[Crypto-Bankruptcy Series] Roundup: Celsius Network LLC

By Jessica R. Graham (Harvard Law School)

Jessica R. Graham

Note: This post is the seventh post in a series of posts on bankruptcies of cryptocurrency companies and the emerging issues they pose. Previous posts in the series include:

1. The FTX Bankruptcy: First Week Motions, Jurisdictional Squabbling, and Other Unusual Developments, by Megan McDermott

2. Quantifying Cryptocurrency Claims in Bankruptcy: Does the Dollar Still Reign Supreme?, by Ingrid Bagby, Michele Maman, Anthony Greene, and Marc Veilleux

3. The Public and the Private of the FTX Bankruptcy, by Diane Lourdes Dick and Christopher K. Odinet

4. Staking, Yield Farming, Liquidity Mining, Crypto Lending – What are the Customer’s Risks?, by Matthias Lehmann et al. (University of Vienna)

5. The Treatment of Cryptocurrency Assets in Bankruptcy, by Steven O. Weise, Wai L. Choy, and Vincent Indelicato

6. FTX Bankruptcy – A Failure of Centralized Governance in the Name of Decentralized Cryptocurrencies, by Vivian Fang

This series is being managed by the Bankruptcy Roundtable and Xiao Ma, SJD at Harvard Law School, xma [at] sjd [dot] law [dot] harvard [dot] edu.

Check the HLS Bankruptcy Roundtable periodically for additional contributing posts by academics and practitioners from institutions across the country.


On January 4th, 2023, the U.S. Bankruptcy Court for the Southern District of New York issued its opinion regarding digital assets held by Celsius Network LLC (“the Debtor”). In a decision that arguably could have lasting implications for crypto bankruptcies and the crypto industry more generally, the Court held that the assets deposited with Celsius in one of its programs, the “Earn” rewards program, had been relinquished to the Debtor and thus are to be considered assets of the Debtor’s bankruptcy estate. For customers with assets in the Debtor’s “Earn” program, this decision means that they will not be entitled to an immediate return of their invested assets. Instead, “Earn” customers will be treated as general unsecured creditors and receive payment at the end of the Debtor’s bankruptcy.  Such payments will be made only after payment to any other priority creditors, and “Earn” customers will receive payments proportionate to the amount of their investments out of whatever money may be left at the end of the bankruptcy.

The Debtor offered three types of accounts: (1) “Earn”; (2) “Custody”; and (3) “Borrow”. This holding only applies to the “Earn” accounts because of the nature of the accounts. Assets deposited through the “Earn” program were comingled across consumers, and the Debtor had the right to invest these assets or use them for other purposes. In registering for one of these accounts, the Terms of Use dictated that customers were transferring ownership of assets deposited in the account to the Debtor, “in every sense and for all purposes.” Thus, the Court reasoned, these assets must be considered the property of the estate.  In interpreting the Terms of Use as an enforceable contract, the Court rejected the claim that these agreements were merely clickwrap. The Court also rejected the claim that the terms of use were ambiguous, stating that nothing in the agreement suggested customers would retain a lien on the assets they deposited. The Court did, however, leave the door open for customers to challenge the possession of their specific assets with individual defenses—the Court only articulated an assumption that the assets were the estate’s property.

The overarching theme is the importance of digital asset holders to carefully read the terms of use when opening accounts. Assets held in the other two types of accounts—“Custody” and “Borrow”—will need to be addressed in separate litigation, as they are governed by different customer agreements and management standards.

Several law firms have taken note of this decision, providing takeaways and analyses of impact. Sidley stresses the importance of carefully reading (for investors) or drafting (for market participants) the terms of use agreements and their related marketing materials. Morrison Foerster emphasizes the special nature of the decision, reasoning that it is unlikely to be determinative for other crypto cases because of the reliance on specific terms of use. Husch Blackwell highlights the importance of the Court’s imminent decisions regarding the other types of accounts, noting that the implications of those decisions could alter the landscape of crypto in the future.

Delaware Bankruptcy Court Rules That Midstream Gathering Agreements Failed to Create Covenants Running with the Land

By Duston K. McFaul & Juliana Hoffman (Sidley)

Duston K. McFaul
Juliana Hoffman

On October 14, 2020, the honorable Christopher Sontchi, Chief Judge of the Delaware Bankruptcy Court, issued an opinion in the Extraction Oil and Gas bankruptcy case finding that certain oil, gas and water gathering agreements (the “Agreements”) did not create covenants running with the land under Colorado law and are thus subject to rejection in Extraction’s chapter 11 proceedings. The Bankruptcy Court applied Colorado law, which requires that the following three elements be satisfied: (1) the parties must intend to create a covenant running with the land; (2) the covenant must touch and concern the land with which it runs; and (3) there must be privity of estate between the covenanting parties. The Bankruptcy Court analyzed these elements relative to the debtor’s leasehold interest.

The Extraction decision is the Delaware Bankruptcy Court’s first published foray into a recent thicket of gathering agreement litigation that was reignited in 2016 with the Bankruptcy Court for the Southern District of New York authorizing the rejection of certain gathering agreements in the Sabine Oil & Gas bankruptcy case. Following Sabine, various oil and gas producers in chapter 11 attempted to use Sabine as a basis for invalidating dedications and shedding minimum volume and other commitments in their own gathering agreements. Such efforts were rebuffed in 2019 by the Colorado Bankruptcy Court in Badlands and by the Bankruptcy Court for the Southern District of Texas in Alta Mesa, each of which analyzed the elements of the asserted covenants running with the land relative to the debtor’s leasehold interest.  The courts in Badlands and Alta Mesa each found that the agreements at issue created valid real property covenants under applicable state law and were thus not executory contracts that could be rejected in bankruptcy.

The Extraction case diverged from Badlands and Alta Mesa in its narrow holding, which analyzed the purported covenants in the context of only the debtor’s mineral estate, and ultimately concluded the midstream agreements did not contain an enforceable covenant running with the land.  The Extraction rulings are currently on appeal before the Delaware District Court.

The full article is available here.