June 7, 2022

NY Supreme Court Orders Service of Process by "Airdrop"

Jason Schwartz Commentary by Jason Schwartz

In a civil case involving the theft of digital assets, the Supreme Court of the State of New York (the "Court") authorized a cryptocurrency exchange to serve notice on a group of anonymous defendants via "airdrop" using a special-purpose Ethereum-based token.

In the Order to Show Cause, (found here,) the Court directed the plaintiff's lawyers to send papers "upon the person or persons controlling the Address via a special-purpose Ethereum-based token (the Service Token) delivered - airdropped - into the Address." The Court stated that "Such service shall constitute good and sufficient service for the purposes of jurisdiction under NY law on the person or persons controlling the Address." The Court ordered that the digital token contain a hyperlink to a website that includes the Court's order and includes a mechanism to track when a person interacts with the link. The Order also prohibits the defendants from disposing of the allegedly stolen tokens.

The plaintiff exchange is seeking (i) damages in the amount of $7,942,788, which is the total value of the stolen assets, (ii) pre-judgement interest, (iii) an injunction ordering the return of the stolen assets or any profits derived from the sale of assets, (iv) reimbursement for the cost of legal fees and other costs incurred and (v) any additional relief the court deems necessary.

Commentary

This appears to be the first use of a service token by a U.S. court, and raises fascinating questions about the extent to which a web3 wallet can be used as a proxy for the person or persons who know its private key. Incidentally, it also hammers home one of the first things you learn when you get into crypto: never interact with a token or link you don’t recognize.

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