In Re: Celsius Network LLC
- Lorna Schofield
- 1:23-cv-10368
- U.S. District Court · Southern District of New York
- 8
In re Celsius Network, Judge Schofield dismissed Johan Bronge’s bankruptcy appeal because the plan was substantially completed and reversing it would disrupt distributions.
Johan Bronge, Celsius Network LLC and its debtor affiliates, the Official Committee of Unsecured Creditors, and creditors who received distributions under the reorganization plan.
What happened
In re Celsius Network concerns Johan Bronge’s appeal of a bankruptcy-court order approving Celsius’s reorganization plan. Bronge, who represented himself, had four loan accounts backed by Bitcoin and argued that the collateral belonged to him rather than Celsius.
He also argued that claims from customers in Celsius’s Earn Program should receive lower priority than loan-account claims and that his claims should be valued using cryptocurrency market rates at distribution. The district court did not decide those issues because the plan had already been substantially carried out, including billions of dollars in distributions to creditors.
Judge Schofield dismissed the appeal as equitably moot because Bronge did not seek a stay and the requested relief would require undoing or changing transactions affecting many creditors. The court directed the clerk to close the case and mail Bronge a copy of the opinion.
The detailed version
- In Re: Celsius Network LLC · No. 1:23-cv-10368
- Lorna Schofield
- July 11, 2024
Background
Johan Bronge, proceeding without a lawyer, appealed a decision of the United States Bankruptcy Court for the Southern District of New York confirming the Modified Joint Chapter 11 Plan of Reorganization of Celsius Network LLC and its debtor affiliates. The appellees were Celsius and the Official Committee of Unsecured Creditors.
Celsius operated a cryptocurrency platform with more than 600,000 customers before filing for Chapter 11 bankruptcy on July 13, 2022. Bronge had four loan accounts. The collateral for those loans totaled 19.732462692 Bitcoin. The bankruptcy court later found that loan-account holders had transferred ownership and control of cryptocurrency used to secure their loans to the debtors. In a separate opinion addressing Bronge’s objection, the bankruptcy court concluded that the terms for one of his loans unambiguously gave ownership of the collateral to the debtors.
The bankruptcy court confirmed the plan on November 9, 2023. Bronge appealed on November 23, 2023. No party requested a stay of the confirmation order, and the debtors emerged from Chapter 11 on January 31, 2024, the plan’s effective date.
Arguments on Appeal
Bronge raised three primary arguments:
- The collateral for his loan accounts remained his property, rather than Celsius’s property, under the governing loan documents.
- Claims held by Earn Program customers should be placed below claims held by loan-account customers under 11 U.S.C. § 510(b).
- His claim should be valued using market rates when the claim was distributed, rather than the United States-dollar value of the cryptocurrency calculated using the conversion rate on the bankruptcy filing date.
Court’s Analysis
The district court dismissed the appeal as equitably moot. This is a bankruptcy doctrine allowing dismissal when a reorganization has been carried out so extensively that granting relief would be unfair or would seriously disrupt the completed plan. A bankruptcy appeal is presumed equitably moot in the Second Circuit when a reorganization plan has been substantially consummated.
The court found substantial consummation because, as of March 4, 2024, the debtors had transferred their main assets, including Bitcoin-mining assets, to a new company and had distributed approximately $2.7 billion in cryptocurrency to 184,045 creditors. The debtors had also begun pursuing litigation and other illiquid assets for the bankruptcy estates, with future proceeds to be distributed to creditors.
An appellant can overcome the presumption only by satisfying all five factors identified in prior Second Circuit precedent: the court must be able to grant effective relief; the relief must not affect the debtor’s reemergence as a functioning company; it must not unravel complex transactions; affected parties must have notice and an opportunity to participate; and the appellant must have diligently pursued available remedies to obtain a stay.
The court held that Bronge failed to show that the third and fifth factors were satisfied. Regarding the fifth factor, Bronge did not seek a stay of the confirmation order. The court stated that parties must seek a stay even when obtaining one appears unlikely, and that self-represented status does not exempt a party from applicable procedural and substantive rules.
Regarding the third factor, the court held that none of Bronge’s requested remedies could be granted without unraveling the plan. Returning his collateral would require applying any ownership ruling to similarly situated borrowers and clawing back, reallocating, and redistributing at least hundreds of millions of dollars in stock, cryptocurrency, and cash. Subordinating Earn Program claims would require reconsidering whether the plan satisfied bankruptcy-confirmation requirements and conducting another liquidation analysis. Using a different valuation method would require revaluing a significant majority, if not all, of the claims covered by the plan.
Disposition
Judge Lorna G. Schofield dismissed the appeal as equitably moot. The court directed the clerk to close the case and mail a copy of the opinion and order to Bronge. Because the appeal was dismissed on this ground, the court did not decide the merits of Bronge’s arguments about ownership of the collateral, claim priority, or claim valuation.
Read the full 8-page opinion on CourtListener, the free public archive maintained by the Free Law Project.