Key Highlights
- A U.S. law firm filed a lawsuit claiming it was wrongly blocked from receiving an approved $11 million success fee linked to a $185 million settlement.
- The dispute began while Rhodium Enterprises was going through bankruptcy.
- A bankruptcy judge approved the success fee in December, but the special committee and investor group have appealed the decision.
Texas-based law firm Lehotsky Keller Cohn has filed a lawsuit against a special board committee of crypto mining company Rhodium Enterprises and an investor group.
According to the lawsuit filing, the firms said they blocked payment of an $11 million success fee and damaged their reputation during Rhodium’s bankruptcy. The lawsuit was filed on Friday in the U.S. District Court, Southern District of Texas.
Dispute over settlement payment
At the center of the dispute is a $185 million settlement reached last year between Rhodium and Whinstone, a subsidiary of Riot Platforms. Lehotsky Keller says it played a key role in securing that agreement and is therefore entitled to a success-based payment.
In its complaint, the firm alleges that a board committee formed during the bankruptcy process carried out what it described as a “scorched-earth” campaign to delay, reduce, or avoid paying the fee.
It also alleges that the committee withheld information and publicly accused the firm of breaching its duties and committing malpractice. Court filings state that those accusations were later withdrawn. Lehotsky Keller has denied any misconduct and maintains that it followed proper procedures in seeking its compensation.
The special committee, according to the lawsuit, argued that the firm tried to secure its payment before the final sharing of the settlement funds was decided. In simple terms, the disagreement is about when and how the firm should be paid. A bankruptcy judge approved the success fee in December. However, the special committee and the investor group have appealed that decision, meaning a higher court will review it.
The law firm also said it has suffered “severe” harm because of the dispute. It claims it has spent more than $1.5 million in extra legal costs defending itself against what it called “baseless attacks” and working to recover the approved fee.
Bankruptcy context
Rhodium filed for Chapter 11 bankruptcy on August 24, 2024, in the U.S. Bankruptcy Court for the Southern District of Texas. The filing included six subsidiaries: Rhodium Encore, Jordan HPC, Rhodium JV, Rhodium 2.0, Rhodium 10MW, and Rhodium 30MW.
In that same month, the mining company was granted permission by a court to take a loan worth about $30 million from Galaxy Digital.
Weeks later, investors who had bought Simple Agreements for Future Equity (SAFEs) with Rhodium filed claims worth more than $70 million. SAFEs are agreements that allow investors to get company shares or cash if the company goes public or is liquidated.
Rhodium argued that SAFE holders were not creditors because these agreements are not debts but a form of equity. However, SAFE investors, including Celsius Holdings, said the agreements entitled them to cash payments when the company’s assets were sold or liquidated.
On August 30, the court ruled in favor of the SAFE holders, saying their agreements created valid claims for cash-out payments.
Lehotsky Keller Cohn, founded in 2021 by former U.S. Supreme Court clerks, had represented Rhodium before the bankruptcy filing and was later retained as special litigation counsel during the bankruptcy process. The firm says it played a key role in helping Rhodium reach the $185 million settlement and is now fighting to recover its success fee.
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