Court Opinion

ID: 6331821
Source: CourtListenerOpinion
Date Created: 2022-04-14 19:04:25.554628+00
Date Added: 2024-06-11T09:23:14.579163
License: Public Domain

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.
      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.

                                        -1-
                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.
                                                -2-
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.
                                            -3-
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.

                                            -4-
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).
                                                -5-
         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 Run-
             Time 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.
                                           -6-
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).

                                                 -7-
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.

                                                -8-
           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[.]”).

                                               -9-
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 non-

performance 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
                                                -10-
        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).

                                               -11-
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).

                                               -12-
              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
                                              -13-
           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-to-

peer 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.
                                             -14-
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).

                                               -15-
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.”).

                                                 -16-
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 193475

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).
                                                 -17-
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).

                                               -18-
         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).

                                                -19-
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’ soon-

to-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”).

                                                -20-
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).

                                                -21-
             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.

                                               -22-
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
                                                 -23-
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).

                                               -24-
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)).

                                               -25-
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.

                                                 -26-
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.

                                               -27-
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).

                                               -28-
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).

                                                -29-
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)).

                                               -30-
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.

                                              -31-
            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 run-

135
      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)).

                                               -32-
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.

                                              -33-
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 volatile-

stock 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).

                                              -34-
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).

                                          -35-
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).

                                                -36-
      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).
                                           -37-
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
                                                                       CHARLES HATCHER, II
                                        TECHNOLOGIES
 Total Tokens Awarded                                 10,000,000                           2,500,000

 Highest Value of ID
 Tokens from                                                 $2.01                              $2.01
 3/4/2021–6/3/2021

 TOTAL BASE
 DAMAGES TO BE                                   $20,100,000.00                      $5,025,000.00
 AWARDED

        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”).

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                               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

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