Bankruptcy Court Approves Service of Subpoenas Via Email and Twitter

In the Chapter 15 case of Three Arrows Capital, Ltd., the Bankruptcy Court for the Southern District of New York recently held that Rule 45 of the Federal Rule of Civil Procedure (“Rule 45”) authorizes service of subpoenas to U.S. nationals or residents who are in a foreign country through alternative means to personal service, including via email and Twitter. In reaching this conclusion, the Bankruptcy Court noted the “curious” lack of case law on alternative service in the context of Rule 45 but was “convinced” that service via email and social media can be used to establish actual notice so as to satisfy the requirement of due process. 

Background

Three Arrows Capital, Ltd. (“3AC”) is a Singapore-based cryptocurrency investment firm incorporated under the laws of the British Virgin Islands (“BVI”), co-founded by Kyle Livingstone Davies and Su Zhu (the “Founders”). The once-prominent firm collapsed in the wake of what became widely known as the “crypto winter” and commenced a liquidation proceeding in BVI (the “BVI Proceeding”). The joint liquidators appointed in the BVI Proceeding, acting as foreign representatives (the “Foreign Representatives”), commenced a Chapter 15 case in the Bankruptcy Court and were granted certain provisional relief to preserve 3AC’s assets located in the United States, including the authority to conduct discovery through subpoenas. 

In October 2022, the Foreign Representatives filed a Motion for Entry of an Order Authorizing Alternative Service of Process (the “Service Moton”), seeking to serve subpoenas on, among others, the Founders. The Foreign Representatives claimed in the Service Motion that despite numerous inquiries and informal interactions with the Founders and relevant third parties, they were unable to obtain sufficient information about the Founders’ locations to attempt personal service of subpoenas and that the Founders have refused to cooperate with the Foreign Representatives to provide information regarding 3AC’s assets.

Having established that Rule 45 contains territorial statutory limitations that permit the service of subpoenas only on U.S. nationals or residents outside of the United States, the Bankruptcy Court declined the Service Motion with respect to other parties except Davies, the only known U.S. national. The Bankruptcy Court also found evidence warranting alternative service in satisfaction of the requirements under 28 U.S.C. § 1783, which governs subpoena of person in foreign countries, that the discovery sought by the Foreign Representatives is (i) necessary and in the interest of justice, as the Founders are arguably the only parties with knowledge regarding 3AC’s assets and liabilities, and (ii) likely not obtainable via other means. Accordingly, the Bankruptcy Court approved the use of service on Davies by email and Twitter, as proposed by the Foreign Representatives.

Discussion

Although Rule 45 only expressly permits personal service of subpoena by “delivering a copy to the named person,” the Bankruptcy Court noted that district courts in the Second Circuit routinely authorize alternative means of service where such alternative service is “reasonably calculated” to provide timely actual notice in a manner consistent with the requirement of due process. In considering whether alternative service is permissible in the instant case, the Bankruptcy Court addressed the issues of (i) when alternative service is appropriate, and (ii) whether alternative service via email and social media will provide actual adequate notice. 

First, the Bankruptcy Court examined whether alternative service may be permitted under Rule 45 when the Foreign Representatives have demonstrated no prior attempts of personal service. The Bankruptcy Court determined that case law in this district has established that whether prior attempts are required depends on the circumstances of each case, and the lack of such attempts by the Foreign Representatives in this case is not due to a lack of effort or diligence, as the Founders have moved between countries, actively concealed their whereabouts and are not reachable through other avenues, such as counsel or a registered agent in the United States. The Bankruptcy Court concluded based on such evidence that the absence of prior attempts of personal service does not bar the relief of alternative service sought by the Foreign Representatives. 

Second, the Bankruptcy Court noted the lack of case law addressing whether service via email and Twitter, as proposed by the Foreign Representatives, is “reasonably calculated” to provide adequate notice in the context of Rule 45. The Bankruptcy Court determined that the strong support provided by case law where service via email and social media was permitted pursuant to Rule 4 of the Federal Rules of Civil Procedure (“Rule 4”), which governs the service of summons and complaint, is especially persuasive, since the “reasonably calculated” standard derives from the underlying due process requirement applicable to both rules. The Bankruptcy Court found it significant that: (i) the Foreign Representatives proposed to serve via email addresses provided by the Founders themselves for the purpose of receiving informal discovery questions; (ii) there exists a showing of recent and actual use of the email and Twitter accounts; and (iii) the use of the Twitter accounts appears to be public, which could provide evidence of actual receipt of the subpoenas. Looking to prior case law in the context of Rule 4 and evidence presented by the Foreign Representatives, the Bankruptcy Court concluded that alternative service via email and Twitter of a Rule 45 subpoena to an U.S. national located in a foreign country is permissible. 

What’s Next?

Issues of alternative service are relatively novel in the United States, and this opinion is the first published decision permitting service via social media. Other courts, however, demonstrated a similar willingness to adapt existing legal principles to developments in cryptocurrency. For instance, in June 2022, the English High Court found that service on unknown persons by airdropping non-fungible tokens (a/k/a NFTs) to the persons’ crypto wallets, combined with service by email, is permissible. This decision is in line with the English Courts’ “practical view of service,” having allowed service via Twitter, Facebook and text messages where appropriate in the past. A detailed discussion of this ruling can be found in a previous OnPoint by Dechert’s international litigation team, accessible here. A growing number of bankruptcy courts and other U.S. federal courts will undoubtedly encounter the same inquiries of whether established rules of service may be applied to accommodate new technologies. 

This opinion is available here.