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Crypto Law/Level IX · Death, divorce and disputes/9.3 Going to court/Lesson 1

Suing over crypto: who and where

Choosing the right defendant and the right court: platforms, issuers, promoters and thieves; personal jurisdiction; federal, state or small-claims court; and the stay that halts suits against a bankrupt platform.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Start in small claims where the amount fits: California allows individuals up to $12,500 and businesses $6,250, with filing fees of $30 to $100 and no lawyers; first check the platform’s terms for an arbitration clause and small-claims carve-out.
  2. If the platform is bankrupt, do not sue: the 11 U.S.C. §362 automatic stay halts most actions, so file a proof of claim on Official Form 410 in the bankruptcy case before the court’s deadline.
  3. Federal court on diversity needs over $75,000 in dispute, exclusive of interest and costs, under 28 U.S.C. §1332; smaller claims cost less in state court, where the defendant must have minimum contacts.
  4. For larger claims, a contingency-fee lawyer costs nothing upfront; ABA Model Rule 1.5(c) requires the agreement in writing, signed by the client, stating the fee method and which expenses the client pays.
  5. Before spending anything, write down the defendant’s exact legal entity, where it is incorporated, its dispute clause, the amount at stake and any insolvency; time limits differ by claim, some securities claims within one year.

MaterialsThe terms of service of the platform involved, including the exact legal entity you contracted with and its dispute clause28 U.S.C. 1332 (federal diversity jurisdiction) and 11 U.S.C. 362 (the bankruptcy automatic stay)Ford Motor Co. v. Montana Eighth Judicial District Court (U.S. Supreme Court, 25 March 2021)Your own records of the dispute: dates, amounts, transaction IDs and account statements

Wonder

  1. Who can actually be sued when crypto goes missing?
  2. Can I sue a foreign exchange in a court near where I live?
  3. Is small-claims court an option for a crypto dispute?

Explore

  1. A lawsuit needs a defendant who can be identified, reached and made to pay. Crypto disputes usually involve one of five kinds: a platform that held or moved the coins, sued under its terms (lesson 4.1.1); the issuer or team behind a token, often under securities or fraud law; a promoter (lesson 5.3.2); a developer or DAO (lesson 5.3.4); or a thief. Each needs a different legal basis and raises a different practical problem. A thief is often unknown, which calls for the special orders in lessons 9.3.5 and 9.3.6. A platform is known, but its terms may send the dispute to arbitration (lesson 9.3.2).
  2. A US court can decide a case against a defendant only if it has personal jurisdiction, meaning legitimate power over that defendant. In International Shoe Co. v. Washington, decided on 3 December 1945, the Supreme Court held that due process requires ‘certain minimum contacts’ with the state, so that the suit does not offend ‘traditional notions of fair play and substantial justice’. In Daimler AG v. Bauman, decided on 14 January 2014, it limited general jurisdiction, which covers any claim at all, to places where a company is essentially ‘at home’, typically where it is incorporated or has its principal place of business.
  3. Everywhere else, the claim itself must connect to what the company did in the state; this is called specific jurisdiction. In Ford Motor Co. v. Montana Eighth Judicial District Court, decided on 25 March 2021, the Supreme Court held that a claim must ‘arise out of or relate to’ the defendant’s contacts with the state, and rejected Ford’s argument that only a strict causal link would do. A platform that markets to and signs up customers in a state therefore has a harder time avoiding suits there over that service. Where a transaction took place, a different question under some federal statutes, is covered with Williams v. Binance in lesson 1.1.4.
  4. Within the United States the next choice is between state and federal court. Federal courts hear claims under federal statutes, such as the securities laws. Under 28 U.S.C. 1332 they also hear claims between citizens of different states, or between a US citizen and a foreign party, where more than $75,000 is at stake, not counting interest and costs. Smaller disputes go to state courts, including small-claims courts with simplified procedure and often no lawyers. Limits vary by state: California’s courts say individuals can generally sue for up to $12,500 in small claims, and businesses for up to $6,250.
  5. Two situations change the plan. If the platform is in bankruptcy, the filing of the petition ‘operates as a stay’ under 11 U.S.C. 362, halting most lawsuits and collection against the debtor; customers usually file a claim in the bankruptcy case instead (lessons 4.3.6 and 9.2.3). Outside the United States the tests differ. In D’Aloia v Persons Unknown, on 24 June 2022, the English High Court accepted, to the standard of a ‘good arguable case’, that crypto is located where its owner is domiciled. That helped a claimant domiciled in England obtain permission to serve proceedings on unknown fraudsters and on exchange companies based abroad.
  6. Before anything is filed, the economics matter: court fees, lawyers’ time, expert tracing reports (lesson 9.3.4), and the difficulty of collecting a judgment from a defendant abroad or one with no visible assets. Time limits run too; they differ by claim and by place, and some securities claims must be brought within one year (lesson 5.3.2). A practical check: for one dispute, write down the exact legal entity on the other side, where it is incorporated and where it serves customers, the dispute clause in its terms, the amount at stake, and whether it is in insolvency proceedings. Those five facts settle most of the ‘who and where’ question.

Key facts

  • International Shoe Co. v. Washington (1945) requires ‘minimum contacts’ with a state before its courts can bind a non-resident defendant.
  • Daimler AG v. Bauman (2014) confines general jurisdiction over a company to places where it is essentially ‘at home’.
  • Ford Motor Co. v. Montana Eighth Judicial District Court (2021) held that a claim must ‘arise out of or relate to’ the defendant’s contacts with the state, without requiring strict causation.
  • Federal diversity jurisdiction under 28 U.S.C. 1332(a) requires an amount in controversy exceeding $75,000, exclusive of interest and costs.
  • Under 11 U.S.C. 362, filing a bankruptcy petition operates as an automatic stay of most actions against the debtor.
  • California’s courts state that individuals can generally sue for up to $12,500 in small-claims court and businesses for up to $6,250.

Exercise nine, six, three, one

9CollectList up to 9 parties connected to a crypto loss or dispute you know of, such as exchanges, issuers, promoters, developers, wallets or unknown thieves (some lists are shorter).
6ClusterSort them into 6 groups: platforms you had a contract with, token issuers or teams, promoters, developers or DAOs, identified individuals, and unknown persons.
3DistillReduce the 6 groups to 3: parties you could realistically sue near home, parties reachable only abroad or in arbitration, and parties who cannot yet be identified.
1CrystallizeWrite 1 sentence explaining why a court’s power over the defendant matters as much as the strength of the claim.

Fact check

Dates, figures and claims checked against the published sources listed below.

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