Plaintiffs’ lawyers often lament the difficulty complying with service-of-process requirements when dealing with foreign—or just plain slippery—defendants. Such difficulties can be compounded when the litigation involves parties whose very identities may not even be known.
In a novel development for legal procedure in the digital age, the United States Bankruptcy Court for the Southern District of New York recently authorized the service of legal documents through non-fungible tokens (NFTs), marking one of the first decisions to directly address the use of blockchain technology for service of process.
The October 24, 2024 decision arose from adversary proceedings in the Celsius Network LLC (“Celsius”) bankruptcy case, where the litigation administrator sought to recover allegedly-misappropriated assets transferred to cryptocurrency wallets whose owners could not be identified or located.
Background and Analysis
The litigation administrator for Celsius sought to recover assets allegedly misappropriated by Jason Stone and KeyFi Inc. (“KeyFi”). While Celsius settled with Stone and KeyFi, the litigation administrator needed to serve process on subsequent transferees who received the assets - but only had their cryptocurrency wallet addresses.
So the litigation administrator filed a motion for alternative service, which sought permission to serve defendants through NFTs airdropped to their cryptocurrency wallet addresses. The NFTs would contain links to a secure website hosting the legal documents.
Expert testimony was crucial in establishing the reliability of this method. The litigation administrator’s expert from FTI Consulting Group explained that:
The NFT airdrop process would automatically deposit tokens to specific wallet addresses
Each NFT would contain metadata with a clear hyperlink to the legal documents
The website would be secured against tampering and would not appear in search engines
FTI could monitor both the wallets and website traffic to verify receipt and access
Wallet ownership rarely changes hands, making it likely the original defendants still controlled the addresses
While non-parties raised concerns about this unconventional service method, none of the actual defendants appeared to oppose the motion. The court found the expert testimony persuasive in establishing that NFT service was "reasonably calculated" to provide notice to defendants. The court analogized NFT service to already-accepted methods like email and social media, noting
that courts have increasingly embraced technological solutions when traditional service methods are impractical.
Looking Ahead
While the S.D.N.Y. Bankruptcy Court acknowledged that the litigation administrator may face further challenges in prevailing and collecting any judgments, this decision addresses one significant procedural hurdle in pursuing claims against anonymous blockchain participants. As digital asset litigation continues to evolve, this ruling may provide a framework for other courts grappling with similar service challenges in the future.
For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.
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