Judge Paul Wallace of the Delaware Superior Court issued a recent opinion in Diamond Fortress Technologies, Inc. v. EverID, Inc., clarifying the treatment of cryptocurrency assets when calculating damages. [1] The opinion also lays a framework for analyzing the treatment of cryptocurrency assets in future actions and provides useful guidance in interpreting recent legislation.
Plaintiffs Diamond Fortress Technologies, Inc., and its CEO Charles Hatcher II (plaintiffs), contracted with defendant EverID, Inc. (EverID) to provide EverID digital ID verification services. EverID created cryptocurrency “ID Tokens” and developed a related blockchain-based financial platform. As a part of this, EverID sought to use Diamond Fortress’s ONYX software for identity verification. The ONYX software allows for touchless verification of a user’s identity by scanning the user’s fingerprint with a phone’s camera. EverID also retained Hatcher as a consultant, and the agreements prohibited Diamond Fortress or Hatcher from working with other blockchain providers.
Rather than pay them in traditional currency, EverID agreed to compensate the plaintiffs through distributions of ID Tokens at the initial coin offering (ICO) and later at regular token distribution events (TDEs). EverID held an ICO for the ID Tokens on February 8, 2021 but did not distribute them to Diamond Fortress or Hatcher. The plaintiffs thereafter made informal and formal demands for the contractually agreed upon token distributions without response from EverID before sending a final communication on March 4, 2021, declaring the plaintiffs’ intent to treat the contracts as breached. Shortly after delivering that final communication, the plaintiffs filed suit. EverID failed to answer the complaint. The plaintiffs moved for default judgment.
Because EverID’s liability was not at issue, the only question before the court was the proper measure of damages. Since the plaintiffs were to be paid in cryptocurrency with a…
