Why NFTs Will Soon Be Used to Serve You With a Lawsuit?
When it comes to receiving court papers, the common perception is that of a process server pursuing a defendant with a complaint and summons. This method of service, known as personal delivery, is the most direct approach, although there are other recognized ways to serve a summons and complaint, such as via mail. A court will not permit a plaintiff to stray from these established methods of service, except in exceptional circumstances. However, the emergence of blockchain technology has introduced a new form of service: service using non-fungible tokens (NFTs).
In recent times, two courts have permitted plaintiffs to serve anonymous defendants through the use of NFTs. NFTs are digital files that commonly hold creative works such as music, art, and video, but can contain almost any type of file. NFTs leverage blockchain technology to establish the credibility of the transaction. This makes NFTs a more advantageous option for cases that involve anonymous defendants in disputes related to blockchain technology, as compared to in-person or mail services. Nevertheless, there are still uncertainties surrounding the process and circumstances for serving someone through an NFT in a legal lawsuit.
Recent Court Cases in the US
LCX AG v. John Doe Nos. 1-25 is the first reported case of a defendant being served via NFT. LCX AG, a cryptocurrency exchange company based in Liechtenstein, reported a public theft of almost $8 million in digital assets in January 2022. The company conducted an investigation and informed law enforcement of the situation. Although LCX was able to trace $1.3 million of the stolen assets to a particular wallet address on the blockchain, it was unable to identify the thief's name or address. Therefore, when the company filed a lawsuit in New York County Supreme Court, it requested that the judge allow service via NFT.
LCX suggested distributing a service token that includes a hyperlink to a website designed by the plaintiff's lawyer. This website would contain the order to show cause and all supporting legal documents. The service hyperlink would also have a feature to monitor clicks on the link.
Andrea Masley, a Justice of the New York Supreme Court, granted LCX's petition to utilize an NFT for service, deeming it a valid and satisfactory method for establishing jurisdiction in accordance with New York state law.
Similar Case in Europe
Fabrizio D'Aloia, founder of Italy-based online gambling company Microgame, was granted permission by the High Court of England and Wales in July 2022 to deliver court papers to the defendants via an NFT airdrop. D'Aloia claimed he was deceived by the unknown defendants, resulting in the loss of $2.1 million worth of cryptocurrency assets deposited in online brokerage accounts.
Two wallet addresses on the blockchain were traced to the individuals responsible for the fraudulent platform, and the court authorized D'Aloia to sue them by sending court papers through NFT to the two wallets. This is the initial European instance where a plaintiff has been allowed to serve via NFT, following the New York case as the second in the world.
Is It Possible That NFTs Will Become a Regular Method of Court Paper Service?
Although there are constitutional concerns, certain cases have shown that defendants can be served court papers via NFT if the plaintiff follows specific procedures to ensure due process. These cases recognize that in disputes involving blockchain technology, defendants are often anonymous and service via NFT can make it easier to sue thieves and deter illegal behavior. However, it is uncertain if courts will allow service via NFT to become common, given the potential weaknesses of this method of service.
One possible challenge is that courts have not yet considered a defendant’s challenge to the adequacy of such service. If a defendant later claims that they were not served adequate notice, they could argue that the method of service was not fair according to constitutional requirements.
Another possible challenge stems from the uncertainty of whether the defendant actually opened the NFT and clicked on the hyperlink embedded in the token. While unlikely, a defendant could argue that the hyperlink was clicked by another party with access to the wallet, potentially leading to a court vacating a default judgment against the defendant at a later date.
Despite the many advantages of utilizing NFTs for delivering court summons, there are legal requirements that must be adhered to. NFTs are being utilized by some companies not only to serve court documents but also to combat counterfeits.
With the use of blockchain technology, NFTs can validate the authenticity, originality, and non-copyright of a digital asset, making them impervious to destruction and simple to verify. Smart contracts can transfer royalties and fees to the creator, enabling media companies to bind their exclusive content to NFTs and give their consumers a distinct experience using this technology.
The future and Switzerland
The frequency of NFT-based services is expected to rise because the number of blockchain transactions is continuously increasing. Therefore, it is crucial to engage an attorney who has a thorough understanding of these matters. Considering that a court in the US and another in Italy have allowed use of NFTs in their courtrooms, the same is expected to happen in the entire EU, and Switzerland.