Celsius Bankruptcy Litigation Update: Key Phase One Rulings and Strategic Considerations for Defendants in Phase Two and Beyond

By: Moish E. Peltz, Esq. and Michele K. Jaspan, Esq.

The Celsius Network bankruptcy continues to generate significant legal developments with a ruling rendered today by the Hon. Martin Glenn, U.S.B.J. with a pivotal memorandum opinion on Phase One issues in the Celsius customer preference actions. As the litigation advances, defendants must understand the court's latest rulings and the critical importance of participating in Phase Two of the litigation and beyond.

Current Status of the Celsius Litigation

Celsius Network LLC and its affiliates filed for Chapter 11 bankruptcy in July 2022. In the wake of the filing, the appointed Litigation Administrator initiated thousands of avoidance actions against former customers and other parties who withdrew more than $100,000 in cryptocurrency from the Celsius platform during the 90-day preference period preceding the bankruptcy. These actions seek to recover alleged preferential transfers under sections 547 and 550 of the Bankruptcy Code.

The court's July 29, 2025, memorandum opinion addressed three foundational issues that will shape the trajectory of the Celsius preference litigation:

1. Scope of Liability: Withdrawal Preference Exposure (WPE)
   The court held that the Chapter 11 Plan's definition of Withdrawal Preference Exposure (WPE) does not limit the Litigation Administrator's statutory right to pursue avoidance actions under sections 547 and 550. WPE applies only to the Account Holder Avoidance Action Settlement and does not cap potential liability in litigation. Defendants who did not settle cannot rely on WPE as a ceiling for their exposure.
2. Personal Jurisdiction Over Defendants
   The court found that it has personal jurisdiction over all defendants, including foreign parties, who were properly served. This is based on the fact that all Celsius customers, regardless of location, agreed to Terms of Use that included New York choice-of-law and mandatory forum selection clauses. The court emphasized that by transacting with Celsius Network LLC (a Delaware entity with operations centered in the U.S.) defendants purposefully availed themselves of the U.S. forum.
3. Domestic Nature of Transfers
   The court determined that the transfers at issue were domestic in nature, as they originated from U.S.-based accounts controlled by Celsius Network LLC. As a result, the court did not need to address whether the Bankruptcy Code's avoidance provisions apply extraterritorially.

Key Legal Issues and Challenges for Defendants

The court's Phase One rulings have significant implications for defendants in the Celsius preference actions:

• No Statutory Cap on Liability: Defendants who did not accept the settlement offer face potential liability for the full amount recoverable under the Bankruptcy Code, not just their WPE. This increases the financial stakes and complexity of defending these actions.
• Jurisdictional Hurdles: The enforceability of New York forum selection and choice-of-law clauses means that even foreign defendants are subject to the jurisdiction of the SDNY. Arguments based on lack of personal jurisdiction or the extraterritorial nature of transfers are unlikely to succeed at this stage.
• Potential for Further Litigation: The court's opinion leaves open the possibility for defendants to raise individualized defenses, such as fraudulent inducement or unconscionability, but these will require robust factual support and discovery.

What Defendants Need to Do Now That Phase One Issues Have Been Decided

With the court’s resolution of the Phase One issues in the Celsius customer preference actions, defendants must now prepare for the next procedural steps as set forth in the Avoidance Action Procedures approved on November 7, 2024.  According to these procedures, 30 days after today’s ruling on the Phase One issues all defendants who have been properly served must answer or otherwise respond to the complaints filed in their individual Avoidance Actions, unless their case has already been fully adjudicated by the Phase One rulings. This means that each defendant must carefully review the complaint served upon them and timely file either an answer or an appropriate responsive pleading (such as a motion to dismiss or other permitted response) with the court within this 30-day window.

Failure to respond within the required timeframe can have significant consequences. If a defendant does not timely answer or otherwise respond to the complaint, the Litigation Administrator is authorized to take all appropriate steps to obtain a default judgment in that Avoidance Action, including seeking entry of default and pursuing related litigation.

Defendants should also be aware that, within fourteen days, the parties are also required to jointly submit a proposed schedule regarding discovery and briefing for the Phase Two issues.

In summary, now that Phase One has concluded, defendants must:

• Retain counsel to analyze your case and file an answer or other responsive pleading to the complaint within 30 days, if they have been properly served.
• Consult with experienced counsel to ensure compliance with all procedural requirements and to develop a strategy for the next phase of litigation.

Prompt and careful action is essential to preserve defenses and avoid the risk of default judgment as the Celsius preference litigation moves forward.

Why Experienced Local Counsel in SDNY Is Essential

Given the court's clear stance on jurisdiction and the broad scope of potential liability, defendants in the Celsius litigation face a challenging environment.

Our firm stands out as the preferred local counsel for defendants in the Celsius litigation for several reasons:

• Creditor's Preference Practice: We have a dedicated practice focused on defending preference and avoidance actions, with a proven track record in high-stakes bankruptcy litigation.
• SDNY Admission and Experience: Our attorneys are admitted to practice in the Southern District of New York and have extensive experience before its bankruptcy court, ensuring seamless representation and local insight.
• Strategic Litigation Approach: We understand the unique challenges posed by the Celsius case, including the interplay of cryptocurrency, cross-border issues, and evolving bankruptcy law. Our team is adept at developing tailored strategies to protect our clients' interests.
• Client-Focused Service: We prioritize clear communication, proactive case management, and cost-effective solutions, recognizing the significant financial and reputational risks our clients face.

Secure the Right Local Counsel for Your Celsius Defense

If you are a defendant in the Celsius preference litigation, the time to engage experienced local counsel is now. Our firm is uniquely positioned to guide you through the complexities of the SDNY bankruptcy process, defend your interests, and help you achieve the best possible outcome. Contact us today to discuss your case and learn how our expertise can make the difference in your Celsius litigation defense.

DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.