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The Words Matter: Bankruptcy Court Finds Clear Terms of Clickwrap Agreement Made Customer Cryptocurrency Property of Celsius Bankruptcy Estate

January 11, 2023


We are again reminded that the clear terms of a written contract—even if they might yield a surprising result—will govern. For those who don’t bother to read the “clickwrap” terms and conditions when, for example, signing up for the new online game or entrusting millions in crypto currency, those controlling terms may surprise. Parties in any transaction cannot just assume that the “boilerplate”—whether a make-whole in a note, a subordination provision in a credit agreement, or terms and conditions in a customer agreement—will be acceptable. Bankruptcy Judge Glenn has just ruled in the Celsius bankruptcy case that the clickwrap terms and conditions customers agreed to by clicking “I agree” mean that their cryptocurrency assets became part of the bankruptcy estate.1 Customers have no ownership in the tokens and have only an unsecured claim to be paid pennies on the dollar even if there are enough tokens to repay all customers (which in Celsius there are not). The court ruled that the terms were sufficiently clear that contrary evidence of intent, including statements by Celsius’ CEO, were inadmissible under New York’s parol evidence rule. 

Unlike banks, broker-dealers and other heavily regulated entities, there are no overriding statutes or regulations governing the relationship of a customer and a crypto exchange. Accordingly, the contract terms—usually established by clicking on a box—control. When Celsius filed for bankruptcy on July 13, 2022, it had approximately 600,000 Earn Accounts, which held various cryptocurrency assets including stablecoins. (Celsius also had other accounts governed by differing terms). Celsius filed a motion seeking to establish ownership of the cryptocurrency assets in the Earn Accounts and to sell the stablecoins in the ordinary course of business. Celsius argued that it owned the cryptocurrency assets in the Earn Accounts based on the Terms of Use accepted by nearly all Earn Account holders.

The court first ruled that the ownership question boiled down to interpreting the contract. First, Judge Glenn found that electronic contracts—such as the Celsius clickwrap contract (a digital contract formed by clicking a button)—are enforceable and that Celsius met the basic contract requirements of an offer and acceptance (i.e., mutual assent), consideration, and an intent to be bound.

Having found an enforceable contract, Judge Glenn then ruled that the contract unambiguously transferred ownership of the cryptocurrency assets in the Earn Accounts to Celsius. The operative Terms of Use stated that “all right and title to such Eligible Digital Assets, including ownership rights” were held by Celsius. Judge Glenn tellingly ruled that the New York parol evidence rule accordingly forbade evidence that the parties understood or intended the agreement differently: the unambiguous language conclusively stated their intent. Because Celsius owned all the cryptocurrency assets in the Earn Accounts, the assets, including the stablecoins, became property of the estate when Celsius filed for bankruptcy. Accordingly, Celsius was entitled to sell the stablecoins and put the proceeds into the general estate funds.

Judge Glenn noted that his decision did not mean that Earn Account holders would “get nothing” in the bankruptcy cases, since they would continue to have unsecured claims against Celsius, and those could include damages for breach of contract, fraud, and other theories of liability. But it seems clear that unsecured creditors will be getting the classic “pennies on the dollar” rather than full recovery. Judge Glenn reserved for another day treatment of other account programs that Celsius had. 

Recent crypto bankruptcy cases suggest that the terms and conditions vary broadly and can impact a court’s analysis under section 541 of the Bankruptcy Code. The scope of “estate property” under the US Bankruptcy Code is not limitless. Section 541(d) clarifies that if a debtor holds only legal title to property, the beneficial interest may be excluded on proper motion. See 11 U.S.C. § 541(d). So, property that is held by the debtor in trust for the benefit of a non-debtor is not property of the estate. Turning back to other examples of terms and conditions, in the Customer Agreement for Voyager Digital Holdings, Inc., another recent bankruptcy filer in the crypto space, the Customer Agreement provides:

[A] Customer authorizes and instructs Voyager to hold Customer’s Cryptocurrency (whether purchased on the Platform or deposited by Customer into the Account . . .) on its behalf. . . . Customer understands and authorizes Voyager to delegate some or all custody functions to one or more Affiliates or third parties (which may include, but not be limited to exchanges and custodians) at Voyager’s discretion (each a “Custodian”). Some or all custody functions provided by a Custodian may be performed, supported, or conducted in foreign jurisdictions, or conducted by Custodians domiciled, registered, or subject to the laws and regulations of foreign jurisdictions. Voyager will exercise reasonable skill and care in the selection, appointment, and periodic review of any such Custodian.2 


The above example is surprisingly vague in establishing a trust or custodial relationship, which, in New York, for instance, requires: (1) a designated beneficiary; (2) a designated Trustee, who is not the beneficiary; (3) a fund or other identifiable property; and (4) the actual delivery of the fund or other property to the Trustee with the intention of passing legal title to that Trustee. “A trust may be created orally or in writing, and no particular form of words is necessary.” Nevertheless, “to find that a trust has been created where there is no written declaration expressly creating a trust, the intent to create a trust must ‘aris[e] as a necessary inference from unequivocal evidence.’” Starr Int’l Co. v. Am. Intl. Grp., 648 F. Supp. 2d 546, 559 (S.D.N.Y. 2009). In other words, careful drafting is necessary to ensure that there is always a meeting of minds and that the intended result of the relationship is achieved. 

But even seemingly clear trust relationships can nonetheless fail for lapsed formalities. For example, where property is commingled in a manner defying tracing, the trust will fail. Thus, no matter what the provisions governing deposits with an exchange, any custodial or trust relationship may ultimately fail because of non-performance.

O’Melveny will continue to closely monitor the legal issues surrounding cryptocurrency token-ownership, including rulings in US bankruptcy proceedings. Please contact the attorneys listed on this article or your O’Melveny counsel to help you navigate this complex, emerging area of practice.

See Mem. Op. & Order Regarding Ownership of Earn Account Assets, In re Celsius Network LLC, Case No. 22-10964 (MG), ECF No. 1822.

Customer Agreement, Jan. 7, 2022, https://www.investvoyager.com/useragreement/ at ¶ 5(C).

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. William K. Pao, an O’Melveny partner licensed to practice law in California, Daniel S. Shamah, an O’Melveny partner licensed to practice law in New York, Evan M. Jones, an O’Melveny partner licensed to practice law in California and the District of Columbia, Laura Smith, an O'Melveny counsel licensed to practice law in Texas, Nicole Molner, an O'Melveny associate licensed to practice law in New York, and Emma Persson, an O'Melveny associate licensed to practice law in Texas contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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