Diamond Fortress Sues Over Lost Crypto Keys, Delaware Court Ducks Core Question
Delaware’s Superior Court just refused to decide whether a software company can be forced to hand over private keys after a business partner vanished with access. The narrow ruling leaves both sides in limbo and signals that state judges may keep dodging the thorniest crypto questions until federal regulators or Congress step in.
Diamond Fortress Technologies and its founder Charles Hatcher II filed suit after their former partner allegedly locked them out of digital wallets holding millions in tokens. They argued the partner’s refusal amounted to conversion and breach of fiduciary duty, seeking a court order compelling him to surrender the keys or recreate access. The defendant countered that Delaware courts lack jurisdiction over digital assets stored on decentralized networks and that no traditional property right attaches to private keys. Superior Court Judge Paul R. Wallace ultimately dismissed the case on procedural grounds, holding that the plaintiffs had not properly served the defendant under Delaware’s long-arm statute and that the complaint failed to plead facts showing the partner still controlled the disputed wallets.
The decision does not resolve whether private keys constitute “property” under Delaware law or whether a state court can compel their disclosure. It also leaves untouched the larger issue of how decentralized systems interact with conventional notions of possession and control.
In plain English, the court told the plaintiffs their paperwork was incomplete and their facts too thin; it did not say the claims were impossible, only that they must be brought correctly and with clearer evidence of ongoing control. Until those gaps are filled, no precedent exists in Delaware on whether judges can order the return of crypto keys the way they might order the return of a stolen car.
For crypto markets the ruling underscores a continuing gap between code and courtroom. The SEC and CFTC gain no new enforcement tool, but neither do token holders gain a reliable state-law remedy when keys are lost or withheld. Exchanges and DeFi protocols that custody assets may breathe easier knowing Delaware judges are not yet willing to treat private keys like corporate records subject to subpoena. Traders, however, face a reminder that recourse still depends on self-custody hygiene rather than judicial rescue.
Until clearer statutes or federal rules emerge, lost keys remain a private disaster with uncertain public remedy.