Courts approve alternative service via Twitter and blockchain in cryptocurrency cases | Akerman LLP

Recent decisions allowing the service of documents via social media and blockchain technology illustrate how courts are developing solutions to meet the unique and logistical challenges of identifying and serving anonymous crypto wallet holders and US citizens living abroad.

Service of summons by Twitter

In a case of first impression, the bankruptcy court overseeing Three Arrows Capital Ltd.’s Chapter 15 case pending in the Southern District of New York has authorized service via Twitter of a subpoena on one of the debtor’s founders.[1] Unable to determine the whereabouts of the company’s founders, foreign representatives of Three Arrows sought the bankruptcy court’s approval to serve their subpoenas on the founders via social media and email.[2]

The Court originally ruled that Rule 45 only allows service on US citizens and residents such as founder Kyle Livingston Davies, and does not allow service on co-founder Shu Zhu, a foreign national and non-US resident. Next, the Court interpreted the methods of service set forth in Rule 45 as requiring personal service by the named person, noting that the Circuit routinely permits “alternative” service under the rule. The court held that alternative service was permissible even if the foreign representatives could not show any prior attempts to personally serve Davies on the grounds that prior attempts to serve Davies would be futile. Davies had moved between different countries and concealed his locations and would not be amenable to personal service or through registered mail or a solicitor.

Then the court found that service through the popular social media platform Twitter was justified and “reasonably calculated” to provide notice and trial to Davies because of the witness’s recent use of Twitter. Recognizing that the lack of case law for service under Rule 45 via social media and email “is curious,” the court relied on Rule 4 cases that allowed alternative services. The Court appeared to limit its ruling to the particular facts of the case, acknowledging that the result was correct in the “factually rare circumstance” presented.

Operation of process by token

A state court in New York i LCX AG v. 1.27M US Dollar Coin,[3] authorized plaintiff’s process by inserting a service token containing a hyperlink to a “service web page” containing the documents served, in the blockchain and wallet that allegedly contained plaintiff’s stolen cryptocurrency. Plaintiff alleged that Defendants are hackers who stole $8 million worth of cryptocurrency from Plaintiff’s virtual wallet and used Tornado Cash (a virtual currency mixer recently banned in the United States) to make the funds untraceable and conceal the theft. The plaintiff could not identify the alleged thieves, named in the lawsuit as “John Doe Defendants 1-25.” However, the plaintiff obtained an injunction to freeze the account/wallet where the plaintiff alleged that a portion of the stolen cryptocurrency was stored.

In its decision of first impression, the court held that personal service could not be effected under New York’s CPLR 308 because the plaintiff had no way of knowing the identity or physical location of the John Doe defendants. However, the plaintiff determined that the John Doe defendant regularly used the blockchain and was likely to return to the wallet since it held over $1 million in cryptocurrency. Accordingly, the court held that service of the service token was “reasonably calculated, under all the circumstances, to inform the defendant of the action” and was permissible under CPLR 308(5).[4]

To be sure, there is very little regulation and precedent providing guidance on alternative services in the cryptocurrency sector creating the broader economy and commercial transactions. Nevertheless, the use of social media and the blockchain for service of subpoenas and processes may become commonplace as the use of such technologies also continues to increase and develop.

[1] About Three Arrows Capital LtdCase No. 22-10920 (MG) 2022 WL 17985969, (Bankr. SDNY Dec. 29, 2022).

[2] United States District Courts have authorized service via Twitter and Social Media However, the decision by Judge Glenn is the first published decision to allow service through social media in a bankruptcy case. See Nowak v. XAPO, INC., case no. 20-cv-03643-BLF, 2020 WL 5877576, *4 (ND Cal. Oct. 2, 2020) (Service of process by Facebook and Twitter appropriate alternative service after exhausting reasonable efforts to serve defendants in Indonesia.) ; Birmingham v. Doe, 593 F.Supp. 3d 1151, 1159-60 (SD Fla. 2022) (Alternative service of social media messages allowed for foreign defendants residing outside Ukraine).

[3] LCX AG v. 1.27M US Dollar Coin, Index no. 15644/2022, Doc. No. 112, (NY Sup. Ct. Aug. 22, 2022).

[4] Other states have service laws similar to New York. See, e.g, Tex. R. Civ. P. 106(b)(2) (“citation may be served by . . . any other means, including electronically via social media, e-mail, or other technology, that the statement or other evidence shows will be reasonably effective in providing the defendant with notice of the suit.”).