ANALYSIS: Served by a Cartoon Ape? Summons Via NFTs Are Here

Serving a complaint and a court summons on a defendant is one of the first steps in legal proceedings. Identifying who the defendant is and where the defendant is located can be a challenge itself, especially when the alleged wrongful acts occurred in cyberspace under the guise of anonymous accounts.

Courts have routinely permitted service via email and other digital messaging platforms when personal service is impossible. Now, jurisdictions across the country are permitting “service on the blockchain” as a new method for notifying defendants of claims against them.

The cultural relevance of non-fungible tokens (NFTs) may be at an all time low, as evidenced by recent performance of the Bored Ape Yacht Club. But alternative uses of the technology persist in the litigation space.

Service Via Blockchain Spreads to Federal Courts

In 2022, the New York Supreme Court for New York County became the first court in the country to grant a cryptocurrency exchange platform’s motion for alternative service of process. The court allowed the platform to send a court summons directly to crypto wallets associated with an alleged crypto heist. The identities of the individuals associated with the wallet were wholly unknown, and the named defendant in the suit was “1.274M U.S. Dollar Coin.” The court reasoned that, although this particular method of service was a matter of first impression, it was permitted by section 308 of New York’s Civil Practice Law and Rules.

Since then, federal district courts in the Fifth, Ninth, and Eleventh circuits have all permitted service by way of blockchain in cases involving cryptocurrency fraud. It’s reasonable to assume that this form of service could be implemented in any case where defendants trade in cryptocurrency and traditional methods of service are inadequate.

How Does It Work?

Logistically, service via the blockchain is conducted by sending a small amount of cryptocurrency to wallets associated with the defendant. For blockchains that support NFTs like Ethereum, the summons documents can be sent as an NFT directly to wallets associated with the alleged illicit transactions.

Bitcoin is the most popular blockchain network and the cryptocurrency of choice for bad actors. Ransomware cybergangs, for example, will often seek ransom payments in the form of Bitcoin. To serve a court summons on bitcoin wallets, the “OP_RETURN” function is used to attach a message to the transferred cryptocurrency (similar to how the memo line is used on checks). In the “OP_RETURN” message, plaintiffs attach a hyperlink to the complaint and summons.

Requirements for Service on the Blockchain

Electronic service of process isn’t explicitly permitted under the Federal Rules of Civil Procedure. For defendants located in the United States, service by electronic means must be authorized by state statute to be proper under FRCP 4(e). For defendants located outside the US, Rule 4(f) governs and service must be in accordance with international agreements.

When a defendant’s location is wholly unknown, some courts have been wary of authorizing electronic service under Rule 4(f). In Chegg, Inc. v. Doe, the Northern District of California denied service by electronic means because the plaintiff couldn’t prove that the defendant was outside the US.

There’s also a constitutional due process element that underpins both international and domestic methods of service. If a plaintiff can’t demonstrate that a particular method of service would give the defendant sufficient notice in a motion for alternative service, the court will deny it.

Courts in jurisdictions that allow service on the blockchain have reasoned that this method of service satisfies due process because defendants are likely to return to their wallet to access their assets in the future.

For now, it appears that service on the blockchain is set to become yet another method for serving a summons on cyber criminals. Crypto thieves rarely (if ever) show up in court, making appeals based on inadequate service of process unlikely.

Bloomberg Law subscribers can find practical guidance about initiating litigation on our Litigation Intelligence Center page.

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