Gemini Trust Company, LLC v. Genesis Global Capital, LLC

UNITED STATES BANKRUPTCY COURT FOR PUBLICATION

SOUTHERN DISTRICT OF NEW YORK

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In re Chapter 11

GENESIS GLOBAL HOLDCO, LLC, et al. Case No. 23-10063 (SHL)

Debtors. (Jointly Administered)

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GEMINI TRUST COMPANY, LLC, for itself and

as agent on behalf of the Gemini Lenders,

Plaintiff,

vs.

Adv. Pro. No. 23-01192 (SHL)

GENESIS GLOBAL CAPITAL, LLC,

GENESIS GLOBAL HOLDCO, LLC, and

GENESIS ASIA PACIFIC PTE. LTD.,

Defendants.

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MEMORANDUM OF DECISION1

A P P E A R A N C E S:

HUGHES HUBBARD & REED LLP

Counsel for Gemini Trust Company, LLC

By: Anson B. Frelinghuysen, Esq.

Marc A. Weinstein, Esq.

Dustin P. Smith, Esq.

One Battery Park Plaza

New York, New York 10004

WILLKIE FARR & GALLAGHER LLP

Counsel for Gemini Trust Company, LLC

By: Donald Burke, Esq.

787 Seventh Avenue

New York, New York 10019

1 Unless otherwise noted, all Case Management/Electronic Case Filing (“ECF”) references are to Adv. Pro.

No. 23-01192.

CLEARY GOTTLIEB STEEN & HAMILTON LLP

Counsel for Genesis Global Capital, LLC, Genesis Global Holdco, LLC and

Genesis Asia Pacific PTE. LTD.

By: Sean A. O’Neal, Esq.

Luke A. Barefoot, Esq.

Jane VanLare, Esq.

Andrew Weaver, Esq.

One Liberty Plaza

New York, New York 10006

WHITE & CASE LLP

Counsel for the Official Committee of Unsecured Creditors

By: J. Christopher Shore, Esq.

Colin T. West, Esq.

1221 Avenue of the Americas

New York, New York 10020

SEAN H. LANE

UNITED STATES BANKRUPTCY JUDGE

Before the Court are cross-motions to dismiss filed in the above-captioned adversary

proceeding. Defendants Genesis Global Capital, LLC (“GGC”), Genesis Global Holdco, LLC

(“Holdco”) and Genesis Asia Pacific PTE. Ltd. (“GAP,” and together with GGC and GGH, the

“Debtors”) have moved to dismiss Counts II, III and IV of the complaint [ECF No. 1] (the

“Complaint”) filed by Plaintiff Gemini Trust Company, LLC’s (“Gemini”),2 and to dismiss the

Complaint in its entirety against Holdco and GAP. Gemini opposes the Debtors’ MTD3 and has,

in turn, moved to dismiss Counterclaims IV, VI and VII asserted by the Debtors against Gemini

in the Debtors’ answer to the Complaint.4 See Answer, Affirmative Defenses, and Countercl. of

2 See Mem. of Law in Supp. of Defs.’ Mot. to Dismiss Counts II, III, and IV of the Compl. as to Genesis

Global Capital, LLC and All Counts as to Genesis Global Holdco, LLC, and Genesis Asia Pacific PTE. Ltd. [ECF

No. 9] (the “Debtors’ MTD”).

3 See Gemini Trust Co., LLC’s Mem. of Law in Opp. to the Debtors’ Mot. to Dismiss [ECF No. 14] (the

“Genesis Opposition”).

4 See Mem. of Law in Supp. of Gemini Trust Co., LLC’s Mot. to Dismiss Countercl. IV and VI in their

Entirety and Countercl. VII Insofar as it Pertains to the Add’l Collateral [ECF No. 16] (the “Gemini MTD”).

Genesis Global Capital, LLC, to the Compl. [ECF No. 10] (“GGC’s Answer”). The Official

Committee of Unsecured Creditors appointed in the Debtors’ bankruptcy cases (the “UCC”) has

also intervened. See Stip. and Agreed Order Auth. Intervention [ECF No. 20]. While the UCC

did not file responsive papers, it did participate in the oral argument on these motions that was

held on January 18, 2024 (the “Hearing”). See Hr’g Tr. 93:22-102:5 (Jan. 18, 2024) [ECF No.

31].

The dispute between Gemini and the Debtors centers on certain shares of the Grayscale

Bitcoin Trust (“GBTC”).5 One tranche of disputed GBTC shares constitutes collateral that was

transferred by the Debtors to Gemini and upon which Gemini purports to have foreclosed (the

“August 2022 Collateral”). A second tranche relates to GBTC shares that are still held by

Debtor GGC, but in which Gemini claims to hold a security interest (the “Additional GBTC

Shares”). Today’s dispute concerns this second tranche of Additional GBTC Shares, which is

the subject of three counts of the Complaint.6 In Count II, Gemini seeks a declaratory judgment

that it holds a security interest in the Additional GBTC Shares currently held by GGC. See

Compl. ¶¶ 68-75. Count III of the Complaint seeks a declaratory judgment that the Additional

GBTC Shares do not constitute property of the Debtors’ estates. See Compl. ¶¶ 76-79. Count IV

5 The parties’ papers do not provide a description of GBTC. GBTC’s website describes it as follows:

“GBTC is one of the first spot Bitcoin [Exchange-Traded Fund] in the US. A spot Bitcoin [Exchange-Traded Fund]

is solely and passively invested in Bitcoin, whose shares are designed to reflect the value of BTC held by the Trust,

determined by reference to the Index Price, less the Trust’s expenses and other liabilities. GBTC allows investors to

gain exposure to Bitcoin through a familiar investment vehicle, without the need to set up an account or wallet on a

cryptocurrency trading platform.” https://etfs.grayscale.com/gbtc (last visited February 7, 2024).

6 The Complaint asserts claims related to both the August 2022 Collateral and the Additional GBTC Shares.

At the urging of the Debtors, the Court has expedited consideration of the issues relating to the Additional GBTC

Shares addressed in Counts II, III and IV of the Complaint and Counterclaims IV, VI and VII. See generally Letter

of Luke A. Barefoot, dated Dec. 12, 2023 [ECF No. 11]; Scheduling and Pre-Trial Order ¶ 2 [ECF No. 13]; Hr’g Tr.

28:21-42:5 (Dec. 13, 2023) [ECF No. 18]. These claims have a more direct bearing on creditor recoveries under the

Debtors’ plan of reorganization, which is currently scheduled for a confirmation hearing beginning on February 14,

2024. See id.

of the Complaint seeks to impose a constructive trust on the Additional GBTC Shares for the

benefit of Gemini and certain of its customers. See Compl. ¶¶ 80-85.

The Debtors disagree with Gemini and seek dismissal of Counts II, III and IV. The

Debtors argue that, under the clear terms of the parties’ agreements, Gemini lacks a security

interest in the Additional GBTC Shares and that there is no basis to impose a constructive trust

as to these Additional GBTC Shares. See Debtors’ MTD ¶¶ 27-45 (seeking dismissal of Counts

II-IV); GGC’s Answer at GGC’s Countercl. ¶¶ 63-67 (seeking a grant of Counterclaim IV). In

the alternative, the Debtors have asserted counterclaims alleging that any GGC pledge of the

Additional GBTC Shares to Gemini as security would constitute an avoidable preferential

transfer that is recoverable for the benefit of the estate under Sections 547(b) and 550(a) of the

Bankruptcy Code. See GGC’s Answer at GGC’s Countercl. ¶¶ 75-84, ¶¶ 85-88 (setting forth

Counterclaims VI and VII). Lastly, the Debtors seek to dismiss the Complaint in its entirety as

to two Debtor entities—Holdco and GAP—arguing that Gemini has failed to plead any facts that

link Holdco and GAP to the substantive allegations of the Complaint. See Debtors’ MTD ¶ 26.

Gemini opposes the Debtors’ MTD and seeks dismissal of GGC’s Counterclaims IV and

VI in their entirety and Counterclaim VII as it relates to the Additional GBTC Shares. In its

papers, Gemini relies heavily upon the parties’ intent in arguing that it holds a valid security

interest in the Additional GBTC Shares and that there is a constructive trust for its benefit as to

the Additional GBTC Shares. To the extent that the Court reaches the Debtors’ preference

counterclaims, Gemini contends these counterclaims are barred by the safe harbor provisions of

Section 546(e) of the Bankruptcy Code. As for Holdco and GAP, Gemini asserts that they are

proper Defendants here because there are sufficient facts in the Complaint to state a claim

against them.

For the reasons set forth below, the Court concludes that the contractual terms here are

unambiguous and clearly require a transfer of the Additional GBTC Shares by or on behalf of

GGC to or for the benefit of Gemini in order for them to be pledged as collateral. As this

transfer did not take place, Gemini does not have a security interest in the Additional GBTC

Shares. The Court also concludes that the Complaint does not state a claim to impose a

constructive trust on the Additional GBTC Shares on behalf of Gemini. Therefore, the Debtors’

MTD is granted with respect to Counts II, III and IV as against all Defendants. Based on the

same logic, Gemini’s MTD is denied as to Counterclaim IV, which seeks a declaratory judgment

that Gemini does not have a security interest in the Additional GBTC Shares. As Debtors’

Counterclaims VI and VII were plead as an alternative basis for relief should Debtors’ MTD be

unsuccessful in dismissing the security interest and constructive trust counts, the Court need not

address Debtors’ Counterclaims VI and VII as to the Additional GBTC Shares as these

Counterclaims are moot.7 Lastly, the Debtors’ MTD is granted without prejudice as to Holdco

and GAP as Gemini has not plead enough to survive dismissal of these two Defendants.

BACKGROUND8

The Debtors are among several companies owned by Digital Currency Group, Inc.

(“DCG”). See Compl. ¶ 20. Prior to its bankruptcy filing, GGC provided lending and borrowing

services for digital assets and fiat currency, primarily to and from institutional and high net worth

individual customers. See Compl. ¶¶ 17, 20. GGC obtained capital for its lending services by

7 While Counterclaim VI relates only to the Additional GBTC Shares, Counterclaim VII seeks relief as to

both the Additional GBTC Shares and the August 2022 Collateral. Today’s decision does not affect Counterclaim

VII as to the August 2022 Collateral.

8 The Court takes all facts in the Complaint as true for purposes of the Debtors’ MTD. See Nielsen Co. (US),

LLC v. Success Sys., Inc., 2013 WL 1197857, at *1 (S.D.N.Y. Mar. 19, 2013) (“For the purpose of deciding the

parties’ cross-motions to dismiss, the Court takes as true the facts alleged in the pleadings and draws all reasonable

inferences in favor of the non-movant.”).

borrowing from lenders through loans denominated in cryptocurrency assets or U.S. Dollars. See

Compl. ¶ 21. GAP offered a single point of access for digital asset trading, derivatives,

borrowing, lending and prime brokerage services. See Compl. ¶ 19. Both GGC and GAP are

owned by Holdco. See Compl. ¶¶ 17-19. Holdco, in turn, provided lending and borrowing, spot

trading, derivative and custody services for digital assets and fiat currency and is entirely owned

by DCG. See Compl. ¶ 18. Holdco’s lending and borrowing services were primarily offered

through GGC and GAP to serve customers located around the world. See Compl. ¶ 18.

Gemini operates a cryptocurrency platform that enables its users to buy, sell, and store

cryptocurrency. See Compl. ¶ 16. Gemini acts as custodian and authorized agent on behalf of

the Gemini users. See Compl. ¶ 16; GGC’s Answer at GGC’s Countercl. ¶ 14. In February

2021, Gemini began offering a new program through its cryptocurrency platform called Gemini

Earn (the “Gemini Earn Program”). See Compl. ¶ 22. Under the Gemini Earn Program, certain

Gemini users (the “Earn Users”) could choose to loan their digital assets to GGC. See Compl. ¶

22. These transactions were each governed by individual contracts referred to as master loan

agreements (the “MLAs”),9 which were executed by three parties: (i) an individual Earn User;

(ii) GGC as borrower; and (iii) Gemini as custodian and authorized agent on behalf of an Earn

User. See Compl. ¶ 22. Under the terms of the MLAs, GGC would periodically provide Gemini

with the terms for loans that GGC was willing to enter into along with the maximum amount of

digital assets it was willing to borrow under those terms; GGC then had an obligation to accept

loans up to that maximum amount. See MLA § II. Under the terms of the MLAs, each Earn

9 A representative sample of the MLAs is attached as Exhibit 2 to the Complaint. The Court notes that “[i]n

ruling on a motion to dismiss under Rule 12(b)(6), the Court may . . . consider ‘documents attached to the complaint

as exhibits, and documents incorporated by reference in the complaint.’” Macquarie Rotorcraft Leasing Holdings

Ltd. v. LCI Helicopters (Ir.) Ltd. (In re Waypoint Leasing Holdings Ltd.), 607 B.R. 143, 153 (Bankr. S.D.N.Y. 2019)

(quoting DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010)).

User was entitled to the return of the digital assets they had loaned to GGC upon request or at the

expiration of a specified period. Compl. ¶ 22. The MLAs did not require GGC to post or pledge

assets as collateral to secure its obligations. See generally MLA.

In August 2022, following broad cryptocurrency market turmoil, Gemini made numerous

inquiries to GGC and DCG regarding GGC’s financial condition.10 See Compl. ¶¶ 24-26;

GGC’s Answer at GGC’s Countercl. ¶ 19. In response, DCG and GGC provided information

that Gemini asserts was false and misleading. See Compl. ¶¶ 24-25. At this time, Gemini also

sought collateral from GGC as security for the Earn Users’ loans. See Compl. ¶ 26. On August

15, 2022, Gemini, as agent on behalf of the Earn Users, entered into an agreement with GGC

(the “Security Agreement”) under which GGC pledged the August 2022 Collateral in the amount

of 30,905,782 shares of GBTC to secure its obligations under the MLAs.11 See Compl. ¶ 27.

Section 2 of the Security Agreement provided:

Section 2. The Pledge. As security for the prompt payment and performance in full

when due (whether at stated maturity, by acceleration, or otherwise) of all liabilities and

obligations of [GGC] under the [MLAs], whether now existing or hereafter arising,

whether or not mature or contingent (the “Secured Obligations”), [GGC] hereby pledges,

assigns, and grants to [Gemini], for the benefit of [Gemini] and the [Earn Users], a

security interest in all of [GGC’s] right, title, and interest in and to all property from time

to time transferred by or on behalf of [GGC] to or for the benefit of [Gemini] or the [Earn

Users] in connection with this Agreement or any [MLA], including without limitation all

shares of and interests in [GBTC] credited to the GTC Account (collectively, the

“Collateral”).

Security Agreement § 2.

10 In the spring of 2022, Three Arrows Capital Ltd. (“3AC”) collapsed and subsequently entered into

liquidation proceedings. See Compl. ¶ 23. Gemini asserts that, at that time, GGC had $2.3 billion in outstanding

loans to 3AC. See Compl. ¶ 23.

11 A copy of the Security Agreement is attached as Exhibit 1 to the Complaint.

Section 1 of the Security Agreement—titled “Transfer of Collateral”—laid out the

mechanics of the transfers contemplated by the Security Agreement. See Security Agreement §

1. It stated:

As promptly as practicable after the execution of this Agreement, [GGC] shall

transfer or cause to be transferred 30,905,782 shares of [GBTC] to the account

held in the name of [Gemini] “for the benefit of” (“FBO”) the Principal Lenders

at Morgan Stanley Smith Barney LLC with account number ending in -6250 (the

“GTC Account”); provided that, for the avoidance of doubt, [GGC] shall have no

obligation to transfer, cause to be transferred or otherwise deposit additional

shares of [GBTC] or any other shares into the GTC Account after such date

except as required under and in accordance with Section 6(b) of this Agreement.

Security Agreement § 1. Section 7(b) the Security Agreement required Gemini to return the

August 2022 Collateral to GGC on or before November 15, 2022. See Security Agreement §

7(b).

On October 13, 2022, Gemini provided GGC with 30 days’ notice of its intent to

terminate the Gemini Earn Program. See Compl. ¶ 36. After further discussions, Gemini agreed

to extend the termination date of the Gemini Earn Program to November 22, 2022. See Compl. ¶

37.12 On November 7, 2022, GGC and Gemini entered into an amendment to the Security

Agreement extending its term to track the new termination date of the Gemini Earn Program (the

“First Amendment”).13 See Compl. ¶ 38; First Amendment § B(1).

Gemini subsequently requested that GGC pledge additional collateral to further secure

GGC’s obligations under the Gemini Earn Program. See Compl. ¶ 39. On November 10, 2022,

GGC, Gemini and DCG entered into a second amendment to the Security Agreement (the

“Second Amendment”).14 See Compl. ¶ 39. The Second Amendment required that parent DCG

12 Gemini asserts that during these discussions, GGC again made false statements regarding its financial

health and stability. See Compl. ¶ 37.

13 A copy of the First Amendment is attached as Exhibit 3 to the Complaint.

14 A copy of the Second Amendment is attached as Exhibit 4 to the Complaint.

deliver to Debtor GGC the Additional GBTC Shares, in the amount of 31,180,804 shares. See

Second Amendment § 1; see also Compl. ¶ 39. GGC was then to transfer the Additional GBTC

Shares to Gemini for the benefit of Earn Users to secure GGC’s obligations under the Gemini

Earn Program. See Second Amendment § 1. The Second Amendment sets this out as follows:

Amendment to Collateral Amount. Section 1 of the Security Agreement shall be

amended and restated in its entirety as follows . . . . As promptly as practicable after the

execution of this Second Amendment, [DCG] shall assign, sell, convey, transfer, and

deliver to [GGC], or a controlled subsidiary of [GGC], all right, title and interest in and to

31,180,804 shares of [GBTC], free and clear of all liens, claims, charges and

encumbrances. As promptly as practicable after such assignment, conveyance, transfer,

and delivery, [GGC] shall transfer or cause to be transferred such 31,180,804 shares of

[GBTC] to the GTC Account; provided, that, for the avoidance of doubt, [GGC] shall

have no obligation to transfer, cause to be transferred or otherwise deposit additional

shares of [GBTC] or any other shares into the GTC Account after such date except as

required under and in accordance with Section 6(b) of this Agreement.15

Second Amendment § 1 (emphasis in original); see Compl. ¶ 39. DCG subsequently transferred

the Additional GBTC Shares to GGC. See Compl. ¶ 47. Gemini made numerous inquiries with

GGC seeking confirmation that GGC would be transferring the Additional GBTC Shares to

Gemini, but GGC either didn’t respond or stated that it was working to understand the

complexity of transferring the shares. See Compl. ¶¶ 48-53. In the end, however, GGC never

delivered the Additional GBTC Shares to Gemini. See Compl. ¶ 53.

On November 16, 2022, GGC suspended redemptions by Earn Users under the Gemini

Earn Program. See Compl. ¶ 43. On the same day, Gemini purported to foreclose on the August

2022 Collateral in a private sale to itself for total proceeds of $284,333,194.40. See Compl. ¶ 43.

In January 2023, the Debtors filed for relief under Chapter 11 of the Bankruptcy Code

(the “Petition Date”). See Compl. ¶ 13. In October 2023, Gemini filed the Complaint that

15 The “GTC Account” referenced in the Second Amendment was an account at a financial institution that

was held in Gemini’s name for the benefit of the Earn Users. Gemini had previously received the August 2022

Collateral from the Debtors into the GTC Account. See Compl. ¶ 40 n.9 (citing Second Amendment § 1).

asserts, among other things, that it has a security interest in the Additional GBTC Shares, that the

shares are not property of the Debtors’ estates, and, in the alternative, that the Debtors hold the

Additional GBTC Shares in constructive trust for the benefit of Gemini and the Earn Users. See

Compl. ¶ 10. GGC subsequently filed its Answer, which also asserted counterclaims against

Gemini. See GGC’s Answer at GGC’s Countercl. ¶¶ 44-88.

DISCUSSION

A. Legal Standards

1. Motion to Dismiss

Federal Rule of Civil Procedure 12(b)(6), made applicable by Bankruptcy Rule 7012,

provides that a complaint must be dismissed if it fails to state a claim upon which relief can be

granted. In analyzing a motion to dismiss under Rule 12(b)(6), a court looks to whether a

plaintiff has pleaded “enough facts to state a claim to relief that is plausible on its face.” Bell Atl.

Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff

pleads factual content that allows the court to draw the reasonable inference that the defendant is

liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Additionally,

Federal Rule of Civil Procedure 8 requires “at a minimum, that a complaint give each defendant

fair notice of what the plaintiff’s claim is and the ground upon which it rests.” Atuahene v. City

of Hartford, 10 Fed. App’x 33, 34 (2d Cir. 2001) (internal citation and quotation omitted). The

court must determine “whether the well-pleaded factual allegations, assumed to be true, plausibly

give rise to an entitlement to relief.” Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010)

(citing Iqbal, 556 U.S. at 679). A court must proceed “on the assumption that all the allegations

in the complaint are true.” Twombly, 550 U.S. at 555. The court must also draw all reasonable

inferences in favor of the non-moving party. Ganino v. Citizens Utils. Co., 228 F.3d 154, 161

(2d Cir. 2000).

But “[a] complaint that pleads only facts that are ‘merely consistent with’ a defendant’s

liability does not meet the plausibility requirement” Weisfelner v. Fund 1 (In re Lyondell Chem.

Co.), 554 B.R. 655, 673 (Bankr. S.D.N.Y. 2016) (quoting Iqbal, 556 U.S. at 678). “A pleading

that offers labels and conclusions or a formulaic recitation of the elements of a cause of action

will not do.” Id. (internal citations and quotations omitted). “Threadbare recitals of the elements

of a cause of action, supported by mere conclusory statements, do not suffice.” Id. Rather,

“‘[t]he pleadings must create the possibility of a right to relief that is more than

speculative.’” Id. (quoting Spool v. World Child Int’l Adoption Agency, 520 F.3d 178, 183 (2d

Cir. 2008)).

2. Contract Interpretation Under New York Law

The contracts at issue are governed by New York law. See MLA § X (stating that

agreement is governed by New York law); Security Agreement § 7(c) (same). “Under New

York law, written agreements are construed in accordance with the parties’ intent and [t]he best

evidence of what parties to a written agreement intend is what they say in their writing.” Schron

v. Troutman Sanders LLP, 20 N.Y.3d 430, 436 (2013) (internal citation and quotation

omitted). “[W]hen parties set down their agreement in a clear, complete document, their writing

should as a rule be enforced according to its terms. Evidence outside the four corners of the

document as to what was really intended but unstated or misstated is generally inadmissible to

add to or vary the writing.” W.W.W. Assoc., Inc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990).

The plain meaning of terms in a written agreement is given considerable weight. “[A]

written agreement that is complete, clear and unambiguous on its face must be enforced

according to the plain meaning of its terms.” Greenfield v. Philles Records, Inc., 98 N.Y.2d 562,

569 (2002). A contract provision is ambiguous if it is “susceptible to more than one reasonable

interpretation.” Brad H. v. City of New York, 17 N.Y.3d 180, 186 (2011). “Whether or not a

writing is ambiguous is a question of law to be resolved by the courts . . . . It is well settled that

extrinsic and parol evidence is not admissible to create an ambiguity in a written agreement

which is complete and clear and unambiguous upon its face.” Giancontieri, 77 N.Y.2d at 162-63

(internal citations and quotations omitted). Furthermore, “[p]arties cannot create ambiguity from

whole cloth where none exists, because [contract] provisions are not ambiguous merely because

the parties interpret them differently.” Universal Am. Corp. v. Nat’l Union Fire Ins. Co. of

Pittsburgh, 25 N.Y.3d 675, 680 (2015) (internal citation and quotation omitted). “It is too well

settled for citation that, if a written agreement contains no obvious or latent ambiguities, neither

the parties nor their privies may testify to what the parties meant but failed to state.” Oxford

Commercial Corp. v. Landau, 12 N.Y.2d 362, 365 (1963).

“A contract should be read as a whole to ensure that undue emphasis is not placed upon

particular words and phrases . . . . Courts may not by construction add or excise terms, nor distort

the meaning of those used and thereby make a new contract for the parties under the guise of

interpreting the writing.” Consedine v. Portville Cent. Sch. Dist., 12 N.Y.3d 286, 293 (2009)

(internal citations and quotations omitted). “[S]pecific clauses of a contract are to be read

consistently with the overall manifest purpose of the parties’ agreement. Contracts are also to be

interpreted to avoid inconsistencies and to give meaning to all of its terms.” Barrow v. Lawrence

United Corp., 538 N.Y.S.2d 363, 365 (App. Div. 3d Dep’t 1989) (internal citations and

quotations omitted). But specific terms in a contract will override the general. See Bowmer v.

Bowmer, 50 N.Y.2d 288, 294 (1980); John Hancock Mut. Life Ins. Co. v. Carolina Power &

Light Co., 717 F.2d 664, 669 n.8 (2d Cir. 1983) (“New York law recognizes that definitive,

particularized contract language takes precedence over expressions of intent that are general,

summary, or preliminary.”); Restatement (Second) of Contracts § 203 (2023) (“In the

interpretation of a promise or agreement or a term thereof . . . specific terms and exact terms are

given greater weight than general language.”). “In short, the proper aim of the court is to arrive

at a construction which will give fair meaning to all of the language employed by the parties, and

to reach a practical interpretation of the expressions of the parties to the end that there will be a

realization of [their] reasonable expectations.” Tantleff v. Truscelli, 493 N.Y.S.2d 979, 983

(App. Div. 2d Dep’t 1985) (emphasis in original) (internal citations and quotations omitted); see

also Nomura Home Equity Loan, Inc., v. Nomura Credit & Cap., Inc., 30 N.Y.3d 572, 581

(2017) (“[C]ourts should read a contract as a harmonious and integrated whole to determine and

give effect to its purpose and intent.”) (internal citations and quotations omitted).

B. Interpretation of the Contracts

1. Plain Language of the Contracts

Section 2 of the Security Agreement—entitled “The Pledge”—grants Gemini a security

interest in certain “Collateral.” The plain, unambiguous language of this provision requires that

for an asset to be pledged as “Collateral” under the Security Agreement, there must be: (a) a

transfer, (b) by or on behalf of GGC, (b) to or for the benefit of Gemini or the Earn Users. See

Security Agreement § 2. It states, in relevant part, that:

[a]s security for the prompt payment and performance . . . of all liabilities and obligations

of [GGC] under the Master Loan Agreements . . . [GGC] hereby pledges . . . a security

interest in all of [GGC’s] right, title, and interest in and to all property from time to time

transferred by or on behalf of [GGC] to or for the benefit of [Gemini] or the [Earn

Users] in connection with this Agreement or any [MLA], including without limitation all

shares of and interests in [GBTC] credited to the GTC Account (collectively, the

“Collateral”).

Id. (emphasis added). The allegations of the Complaint make clear that GGC never transferred

the Additional GBTC Shares to Gemini or to the Earn Users. Instead, GGC refused to transfer

the Additional GBTC Shares to Gemini, a fact that Gemini itself acknowledged in the

Complaint. See Compl. ¶ 7 (“GGC refused to then transfer the [Additional GBTC Shares] to

Gemini.”).

The lack of a security interest is further supported by the plain language of Section 1 of

the Second Amendment, which is entitled “Amendment of Collateral Amount” and sets forth a

two-step mechanism for the transfer of the Additional GBTC Shares. The two-step process

requires first a transfer of the Additional GBTC Shares from the Debtors’ parent DCG to Debtor

GGC and then a second transfer from GGC to Gemini. As to the first step, Section 1 provides

that:

As promptly as practicable after the execution of this Second Amendment, [DCG]

shall assign, sell, convey, transfer, and deliver to [GGC], or a controlled

subsidiary of [GGC], all right, title and interest in and to [the Additional GBTC

Shares], free and clear of all liens, claims, charges and encumbrances.

Second Amendment § 1. As to the second step, Section 1 provides that: “[a]s promptly as

practicable after such assignment, conveyance, transfer, and delivery, [GGC] shall transfer or

cause to be transferred such [Additional GBTC Shares] to the GTC Account . . . .” Id.

According to the clear language of the Second Amendment, therefore, there are two steps

necessary to create a security interest in the Additional GBTC Shares: (1) a transfer from DCG to

GGC, and (2) a transfer from GGC to the GTC Account of Gemini that takes place after the

initial transfer. See id.

2. Gemini’s Interpretation of the Contracts

Gemini asserts that the Additional GBTC Shares were pledged to it under the terms of the

agreements, despite these shares never having been transferred to Gemini. Gemini believes that

its alleged security interest in the Additional GBTC Shares became effective upon the transfer of

the shares from DCG to GGC. Gemini Opp. at 2, 10. It asserts that this interpretation is

reflected in the plain language of the agreements and is in keeping with the parties’ intent in

entering the agreements.

But a closer examination of Gemini’s logic reveals its flaws. For instance, Gemini points

to Section 4 of the Security Agreement, which states that it grants Gemini an “absolute and

unconditional” security interest in the Additional GBTC Shares. But Section 4 specifically relies

on the defined term “Collateral,” stating that “the grant of a security interest in the Collateral

shall be absolute and unconditional . . . .” Security Agreement § 4 (emphasis added); see also

Security Agreement § 5(a) (“This Agreement creates a legal and valid security interest in the

Collateral in favor of [Gemini] . . . .”) (emphasis added). As discussed above, under the clear

and unambiguous language of the Security Agreement, an asset does not constitute “Collateral”

until it has been actually transferred “to or for the benefit of” Gemini.

Other language cited by Gemini is similarly reliant upon the defined term “Collateral.”

Gemini cites to Section 5 of the Security Agreement, in which GGC represents that, “as of the

date hereof and on each day that any Loan remains outstanding[,]” GGC “is the sole owner of the

Collateral or otherwise has the right to transfer the Collateral, free and clear of any security

interest, lien, encumbrance, or other restrictions . . . .” Security Agreement § 5(b). Gemini

argues that GGC would not have been able to represent or warrant that it was the “sole owner of

the Collateral” or that it had the “right to transfer the Collateral, free . . . of . . . restriction” if the

Additional GBTC Shares only became “Collateral” after GGC transferred them to Gemini. See

Gemini Opp. at 12. Gemini argues that Section 5 only makes sense under Gemini’s

interpretation. But that is not true. Section 5 embodies a common sentiment found in security

agreements that the party pledging collateral actually owns the collateral before the transfer, a

representation designed to put the secured party at ease. But GGC did not obtain ownership of

the Additional GBTC Shares until those shares were transferred to it by parent DCG. And the

shares did not become collateral unless they were transferred to Gemini. Additionally, the

representation in Section 5 of the Security Agreement occurred well before the parties ever

entered the Second Amendment, which addresses the specific transfer of the Additional GBTC

Shares at issue here. The more specific provisions of the Second Amendment about the steps

needed to perfect the security interest take precedent over these more general provisions of the

earlier Security Agreement. See John Hancock Mut. Life Ins. Co., 717 F.2d at 669 n.8 (applying

New York law) (“[D]efinitive, particularized contract language takes precedence over

expressions of intent that are general, summary, or preliminary.”).

Gemini also points to language defining GGC as the “Pledgor” in the Security Agreement

and certain “whereas” clauses in the Security Agreement and the Second Amendment. These

clauses state that “[GGC] has agreed to pledge to [Gemini] . . . certain collateral to secure

[GGC’s] obligations under the Master Loan Agreements . . . .”). Security Agreement at 1;

Second Amendment at 1. Gemini believes these provisions reflect the parties’ intention for GGC

to pledge the Additional GBTC Shares in its possession upon its execution of the Security

Agreement and receipt of the Additional GBTC Shares from DCG. See Gemini Opp. at 12. But

while GGC did agree to be the “Pledgor” of certain assets, once again those assets were limited

to those that met the definition of “Collateral” under the Security Agreement. The same is true

for the “whereas” clauses. So while all these provisions may support a claim that GGC breached

the parties’ agreement by failing to transfer the Additional GBTC Shares, they do not support

Gemini’s argument that a valid security interest was created absent a transfer of these shares.16

Gemini complains that the Debtors’ position “myopically” focuses on Section 2 of the

Security Agreement to the exclusion of these other provisions in the agreements. Gemini argues

that “courts read contracts as a whole to give each clause its intended purpose.” Gemini Opp. at

11 (citing Williams Press, Inc. v. State of New York, 37 N.Y.2d 434, 440 (1975) (the “meaning of

a writing may be distorted where undue force is given to single words or phrases”). But this

argument ignores that Section 2 is the key provision that defines the scope of the property in

which Gemini has a security interest. The defined term “Collateral” in Section 2 is used

throughout the Security Agreement, including in the terms cited by Gemini. The term is also

incorporated into and used in the Second Amendment:

This Second Amendment forms a part of, incorporates by reference, and is subject

to the terms and conditions in the Security Agreement and except as set forth in

this Second Amendment, the Security Agreement shall continue in full force and

effect in accordance with its terms. Capitalized terms used in this Second

Amendment but not otherwise defined herein shall have the same meanings as in

the Security Agreement.

Second Amendment at 1 (emphasis added). Gemini’s argument also ignores the well-established

principle that “definitive, particularized contract language takes precedence over expressions of

intent that are general, summary, or preliminary.” John Hancock Mut. Life Ins. Co., 717 F.2d at

669 n.8 (applying New York law); see also Bowmer, 50 N.Y.2d at 294; Paneccasio v. Unisource

16 In a similar vein, Gemini notes that Section 1 of the Security Agreement is entitled the “Transfer of

Collateral,” as opposed to the transfer of assets to become Collateral upon transfer. Gemini Opp. at 12. Genesis

believes this confirms the parties’ understanding that the Additional GBTC Shares were already Collateral at the

time they were transferred to Gemini. See id. But once again, Gemini ignores that two transfers were required

before the Additional GBTC Shares would become “Collateral” under Section 2 of the Security Agreement. It is

only logical that the parties would include Section 1 of the Security Agreement to address the specifics on how the

transfer and pledge should take place.

Worldwide, Inc., 532 F.3d 101, 111 (2d Cir. 2008) (“The rules of contract construction require us

to adopt an interpretation which gives meaning to every provision of the contract[,]” and

“specific language in a contract will prevail over general language where there is an

inconsistency between two provisions.”); Restatement (Second) of Contracts § 203 (2023) (“In

the interpretation of a promise or agreement or a term thereof . . . specific terms and exact terms

are given greater weight than general language.”).

Gemini posits that the language in Section 2 of the Security Agreement defining

“Collateral” contemplates only the possibility that Gemini might return a portion of the

Collateral pursuant to a “Collateral Return Request” or that GGC might provide additional

collateral through a “Collateral Top-Up Request” as discussed in Section 6 of the Security

Agreement and Section 3 of the Second Amendment. But Section 2 of the Security Agreement

does not specifically reference either of these provisions. Indeed, nothing in Section 2 indicates

that it is limited to these two situations. Nor is there anything in Section 6 of the Security

Agreement or Section 3 of the Second Amendment to support this reading.17 “[C]ourts may not

17 Both of these sections address issues other than the method to perfect Gemini’s security interest. Section 6

of the Security Agreement is entitled “Adjustment of Collateral” and provides:

(a) Collateral Release. During the term of this Agreement, if the aggregate value of the Collateral

(as calculated based on the price reported on the OTCQX exchange at 4pm New York time on a

day the OTCQX market is open for trading (such aggregate value, the “Collateral Value”))

exceeds 32.5% of the notional USD value of the aggregate loaned amounts (the “Loaned Assets”)

under the [MLAs] (as calculated based on the price reported on the [Gemini’s] cryptocurrency

exchange, the Gemini exchange, for the relevant Loaned Asset at 4pm New York time (the

“Gemini Closing Price”)), then [Gemini] shall, upon [GGC’s] written request (which may be by e-

mail or other electronic transmission) (such request, a “Collateral Return Request”), be required to

return an amount of Collateral such that the remaining Collateral Value is no greater than 30.0%

of the notional USD value of the Loaned Assets (such amount, the “Collateral Return Amount”).

[Gemini] shall deliver the Collateral Return Amount to [GGC’s] brokerage account at such

account as [GGC] may direct in writing no later than two (2) business days after the date of the

Collateral Return Request.

(b) Collateral Posting. During the term of this Agreement, if the Collateral Value falls below

27.5% of the notional USD value of the aggregate Loaned Assets under the [MLAs] (as calculated

based on the Gemini Closing Price) then [GGC] shall, upon [Gemini’s] written request (which

may be by e-mail or other electronic transmission) (such request, a “Collateral Top-Up Request”),

by construction add or excise terms, nor distort the meaning of those used and thereby make a

new contract for the parties under the guise of interpreting the writing.” Reiss v. Fin.

Performance Corp., 97 N.Y.2d 195, 199 (2001) (internal citations and quotations omitted). Nor

does interpreting the language of the agreements to require a transfer of the shares by GGC to

Gemini render the Second Amendment meaningless, as suggested by Gemini. Rather, by failing

to transfer the shares, GGC failed to satisfy a necessary condition to the effectiveness of the

be required to post an amount of Collateral to the GTC Account such that the Collateral Value in

the GTC Account is no less than 30.0% of the notional USD value of the Loaned Assets under the

[MLAs] (such amount, the “Collateral Top-Up Amount”); provided that, notwithstanding the

foregoing, in no event shall the aggregate number of shares of [GBTC] in the GTC Account be

required to exceed 30,905,782 shares at any time. [GGC] shall deliver the Collateral Top-Up

Amount to the GTC Account no later than two (2) business days after the date of the Collateral

Top-Up Request.

Security Agreement § 6 (emphasis in original). Section 3 of the Second Amendment is entitled “Amendment to

Adjustment of Collateral” and provides:

Section 6 of the Security Agreement shall be amended and restated in its entirety as follows:

“(a) Collateral Release. During the term of this Agreement, if the aggregate value of the Collateral

(as calculated based on the price reported on the OTCQX exchange at 4pm New York time on a

day the OTCQX market is open for trading (such aggregate value, the “Collateral Value”))

exceeds 120% of the notional USD value of the aggregate loaned amounts (the “Loaned Assets”)

under the [MLAs] (as calculated based on the price reported on [Gemini’s] cryptocurrency

exchange, the Gemini exchange, for the relevant Loaned Asset at 4pm New York time (the

“Gemini Closing Price”)), then [Gemini] shall, upon [GGC’s] written request (which may be by e-

mail or other electronic transmission) (such request, a “Collateral Return Request”), be required to

return an amount of Collateral such that the remaining Collateral Value is no greater than 110% of

the notional USD value of the Loaned Assets (such amount, the “Collateral Return Amount”).

[Gemini] shall deliver the Collateral Return Amount to [GGC’s] brokerage account at such

account as [GGC] may direct in writing no later than two (2) business days after the date of the

Collateral Return Request.

(b) Collateral Posting. During the term of this Agreement, if the Collateral Value falls below 30%

of the notional USD value of the aggregate Loaned Assets under the [MLAs] (as calculated based

on the Gemini Closing Price) then [GGC] shall, upon [Gemini’s] written request (which may be

by e-mail or other electronic transmission) (such request, a “Collateral Top-Up Request”), be

required to post an amount of Collateral to the GTC Account such that the Collateral Value in the

GTC Account is no less than 35% of the notional USD value of the Loaned Assets under the

Master Loan Agreements (such amount, the “Collateral Top-Up Amount”); provided, that,

notwithstanding the foregoing, in no event shall the aggregate number of shares of [GBTC] in the

GTC Account be required to exceed 62,086,586 shares at any time. [GGC] shall deliver the

Collateral Top-Up Amount to the GTC Account no later than two (2) business days after the date

of the Collateral Top-Up Request.”

Second Amendment § 3 (emphasis in original).

Second Amendment’s security provision. Again, failure to transfer the Additional GBTC Shares

may be a breach of the agreement, but it does not magically excuse the contractual requirements

as to security for which the parties bargained.

In conclusion, the Court finds that there is no language in the Security Agreement or the

Second Amendment supporting Gemini’s argument that a pledge of these Additional GBTC

Shares could have occurred without a transfer from GGC to Gemini. The clear language of the

contracts states otherwise. Were Gemini’s interpretation the true intent of the parties, they could

have easily drafted the contracts to provide as much. See In re Allegiance Telecom, Inc., 356

B.R. 93, 99 (Bankr. S.D.N.Y. 2006) (“Courts should be extremely reluctant to interpret an

agreement as impliedly stating something which the parties have neglected to specifically

include. Hence, courts may not by construction add or excise terms, nor distort the meaning of

those used and thereby make a new contract for the parties under the guise of interpreting the

writing.”) (internal citation omitted); Kaplin v. Buendia, 2021 WL 1405517, at *5 (S.D.N.Y.

Apr. 14, 2021) (“[T]he court may not construe the language to add, subtract, or redefine terms; to

do so would effectively write a new contract.”); see, e.g., U.S. Bank Trust Nat’l Ass’n v. AMR

Corp. (In re AMR Corp.), 730 F.3d 88, 101(2d Cir. 2013) (“[U]nder New York law, [t]he parties

to a loan agreement are free to include provisions directing what will happen in the event of

default . . . of the debt, supplying specific terms that super[s]ede other provisions in the contract

if those events occur.”) (internal citations and quotations omitted).

3. The Contractual Terms are Not Ambiguous

Gemini argues, in the alternative, that the language of the contracts is ambiguous and the

parties’ intent cannot be understood from that language, which would preclude dismissal of the

relevant counts of the Complaint. A contract provision is ambiguous if it is “susceptible to more

than one reasonable interpretation.” Brad H., 17 N.Y.3d at 186; see also Vintage, LLC v. Laws

Constr. Corp., 13 N.Y.3d 847, 849 (2009) (contract is not ambiguous unless there is a

“reasonable basis for a difference of opinion” regarding the meaning of its language). Gemini

believes there is a reasonable basis for differing opinions regarding whether the Security

Agreement and the Second Amendment required that GGC specifically transfer the Additional

GBTC Shares to Gemini in order for Gemini’s security interest to become effective. But the

Court disagrees, having already found that the language of the Security Agreement and the

Second Amendment is crystal clear regarding the steps that must be taken for the Additional

GBTC Shares to be pledged as Collateral. “Parties cannot create ambiguity from whole cloth

where none exists, because [contract] provisions are not ambiguous merely because the parties

interpret them differently.” Universal Am. Corp., 25 N.Y.3d at 680 (internal citation and

quotation omitted); see also Metro. Life Ins. Co. v. RJR Nabisco, Inc., 906 F.2d 884, 889 (2d Cir.

1990) (“Language whose meaning is otherwise plain is not ambiguous merely because the

parties urge different interpretations in the litigation.”). Moreover, “[t]he court should not find

the language ambiguous on the basis of the interpretation urged by one party, where that

interpretation would “strain[] the contract language beyond its reasonable and ordinary

meaning.” RJR Nabisco, 906 F.2d at 889 (quoting Bethlehem Steel Co. v. Turner Constr. Co., 2

N.Y.2d 456, 459 (1957)).

4. GGC’s Interest in the Collateral

In a related argument, Gemini asserts that “none of the Debtors have any equitable

interest” in the Additional GBTC Shares “[b]ecause GGC obtained the [Additional GBTC

Shares] from DCG for the sole purpose of delivering the [Additional GBTC Shares] to Gemini

and possesses the [Additional GBTC Shares] solely to secure Earn Users’ loans . . . .” Compl. ¶

78. But the Court finds that under the plain and unambiguous language of the agreements,

DCG’s full right, title and interest in the Additional GBTC Shares was transferred to GGC and

the Additional GBTC Shares remain the property of GGC’s bankruptcy estate.

This conclusion is consistent with the plain language of the Second Amendment, which

provides that GGC acquired title to the Additional GBTC Shares following the transfer from

DCG. See Second Amendment § 1 (requiring DCG to “assign, sell, convey, transfer, and

deliver to [GGC] . . . all right, title and interest in and to [the Additional GBTC Shares], free and

clear of all liens, claims, charges and encumbrances.”). The transfer language in Section 1 of the

Second Amendment is clear, unconditional and unqualified.18 See Philles Records, 98 N.Y.2d at

570-71 (holding that unconditional transfer of ownership rights in the context of a work of art,

unless limited by the terms of the contract, conveyed complete ownership rights); Rhythm &

Hues, Inc. v. Terminal Mktg. Co., 2004 U.S. Dist. LEXIS 7625, at *28 (S.D.N.Y. May 4, 2004)

(“Under New York law, ‘an assignment is a transfer or setting over of property, or of some right

or interest therein, from one person to another, and unless in some way qualified, it is properly

the transfer of one whole interest in an estate, or chattel, or other thing.’”) (quoting In re Stralem,

758 N.Y.S.2d 345, 347 (App. Div. 2d. Dep’t 2003)); see also Giancontieri, 77 N.Y.2d at 162

(“[W]hen parties set down their agreement in a clear, complete document, their writing should as

a rule be enforced according to its terms.”). “It is too well settled for citation that, if a written

agreement contains no obvious or latent ambiguities, neither the parties nor their privies may

testify to what the parties meant but failed to state.” Landau, 12 N.Y.2d at 365; see Reiss v. Fin.

18 Gemini cites the prefatory language in the Second Amendment stating that the transfer from GGC to

Gemini take place “as promptly as practicable” after GGC’s receipt of the shares from DCG; Gemini contends this

language acts to “expressly” limit GGC’s interest in those shares. See Second Amendment § 1; Gemini Opp. at 16-

17. But the Court wholeheartedly disagrees. By explicitly recognizing and separating out the two transfers, this

language only confirms the two-step transfer requirement for perfecting the security interest here.

Performance Corp., 97 N.Y.2d 195, 199 (2001) (a court “will not imply a term where the

circumstances surrounding the formation of the contract indicate that the parties, when the

contract was made, must have foreseen the contingency at issue and the agreement can be

enforced according to its terms.”) (internal citations and quotations omitted).

Moreover, the purpose behind the language in the Second Amendment does not comport

with Gemini’s reading. If GGC did not have title to the Additional GBTC Shares, it would not

be able to pledge those shares to Gemini. See Security Agreement § 5(b) (GGC representing and

warranting to Gemini “as of the date hereof and on each day that any Loan remains outstanding”

that it was “the sole owner of the Collateral or otherwise has the right to transfer the Collateral,

free and clear of any security interest, lien, encumbrance or other restrictions . . . .”); In re

Emergency Beacon Corp., 665 F.2d 36, 40 (2d Cir. 1981) (“Notwithstanding any agreement

between the debtor and the creditor, if the debtor has no rights in the collateral, no security

interest in that collateral comes into existence.”). The plain language of the Security Agreement

defines Collateral as shares of GBTC that are transferred to Gemini, as contemplated in the two-

step transfer requirement contained in the Second Amendment. While the Debtors clearly

undertook a contractual obligation to pledge the Additional GBTC Shares to Gemini—and

appear to concede that they breached their contract by failing to actually transfer the shares—it is

clear from the language of the agreements that Gemini has no security interest in the shares,

which remain property of GGC’s estate.

Gemini cites to Section 541 of the Bankruptcy Code, which states that assets become

property of the estate “only to the extent of a debtor’s legal title to such property, but not to the

extent of any equitable interest in such property that the debtor does not hold.” 11 U.S.C. §

541(d). Gemini cites to United States v. Whiting Pools, Inc., 462 U.S. 198 (1983) for the

proposition that “property of others in which the debtor ha[s] some minor interest such as a lien

or bare legal title” does not constitute property of the estate. Id. at 204 n.8. In Whiting Pools,

the Supreme Court found that property seized by a secured creditor enforcing a lien prior to

bankruptcy constituted property of the estate under Section 541. See id. at 209. But this holding

is unhelpful to Gemini here. Under the Supreme Court’s reasoning, property subject to a

purported lien that was not granted under the contractual terms of the parties’ agreement, nor

enforced upon, constitutes property of a debtor’s estate. This would clearly apply to the

Additional GBTC Shares, which were never properly pledged, much less enforced upon. Nor

does the case of Musso v. N.Y. State Higher Educ. Servs. Corp. (In re Royal Bus. Sch., Inc.), 157

B.R. 932 (Bankr. E.D.N.Y 1993), support Gemini’s position. Gemini cites to its holding that an

escrow account was not property of a debtor’s estate where the debtor possessed “only a

contingent interest” in the account. See id. at 939-42. But that holding is based on the terms of

the parties’ agreement in that case; by contrast, the agreements here clearly do not grant Gemini

a security interest in these shares.19

19 Gemini makes a passing reference to the “mere conduit” test, which determines whether an entity is an

initial transferee for purposes of Section 550 of the Bankruptcy Code. See Gemini Opp. at 16–17 (asserting that “the

Second Amendment required that GGC serve as a mere conduit for” the Additional GBTC Shares). But the “mere

conduit” test is a judicially created defense to actions under Section 550 to recover transfers of property that

originated with the debtor from the transferee for the benefit of the debtor’s estate. See 5 Collier on Bankruptcy ¶

550.02[2] (16th ed. 2024); Harrah's Atl. City Operating Co., LLC v. Lamonica (In re JVJ Pharm. Inc.), 630 B.R.

388, 408 (S.D.N.Y. 2021) (“While the Bankruptcy Code does not define ‘transferee’ or ‘initial transferee’ for

purposes of [S]ection 550, a body of case law has developed that distinguishes the initial recipient—that is, the first

entity to touch the disputed funds—[from] the initial transferee . . . . .”) (internal citations and quotations omitted);

cf. Sec. Inv. Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 531 B.R. 439, 473 (Bankr. S.D.N.Y. 2015) (“To plead

the subsequent transfer prong, the complaint must allege facts that support the inference that the funds at issue

originated with the debtor, and contain the necessary vital statistics—the who, when, and how much of the

purported transfers to establish an entity as a subsequent transferee of the funds.”) (emphasis added) (internal

quotation marks and citations omitted). Gemini does not explain how this doctrine would apply here to somehow

grant Gemini a security interest in these shares. Indeed, the Court does not believe the doctrine has any application

here given that GGC had “dominion and control” over the Additional GBTC Shares, which remain property of the

estate. See In re JVJ Pharm. Inc., 630 B.R. at 408 (“[T]he relevant inquiry in this Circuit is whether an entity

exercised dominion and control over a debtor’s funds.”).

5. “Transfer” of the Shares

In a minor variation on its previous arguments, Gemini argues that the transfer of the

Additional GBTC Shares from DCG to GGC was in fact a transfer “on behalf of” GGC and was

“for the benefit of” Gemini and the Earn Users. See Compl. ¶¶ 39, 47. In urging this

construction, Gemini relies upon the fact that the sole purpose of DCG’s transfer was to provide

the Additional GBTC Shares as security to Gemini. See Compl. ¶ 39. But the Complaint does

not, in fact, plead this construction of the Second Amendment other than a bare quotation of the

contractual language that DCG was transferring the Additional GBTC Shares to GGC “on behalf

of” GGC. See Fadem v. Ford Motor Co., 352 F.Supp.2d 501, 516 (S.D.N.Y.) (“It is long-

standing precedent in this circuit that parties cannot amend their pleadings through issues raised

solely in their briefs.”); see also O’Brien v. Nat’l Prop. Analysts Partners, 719 F. Supp. 222, 229

(S.D.N.Y. 1989) (“[I]t is axiomatic that the Complaint cannot be amended by the briefs in

opposition to a motion to dismiss.”).

In any event, Gemini’s reading of the contractual language once again is flawed. Under

the plain language here, a transfer made “on behalf of” an entity plainly means a transfer made

by a third-party that is acting as a proxy for that entity. In short, the “on behalf of” language

contemplates that the entity making the transfer is a third party. It cannot be then that a transfer

from DCG to GGC constitutes a transfer made “on behalf of” GGC. Gemini’s contention

essentially would make the transferor and transferee the same party, which is a nonsensical

reading of the text. Gemini’s reading is particularly problematic given that these shares were

property of DCG until the first transfer. Nor is Gemini’s reading compatible with the language

of the Second Amendment, which makes no mention of transfers “on behalf of” GGC and

instead clearly requires a two-step process: (1) a transfer from DCG to GGC, and (2) a transfer

from GGC to the GTC Account of Gemini. See Second Amendment § 1. It is a strained reading

indeed to view the first step—the required transfer from DCG to GGC—as a transfer “on behalf

of” GGC when the very next provision requires the second step of transferring the shares from

GGC to Gemini. There is no need for someone to “act on behalf” of GGC with respect to the

transfer to Gemini because the Second Amendment contemplates that GGC itself will transfer

the shares directly to Gemini. Moreover, if the first step were to accomplish the entirety of the

process, there would be no need for the second step, and the language setting forth this second

transfer would be rendered entirely superfluous to the contract. This would be “a result contrary

to a bedrock principle of contract interpretation, that every word and clause in the contract

should be given meaning.” IKB Int’l, S.A. v. Wells Fargo Bank, N.A., 40 N.Y.3d 277, 298

(2023); see also Barrow v. Lawrence United Corp., 538 N.Y.S.2d 363, 365 (App. Div. 3d Dep’t

1989) (“[C]ontracts are . . . to be interpreted to avoid inconsistencies and to give meaning to all

of its terms.”) (internal citations cand quotations omitted); Consedine, 12 N.Y.3d at 293 (“Courts

may not by construction add or excise terms, nor distort the meaning of those used and thereby

make a new contract for the parties under the guise of interpreting the writing.”) (internal

citations and quotations omitted).

Finally, Gemini’s reading also raises a policy concern about the creation of a “secret

lien.” See Hr’g Tr. 98:4-15 (Jan. 18, 2024) [ECF No. 31] (“secret lien” concern raised by

counsel to UCC). “Generally, security interests are perfected by the filing of financing

statements.” In re O.P.M. Leasing Servs., Inc., 23 B.R. 104, 116-117 (Bankr. S.D.N.Y. 1982)

(citing N.Y. U.C.C. §§ 9-302 and 9-305 (McKinney Supp. 1982)). But “[p]ossession operates as

[another] method of perfection in those situations where, like a financing statement, it gives

notice to third parties that the property at issue is encumbered.” Id. at 117 (citing Allegaert v.

Chem. Bank, 657 F.2d 495, 506 (2d Cir. 1980); J. White & R. Summers, Handbook of the Law

Under the Uniform Commercial Code at 934-35 (2d ed. 1980)); see also In re O.P.M. Leasing

Servs., Inc., 23 B.R. at 116 (“Possession of collateral is sometimes a proper alternate method of

perfecting a security interest.”). Notice by filing or by possession is designed to prevent secret

liens—that is, a lien of which the world at large has no notice. See id. at 117 (citing United

States v. Speers, 382 U.S. 266, 275 (1965)). Applying these concepts here, the perfection of a

lien on the collateral here would occur through some clear transfer of the Additional GBTC

Shares off the books of GCG’s assets and onto the books of Gemini; perfection by possession is

the method here because the parties did not provide for perfection by filing. See Hr’g Tr. 98:16-

24 (Jan. 18, 2024). If the Court were to allow a security interest in the Additional GBTC Shares

based on Gemini’s reading—that is, without the second transfer out of the hands of GCG and

into the hands of Gemini—Gemini would have a security interest in collateral even though the

collateral remained with GGC. Without Gemini’s possession of the collateral to perfect the lien,

Gemini’s security interest would be tantamount to a secret lien. As explained by one bankruptcy

court,

[t]here is always a way to make a lien valid against anyone in the world. It is

called ‘perfection’ of the lien. It is an unfortunate word because it implies being

‘perfect.’ In fact it simply means telling the rest of the world that you have the

lien; it is no longer a “secret lien” between the lender and the borrower. When a

borrower ends up in a bankruptcy court, a trustee is bound by law to represent the

debtor's creditors—the unpaid people, banks and landlords, etc., who never knew

about the ‘secret lien.’

Horwitz v. Rote (In re Moorhouse), 487 B.R. 151, 152 (Bankr. W.D.N.Y. 2013).

Not surprisingly, there is a policy against the concept of secret liens, codified in the

Bankruptcy Code at Section 544 (providing that a trustee has the right to void the transfer of

property of the debtor, or any obligation by the debtor that is voidable, under various

circumstances). But this policy concern existed in the law well before the current Bankruptcy

Code. “From its inception in 1910, the express purpose of the trustee's ‘strong-arm’ powers [in

bankruptcy] has been to enable the trustee to strike down ‘evil’ secret liens and other transfers

that had evaded the assault of the trustee's other avoidance powers.” In re Euro-Swiss Int’l

Corp., 33 B.R. 872, 879 (Bankr. S.D.N.Y, 1983) (citing 45 Cong. Rec. 2277 (1910); 4B Collier

on Bankruptcy ¶ 70.45, n.8 and cases cited therein (14th ed. 1978)). “Exercise of those strong-

arm powers allows the trustee to increase the amount of the potential assets of the debtor’s estate

thereby providing for a more equitable distribution of the debtor’s estate to his creditors.” Id.

(citing Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215 (1941)).

C. Constructive Trust

As an alternative to the declaratory relief sought in Counts II and III, Count IV seeks to

impose a constructive trust on the Additional GBTC Shares for the benefit of Gemini and the

Earn Users. A constructive trust is an equitable remedy that is meant to avoid unjust enrichment.

See Rosen v. Chowaiki & Co. Fine Art Ltd. (In re Chowaiki & Co. Fine Art Ltd.), 593 B.R. 699,

718 (Bankr. S.D.N.Y. 2018). “When property has been acquired in such circumstances that the

holder of the legal title may not in good conscience retain the beneficial interest, equity converts

him into a trustee.” Simonds v. Simonds, 45 N.Y.2d 233, 241 (1978). A party seeking to impose

a constructive trust under New York law must generally establish four elements by clear and

convincing evidence: “(1) a confidential or fiduciary relationship; (2) a promise, express or

implied; (3) a transfer of the subject res made in reliance on that promise; and (4) unjust

enrichment.” Superintendent of Ins. v. Ochs (In re First Cent. Fin. Corp.), 377 F.3d 209, 212 (2d

Cir. 2004) (internal citations and quotations omitted); see also In re Chowaiki, 593 B.R. at 718-

19. The fourth element is commonly viewed as the most important, “since the purpose of the

constructive trust is prevention of unjust enrichment.” In re First Cent. Fin., 377 F.3d at 212

(internal citations and quotations omitted).

Gemini asserts that (i) GGC and Gemini had a confidential and fiduciary relationship, (ii)

DCG transferred the Additional GBTC Shares to GGC for Gemini’s benefit in reliance on

GGC’s promise to further transfer the shares to Gemini, and (iii) the Debtors’ wrongful

prepetition conduct resulted in unjust enrichment. The Debtors counter that the existence of a

contract between the parties precludes a constructive trust claim, that the imposition of a

constructive trust is disfavored in bankruptcy under these circumstances, and that the Complaint

fails to meet at least three of the factors for imposition of a constructive trust. For the reasons

discussed below, the Court finds that the constructive trust count must be dismissed.20

1. Unjust Enrichment

“Unjust enrichment exists where the acts of the parties or others have placed in the

possession of [the defendant] money, or its equivalent, under such circumstances that in equity

and good conscience he ought not to retain it.” In re Chowaiki, 593 B.R. at 720 (internal

citations and quotations omitted). “To prevail on a claim for unjust enrichment in New York, a

plaintiff must establish: (1) defendant was enriched; (2) the enrichment was at plaintiff’s

expense; and (3) the circumstances were such that equity and good conscience require defendant[

] to make restitution.” Id. (internal citations and quotations omitted). “Furthermore . . . the

20 Gemini urges the Court to recognize that the four-part test is flexible, and that many courts have imposed a

constructive trust in the absence of one or more factors. See Simonds, 45 N.Y.2d at 241 (“Although the factors are

useful in many cases constructive trust doctrine is not rigidly limited.”); Barnard v. Kumar (In re Verma), 2007 WL

2713017, at *6 (Bankr. E.D.N.Y. Sept. 14, 2007) (“[T]he four elements [of constructive trust] are not conclusive and

courts have imposed constructive trusts in the absence of a confidential relationship, unjust enrichment or a

promise.”). While it is true that the imposition of a constructive trust is an equitable remedy and discretion exists in

its application, the Court finds the remedy to be clearly unavailable here for the reasons set forth above.

absence of unjust enrichment, standing alone, is fatal to a request for a constructive trust . . . .”

Id. at 722.

In the Complaint, Gemini asserts that “GGC obtained the [Additional GBTC Shares]

from its parent, DCG, for the sole purpose of delivering the [Additional GBTC Shares] to

Gemini for the benefit of Earn Users, but GGC failed to deliver the Additional Collateral to

Gemini.” Compl. ¶ 84. Gemini concludes that “[a]s a result, the Debtors were unjustly enriched

by their wrongful retention of the [Additional GBTC Shares].” Id. But it is well established that,

as a threshold matter, unjust enrichment is unavailable where—as here—the rights of the parties

are governed by a contract. See In re First Cent. Fin., 377 F.3d at 213 (“[W]e conclude that this

principle—that the existence of a written agreement precludes a finding of unjust enrichment—

also applies to constructive trust claims.”); Abraham v. Am. Home Mortg. Servicing, Inc., 947 F.

Supp. 2d 222, 235 (E.D.N.Y. 2013) (“It is well established that the existence of a contract

precludes a claim for a constructive trust.”); Soroof Trading Dev. Co. Ltd. v. GE Fuel Cell Sys.,

LLC, 842 F. Supp. 2d 502, 514-15 (S.D.N.Y. 2012) (holding movant had “no basis for relief

under quasi-contractual remedies such as constructive trust” where the parties’ “relationship was,

at all relevant times, governed by a contract.”). This is because “where a valid agreement

controls the rights and obligations of the parties, an adequate remedy at law typically exists” and

there is no need for an equitable remedy unless it can be demonstrated that the available legal

remedy is inadequate. In re First Cent. Fin. Corp., 377 F.3d at 215. The Court agrees and holds

that Gemini cannot show unjust enrichment in the face of the written agreements between the

parties.

Indeed, Gemini concedes that “constructive trust claims are equitable in nature and

generally not permitted where a valid, written agreement exists . . . .” Gemini Opp. at 18. But

Gemini argues that it “may plead a constructive trust claim in the alternative because the Debtors

have challenged the validity of the Second Amendment.” Id. But that is incorrect. In fact, the

Debtors are not challenging the validity and enforceability of the Second Amendment. By

contrast, the Debtors explicitly state, “[i]t is undisputed that the parties’ rights and obligations

with respect to the Additional GBTC Shares are governed by a valid contract—the Second

Amendment.” Debtors’ MTD ¶ 36 (emphasis added). In any event, the Debtors’ MTD seeks

dismissal of the Complaint, in which Gemini seeks relief explicitly based on its contractual rights

under the Second Amendment and the Security Agreement. See Compl. ¶ 7 (asserting right to

31,108,804 shares of GBTC in which Gemini had no prior interest until entry of the Second

Amendment); see Second Amendment § 1 (pledging 31,180,804 shares in GBTC); see also

Gemini Opp. at 22 (noting “GGC’s flagrant breach of the Second Amendment by refusing to

transfer the [Additional GBTC Shares] to Gemini as required.”); cf. In re Enron Corp., 2004 WL

726088, at *3 (S.D.N.Y. Apr. 2, 2004) (noting that movant could not establish that it had a

property interest sufficient to impose a constructive trust on debtors without relying on void

agreements). And the Court agrees with both parties that the question of whether a security

interest exists here is—in fact—explicitly governed by the language of the Second Amendment.

Gemini next argues that even if a valid contract exists, the Court should grant its

constructive trust claim because “Gemini does not have an adequate remedy at law, such as

if an action for breach of the Second Amendment would render Gemini and the Earn Users

materially worse off as general, unsecured creditors of the estate.” Gemini Opp. at 18–19.

Gemini relies on Simonds v. Simonds, 45 N.Y.2d 233 (1978), which held that a constructive trust

remedy was available where a breach of contract action existed against a decedent’s estate, but

the estate’s insolvency “would make such an action fruitless” and “worthless.” Id. at 238, 240.

But Gemini’s remedy for a breach of contract here is far from worthless. If it prevails on a

breach of contract claim, Gemini would be entitled to recover as a general unsecured creditor and

share ratably with other general unsecured creditors. See In re First Cent. Fin., 377 F.3d at 216

(“We concede that [the movant], like many other creditors, will not, in all probability, be made

whole in the proceedings; but that does not mean its remedy is legally inadequate, simply that it

is imperfect.”); see also Amended Disclosure Statement with Respect to the Amended Joint Plan

of Genesis Global Holdco, LLC et al., Under Chapter 11 of the Bankruptcy Code at § III.E [Case

No. 23-10063, ECF No. 1031] (noting likely anticipated recovery of anywhere from 61% to

100% for unsecured creditors of GGC).

Additionally, Gemini’s allegations in the Complaint do not meet the third requirement for

unjust enrichment, because they do not demonstrate a “special reason” why a constructive trust

claim should be imposed in favor of a single creditor, at the expense of other creditors in these

bankruptcies. Granting relief to Gemini here would result in the GGC estate relinquishing

property that would otherwise go to satisfying the claims of all unsecured creditors on an equal

basis. See In re Chowaiki, 593 B.R. at 721 (dismissing constructive trust claim where the

movant’s “pleadings do not demonstrate a ‘substantial reason’ for the Court to allow him to

remove the . . . [f]unds from the bankruptcy estate, at the expense of other creditors.”)

Indeed, even if Gemini was correct that GGC engaged in “unjust, pre-petition conduct

culminating in GGC wrongfully obtaining and retaining the [Additional GBTC Shares],” Gemini

Opp. at 21, that alone does not justify a constructive trust in these bankruptcy cases. Courts

recognize that by “creating a separate allocation mechanism outside the scope of the bankruptcy

system, the constructive trust doctrine can wreak . . . havoc with the priority system ordained by

the Bankruptcy Code.” In re First Cent. Fin., 377 F.3d at 217. So while bankruptcy law does

not trump state constructive trust law, that “does not diminish the need to act very cautiously to

minimize conflict with the goals of the Bankruptcy Code. In light of the fact that these goals can

be compromised by the imposition of a constructive trust, bankruptcy courts are generally

reluctant to impose constructive trusts without a substantial reason to do so.” Id. at 217-18; see

also Sec. Inv. Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 654 B.R. 224, 237 (Bankr.

S.D.N.Y. 2023) (“[C]onstructive trusts are anathema to the equities of bankruptcy since they take

from the estate, and thus directly from competing creditors, and not from the offending debtor.”)

(internal citations and quotations omitted); In re Dreier, LLP, 429 B.R. 112, 137 (Bankr.

S.D.N.Y. 2010) (“Because the constructive trust in bankruptcy harms other creditors rather than

the debtor, the equities that will support the imposition of a constructive trust under the common

law do not necessarily support imposition of the same constructive trust in bankruptcy.”); In re

Chowaiki, 593 B.R. at 720 (“In the context of bankruptcy, where . . . liabilities generally

outweigh assets, a court must consider the equities of all creditors in determining whether there

was unjust enrichment.”) (internal citations and quotations omitted).21

Not surprisingly then, bankruptcy courts generally have held that wrongful prepetition

conduct will not justify the imposition of a constructive trust where it would favor one creditor

over others. See, e.g., In re Chowaiki, 593 B.R. at 721 (“No equities would be served here by

allowing Plaintiff to satisfy his losses while similarly situated creditors, many of whom hold

similar causes of action against the Debtor for fraud and fraudulent inducement, wait for pro rata

distribution.”); In re Ades & Berg Grp. Inv’rs, 550 F.3d 240, 245 (2d Cir. 2008) (“There is no

21 The Debtors have asserted that the transfer of the Additional GBTC Shares as contemplated under the

Second Amendment would constitute a preferential transfer under Section 547 of the Bankruptcy Code. See GGC’s

Answer at GGC’s Countercl. ¶¶ 75-84. If that was the case, GGC would not be unjustly enriched by its retention of

the shares because the Debtors’ estates would be entitled to a claw back of the shares from Gemini. Given the

Court’s decision today, however, it does not reach that issue or Gemini’s related safe harbor defenses.

inequity in treating [the creditor-plaintiff] in the same manner as any other depositor/creditor

who was unfortunate enough to have placed its money with the [debtor].”); In re Dreier LLP,

2016 WL 3920358, at *7 (S.D.N.Y. July 15, 2016) (“Equity is not served by disadvantaging one

set of victims in order to restore another, where the only source of assets is limited to a common

pool.”); In re Dreier LLP, 429 B.R. at 134 (“The right of a Ponzi scheme victim . . . to gain

priority over other victims, is severely limited.”); cf. In re Ades, 550 F.3d at 244 (“[R]etention by

[a] bankruptcy estate of assets that, absent bankruptcy, would go to a particular creditor is not

inherently unjust.”).22

2. Confidential or Fiduciary Relationship

“A fiduciary relationship arises ‘between two persons when one of them is under a duty

to act for or to give advice for the benefit of another upon matters within the scope of the

relation.’” Genger v. Genger (In re Genger), 2021 WL 3574034, at *20 (Bankr. S.D.N.Y. Aug.

12, 2021) (quoting Roni LLC v. Arfa, 18 N.Y.3d 846, 848 (2011)). “‘[A]t the heart of the

fiduciary relationship’ lies ‘reliance, and de facto control and dominance.’” Id. (quoting United

States v. Chestman, 947 F.2d 551, 568-69 (2d Cir. 1991)). In the Complaint, Gemini states that

“[t]he relationship among Gemini, Earn Users, and GGC constitutes a confidential and/or

fiduciary relationship.” Compl. ¶ 81. But the Court disagrees.

The plain language of the contract between the parties is fatal to Gemini’s argument.

Specifically, the parties to the MLAs represent and warrant that “[t]he other Parties are not

acting as a fiduciary for or an advisor to it in respect of any Loan.” MLA § V(j) (emphasis

22 As counsel to the Debtors noted at the hearing on these motions, almost the entirety of the unsecured

creditor body had contracts with the Debtors in which the Debtors were required to return cash or cryptocurrency,

but did not. See Hr’g Tr. 99:24-100:3 (Jan. 18, 2024). Thus, the wrongdoing alleged by Gemini—that the Debtors

failed to provide Gemini with assets they were owed under a contract—is not so distinct from that experienced by

the Debtors’ other creditors.

added). The “Parties” are defined in the MLAs as including GGC, Gemini and an individual

Earn User. See MLA at 1. Gemini reasons that the MLAs are irrelevant in these circumstances

because they govern the parties’ relationship “in respect of any Loan,” and the relationship that

Gemini alleges between the parties here “arose out of the negotiation of the Security Agreement

and Second Amendment, neither of which contained any such disclaimer.” Gemini Opp. at 25-

26. But the Security Agreement was intertwined with, and intended to supplement, the MLAs.

The Security Agreement explicitly incorporates the MLAs’ defined terms and expressly states

that the transactions contemplated therein were “in consideration of the outstanding and future

transactions under the [MLAs].”23 See Security Agreement at 1. Section 2 of the Security

Agreement similarly references the MLAs when discussing the security interest to be granted to

Gemini:

As security for the prompt payment and performance in full when due . . . of all

liabilities and obligations of [GGC] under the [MLAs], whether now existing or

hereafter arising . . . [GGC] hereby pledges, assigns, and grants to [Gemini], for

the benefit of [Gemini] and the [Earn Users], a security interest in all of [GGC’s]

right, title, and interest in and to all property from time to time transferred by or

on behalf of [GGC] to or for the benefit of [Gemini] or the [Earn Users] in

connection with this Agreement or any [MLA] . . . .

Id. at § 2. Moreover, the remedies set forth in the Security Agreement were available to Gemini,

among other circumstances, “[u]pon an event of default (or similar term) under any MLA . . . .”

Id. at § 3(a). That the Security Agreement and its amendments did not restate each element of

the MLAs—such as the disclaimer of a fiduciary relationship—does not create a fiduciary

relationship where one did not previously exist.24

23 The Security Agreement states that “[a]ll capitalized terms not otherwise defined herein shall have the

respective meanings assigned to them in the Master Loan Agreements.” Security Agreement at 1.

24 Even if one were to conclude that the disclaimer in the MLAs was not dispositive, it would be a powerful

indication of the arms’ length relationship between these parties and the notion that, if they wanted to establish a

fiduciary relationship, they would explicitly do so.

As against this language that disavows a confidential relationship, Gemini’s Complaint

provides no basis to impose one. There is nothing to indicate that the parties’ relationship or the

transactions at issue created the fiduciary or special relationship that is required to impose a

constructive trust. “Even supposing that a contractual relationship imposed a duty to act . . . no

constructive trust will be found when the relationship is not marked by the unique degree of trust

and confidence typically characteristic of a fiduciary relationship.” New York v. Matamoros (In

re Matamoros), 605 B.R. 600, 608 (Bankr. S.D.N.Y. 2019) (internal citations and quotations

omitted). Here, the parties had a contractual relationship under the MLAs, the Security

Agreement and the Second Amendment, all of which demonstrate arms’ length business

transactions between the parties. See, e.g., MLA § XXIII (“The Parties acknowledge that the

Agreement and any Lending Request are the result of negotiation between the Parties which are

represented by sophisticated counsel. . .”); see also In re Chowaiki, 593 B.R. at 722 (“Generally,

an arm’s length business transaction, even those where one party has superior bargaining power,

is not enough to give rise to a fiduciary relationship.”); Mfrs. Hanover Tr. Co. v. Yanakas, 7 F.3d

310, 318 (2d Cir. 1993) (“[T]he mere fact that a corporation has borrowed money from the same

bank for several years is insufficient to transform the relationship into one in which the bank is a

fiduciary.”).

Gemini suggests that a fiduciary or confidential relationship somehow began when

Gemini requested information from GGC regarding GGC’s financial condition and continued

when GGC promised to transfer the Additional GBTC Shares and Gemini relied on that promise.

See Gemini Opp. at 24-25. Gemini cites to A. Brod, Inc. v. SK&I Co., L.L.C., 998 F. Supp. 314

(S.D.N.Y. 1998), for the proposition that a confidential or fiduciary relationship will arise “out of

a close and intimate association which creates and inspires trust and confidence between the

parties.” Id. at 327 (internal citations and quotations omitted). But the facts of the A. Brod case

are far different. It involved parties that were represented by the same counsel entering into an

agreement in which a copyright was assigned from one party to the other so that the assignee

could bring a copyright infringement claim on the assignor’s behalf. See id. at 327-28. In

holding that the relationship was one of trust and confidence, the court specifically found that the

assignor “could be viewed as having placed its trust in [the assignee] to protect its . . . interests.”

Id. at 327-28. In addition, the fact that they shared an attorney “underscore[d] their unity of

interests and the absence of arms-length bargaining.” Id. at 328. No analogous facts are plead

here that would indicate that kind of close relationship of trust and confidence between GGC and

Gemini given their arms-length relationship.

3. Transfer of Value

“A constructive trust is imposed on sums transferred to a fiduciary in reliance on a

promise by which he or she is unjustly enriched.” Malmsteen v. Berdon, LLP, 477 F. Supp. 2d

655, 669 (S.D.N.Y. 2007) (holding that “plaintiff [was] not entitled to a constructive trust” over

funds separate from those allegedly transferred by plaintiff to defendant). A constructive trust is

most often imposed for assets that a plaintiff has transferred in reliance on defendant’s promise,

or for property that the plaintiff’s transfer of assets was ultimately used to acquire. See, e.g.,

Sharp v. Kosmalski, 351 N.E.2d 721, 722 (N.Y. 1976) (reversing lower court’s dismissal of

plaintiff’s request for imposition of a constructive trust over “property transferred to defendant

on the ground that the retention of the property . . . was in violation of a relationship of trust and

constituted unjust enrichment”); Fairfield Fin. Mortg. Grp., Inc. v. Luca, 584 F. Supp. 2d 479,

485-86 (E.D.N.Y. 2008) (declining to dismiss request for imposition of a constructive trust over

property that defendant purchased using funds that the plaintiff transferred to it in reliance on

defendant’s promise to use the funds for a different purpose). By contrast, Gemini here seeks a

constructive trust over assets that Gemini did not transfer to GGC in reliance on a promise. Nor

were the assets acquired with any property that Gemini transferred. As the Additional GBTC

Shares flowed from third party DCG to the Defendant GGC, Gemini never had an interest in the

Additional GBTC Shares. See Bontecou v. Goldman, 477 N.Y.S.2d 192, 195 (App. Div. 2d

Dep’t 1984) (“In order to establish that there was a transfer in reliance on [a] promise, it must be

shown that the party seeking to impose the constructive trust had some interest in the property

prior to obtaining the promise that the property would be conveyed, and that this interest was

parted with in reliance on the promise.”); Walker v. Babalola, 2019 WL 1526950, at *4 (N.Y.

Sup. Ct. Mar. 27, 2019) (“No constructive trust will be imposed by one who has no interest in the

property prior to obtaining a promise that such interest will be given to him.”); see also Mance v.

Mance, 513 N.Y.S.2d 141, 141 (App. Div. 1st Dep’t 1987) (plaintiff seeking constructive trust

over a company’s equity failed to establish transfer in reliance of a promise because he

“possessed no prior interest in the company which he relinquished in reliance on the alleged

promise”).25

D. Holdco and GAP

In addition to seeking to dismiss Counts II, III, and IV of the Complaint, the Debtors

move to dismiss the entirety of the Complaint as to GAP and Holdco. See generally Debtor’s

MTD. The Debtors assert that Gemini fails to state a plausible claim for relief as to GAP and

Holdco because the Complaint lacks facts that might establish any basis for liability against GAP

or Holdco. Id. at ¶ 26.

25 A stereotypical fact pattern is seen in Fairfield Fin. Mortg. Grp., 584 F. Supp. 2d at 486, in which a

plaintiff transferred $30,000 in reliance on the defendants’ promise to use the funds to further plaintiffs’ business

interests, which defendant then improperly used to purchase an interest in property for his own benefit.

It is well settled that a complaint is insufficient “if it tenders ‘naked assertion[s]’ devoid

of ‘further factual enhancement.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557).

Of the eighty-five paragraphs in the Complaint, only three paragraphs refer to GAP and Holdco;

those references come in the context of identifying the parties to the Complaint. See Compl. ¶¶

17-19. Neither Holdco nor GAP were parties to the MLA, the Security Agreement, the First

Amendment, or the Second Amendment. The Complaint does not contain any allegations that

Holdco or GAP were involved in the lending relationship with the Earn Users or connected with

the current dispute regarding the August 2022 Collateral or the Additional GBTC Shares.

Gemini nonetheless asserts that GAP and Holdco are appropriate defendants in this

matter because “Gemini does not have complete knowledge and information as to the corporate

relationship among Defendants [GGC], [Holdco], and [GAP], including which entity may

actually be holding the [Additional GBTC Shares], and which entity or entities were responsible

for the decision to not transfer the [Additional GBTC Shares] to Gemini.” Compl. ¶ 17, n.8; see

also Gemini Opp. at 9. Gemini nonetheless summarily concludes that “Holdco and GAP were

important players in the events giving rise to Gemini’s claims” and that Genesis—defined to

include Holdco and GAP—was responsible for asserting that Gemini’s foreclosure of the August

2022 Collateral did not satisfy applicable law. Gemini Opp. at 8-9.

But this speculation is not connected to any factual allegations in the Complaint. The

Complaint itself does not state what actual actions these two Defendants took or what their

“important” role was. Gemini’s general suspicions about these Defendants and the August 2022

Collateral is insufficient to constitute “factual content that allows the court to draw the

reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at

678 (citing Twombly, 550 U.S. at 556). Further, Gemini cannot cure the Complaint’s deficiency

by now generally asserting in its motion papers that GAP and Holdco might be holding the

Additional GBTC Shares. See Gemini Opp. at 9. “[I]t is axiomatic that the Complaint cannot be

amended by the briefs in opposition to a motion to dismiss.” O’Brien, 719 F. Supp. at 229. Of

course, there may be good reasons why Gemini does not know whether these two Defendants

were involved—or to what extent—in the events alleged in the Complaint. But that fact cannot

remedy the lack of allegations about their actual involvement. For all these reasons, the Court

will dismiss these two Defendants without prejudice, recognizing that Gemini may later learn

information to flesh out its understanding and improve its ability to adequately plead a cause of

action against GAP and Holdco.

CONCLUSION

For the reasons stated above, the Debtors’ MTD is granted for Counts II, III and IV as

against all Defendants and granted without prejudice for all Counts against Holdco and GAP.

Gemini’s MTD is denied as to Counterclaim IV and is denied as moot as to Counterclaims VI

and VII as to the Additional GBTC Shares. The Debtors should settle an order on three days’

notice. The proposed order must be submitted by filing a notice of the proposed order on the

Case Management/Electronic Case Files docket, with a copy of the proposed order attached as an

exhibit to the notice. A copy of the notice and proposed order shall also be served upon counsel

to Gemini.

Dated: White Plains, New York

February 7, 2024

/s/ Sean H. Lane

UNITED STATES BANKRUPTCY JUDGE