American court hearing recordings and interviews - Bittrex, Inc. December 20, 2023 U.S. bankruptcy court hearing (Delaware bankruptcy case number 23-10597 styled In re Desolation Holdings LLC, et al.)

Episode Date: December 23, 2023

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You see you, Tomasco, good morning, welcome. Good to see you. Good morning, Your Honor. Thank you for your time today. I'm Patty Tomasco with the law firm of Quinn Emanuel. I'm joined by the plan administrator, David Maria, who is technically my client, and also Ken Enos of the Young Conaway firm. We have one matter going forward today. It is the plan administrator's objection to claim C-5-9-7-7-7.

filed by Michael Koch. I don't see Mr. Koch on the Zoom, however, and so I don't know how the court would like to proceed if that is the case. I would ask if Mr. Koch is present in the courtroom, or is he participating via Zoom today, or is anyone here today on behalf of Mr. Coke? So we will move forward today. Okay. The court has the benefit of the record that indicates that the objection was properly filed and appropriate. I'm also satisfied that actual notice was provided because in fact Mr. Koch provided two separate responses to the court, both of which I've had the opportunity to review. In addition, the debtor has submitted Mr. Hengel's declaration and a reply addressing the issues that are raised in Mr. Koch's declaration.

So I am prepared to go forward and I note that the debtor has gone to some effort to move forward with today's hearing and has provided exhibits in this. in support of its position. So this hearing will go forward, and I would ask again one more time, is Mr. Koch present in the courtroom, or is he or anyone on his behalf participating virtually? Hearing no response, you may proceed. I will ask the court reporter, Madam Court Reporter, was Mr. Koch registered for today's proceeding? Very well.

The record indicates that he was not registered. for today's proceeding. This is the hearing. You may proceed. Thank you, Your Honor. In order to preserve everybody's time and in light of Mr. Koch's non-appearance, we move for the admission of just the exhibits inclusive of the declaration of Evan Hingle, which is at docket item 614. I think we'll start with Mr. Hengel's declaration, and then we would turn to the exhibits, which have been helpfully provided to the court in advance of this morning's hearing. I would ask if there are any objections. to the admission of Mr. Hengel's declaration for purposes of the relief requested.

Very well, Mr. Hengel's declaration is admitted. Is there any party in the courtroom or participating virtually that intends or expects to cross-examine Mr. Hangle regarding the contents of his declaration? Very well, Mr. Hangle's declaration is admitted without contradiction. The record reflects that the debtor has filed. I believe it is 12 separate exhibits in support of its own. objection to Mr. Koch's claim. Your Honor, we have prepared

a short direct of Mr. Maria. We can either admit the exhibits without the benefit of him authenticating them, or we can put him on for a short direct to review the remainder of the exhibit. I would ask if there are any objections to the admission of exhibits 1 through 12 that the debtor has identified.

I do note that Mr. Maria is available. The court has had an opportunity in advance of today's hearing to review them. and again most of them appear to be either filings with the court or business records that the company maintains. Hearing no objection, those exhibits are admitted and are part of the record for purposes of consideration of the debtor's objection to Mr. Koch's claim. Thank you, Your Honor. As stated in the, if I may proceed to closing argument. You may.

Thank you. As stated in the objection, you know, there are, are two bases for objecting to Mr. Koch's claim. One is that the customer agrees to maintain the security of their own credentials. In this case, the evidence is uncontroverted and overwhelming that Mr. Coach did not maintain the security of his credentials, and in fact his credentials were compromised and his email account was compromised from Romania. While it would be unusual for someone with Mr. Coach's profile to log in from Romania. In fact, there was a valid login with the correct credentials in Romania. And in response to that, Bittrick sends

an email to that person and says, are you sure that you're logging in from Romania? This looks suspicious. We know that Mr. Coach's email was compromised because whoever was commandeering his account was also commandeering his email. In able to affect the email, which is two-factor authentication from Romania, and then proceeded to withdraw all of the funds in his account on that basis. One of the things that we wanted to highlight for the court today is that the terms of service put the onus on the customer to maintain the sanctity of their logging credentials

because crypto is so easily stolen and it disappears. There's no way of seeing where it went. Mr. Koch engaged the authorities in January of 2018 on that basis. So on the contract basis, he has no claim because he disclaimed any liability on Bittrix's part in the event that his credentials were compromised, and they were. We can show that with the evidence, we have the IP log, we know that he knew about it immediately when it happened, and that he engaged with the Bittrix Zendesk help team. Now, that is the contract cause of action.

So if he says that there was a breach of contract, that is disclaimed by the terms of service that he signed both the 2017 terms of service that he signed and the 2023 terms of service that he signed. We are allowing his claim for the nominal amount of crypto that's left in his account, which he is free to withdraw, login and withdraw. We note that it's probably too small to justify the fees for work. withdrawal, but it is an allowed claim on that basis. So no, Ruth.

And with respect to any extra contractual causes of action, theft or conversion, Mr. Cook also alleges in his proof of claim, those are time barred. Washington State, the law that applies under the contract, has a three-year statute of limitations. Under that statute of limitations, he had three years to bring a cause of action with respect to theft or convert. He did not. He engaged with several government authorities on this basis. In his communications with Petrex, he specifically said, I believe I have a claim against you, but that was in 2018. So he was aware of the cause of action. He did not bring it within

three years. So any extra contractual cause of action is barred by the applicable statute of limitations. Therefore, the plan administrator asks the claim of Mr. Koch at C-5-9, 97-5-3 be allowed only in the amount of the crypto actually remaining in his account. All right. Again, the court would ask is Mr. Koch or anyone on his behalf participating in today's proceeding? Okay. I'm going to sustain the debtor's objection to Mr. Koch's claim. I would make a couple observations. First, I certainly sympathize with Mr. Koch in the frustration that he's articulated in his submissions to the court. Council of Ms. Tomasco's observations go to the heart of the issue with crypto. It is a – I guess it's not novel anymore, but it is a particularly susceptible form of currency to theft or stealing.

Mr. Koch disputes that his account was compromised. The debtor has presented affirmative and competent evidence to rebut that allegation. So I'm satisfied that the debtors have carried their burden, first, because to take Ms. Tomasco's arguments in reverse order, I do find from the papers that this is a claim or cause of action that is in fact time barred. The fact of a filing of a bankruptcy proceeding giving an opportunity to file a proof of claim does not suspend waive or dispose of a statute of limitation other than under Section 108 which has no application here. So I do find that the claim itself is time barred and likewise I find that the terms of service

that Mr. Koch agreed to likewise operate to limit his ability to recover to the amounts that are identified as remaining on the platform. I acknowledge counsel's observation that does. It may not be worth it. I think from the papers, the crypto that remains under his account is worth something in the order of 25 or 28 cents. So it is what it is. But the objection is sustained, and the court would enter an order so providing. Are there any questions?

No, Your Honor. Thank you. All right. Ms. Tomasco, do we have anything further? fortunately for everyone your honor that is all we had on the docket today very well with that then we are adjourned i hope everybody has a happy and safe holiday thank you thank you council we're adjourned thank you