IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

DIAMOND FORTRESS )

TECHNOLOGIES, INC., and )

CHARLES HATCHER, II, )

)

 Plaintiffs, )

) 

) C.A. No. N21C-05-048

 v. ) PRW CCLD

)

EVERID, INC., )

)

Defendant. )

 

Submitted: January 18, 2022

Decided: April 14, 2022

OPINION AND ORDER

Upon Plaintiffs Diamond Fortress Technologies, Inc., and

Charles Hatcher, II’s Motion for Default Judgment,

GRANTED.

Kurt M. Heyman, Esquire, HEYMAN ENERIO GATTUSO & HIRZEL, Wilmington, 

Delaware; Walter A. Dodgen, Esquire, Zachary P. Mardis, Esquire, MAYNARD,

COOPER & GALE, PC, Huntsville, Alabama. Attorneys for Plaintiffs Diamond 

Fortress Technologies, Inc., and Charles Hatcher, II.

United States Corporation Agents, Inc., Middletown, Delaware. Registered Agent 

for Defendant EverID, Inc.

WALLACE, J.
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This breach-of-contract action arises out of Defendant EverID, Inc.’s failure 

to compensate the Plaintiffs, Diamond Fortress Technologies, Inc. and its 

CEO Charles Hatcher, II, for their combined assistance in developing EverID’s 

cryptocurrency trading platform and mobile application. 

For an exclusive license to use Diamond Fortress’s proprietary biometric 

software, EverID offered to remunerate the Plaintiffs via cryptocurrency token 

distributions. The promised distributions were to occur upon the Initial Coin 

Offering (“ICO”) of “ID Tokens,” EverID’s newly created cryptocurrency, and upon 

subsequent Token Distribution Events (“TDEs”). The ICO and several TDEs came 

and went without Plaintiffs receiving a single token. No surprise, they then sued 

EverID. 

EverID has never responded, appeared, or otherwise defended itself in any 

manner in this lawsuit. So the Plaintiffs filed a default judgment motion that the 

Court granted in part—the Court found the breach but paused on the damages. 

The Court conducted a subsequent hearing on the Plaintiffs’ purported economic 

damages that centered on just what might be the appropriate methodology and value 

source for reckoning a damages judgment. The classification and valuation of 

cryptocurrency, as well as the calculation of damages resulting from the breach of a 

cryptocurrency-paid contract are novel matters to Delaware. 
-2-

I. FACTUAL AND PROCEDURAL BACKGROUND1

A. THE PARTIES

Diamond Fortress is a biometric software company.2 Mr. Hatcher is Diamond 

Fortress’s CEO—one with extensive experience in the global market of biometric 

authentication and identity platform architecture.

3

Diamond Fortress developed a patented software named “ONYX.”4 ONYX 

is a secure, touchless fingerprint-identification software application that utilizes the 

camera on mobile devices, e.g., smartphones, to detect and verify user identities by 

fingerprint recognition.

5

 Third parties can integrate the ONYX software into their 

own platforms by purchasing a license and software development kit.6 Mr. Hatcher 

1 The factual recitation of events discussed herein is wholly based on the Plaintiffs’ submissions. 

See Hauspie v. Stonington Partners, Inc., 945 A.2d 584, 586 (Del. 2008) (“The effect of a 

default in answering [ ] is to deem admitted all the well-pleaded facts in the complaint.”); id. at 

587 (“‘[A] default is not treated as an absolute confession by the defendant of his liability and of 

the plaintiff’s right to recover . . . Although he may not challenge the sufficiency of the 

evidence . . . .’”) (quoting Nishimatsu Const. Co., Ltd. v. Houston Nat. Bank, 515 F.2d 1200, 1206 

(5th Cir. 1975)); see also Cigna Worldwide Ins. Co. v. Elegant Inc., 2002 WL 1402348, at *2 (D. 

Del. June 25, 2002) (“Once the default [judgment] has been entered, the well-pleaded facts of the 

complaint must be accepted as true.”).

2 Compl. ¶¶ 4, 10, Diamond Fortress Technologies, Inc. v. EverID, Inc., N21C-05-048 PRW 

CCLD, May 4, 2021 (D.I. 1).

3

Id. ¶¶ 1, 21.

4

Id. ¶ 10.

5

Id.

6

Id.
-3-

is often hired as an advisor by those buyers to assist with the ONYX software 

integration and the management of its use thereafter.7

EverID, an entity active in the blockchain and cryptocurrency industry, is a 

corporation organized under Delaware law that maintains its principal office in 

Poway, California.8 It created the cryptocurrency “ID Tokens.”9 As a component 

of ID Tokens, EverID also developed a blockchain-based identity and financial 

platform but needed the means to verify and confirm its users’ identities.10 

B. THE LICENSE AND ADVISOR AGREEMENTS

In or around September of 2017, the parties conferred about integrating the 

ONYX software into EverID’s then-developing cryptocurrency enterprise.

11

 

In addition to integrating the ONYX software into its platform, EverID made 

other demands. First, it requested Mr. Hatcher serve as an advisor and mentor for 

the integration and duration of its use of ONYX.12 Second, it required Diamond 

Fortress to grant EverID an exclusive license to ONYX for digital or blockchain 

7

Id. ¶¶ 1, 12.

8

Id. ¶ 6.

9

Id. ¶ 11.

10 Id.

11 Id.

12 Id. ¶ 21.
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wallets; that required Diamond Fortress to halt its then-active endeavors soliciting

other opportunities in the blockchain industry.13 For the award of EverID’s 

exclusive ONYX software license, Diamond Fortress and Mr. Hatcher agreed to be 

compensated in EverID’s ID Tokens when EverID eventually held its ICO (the 

cryptocurrency equivalent of an initial public offering14) and subsequent TDEs.15 

The periodic token distributions were to be the means of satisfying EverID’s 

payment obligation in lieu of Diamond Fortress’s standard payment requirement of 

quarterly license “Run-Time Transaction Fees.”

16

Diamond Fortress and Mr. Hatcher agreed to EverID’s demands, and the 

respective License and Advisor Agreements (together “Agreements”) negotiations 

commenced.17 While the Agreement negotiations were underway, Plaintiffs granted 

EverID a software license key to immediately begin its integration and use of 

13 Id. ¶ 13.

14 See S.E.C. v. Shavers, 2014 WL 12622292, at *7 (E.D. Tex. Aug. 26, 2014) (holding 

cryptocurrency investments offered by the defendant qualified as “securities” and “investment 

contracts”).

15 Compl. ¶ 13.

16 Compl., Ex. A, ONYX Software Development Kit License Agreement, § 3.1(c)(i) (“License 

Agreement”).

17 Compl. ¶ 12.
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ONYX.18 Mr. Hatcher also began assisting EverID with its mobile application 

development utilizing the ONYX software.19

1. ONYX Software Development Kit License Agreement.

In September of 2018, Diamond Fortress and EverID finalized the License 

Agreement for EverID’s use of the ONYX software.20 The Agreement is valid for a 

ten-year term and is governed by Delaware law.21 

The terms and means of compensation are expressly set forth in the 

Agreement. Upon execution of the Agreement, an initial license fee of $2,500 

U.S. Dollars (“USD”) was to be remitted by EverID.

22

 EverID was also obligated 

to tender “Run-Time Transaction Fees,” which equated to fifteen percent (15%) of 

the gross revenues received from its use of ONYX, to be paid quarterly.23 As 

discussed above, these fees were negotiated away in exchange for a set amount of 

ID Tokens and subsequent periodic token distributions.

18 Id.

19 Id.

20 Compl., Ex. A, License Agreement.

21 Id. §§ 11, 17.

22 Id. § 3.1(a). The record is unclear whether this payment was ever tendered.

23 Id. § 3.1(b). 
-6-

Thus, Diamond Fortress’s real economic interest for entering into this 

transaction—and its concession to give EverID an exclusive license to use ONYX—

is EverID’s assurance “to engage in a token sale” and award Diamond Fortress for 

its services accordingly:

Ten Million (10,000,000) of ID tokens at the ICO or TDE to 

[Diamond Fortress]. This token grant shall be deemed to be an 

advance of, and credited to, [EverID] as payment for the RunTime Transaction Fees. The value of this token grant shall be 

determined by multiplying the number of tokens granted times 

the ICO or last TDE price.24

Additionally, the token grants are subject to a distribution lock-up, awarding 

the initial 25% of the tokens at the ICO or final TDE and the remaining 75% to be 

“distributed in 20 equal quarterly distributions” after the ICO or final TDE.25

2. Charles Hatcher’s Advisor Agreement.

EverID executed a separate Advisor Agreement with Mr. Hatcher.26 Under 

this Agreement, Mr. Hatcher’s role was that of an independent contractor to mentor 

or advise EverID on an as-needed basis.27

Mr. Hatcher’s compensation structure mostly mirrors Diamond Fortress’s, 

with just a variation in the number of tokens allocated and the distribution schedule. 

24 Id. § 3.1(c)(i).

25 Id. § 3.1(c)(ii) (emphasis added).

26 Compl., Ex. B, Advisor Agreement. 

27 Id. §§ 1, 5. 
-7-

EverID was to distribute Two Million Five Hundred Thousand (2,500,000) tokens 

to Mr. Hatcher at the ICO or final TDE.28 Similar to Diamond Fortress’s lock-up 

distribution, the initial 25% of the tokens were to be distributed at the ICO or final 

TDE, with the remaining 75% of tokens to be “distributed in 24 equal monthly

distributions after the ICO or final TDE.”

29

As some clue as to how the parties intended the ID Tokens be treated or 

classified, both Agreements expressly provide that the token distributions “will also 

be subject to regulatory compliance such a [sic] Rule 144 of the Securities Act of 

1933 . . . .”30

C. EVERID’S BREACH AND THE INSTANT LITIGATION

EverID’s ICO occurred on February 8, 2021, and EverID should have then 

tendered its first partial payments to the Plaintiffs.31 EverID didn’t.

32

 Despite 

numerous efforts to obtain EverID’s assurances that the token distributions were 

28 Id. § 2.

29 Id. (emphasis added). 

30 Id.; see also License Agreement § 3.1(c)(iii) (“[T]he foregoing grants of tokens are subject to 

. . . (c) regulatory compliance including, but not limited to, lock-ups and restrictions, including but 

not limited to Rule 144 Restrictions . . . .”).

31 Damages Hr’g Tr., 3-4, Diamond Fortress Technologies, Inc. v. EverID, Inc., N21C-05-048 

PRW CCLD, Oct. 28, 2021 (D.I. 27). 

32 Id. at 4; see also Pls.’ Mot. for Default J. ¶ 21, Diamond Fortress Technologies, Inc. v. EverID, 

Inc., N21C-05-048 PRW CCLD, July 16, 2021 (D.I. 12).
-8-

forthcoming—both directly and via counsel—EverID refused to respond or 

distribute the tokens.33 

Diamond Fortress and Mr. Hatcher initiated suit here alleging two counts of 

Breach of Contract—one count for each Plaintiff.34 Upon EverID’s failure to 

respond or otherwise defend itself, the Plaintiffs filed a motion for default 

judgment.35 

Consistent with this Court’s Civil Rule 55(b), which provides for entry of 

default judgment “when a party against whom a judgment for affirmative relief is 

sought, has failed to appear, plead or otherwise defend as provided by these Rules,”

36

the Court granted the Plaintiffs’ motion with respect to EverID’s liability for its 

breaches. EverID’s failure to provide any assurance within a reasonable time, as 

well as its non-performance of payment, constituted a repudiation and total breach 

of both Agreements.37 But what then is the remedy? 

33 Hr’g Tr. at 5; see also Compl. ¶¶ 30-32.

34 See generally Compl.

35 D.I. 12.

36 Campbell v. Robinson, 2007 WL 1765558, at *1 n.6 (Del. Super. Ct. June 19, 2007) (citing 

Del. Super. Ct. Civ. R. 55(b)(2)).

37 Order Granting Pls.’ Mot. for Default J. in Part ¶¶ 2-3, Diamond Fortress Technologies, Inc. 

v. EverID, Inc., N21C-05-048 PRW CCLD, Aug. 24, 2021 (D.I. 17); see also Hr’g Tr. at 7, 12-15.
-9-

As observed recently, “Delaware law largely remains silent” on scenarios 

such as this.38 That said, “significant authority supports the conclusion that a 

repudiation coupled with simultaneous non-performance gives rise to an action for 

total breach.”39

For instance, Corbin on Contracts teaches:

Suppose next that the contract requires performance in 

installments or continuously for some period and that there has 

been such a partial failure of performance as justifies immediate 

action for a partial breach. If this partial breach is accompanied 

by repudiation of the contractual obligation such repudiation is 

anticipatory with respect to the performances that are not yet due. 

In most cases, the repudiator is now regarded as having 

committed a “total” breach, justifying immediate action for the 

remedies appropriate thereto . . . . The non-performance plus the 

repudiation constitute one and only one cause of action.

40

And though Delaware has not per se adopted the Restatement (Second) of 

Contracts rule regarding repudiation and adequate assurances, our courts have

historically relied on its guidance in such situations.41 The rule prescribes that upon 

38 BioVeris Corp. v. Meso Scale Diagnostics, LLC, 2017 WL 5035530, at *8 (Del. Ch. Nov. 2, 

2017), aff’d, 2019 WL 244619 (Del. Jan. 17, 2019). 

39 Id.

40 Id. at *9 (quoting 9 Arthur Linton Corbin, Corbin on Contracts § 954 (interim ed. 2002) 

(citations omitted)); 10 John E. Murray, Jr., Corbin on Contracts § 53.12 (Joseph M. Perillo, ed., 

rev. ed. 2014) (internal citations omitted)).

41 See, e.g., Frontier Oil Corp. v. Holly Corp., 2005 WL 1039027, at *28 n.184 (Del. Ch. Apr. 

29, 2005) (relying on the Restatement regarding “the nature of a demand for adequate 

assurances[.]”).
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an obligee’s request for adequate assurance of performance by the obligor, “the 

obligee may treat as a repudiation the obligor’s failure to provide” such assurance 

within a reasonable time.42 And “a repudiation coupled with simultaneous nonperformance gives rise to an action for total breach, allowing the non-breaching 

party to bring an action for the entire contract price.”43

Accordingly, the Court determined EverID had indeed repudiated and was in 

total breach of both Agreements.44 Given the novel circumstances of this case, 

however, a decision on damages was reserved pending further record development.

Under this Court’s Civil Rule 55(b), “[j]udgment is to be entered by the Court when 

the plaintiff’s claim is for a sum which is uncertain or cannot be fixed with certainty 

by computation.”45 And when such uncertainty is present, and the Court must 

“determine the amount of damages[,]” Rule 55(b)(2) authorizes the Court to 

“conduct such hearings . . . as it deems necessary and proper . . . .”46

42 Restatement (Second) of Contracts, § 251 (1981). 

43 BioVeris Corp., 2017 WL 5035530, at *8 (emphasis added); see also Mumford v. Long, 1986 

WL 2249, at *3 (Del. Ch. Feb. 21, 1986) (holding where repudiation is found “the non-breaching 

party is entitled to treat the contract as terminated, i.e., as being at an end”). 

44 Order Granting Pls.’ Mot. for Default J. in Part ¶¶ 2-3.

45 Campbell, 2007 WL 1765558, at *1 n.6 (citing Del. Super. Ct. Civ. R. 55(b)(2)).

46 Id at n.7.; see also Dill v. Dill, 2016 WL 4127455, at *1 (Del. Super. Ct. Aug. 2, 2016) (“After 

a default judgment is ordered, an inquisition hearing is held to determine the amount of damages 

due. At an inquisition hearing, the Court’s findings on damages must be based on a preponderance 

of the evidence. The ‘sole focus of inquisition hearings is the amount of damages owed to the 

plaintiff, which is determined by the ... judge.’ Preponderance of the evidence means ‘the side on 
-11-

The Plaintiffs supplemented the record with additional briefing supporting

their damages claim.47 The Court heard Diamond Fortress and Mr. Hatcher on the 

supplemented record. This is the Court’s judgment and explication on the 

computation of damages arising out of EverID’s failure to distribute the ID tokens 

as required under the License and Advisor Agreements.

II. LEGAL ANALYSIS

A. CRYPTOCURRENCY, BLOCKCHAIN TECHNOLOGY, AND BITCOIN

It seems no Delaware court has yet grappled with the question posed here: 

When the consideration to be paid on a contract is in cryptocurrency and the contract 

is breached, how does the Court calculate the judgment to be entered? 

A brief history of cryptocurrency, Bitcoin, and blockchain technology might 

help one understand the Court’s answer here. 

Cryptocurrency is a type of digital or virtual currency “maintained by a 

decentralized network of participants’ computers.”48 Cryptocurrencies are unique 

which the greater weight of the evidence is found.’ Additionally, the standard remedy, or damages, 

for a breach of contract is based upon the reasonable expectations of the parties, in an amount that 

is equal to the loss in value of defendant’s nonperformance, or breach. Damages for a breach of 

contract must be proven with reasonable certainty. Recovery is not available to the extent that the 

alleged damages are uncertain, contingent, conjectural, or speculative.”) (internal citations 

omitted).

47 D.I. 21. 

48 Archer v. Coinbase, Inc., 267 Cal. Rptr. 3d 510, 513 (2020).
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as they “exist solely on the internet and are unregulated and unmanaged by third 

parties, such as banks or governments.”49 It uses cryptography for security, and 

“[l]ike traditional forms of currency, cryptocurrency can be bought and sold on 

digital exchanges.”50 Like an initial public offering in a securities context, an initial 

coin offering, or ICO, occurs when a new species of cryptocurrency token is issued 

in exchange for fiat or already circulating virtual currencies to raise capital.51

Cryptocurrency relies on blockchain technology, a distributed ledger system, 

to ensure the security and integrity of the virtual currency.52 Blockchain technology 

is a peer-to-peer system that tracks and records digital transactions around the 

globe.53 

To use a blockchain system, a user first creates a wallet, which 

contains information used to move units of a cryptocurrency on 

a blockchain. When the user downloads or purchases a wallet, 

software in the wallet generates a private key (a large integer 

number). That private key is then used to mathematically 

generate a public key (also a large integer number), which is used 

to create an address (a mix of numbers and symbols). This 

49 Blocktree Props., LLC v. Pub. Util. Dist. No. 2 of Grant Cnty. Washington, 380 F. Supp. 3d 

1102, 1110 (E.D. Wash. 2019).

50 Balestra v. Giga Watt, Inc., 2018 WL 8244006, at *1 (E.D. Wash. June 18, 2018).

51 Id.

52 Zietzke v. United States, 2020 WL 264394, at *1 (N.D. Cal. Jan. 17, 2020).

53 Josephine Shawver, Commodity or Currency: Cryptocurrency Valuation in Bankruptcy and

the Trustee’s Recovery Powers, 62 B.C. L. REV. 2013, 2018 (2021).
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address functions as the name suggests: it is the destination for 

a cryptocurrency payment.54

To avoid risks of double-spending, blockchain places a series of transactions 

into a block, issues a timestamp, then chronologically incorporates the blocks into a 

larger chain of all the blocks within the ledger.55 “Each block is irreversibly 

connected by a ‘proof-of-work’ protocol, the process by which a computer must 

solve a complex puzzle to authenticate each transaction and add it to the growing 

blockchain.”56 This authentication process is known as “mining,” or rather, the 

production of new coins or tokens.57

Bitcoin is a well-known name in the cryptocurrency world and is a type of 

digital currency that uses the blockchain technology.

58

 “Generally speaking, 

‘Bitcoin’ in the capitalized singular refers to the cryptocurrency with the symbol 

BTC, while ‘bitcoin’ or ‘bitcoins’ refers more generally to cryptocurrency, inclusive 

of the cryptocurrency modeled on Bitcoin.”59

54 Zietzke, 2020 WL 264394, at *1.

55 Shawver, supra at 2021. 

56 Id. at 2022. 

57 Id. 

58 Larissa Lee, New Kids on the Blockchain: How Bitcoin’s Technology Could Reinvent the Stock

Market, 12 HASTINGS BUS. L.J. 81, 90 (2016).

59 BDI Cap., LLC v. Bulbul Invs. LLC, 446 F. Supp. 3d 1127, 1131 n.3. (N.D. Ga. 2020). See also

United Am. Corp. v. Bitmain, Inc., 530 F. Supp. 3d 1241, 1251 (S.D. Fla. 2021) (where one litigant 
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Bitcoin uses the “Bitcoin Blockchain” to track ownership and transfers “of 

every bitcoin in existence.”60 To transfer bitcoins, a user must have a wallet, which, 

again, is a unique digital file that stores the bitcoin information.61 Bitcoins can be 

acquired either by the mining process or simply by receiving them from someone 

else.62 The premise of Bitcoin was to use the blockchain technology for a “peer-topeer version of electronic cash” that prevents fraudulent spending but without the 

oversight of regulatory policing.63

B. SECURITY VS. COMMODITY

Incidentally, the lack of regulatory policing of cryptocurrency is not without 

its problems and is on full display in the instant litigation. Before the Court can 

fashion a proper damages award, it must first determine how to classify 

cryptocurrency, i.e., is it a security/investment contract, a commodity, property, or 

currency? 

Lending to this problem is a lack of consensus among certain authorities on 

how to treat cryptocurrency. For instance, the Commodity Futures Trading 

characterized Bitcoin as “the most widely adopted form of peer-to-peer cryptocurrency cash-like 

system in the world.”).

60 Kleiman v. Wright, 2018 WL 6812914, at *1 (S.D. Fla. Dec. 27, 2018).

61 Id.

62 Id.

63 See Shawver, supra at 2021. 
-15-

Commission (CFTC) insists digital currencies are commodities subject to its 

regulatory authority.64 While the United States Securities & Exchange Commission 

(SEC) determined, in its now-familiar “DAO Report,” that virtual currencies are 

securities subject to the Securities Act of 1933 and the Securities Exchange Act of 

1934.65

Too, the few courts that have tackled the issue are a bit stuck on the 

classification quandary.

66

 One recently observing the complicator that “several 

agencies may have concurrent regulatory authority in the cryptocurrency space.”67 

Thus, the fact that cryptocurrency may be regulated as an “investment contract”

64 CFTC v. McDonnell, 287 F. Supp. 3d 213, 226 (E.D.N.Y. 2018) adhered to on denial of

reconsideration, 321 F. Supp. 3d 366 (E.D.N.Y. 2018).

65 Tetragon Fin. Grp. Ltd. v. Ripple Labs Inc., 2021 WL 1053835, at *7, n.87 (Del. Ch. Mar. 19, 

2021) (citing SEC, REPORT OF INVESTIGATION PURSUANT TO SECTION 21(A) OF THE SECURITIES 

EXCHANGE ACT OF 1934: THE DAO (2017), https://www.sec.gov/litigation/investreport/34-

81207.pdf)).

66 See McDonnell, 287 F. Supp. 3d at 217 (holding virtual currencies are commodities subject to 

CFTC regulatory protections); Lagemann v. Spence, 2020 WL 5754800, at *11-12 (S.D.N.Y. May 

18, 2020) (holding that plaintiffs had established their right to a judgment under the CEA after the 

defendant misappropriated their cryptocurrency investments); CFTC v. Gelfman Blueprint, Inc., 

2018 WL 6320653, at *4 (S.D.N.Y. Oct. 2, 2018) (holding virtual currencies are encompassed in 

the definition of commodity under the Commodity Exchange Act); contra S.E.C. v. Kik Interactive

Inc., 492 F. Supp. 3d 169 (S.D.N.Y. 2020) (holding that a company’s public sale of virtual currency 

was an investment contract subject to SEC registration requirements); Balestra v. ATBCOIN LLC, 

380 F. Supp. 3d 340 (S.D.N.Y. 2019) (holding that digital tokens are considered securities).

67 United States v. Samuel Reed, 2022 WL 597180, *4 (S.D.N.Y. Feb. 28, 2022).
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under the Securities Act of 1933, “does not mean that a cryptocurrency is not a 

‘commodity’ within the meaning of the [Commodity Exchange Act or] CEA.”68

In mid-2021, Congress introduced the Digital Asset Market Structure and 

Investor Protection Act—a bill providing for the regulation of digital assets and 

digital asset securities.69 The proposed bill includes amendments to current federal 

securities laws and the CEA, defining and distinguishing a “digital asset” versus a 

“digital asset security” under the respective bodies of law.70 

In short, under the proposed legislation, it appears a cryptocurrency’s

characteristics at a given time best determine whether it is subject to SEC or CFTC 

regulation (e.g., an ICO is generally considered a security because its purpose, like 

an IPO, is to raise capital by selling new tokens or coins to investors).71

Within one-hundred-fifty (150) days of the bill’s enactment, the SEC and 

CFTC are to jointly publish “a proposed rulemaking that classifies each of the major 

digital assets by (i) highest market capitalization and (ii) highest daily trading 

68 Id.

69 Digital Asset Market Structure and Investor Protection Act, H.R. 4741, 117th Cong. (2021). 

70 Id.

71 Eva Su, Digital Assets and SEC Regulation, CONGRESSIONAL RESEARCH SERVICE (June 23, 

2021) https://sgp.fas.org/crs/misc/R46208.pdf (“When a digital asset meets the criteria defining a 

security, it would be subject to securities regulation, per existing SEC jurisdiction. For example, 

most of the initial coin offerings (ICOs) are securities, but Bitcoin is not a security, mainly because 

it does not have a central third-party common enterprise.”).
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volume as either (1) a digital asset; or (2) a digital asset security.”72 Notably, in 

defining “major digital assets,” the mandate refers the CFTC and SEC to 

“CoinMarketCap” as “an appropriate publicly available website” that publishes data 

on digital assets.73 

C. THE SEC, HOWEY, AND CRYPTOCURRENCY AS AN INVESTMENT CONTRACT

The Securities Act of 193374 and the Securities Exchange Act of 1934

75

regulate the issuance and sales of investment products that qualify as securities under 

each Act. Congress’s intent in enacting these laws “was to regulate investments, in 

whatever form they are made and by whatever name they are called.”76 This was to 

ensure the application of securities laws would “turn on the economic realities 

underlying a transaction, and not on the name appended thereto.”77

Among many other investment-related terms, Section 77b(a)(1) of the 1933 

Act defines a “security” to mean an “investment contract.”

78

 The United States 

72 See HR 4741. 

73 Id. As of the date of this Opinion, the proposed legislation has yet to be enacted.

74 15 U.S.C. § 77a et seq.

75 15 U.S.C. § 78a et seq.

76 S.E.C. v. Edwards, 540 U.S. 389, 393 (2004) (quoting Reves v. Ernst & Young, 494 U.S. 56, 

61 (1990)) (emphasis in original).

77 United Housing Found., Inc. v. Forman, 421 U.S. 837, 849 (1975). 

78 15 U.S.C. § 77b(a)(1) (2021) (Definitions; promotion of efficiency, competition, and capital 

formation). 
-18-

Supreme Court animated those terms via the now well-accepted Howey test: an 

investment contract is “a contract, transaction or scheme whereby a person invests

his money in a common enterprise and is led to expect profits solely from the efforts 

of the promoter or a third party.”79 This definition “embodies a flexible rather than 

a static principle, one that is capable of adaption to meet the countless and variable 

schemes devised by those who seek the use of the money of others on the promise 

of profits.”80

Not surprisingly, courts have looked to Howey to ascertain whether 

cryptocurrencies qualify as an unconventional scheme or contract that is governed 

by securities laws.81 “Whether a transaction or instrument qualifies as an investment 

contract is a highly fact-specific inquiry.”82 A court must “examine the series of 

understandings, transactions, and undertakings at the time they were made.”83 

Accordingly, an application of the Howey test “requires an examination of the 

entirety of the parties’ understandings and expectations.”

84

79 S.E.C. v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946).

80 Id. at 299. 

81 See, e.g., S.E.C. v. Telegram Grp. Inc., 448 F. Supp. 3d 352, 364–65 (S.D.N.Y. 2020).

82 United States v. Zaslavskiy, 2018 WL 4346339, at *4 (E.D.N.Y. Sept. 11, 2018).

83 Telegram, 448 F. Supp. 3d at 368 (emphasis added).

84 See id. at 379 (citing Howey, 328 U.S. at 297-98).
-19-

1. Courts Applying Howey Have Determined Cryptocurrency is a Security.

a. Investment of Money

The first consideration under Howey is “whether an investment of money was 

part of the relevant transaction.”85 An investment of money “need not be made in 

cash and refers more generally to ‘an arrangement whereby an investor commits 

assets to an enterprise or venture in such a manner as to subject himself to financial 

losses.’”86 Several federal district courts have recently had occasion to apply Howey

in digital currency contexts. And in each, the first prong was rather easily met. 

For example, one court determined the plaintiff-investors’ assets that were 

contributed in advance of a scheduled ICO—“even if such investments were in the 

form of cryptocurrencies”—was satisfactory.

87

 In another similar matter, the 

plaintiff-investors’ exchange of one form of cryptocurrency for a number of 

forthcoming digital coins that the defendant marketed and promised to distribute at 

its ICO event satisfied the investment-of-money prong.

88 And finally, this criterion

85 Id. at 368. 

86 Hodges v. Harrison, 372 F. Supp. 3d 1342, 1348 (S.D. Fla. 2019) (quoting S.E.C. v. Friendly

Power Co. LLC, 49 F. Supp. 2d 1363, 1368-69 (S.D. Fla. 1999)); see also Uselton v. Comm.

Lovelace Motor Freight, Inc., 940 F.2d 564, 574 (10th Cir. 1991) (“[I]n spite of Howey’s reference 

to an ‘investment of money,’ it is well established that cash is not the only form of contribution or 

investment that will create an investment contract.”).

87 Hodges, 372 F. Supp. 3d at 1348.

88 Balestra v. ATBCOIN LLC, 380 F. Supp. 3d 340, 347, 353 (S.D.N.Y. 2019).
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was satisfied in yet another case where the investors’ initial contributions in the form 

of dollars and euros were in exchange for the future delivery of the defendants’ soonto-be-launched cryptocurrency.89

 

b. Common Enterprise

The Court next looks to see if “a common enterprise exists where the ‘fortunes 

of the investor are interwoven with and dependent upon the efforts and success of 

those seeking the investment of third parties.’”90 Often considered here is whether 

“horizontal commonality” or “vertical commonality” inheres in the arrangement.

91

 

Horizontal commonality requires one to show a “pooling” of the investors’ interests

or assets, such that all involved share in the profits and risks of the enterprise alike.

92

While vertical commonality “requires that the fortunes of investors be tied to the 

fortunes of the promoter.”93

ICOs have constituted a common enterprise because the investees “pool” the 

contributed funds for the purpose of securing a profit for themselves and the 

89 Telegram, 448 F. Supp. 3d at 368-69.

90 Hodges, 372 F. Supp. 3d at 1348 (quoting S.E.C. v. Unique Fin. Concepts, Inc., 196 F.3d 1195, 

1199 (11th Cir. 1999)).

91 Telegram, 448 F. Supp. 3d at 369.

92 Revak v. SEC Realty Corp., 18 F.3d 81, 87 (2d Cir. 1994).

93 Id. at 88 (emphasis in original); see also In re J.P. Jeanneret Assocs., 769 F. Supp. 2d 340, 360

(S.D.N.Y. 2011) (holding “that strict vertical commonality (like horizontal commonality) is 

sufficient to establish a common enterprise under Howey”).
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investors, and the risks and benefits are shared equally among the parties.

94

 

Horizontal commonality has been found to exist both before and after the 

launch of a defendant’s cryptocurrency and blockchain platform.95 Where one 

initially “pools” his investors’ money in order to develop and launch a digital token 

and blockchain platform, he effectively renders his investors’ profits entirely 

dependent upon the blockchain’s successful launch.96 If the launch is unsuccessful, 

the investors are equally affected and lose any opportunity to profit.97 Horizontal 

commonality can also exist post-launch because the value of each token to be 

distributed thereafter is “dictated by the success [or failure] of the [blockchain] 

enterprise as a whole.”98 So the “plain economic reality” post-launch is that the 

distribution of the tokens continues to represent the investors’ initial pooled funds.99

94 Hodges, 372 F. Supp. 3d at 1348. 

95 Telegram, 448 F. Supp. 3d at 369-70; see also Balestra, 380 F. Supp. 3d at 353-54 (plaintiffs 

plausibly demonstrated the “pooling of the investors’ funds” because the “Defendants encouraged 

investors to purchase ATB Coins based on the claim that the speed and efficiency of the ATB 

Blockchain would result in an increase in the coins’ value”); Revak, 18 F.3d at 87 (holding

“horizontal commonality” exists where the investors’ profits are tied “to the success of the overall

venture”).

96 Telegram, 448 F. Supp. 3d at 369-70.

97 Id.

98 Id. at 370.

99 Id. at 369; see also Balestra, 380 F. Supp. 3d at 354 (finding a pooling of investments after the 

launch of a digital asset).
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c. Expectation of Profits Derived Solely from the Efforts of Others

The final Howey factor is whether an investor entered into a transaction 

expecting to make a profit. “An investor possesses an expectation of profit when 

their motivation to partake in the relevant ‘contract, transaction or scheme’ was ‘the 

prospects of a return on their investment.’”100 A profit has been interpreted to mean 

an “income or return, to include, for example, dividends, other periodic payments, 

or the increased value of the investment.”101 Here, a court considers “whether the 

efforts made by those other than the investor are the undeniably significant ones, 

those essential managerial efforts which affect the failure or success of the 

enterprise.”102

This criterion is satisfied where investors’ fortunes are “directly tied to the 

failure or success of the products the [investee] purport[s] to develop, and no 

individual investor c[an] exert control over the success or failure of his or her 

investment.”103 Indeed, an investor’s expectation of profits relies on the “essential 

efforts” of investee when he or she wholly depends on that investee “to develop, 

100 Telegram, 448 F. Supp. 3d at 371 (citing Howey, 328 U.S. at 301). 

101 S.E.C. v. Edwards, 540 U.S. 389, 394 (2004). 

102 Bamert v. Pulte Home Corp., 445 F. App’x. 256, 262 (11th Cir. 2011) (quoting S.E.C. v. Glenn

W. Turner Enters., 474 F.2d 476, 482 (9th Cir. 1973)).

103 Hodges, 372 F. Supp. 3d at 1348.
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launch, and support the [blockchain].”

104

In finding whether investors were “led to expect profits solely from the 

efforts” of the investee-defendants, one court was particularly persuaded by the

defendants’ marketing materials.105 In that case, the investors were induced by the 

defendants’ marketing materials touting the potential profitability of their coins as 

well as their sole responsibility for developing and launching the blockchain 

platform—“the performance of which largely dictated the value of [the coins].”

106

 

Thus, it was the investee-defendants’ “essential managerial efforts which affect the 

failure or success of the enterprise” that the investor-plaintiffs relied on to yield a 

return on their investment.107

D. “ID TOKENS” IS A SECURITY

Courts commonly classify a cryptocurrency as a security when the economic 

harm directly relates to or arises from its ICO.108 The proposed federal legislation 

104 Telegram, 448 F. Supp. 3d at 375-79 (holding the totality of the evidence and economic 

realities indicate that defendants’ initial sales of the coins were part of a larger scheme, manifested 

by its “actions, conduct, statements, and understandings . . . with the intent and purpose that the 

[coins] be distributed in a secondary public market, which is the offering of securities under 

Howey”).

105 Balestra, 380 F. Supp. 3d at 357.

106 Id.

107 Id. at 355-57.

108 See S.E.C. v. Kik Interactive Inc., 492 F. Supp. 3d 169 (S.D.N.Y. 2020) (holding that a 

company’s public sale of virtual currency was an investment contract subject to SEC registration 
-24-

seeking to resolve the classification question, too, draws the line at the ICO. Just 

like any security, the purpose of an ICO is to raise capital by selling new coins or 

tokens to investors. Here, EverID’s failure to distribute the due ID Tokens on the 

date of the ICO is the direct cause of the Plaintiffs’ injury, i.e., the ICO is the 

triggering event underlying this litigation. 

Scrutiny under Howey of ID Tokens’ characteristics, its distribution scheme, 

and the transaction mapped out by the Agreements leads inexorably to its 

classification as a security. 

1. ID Tokens is a Security Under Howey.

 At bottom, the Plaintiffs invested their expertise and proprietary resources to 

EverID’s cryptocurrency enterprise, solely relying on EverID’s development and 

management of the blockchain platform to yield a return on their investment.

a. Investment of Money 

To determine “whether an investment of money was part of the relevant 

transaction”,

109 our courts have been clear that money per se isn’t required to satisfy 

the first prong of Howey.

110

 All that’s required is an investor who “commits assets 

requirements); see also Balestra, 380 F. Supp. 3d 340 (S.D.N.Y. 2019); Telegram, 448 F. Supp. 

3d 352 (S.D.N.Y. 2020); Hodges v. Harrison, 372 F. Supp. 3d 1342 (S.D. Fla. 2019).

109 Telegram, 448 F. Supp. 3d at 368.

110 Uselton v. Comm. Lovelace Motor Freight, Inc., 940 F.2d 564, 574 (10th Cir. 1991).
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to an enterprise or venture in such a manner as to subject himself to financial 

losses.”111

The Plaintiffs committed both an exclusive license to their ONYX software

and related professional services to EverID’s then-developing, blockchain-based 

cryptocurrency platform. In turn, the Plaintiffs elected to be paid in eventual token 

distributions rather than by traditional means—knowing full well that 

cryptocurrency value is ever-fluctuating.

112

 The Plaintiffs “bore the risk of those 

fluctuations by agreeing to accept the cryptocurrency as payment instead of dollars”

and subjected themselves to any attendant financial losses.113 So, the first prong of 

Howey is satisfied here. 

b. Common Enterprise 

“[A] common enterprise exists where the ‘fortunes of the investor are 

interwoven with and dependent upon the efforts and success of those seeking the 

investment of third parties.’”

114

 EverID relied on the Plaintiffs’ software license and 

professional services (i.e., Plaintiffs’ investments) to successfully develop and 

111 S.E.C. v. Friendly Power Co. LLC, 49 F. Supp. 2d 1363, 1368-69 (S.D. Fla. 1999).

112 Hr’g Tr. at 10.

113 Id.

114 Hodges, 372 F. Supp. 3d at 1348 (quoting S.E.C. v. Unique Fin. Concepts, Inc., 196 F.3d 1195, 

1199 (11th Cir. 1999)).
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launch its blockchain platform. And in turn, the Plaintiffs’ ability to recover any 

remuneration for their investment was interwoven with and wholly dependent upon 

the successful launch of EverID’s blockchain. In other words, it was EverID’s 

efforts—using Plaintiffs’ investments—to develop a successful token that created a 

common enterprise. 

It “is the nature of a common enterprise, to pool invested proceeds to increase 

the range of goods and services from which income and profits could be earned.”115 

And the economic reality of this transaction—pre- and post-ICO—is that any future 

distribution, or continued growth of ID Tokens’ value, is representative of the 

Plaintiffs’ investments in EverID’s blockchain platform.116 The value of each

subsequent token distribution is “dictated by the success of the [blockchain] 

enterprise as a whole.”117 And so, Howey’s common enterprise criterion is met. 

c. Expectation of Profits Derived from the Efforts of Others 

The third Howey factor also exists here. No doubt, Plaintiffs had “an 

expectation of profit when their motivation” to enter into the negotiated Agreements

was based on the promise of payment in the form of (and profit from) token

115 Kik Interactive Inc., 492 F. Supp. 3d at 179.

116 See Balestra, 380 F. Supp. 3d at 354 (finding a pooling of investments after the launch of a 

digital asset).

117 Id.
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distributions.118 EverID’s successful development and launch of the ID Tokens’

enterprise was integral to the Plaintiffs’ “prospects of a return on their 

investment.”

119

The Plaintiffs acquiesced to EverID’s demand for an exclusive ONYX 

software license on the condition that EverID allocate and distribute a significant 

amount of ID Tokens at the ICO. The token grant wasn’t in addition to payment for 

Plaintiffs’ services, but rather in lieu of traditional compensation for their

contributions to EverID.

120

 Notwithstanding the attendant risks involved with 

cryptocurrency transactions, the substantial deferral of payment for their services,

and the onerous distribution lock-up, the Plaintiffs reasonably believed this 

compensation arrangement would provide a proportional return of profit in relation 

to their initial investment. 

Because the Plaintiffs could not be reimbursed until after EverID’s initial 

ICO, their expected profits “were directly tied to the failure or success” of EverID’s

blockchain platform.

121 Their dependence on EverID “to develop, launch, and 

118 Telegram, 448 F. Supp. 3d at 371 (citing Howey, 328 U.S. at 301). 

119 Id.

120 See generally License and Advisor Agreements. 

121 Hodges, 372 F. Supp. 3d at 1348.
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support the [blockchain]” is sufficient to find that the Plaintiffs’ expectation of 

profits relied on the “essential efforts” of EverID.

122

The economic reality of the parties’ entire transaction here establishes each 

Howey factor. The Plaintiffs’ overall investment into the platform was based on 

their expectation to be paid in eventual distributions of ID Tokens after the ICO.

This expectation is no different than that of a traditional investment contract entered 

into before an IPO, and thus, ID Tokens is in this circumstance like a security.123

2. Both License Agreements Expressly Require Adherence to SEC 

Regulatory Compliance.

Delaware law governs the parties’ respective License Agreements,124 and in 

Delaware, a contract’s proper construction is a question of law.125 The goal of 

contract interpretation “is to fulfill the parties’ shared expectations at the time they 

contracted.”126 

The parties took care to include language in both Agreements that token 

distributions were subject to regulatory compliance under Rule 144 of the Securities 

122 Telegram, 448 F. Supp. 3d at 375-79.

123 Id. at 379 (citing Howey, 328 U.S. at 297-98) (requiring “an examination of the entirety of the 

parties’ understandings and expectations”).

124 Compl., Ex. A, License Agreement § X2-6.3.

125 Exelon Generation Acquisitions, LLC v. Deere & Co., 176 A.3d 1262, 1266–67 (Del. 2017).

126 Leaf Invenergy Co. v. Invenergy Renewables LLC, 210 A.3d 688, 696 (Del. 2019) (internal 

quotation marks omitted).
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Act of 1933.127 The Licensing Agreement also subjects token grants to “verification 

as an accredited investor, unless [User’s Board], in its discretion, utilizes another 

valid exemption outside of, and separate from, its token offering under 506(c) such 

as Rule 701 . . . .”128

Because the Court’s role is to “give priority to the parties’ intentions as 

reflected in the four corners of the [A]greement,”129 it is manifest from each 

Agreement that the parties intended to treat the ID Tokens at each distribution as a 

security. Surely, it is not mere happenstance the parties included these references to 

SEC regulations in each Agreement. 

The Agreements were signed almost one month apart, the later-signed 

Advisor Agreement doesn’t mimic the terms of License Agreement, and both 

Agreements include language the other does not. Most notably, the provisions 

referencing the SEC regulations are phrased differently in each. This suggests 

nothing other than the parties deemed it prudent to include the regulatory compliance 

127 Compl., Ex. B, Advisor Agreement; see also id. at Ex. A, License Agreement § 3.1(c)(iii) 

(“[T]he foregoing grants of tokens are subject to . . . (c) regulatory compliance including, but not 

limited to, lock-ups and restrictions, including but not limited to Rule 144 Restrictions . . . .”).

128 Id., Ex. A, License Agreement § 3.1(c)(iii). Rule 506(c) is the S.E.C.’s “small business exempt 

offerings” rule that governs general solicitations and advertisements of a public offering. See U.S.

SECURITIES AND EXCHANGE COMM’N, GENERAL SOLICITATION-RULE 506(C) (2022),

https://www.sec.gov/smallbusiness/exemptofferings/rule506c.

129 In re Viking Pump, Inc., 148 A.3d 633, 648 (Del. 2016) (internal quotation marks omitted).
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references in both Agreements and anticipated treating the ICO and forthcoming 

distributions like those of a security.

III. DAMAGES

“Under Delaware law, the standard remedy for breach of contract is based on 

the reasonable expectations of the parties that existed before or at the time of the 

breach.”130 It is well-settled that breach of contract damages “are designed to place 

the injured party . . . in the same place as he would have been if the contract had 

been performed. Such damages should not act as a windfall.”131 Accordingly, when 

assessing such damages, “the non-breaching party is entitled to recover ‘damages 

that arise naturally from the breach or that were reasonably foreseeable at the time 

the contract was made.’”132

But in a case such as this—where the damages were unforeseeable at the time 

of contracting and it cannot be determined what the Plaintiffs would have received 

had the contract been performed—how does the Court fashion a reasonable remedy 

that accounts for: (1) the volatile and unregulated nature of cryptocurrency; (2) the 

express terms of the Agreements requiring immediate distribution of 25% of the total 

130 Siga Tech., Inc. v. PharmAthene, Inc., 132 A.3d 1108, 1132-33 (Del. 2015) (citing Duncan v.

Theratx, Inc., 775 A.2d 1019, 1022 (Del. 2001)).

131 Paul v. Deloitte & Touche, LLP, 974 A.2d 140, 146 (Del. 2009).

132 Id. (quoting Tackett v. State Farm Fire & Cas. Ins. Co., 653 A.2d 254, 264–65 (Del.1995)).
-31-

token grant at the ICO (a concrete and discernible amount); and (3) the remaining 

periodic token distributions whose values are so unpredictable that a blanket 

damages calculation indeed could operate as a windfall?

The damages calculation here is two-fold. First, the Court must find a reliable 

cryptocurrency valuation source to ensure the proper input of values. Then the Court 

must ascertain the proper method for calculating the damages such that it will place 

the Plaintiffs in the same position they would have been had the Agreements been 

fully performed.

A. PROPER VALUATION SOURCE – COINMARKETCAP

The few courts that have endeavored to do so have found CoinMarketCap to 

be a “reliable valuation tool” for determining the USD value of cryptocurrency 

tokens.133 As one rightly observed, “CoinMarketCap is used frequently by news 

publications to report on prices of virtual currencies, including publications that 

focus on virtual currencies such as CoinDesk and general financial newspapers like 

the Wall Street Journal and the Financial Times.”134

133 CFTC v. McDonnell, 332 F. Supp. 3d 641, 670–71 (E.D.N.Y. 2018); CFTC v. Reynolds, 2021 

WL 796683, at *4 n.2 (S.D.N.Y. Mar. 2, 2021) (citing McDonnell, 332 F. Supp. 3d at 670–71) 

(holding “CoinMarketCap is a reliable valuation tool for these purposes”); Hodges v. Harrison, 

372 F. Supp. 3d 1342, 1353 n.1 (S.D. Fla. 2019) (holding an evidentiary hearing “to determine the 

appropriate manner of calculating the value of Plaintiffs investments” before determining 

CoinMarketCap was a reliable source to convert cryptocurrency into USD).

134 McDonnell, 332 F. Supp. 3d at 670–71.
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Tellingly, Congress’s proposed Digital Asset Market Structure and Investor 

Protection Act encourages the SEC and CFTC to publish joint rulemaking 

concerning digital asset classification.

135 And in so doing, it nods to CoinMarketCap 

as “an appropriate publicly available website . . . that publishes” data on digital 

assets.136

Against this backdrop, the Court is satisfied CoinMarketCap is a reliable 

cryptocurrency valuation tool. As such, the Court will rely on historical pricing data 

published by CoinMarketCap to determine the proper USD value of ID Tokens in 

calculating the Plaintiffs’ forthcoming judgment. 

B. PROPER VALUATION METHOD

The Plaintiffs posit EverID’s failure to distribute the ID Tokens is analogous 

to Delaware’s “failure to deliver securities” cases, where damages are determined 

by the highest market price of the security within a reasonable time of a plaintiff’s 

discovery of the breach.137 

Just so. But for the novelty of the subject instrument being units of 

cryptocurrency this suit mirrors any other failure to deliver securities case—a run135 Digital Asset Market Structure and Investor Protection Act, H.R. 4741, 117th Cong. (2021).

136 Id.

137 Pls.’ Mot. for Default J. ¶ 28 (citing Am. Gen. Corp. v. Cont’l Airlines Corp., 622 A.2d 1 (Del. 

Ch. 1992)).
-33-

of-the-mill action for Delaware courts. The Court will, therefore, calculate the 

Plaintiffs’ forthcoming judgment applying established Delaware precedent. 

1. Highest Value Within a Reasonable Time.

Known as the New York Rule, the “highest value within a reasonable time” 

framework is a judicially-created breach-of-contract remedy for reckoning

“damages where stock or ‘properties of like character’ were converted, not delivered 

according to contractual or other legal obligation, or otherwise improperly 

manipulated.”138 It’s frequently employed in wrongful stock conversion litigation

and measures damages by: “the highest intermediate value reached by the stock 

between the time of the wrongful act complained of and a reasonable time thereafter, 

to be allowed to the party injured to place himself in the position he would have been 

in had not his rights been violated.”

139

This slight variation of the old English rule—which measured damages by the 

highest value of the stock on or before the day of trial140—allows for a more just 

138 Schultz v. CFTC, 716 F.2d 136, 141 (2d Cir. 1983) (citing McKinley v. Williams, 74 F. 94, 103 

(8th Cir. 1896)).

139 Id. at 139-40 (quoting Galigher v. Jones, 129 U.S. 193, 200 (1889)); see also McKinley, 74 F. 

at 102-03 (holding the “true and just measure of damages” is “the highest intermediate value of 

the stock between the time of its conversion and a reasonable time after the owner has received 

notice of it to enable him to replace the stock”).

140 Galigher, 129 U.S. at 201.
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recovery.141 The rule was modified in an effort to alleviate the drastic fluctuating 

values of the asset—yet another a hardship borne by the victim—since trial was an 

event that often occurred long after the conversion.142 So in the case of volatilestock values, the modification allows recovery for those “profits possibly lost as a 

result of the wrongful conduct.”143 

For practical reasons, the modified rule doesn’t require the injured party to 

“reenter the market.”

144

 

The value of lost securities may rise dramatically the day after a

wrongful conversion and then embark on a prolonged downward

spiral. Had the owner of such securities not been wrongfully parted

with them, he might well have been prompted to sell them within a

few days, as their value began to plummet. To require him actually

to reenter the market and repurchase the same securities as a

predicate for a damage claim, when steadily falling prices render

such an investment imprudent, would frustrate the rule which seeks

to make an investor whole. Rather than mitigating damages, as this

example illustrates, a requirement that there be an actual repurchase

could result in an increase in damages.145

But the rule is careful to avoid windfall awards to injured parties. Should the 

highest value occur after the stock has been converted, but before the injured party 

141 Schultz, 716 F.2d at 140.

142 Id.

143 Id.

144 Id.

145 Id. (emphasis in original).
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learns of the conversion, he cannot rely on that value for his damages.146 No, the 

injured party’s “reasonable time” period begins after or upon the date the conversion 

is discovered.147 

Accordingly, the measure of damages for wrongful conversion of stock or 

properties of like character is the higher value of either: “(1) its value at the time of 

conversion or (2) its highest intermediate value between notice of the conversion 

and a reasonable time thereafter during which the stock could have been 

replaced . . . .”148

2. Delaware Follows the New York Rule.

Our Court of Chancery adopted the New York rule in American Gen. Corp. 

v. Continental Airlines Corp., where it was asked to determine the value of damages 

for improperly converted stock options.149 

There, the plaintiffs recommended “a variation of the damage formula used in 

cases involving the conversion of securities of fluctuating value . . . [that is] based 

on the highest market price the stock reached within a reasonable time of plaintiff’s 

146 Id. at 140-41.

147 Id. at 141. 

148 Id. at 141.

149 622 A.2d 1 (Del. Ch. 1992).
-36-

discovery of the breach.”150 The court accepted the recommended “highest market 

price of the stock” approach, but modified the amount because the date the plaintiffs 

used was arbitrary and self-serving.151 Instead, the court used the date the plaintiff’s 

became absolutely entitled to be issued the options because that was the date the 

stockholders “approved the Employee Option” at issue in the litigation.152 

Now, “[w]hat constitutes a reasonable period of time is a question of law for 

the court to determine.”153 A plaintiff can’t cherry-pick dates to trump up the 

maximal value.

154

 “Rather, the date should be established by resort to a ‘constructive 

replacement’ purchase by the plaintiff, i.e., how long it would have taken the plaintiff 

to replace the securities on the open market.”155 Two or three months has been 

accepted as a reasonable period of time to replace an asset on the open market.

156

150 Id. at 8.

151 Id. at 11-13.

152 Id. at 8, 14.

153 Segovia v. Equities First Holdings, LLC, 2008 WL 2251218, *21 (Del. Super. Ct. May 30, 

2008).

154 Am. Gen. Corp, 622 A.2d at 13.

155 Id. (citing Madison Fund, Inc. v. Charter Co., 427 F. Supp. 597, 609 (S.D.N.Y. 1977)).

156 Segovia, 2008 WL 2251218, at *22 (finding three months was appropriate for determining 

damages); see also Comrie v. Enterasys Networks, Inc., 837 A.2d 1, 20 (Del. Ch. 2003) 

(calculating damages within a 90-day period because the parties’ agreement gave the plaintiff 

ninety days from date of vesting to sell the disputed shares); Galigher v. Jones, 129 U.S. 193, 199-

200 (1889) (affirming two-months’ time was appropriate for calculating damages). 
-37-

C. APPLICATION OF METHOD AND SOURCE

The Court is satisfied that the New York Rule is the proper method, and 

CoinMarketCap is the proper valuation source, to calculate the Plaintiffs’ damages. 

Too, the Court is satisfied this approach best represents the parties’ intentions at the 

time of contracting.

157

 So Diamond Fortress’s and Mr. Hatcher’s damages will be 

calculated by multiplying the total tokens awarded under the respective Agreements 

by ID Tokens’ highest intermediate value within three months of the discovery of 

EverID’s breach. 

Between the ICO date of February 8, 2021, and through March 4, 2021, the 

Plaintiffs attempted to contact EverID to discuss then-due token distributions and 

obtain adequate assurances of payment. After hearing crickets, the Plaintiffs sent 

their final communication to EverID on March 4, 2021, declaring their intent to treat 

the Agreement as breached and to pursue legal remedies. March 4 is therefore the 

date the Plaintiffs became absolutely entitled to issuance of their ID Tokens. Hence,

the proper three-month “reasonable time” period ran from March 4, 2021, to June 3, 

2021. 

CoinMarketCap recorded and published the daily values of ID Tokens during 

that March 4, 2021 to June 3, 2021 span. The highest market price within that time 

157 See Compl., Ex. A, License Agreement at § 3.1(c)(i) (containing unambiguous references to 

SEC regulatory compliance).
-38-

period was recorded on April 9, 2021, at a value of 2.01 USD.

158

Consequently, the Plaintiffs’ base damages are calculated as follows:

DIAMOND FORTRESS 

TECHNOLOGIES

CHARLES HATCHER, II

Total Tokens Awarded 10,000,000 2,500,000

Highest Value of ID 

Tokens from 

3/4/2021–6/3/2021

$2.01 $2.01

TOTAL BASE 

DAMAGES TO BE 

AWARDED 

$20,100,000.00 $5,025,000.00

Plaintiffs are also awarded pre-judgment interest on the above total figures, at 

the statutory rate accruing from March 4, 2021, the date they became absolutely 

entitled to the token distributions, until the entry date of this Opinion and Order.

159

 

Plaintiffs are further entitled to post-judgment interest, again at the statutory rate, 

accruing as of the entry date of this Opinion and Order.

160

158 Pls.’ Suppl. Submission in Supp. of Mot. for Default J., Ex. A, CoinMarketCap “Historical 

Data for Everest” (https://coinmarketcap.com/currencies/everest/historical-data/).

159 See DEL. CODE ANN. tit. 6, § 2301 (2012); see also Brandywine Smyrna, Inc. v. Millennium

Builders, LLC, 34 A.3d 482, 486 (Del. 2011) (holding that “prejudgment interest in Delaware cases 

is awarded as a matter of right”).

160 See Wilmington Country Club v. Cowee, 747 A.2d 1087, 1097 (Del. 2000) (observing that 

post-trial interest “is a right belonging to the prevailing plaintiff and is not dependent upon the trial 

court’s discretion”).
-39-

IV. CONCLUSION

For reasons set forth herein, judgment for both Diamond Fortress and 

Mr. Hatcher shall be entered accordingly. Within 20 days of entry of this Opinion

and Order, their counsel shall submit to the Court a proposed form of final judgment 

that incorporates the Court’s award, including pre- and post-judgment calculations.

IT IS SO ORDERED.

_________________________

Paul R. Wallace, Judge

Original to Prothonotary

cc: All Counsel via File & Serve