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Ethereum co-founder’s suit underscores importance of pre-contract legal review

On Behalf of | Aug 9, 2019 | Business Litigation

California blockchain investors may be interested to learn that Harrison Hines, the founder of the Token Foundry, is suing a former business partner for breach of contract. His lawsuit was filed in the New York County branch of the Supreme Court of the State of New York on June 5.

According to court documents, Hines is seeking over $13 million in damages from Joseph Lubin, the co-founder of the Ethereum cryptocurrency project and also the co-founder of the ConsenSys project, which helped provide funding for Hines’ Token Foundry. The Token Foundry, which specialized in helping new blockchain companies issue and market tokens, had to lay off most of its employees, including Hines, during the crypto market crash of 2018. However, the lawsuit contends that ConsenSys lied about the amount of equity available to employees when Token closed down and cheated them out of their rightful disbursement percentages.

Hines is accusing Lubin and co-defendants ConsenSys AG and ConsenSys Token Foundry of breach of contract, fraud, conversion, unjust enrichment, quantum meruit, declaratory judgement and unpaid profits. He is seeking $12,827,000 for breach of contract and fraud and another $404,783 in unpaid profits. According to the suit, the defendants have between 20 and 30 days to respond to the summons. If they do not, judgement will be entered against them in court. Lubin has not yet publicly responded to the lawsuit.

Contract disputes are a common occurrence in the business world.  Insurance carriers often deny coverage for contract-based litigation based on commonly appearing exclusions for such liability, resulting in potentially huge cash drains for the defendants. Thus, companies entering into written contracts — even those that appear somewhat straightforward and susceptible to the use of a form agreement — should consult with business litigation attorneys during the drafting process.  The appropriate legal consultation, i.e., “prevention,” before signing is well worth the expense.  Doing so could help identify provisions ripe for disputes, as well as important missing provisions that could prevent, or reduce the costs and burdens of, later litigation alleging breach of contract or fraudulent misrepresentations or concealment in entering into the agreement.