Analysis: Old Alternative Service, New Blockchain Bottles

This article was written by Stephen Juris and Alex Miller.

Earlier this summer, and with much fanfare, cryptoassets trading platform LCX AG obtained an order from a New York state court judge authorizing it to use a "service token" to serve court papers on unknown defendants accused of stealing $8 million from a virtual wallet. [See LCX AG v. John Doe Nos. 1-25, Index No. 15644/2022 (Sup Ct, NY County, June 1, 2022).] Although rightly hailed as a novel method of service, the legal foundation for the application was a long-established procedural standard authorizing alternative forms of service where the otherwise preferred means - personal service on the defendant - is either not practicable or is being impeded by affirmative efforts to frustrate service of process.

Interestingly, defense attorneys have now entered the fray to dispute the effectiveness of service, perhaps illustrating the value of such service in providing fair notice even where service of process remains in dispute. LCX AG has responded that such service was necessary since defendants' anonymity makes conventional service impossible. LCX AG likewise argues that its service token approach was reasonably calculated to provide actual notice - which counsel's appearance on the scene strongly suggests it did. A hearing on the issue is scheduled for early September.

To date, this case appears to be the first of its kind in a civil context. However, while this is a novel means of service, it is not really any more expansive or aggressive than other forms of alternative service that courts have readily authorized under N.Y. C.P.L.R. § 308 ("Personal service upon a natural person"), Rule 4 of the Federal Rules of Civil Procedure ("Summons"), and other state service of process rules. Under CPLR § 308(5), alternate forms of service may be used "in such manner as the court, upon motion without notice, directs, if service is impracticable under paragraphs one, two and four of this section." In other words, courts may devise their own methods of service if the standard means provided under CPLR § 308 cannot or will not work. The Federal Rules also allow for alternate service in similar contexts.

In all events, alternate service must still comply with basic 5^th Amendment due process requirements - namely, they must be "reasonably calculated, under all circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." [Marvici v. Roche Facilities Maint. LLC, 2021 WL 5323748, at *7 (S.D.N.Y. Oct. 6, 2021).] However, courts historically have found a broad range of alternate service approaches to be valid, including advertisements in local newspapers and other publications, posting summonses in city halls and other public offices, mailing papers to alternate addresses, emailing papers to a known email addresses and even direct messaging papers via Facebook and other social media platforms. Although we look forward to seeing how the LCX AG court addresses defendants' challenges, advances in technology and modes of communication have traditionally been accompanied by changes in the means and methods of alternative service. Given that blockchain technologies allow service information to be reviewed by targeted downstream holders, the type of service authorized in LCX AG arguably is better at giving fair notice and less likely to result in unfair outcomes than newsprint or other public distribution - none of which typically has any particularized connection to the targeted defendant.