LCX v. 1.274M US Dollar Coin: Service On the Blockchain

The case of the day is LCX AG v. 1.274M US Dollar Coin (N.Y. Sup. Ct. 2022). I came across this very interesting case at John Lundin’s blog, which covers New York commercial cases. LCX, a Liechtenstein company, alleged it was the victim of a theft of virtual assets on the Ethereum blockchain. Some of the assets, once stolen, were swapped, using Tornado cash, a “mixing protocol” apparently often used for illicit purposes, into a US Dollar Coin wallet maintained by Centre Consortium LLC, a New York company. LCX sued the unknown defendants and sought leave to serve process on them by alternate means, namely, by minting a new crypto coin, to which a hyperlink to the papers to be served would be attached, and delivering the new coins to the crypto wallet to which the stolen assets had been transferred.

The judge, citing cases allowing email service and service via WhatsApp, Facebook messenger, and Twitter, granted the motion. The decision seems right to me. Because the location of the anonymous defendants was unknown, the Service Convention did not come into play. Since the wallet in question had been used recently and contained more than a million dollars in digital assets, notice was reasonably calculated to reach the defendants.

On the other hand, two US lawyers entered appearances for the anonymous defendants. That’s contrary to one of the oldest bits of Letters Blogatory advice for parties seeking to avoid service of process: run silent, run deep. I assume that under New York law, the court could have ordered service on the lawyers. Why didn’t LCX pursue this route? It seems that LCX’s motion was not a motion for permission to serve by alternate means, but a motion to approve service by alternate means that the court had already authorized and that had already occurred. The lawyers entered their appearance only after the service was made (which is pretty good evidence, though post facto, that the documents did reach the anonymous defendants). You might say that in the circumstances, there was no reason for the anonymous defendants’ lawyers not to appear, but I don’t think that’s right. These anonymous defendants faced the risk of a default judgment if they didn’t oppose the motion on service, but they would have had the right to seek to set aside the judgment as void later on service grounds. (I should qualify that by saying I don’t practice in New York state court and am just assuming that what’s true elsewhere is true there, too). But if they remained anonymous, the worst that could happen would be some order compelling the firms that maintain the wallet where the assets are stored to convey the assets to LCX, assuming that is technically feasible. These defendants, though, also face a significant risk of criminal prosecution that can come to pass only if they lose their anonymity, which is exactly what is about to happen. The court also ordered the lawyers to disclose the identity of their clients, holding that under New York law, the attorney-client privilege does not protect the identity of the client in this situation.

Of course, assuming the truth of LCX’s allegations, the best advice a lawyer could give to these anonymous defendants would be advice before the conversion: “don’t steal other people’s things.”

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