a finding that the debtor and the transferee or third-party beneficiary intended a substantially contemporaneous exchange for new value.” In re 360networks (USA) Inc., 338 B.R. 194, 208 (Bankr. S.D.N.Y. 2005). “The existence of such intent under
IV. CONCLUSION
For the reasons discussed, the Motion is GRANTED in part and DENIED in part.
IT IS SO ORDERED.
Dated: June 30, 2025
New York, New York
MARTIN GLENN
Chief United States Bankruptcy Judge
Notes
Here, the Amended Complaint alleges that the Court has “personal jurisdiction over the Defendants pursuant to Rule 7004(f) of the Federal Rules of Bankruptcy Procedure because Plaintiffs’ claims arise from and relate to Defendants’ continuous and systematic contacts with the United States.” (AC ¶ 23.) Moreover, it further states that the Defendants have “repeatedly submitted to the jurisdiction of courts in this District.” (Id.) The Defendants, however, dispute that they have consented to personal jurisdiction. (See MOL at 12 (asserting that the Amended Complaint fails to allege that the Defendants voluntarily agreed to litigate in the United States).) The Plaintiffs have also not argued otherwise. (See generally Opposition.) In light of the foregoing, the Court will not address the issue of consent. See Piuggi v. Good for You Prods. LLC, 739 F. Supp. 3d 143, 168 (S.D.N.Y. 2024) (quoting Francisco v. Abengoa, S.A., 559 F. Supp. 3d 286, 318 n.10 (S.D.N.Y. 2021)) (“Numerous courts in this District have held that a party‘s failure to address an issue in its response to a Rule 12(b)(6) motion ‘amounts to a concession or waiver of the argument.‘“).