A New York Supreme Court judge has issued a stay on all proceedings in a lawsuit aiming to claim ownership of 39,069 dormant bitcoin wallets. This action halts any potential default judgments as the court prepares for a hearing on July 14 to consider an amicus brief that challenges the legal basis of the claim. The lawsuit, which seeks to apply New York’s lost-and-found statute to digital assets, has garnered significant attention within the cryptocurrency community.
Key Takeaways
- New York Supreme Court Justice Kathy J. King has ordered a stay of proceedings in a lawsuit concerning 39,069 dormant bitcoin wallets.
- The stay is in effect pending a July 14 hearing to determine whether to admit an amicus brief opposing the plaintiffs’ claims.
- The amicus brief argues that New York’s lost-and-found statute is inapplicable to digital assets controlled by private keys and that the assets are not “lost” under the statute’s intent.
- The case, “ABC Company, XYZ Company, and Noah Doe v. John Does 1-39,069,” attempts to use Article 7-B of New York Personal Property Law to claim ownership of these assets.
- Some of the targeted wallets are associated with significant bitcoin holdings, including those potentially linked to the Mt. Gox hack and early Bitcoin “Patoshi” patterns.
- The plaintiffs’ strategy relies on a default judgment, as the defendants (the wallet addresses) are not expected to appear in court.
Justice Kathy J. King’s order, filed on June 5, specifically stays “all further proceedings in this action on Plaintiffs’ declaratory judgment claim, including any application for an inquest or a default judgment” until after the July 14 hearing. This temporary halt provides a critical window for legal arguments regarding the application of existing statutes to blockchain-based assets.
The core of the litigation, referred to as the “Noah Doe” case, involves anonymous plaintiffs who, through an entity named Noah Doe, are attempting to assert ownership over these dormant bitcoin wallets. Their legal strategy leverages New York Personal Property Law Article 7-B, the state’s statute governing lost and found property. The plaintiffs’ theory posits that if unclaimed property is not recovered within a statutory period, ownership can transfer to the finder. However, this statute has historically applied to tangible property and its application to cryptocurrency controlled by private keys is unprecedented.
The estimated value of the assets in these wallets is substantial. While one assessment in May by Galaxy Research placed the holdings at approximately 3.8 million BTC, worth around $293.5 billion at the time, current market values suggest a figure closer to $234 billion. The complaint itself notes that an unnamed expert valued each wallet’s recoverability at less than $10 due to the inherent challenges.
Among the wallets listed are addresses like “1Feex,” which holds approximately 80,000 BTC and has been linked to the 2011 Mt. Gox hack. Other addresses exhibit patterns associated with Satoshi-era holdings, raising complex questions about historical ownership and potential legal claims.
The court’s decision to stay the proceedings follows the filing of a motion by attorney Ian R. Cohen. Cohen, seeking to appear as an amicus curiae (friend of the court), submitted a brief arguing against the plaintiffs’ interpretation of the law. Cohen contends that the lost-and-found statute, designed for tangible property, cannot be applied to digital assets secured by private keys. He asserts that these blockchain addresses are not “lost” but rather “continuously visible” and that the plaintiffs’ actions constitute “data mining” rather than “finding.”
Analyzing the Regulatory Precedent
The outcome of this “Noah Doe” case could set a significant regulatory precedent for how state laws apply to digital assets. The attempt to utilize a decades-old lost-and-found statute for cryptocurrency raises fundamental questions about the legal classification of digital assets and the enforceability of judicial decrees in a decentralized environment. If the plaintiffs were to succeed, it could open the door for similar claims in other jurisdictions, potentially impacting a vast number of dormant crypto holdings. Conversely, if the amicus brief’s arguments prevail, it would reinforce the view that existing statutes may not adequately address the unique characteristics of digital property, potentially spurring legislative action or clearer regulatory guidance, akin to the recent amendments to New York’s Abandoned Property Law concerning virtual currency.
Cohen’s brief further argues that the plaintiffs’ claim of an inability to access the wallets due to a “security issue” actually points to an “involuntary deprivation of access,” not an abandonment by the owners. He characterizes a securely held private key, even if dormant for years, as “securely held property,” not abandoned.
Furthermore, the brief highlights significant jurisdictional risks, particularly concerning the 1Feex address, which is subject to ongoing proceedings in Japan and potential U.S. Department of Justice forfeiture interests. A New York state court’s declaration of ownership could conflict with these international and federal proceedings, raising issues of preemption and comity.
Cohen also points to New York’s Abandoned Property Law, which was amended in 2022 to include specific provisions for virtual currency. This existing framework directs dormant financial assets to the State Comptroller, suggesting that the legislature has already addressed the issue of dormant cryptocurrency, and Article 7-B is not the appropriate mechanism.
The plaintiffs’ methodology, dubbed the “Great Bitcoin Dusting” by Galaxy Research, involved using an algorithm to identify wallets and then sending OP_RETURN messages containing abandonment notices. The campaign aimed to treat wallets whose owners did not respond within 90 days as abandoned. This notice mechanism, delivered via the blockchain, was intended to serve as legal notice to the “John Doe” defendants.
Despite the legal proceedings, some of the named wallets have seen recent on-chain activity. For instance, a wallet flagged as defendant number 37923 moved 47.26 BTC (worth nearly $3 million at current prices) on June 6, having last been active in June 2011. Another wallet, dormant since March 2011, moved 35.55 BTC (worth approximately $2.2 million) on June 2.
Cohen’s proposed amicus brief represents the primary adversarial input in this case, as the strategy relies on the 39,069 defendant wallets not appearing to secure a default judgment. The plaintiffs have until July 7 to file any opposition to Cohen’s motion, with the court’s decision on admitting the brief likely to shape the future of this case and potentially influence regulatory approaches to digital assets in New York and beyond.
Based on materials from : www.theblock.co