The plaintiffs in this action were Diamond Fortress Technologies, Inc. (Diamond Fortress) and its CEO, Charles Hatcher II. Diamond Fortress is a biometric software company that developed a patented software called ONYX. ONYX is a touchless fingerprint identification software that uses the camera on the user’s device to detect the user’s fingerprint and verify their identity. Diamond Fortress markets the software to third parties, which can integrate the ONYX software into their own platforms by purchasing a license and software development kit. Buyers often hire Mr. Hatcher as an advisor to assist with integration and management. The defendant was EverID, Inc. (EverID), a Delaware corporation active in the emerging blockchain and cryptocurrency industry. EverID created the cryptocurrency “ID Tokens.” In connection with ID Tokens, EverID developed a blockchain-based identity and financial platform but needed a means to verify user identities.
In September 2018, the parties entered into a License Agreement under which the majority of Diamond Fortress’s compensation would be in ID Tokens. The License Agreement granted EverID an exclusive license to ONYX for digital or blockchain wallet applications for a 10-year term. In exchange, EverID would compensate Diamond Fortress with an initial payment of US$2,500 plus “Run-Time Transactions Fees” equal to 15 percent of gross revenues received from the sales of products using the ONYX technology. The Run-Time Transaction Fees were due quarterly. The License Agreement further provided that EverID would grant Diamond Fortress 10 million ID Tokens, which would be delivered when EverID held its initial coin offering (ICO) (the cryptocurrency equivalent of an initial public offering) or other token distribution event(s) defined in the License Agreement. The 10-million-token grant would be treated as an advance and credited to EverID as payment for Run-Time Transaction Fees. The token grant was also subject to a lock-up provision, whereby the first 25 percent of the tokens would be distributed as of the ICO or other distribution event, and the balance of 75 percent of the tokens would be distributed in 20 equal quarterly distributions after the event. EverID executed a separate Advisor Agreement with Mr. Hatcher with a similar compensation structure.
On February 8, 2021, EverID had its ICO. At that time, EverID should have tendered its first partial payments to the plaintiffs. EverID failed to make these payments. Despite numerous efforts by plaintiffs ‒ both directly and through counsel ‒ EverID refused to respond or distribute the tokens. The plaintiffs filed suit for breach of contract in Delaware Superior Court. Upon EverID’s failure to respond or otherwise defend itself, the Court entered a default judgment against EverID under Rule 55(b). That much was relatively straightforward.
The puzzle for the Court was to determine the remedy given the novel type of consideration involved in these contracts. The Court found that the plaintiffs could treat EverID’s failure to provide adequate assurance of performance within a reasonable time as repudiation of the contract. And, the Court further found that this “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.” The question was how the contract price should be calculated. After granting the default judgment, the Court ordered the plaintiffs to submit supplemental briefing on damages and then issued this subsequent opinion on the computation of damages.