The dish one LCX AG v $1.274 million coin et alNo. 156444/2022 (NY Sup. Ct, August 22, 2022) explained that his decision was one of first impression.
The plaintiff LCX is a service provider for virtual assets in Liechtenstein. It has been claimed that around $8 million worth of virtual assets, all based on the Ethereum blockchain, were hijacked on January 8, 2022. The case was initiated when the stolen funds stored in Ethereum wallets 0x29875 and 0x5C41 since January 2022 were exchanged in US dollar coin at wallet 02×29875, managed by Center Consortium LLC, a US company based in New York.
CPLR 308(5) permits alternative process service “in such manner as the court may order upon prompt application where service is impracticable”. The court ruled that it was not necessary to know a defendant’s physical location in order to rely on an alternative service, noting that newer alternative service methods utilizing social platforms and technology have been developed for such services, where the identity of the accused is known but their location is a mystery. In order to use alternative service, due process requires that the mode of service be “reasonably calculated in all circumstances to notify the defendant of the claim”.
LCX supported its claim that it knew the location of the account into which its stolen funds were deposited, but had no information about, and cannot have, the location of the Doe Defendants associated with that account. The court recognized that the defendants were hackers who anonymously exploited a vulnerability in the plaintiff’s computer code to steal approximately $8 million in cryptocurrency from the plaintiff, and almost immediately after the theft used a variety of techniques to get their tracks to obscure and to obscure the trail of transactions followed after the theft
Since cryptocurrency is involved in this case, the plaintiff requested service using cryptocurrency. In particular, the plaintiff would deposit a small amount of new crypto coins into the disputed crypto wallet. On June 3, 2022, the court entered an injunction barring the account with the Center Consortium that was present at the altercation, and the court ordered:
Holland & Knight LLP, plaintiff’s attorneys, will provide the person or persons controlling the address with a copy of this order proving cause along with a copy of the documents on which it is based by June 8, 2022 via a special Ethereum-based token (the service token) delivered – via airdrop – to the address. The Service Token contains a hyperlink (the Service Hyperlink) to a website prepared by Holland & Knight LLP on which Plaintiff’s Counsel will post this Order of Evidence and all documents on which it is based. The service hyperlink includes a mechanism for tracking when a person clicks on the service hyperlink. Such service constitutes good and sufficient service for purposes of jurisdiction under New York law to the person or persons controlling the address.
The court then reviewed the steps taken by the plaintiff to effect service to support its conclusion that it was reasonably calculated to notify the defendants of the complaint. The plaintiff demonstrated that the Doe Defendants regularly use the blockchain address and had only used it on May 31, 2022. Since the account contained nearly $1.3 million coins, Plaintiff had demonstrated that Doe Defendants were likely to return to the account where they would find the Service Token. The court determined that using a blockchain transaction to communicate with the Doe Defendants was the only available mode of communication. In addition, the plaintiff proved that within two weeks of minting the service token, a hyperlink embedded in it had been clicked on by 256 unique non-bot users. Indeed, on June 15, 2022, two attorneys filed appearances on behalf of the Doe Defendants.
For all of these reasons, the court ruled that the service provided by the service token complied with CPLR 308(5).
The plaintiff also requested that the law firm identify its client(s). The court stated that attorney-client privilege does not extend to the identity of a client. And the court said that “the presumption in favor of disclosure is stronger or weaker depending on whether the plaintiff needs to unmask the defendant in order to enforce his rights.” Here, unmasking was necessary to enforce the plaintiff’s right because the plaintiff applied for an injunction. In addition, the identity of the defendants was critical to the court’s assessment of the defendants’ motion to dismiss. Accordingly, the court ordered the law firm to notify the plaintiff in writing of the identity of her client within 48 hours of the date of the decision.
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