We’ve seen a big uptick lately in disputes over cryptocurrency platforms– many of which are legit, and many of which are complete scams. The sudden (though, come on– not realistically unexpected) bankruptcy filing of FTX last week promises to kick the issue into overdrive. To be sure, this is not yet another obligatory Sam Bankman-Fried post. It really was scheduled two weeks ago. As Arlo Kipfer points out over at the China Law Blog, crypto scams are highly sophisticated, they grab massive amounts of cash from unwitting investors, and inevitably lead to litigation. Even legitimate platforms are sued routinely, either for alleged mismanagement or deceptive practices, or for patent infringement.
But that litigation may be ill-advised or poorly executed. When the inevitable suits do come about, two thoughts are critical right out of the gate:
- Plaintiff’s counsel, including trustees’ counsel in bankruptcy adversary proceedings, must undertake an analysis of the case’s eventual enforceability (see It ain’t over ’til the client gets a check). Simply put, if you can’t identify a real pocket to reach into, the whole thing is going to be a waste of time, money, and emotional energy.
- Once you’ve concluded that the matter can be won and collected on, make sure you have a way to properly serve the defendant(s), whoever they might be. Fail to properly serve, and you will have given your future enforcement tribunal a lovely and convenient basis for denial.
You can distill the types of defendants in these cases to, essentially, four categories. The first is the simplest– a U.S. defendant who can be readily identified and located. The second is an overseas defendant who can likewise be readily identified and located. The third can’t be identified (in which case, why bother?), and the fourth is identifiable but can’t be pinned down to a location. That breakdown really applies to defendants in all types of cases, whether it be a contract dispute, personal injury, or divorce (okay, just three types there). It’s the fourth category that causes so much undue consternation.
Why? Because the Hague Service Convention is mandatory doctrine where it applies. Yet many litigators are under the impression that the Convention applies any time a defendant is outside the U.S., and that is mercifully not the case. Two years ago, in Good, bad, or unknown addresses… and the Hague Service Convention, I wrote that not knowing a defendant’s address is not the end of the world. That’s vitally important in the crypto world, because oftentimes a defendant’s location can’t be identified– we just know that he/she/it is somewhere outside the United States. And if we don’t know the defendant’s address, Hague strictures simply don’t apply. The text of Article 1 itself is explicit: “This Convention shall not apply where the address of the person to be served with the document is not known.”
So what does a crypto-litigator do? (Yeah, I made that up.)
Seriously– this is the way.