Smart Contracts and Smart Lawsuits

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We hear a lot about “smart contracts”[1] these days.  What about “smart lawsuits”?

Lawsuits are a dispute resolution tool.  Over-simplying (a lot): a plaintiff puts their problems into a complaint (sometimes called a petition) and files it with a court.  The defendant answers (or doesn’t, and maybe gets defaulted).  No dispute?  No need for a lawsuit.

How were disputes resolved before lawsuits?  Using current lingo, we’d probably call it “peer-to-peer.”  You stole my cows?  I’m stealing them back.  The reader can imagine their own, more colorful, self-help remedies. 

Formalized court systems made most modern commerce possible.  Whether or not you like them (or think they should last) is a matter of personal preference.  Whatever you think, they are also likely to remain in place for some time, process automation brought to you by software notwithstanding. 

Lawsuits may have been an improvement but they aren’t always fast or efficient, a common complaint.  Proving that one thing is or isn’t true takes time and, often, testimony or documentary evidence.  They are also static, not dynamic documents, and changes must be incorporated by written amendment.  Nor are they aware or able to respond to or interact with external data.  Lawyers are catching up, but we still use tools and with 19th century (and earlier) antecedents.  

Take a basic function of a lawsuit, deciding what’s true and what’s not.  Who decides that in our current system?  First you have to distinguish between law and facts, at least in the U.S.  We use a jury system, in which a number of citizens are selected to decide which facts are true and which aren’t.  In a non-jury case, the judge will make factual decisions.  In all cases, the judge makes legal decisions.  

Some lawsuits are dismissed early for a variety of reasons.  They may fail to state a claim under any recognized theory of law.  It may be true that you can sue someone because you don’t like what they had for breakfast.  If that’s all you got, though, your lawsuit will probably be dismissed if the request is made.

If you make it past motions to dismiss you may end up in what’s called discovery (again, I’m referring to the U.S.)[2]  Discovery is the phase of a case where the parties get to learn about the other sides’ facts — what do they have that will prove their case?  The proof may be in the form of witness testimony or exist in documentary form.  Document can be ink and paper or electronic. 

Some cases make it to trial.  Some don’t.  They may settle, they may be dismissed.  Some cases are resolved in motion practice.  Summary Judgment is an example.  It’s a way to resolve a case without a trial where (1) there are no “genuine issues of material fact” and (2) the moving party is entitled to a decision in their favor as a matter of law.  (See Rule 56 of the Federal Rules of Civil Procedure for the Federal Court formulation.  Many states follow this, though not all.  https://www.law.cornell.edu/rules/frcp/rule_56).  

How do you get summary judgment in your favor or defend against it and live to make it to trial?  You have to be able to get your facts in front of the judge, who will decide the motion.  Traditionally, this involved citing deposition testimony and getting witnesses to provide affidavits or declarations, under oath, attesting to facts (either to show a dispute the lack of one), and including documentary evidence (the authenticity of which may need to be established by a person with knowledge).  Disputes often turn on things like whether a document was signed, whether or when products were delivered — things that can be proved or disproved with documentary evidence, which may or not be readily available or for which authenticity may be disputed. 

The Federal Rules don’t use the word in Rule 56, but they do refer to “electronically stored information”, right between “documents” and “affidavits of declarations”.

(1) Supporting Factual Positions. A party asserting that a fact cannot be or is genuinely disputed must support the assertion by:

(A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials; 

At the risk of stating the obvious, blockchain data = “electronically stored information”.   Explaining to a Court what a blockchain or are may for educational (if not foundational) purposes still require an explanatory declaration of affidavit.  But it’s not hard to foresee a time in the not too distant future where moving papers might point to an address, no affidavit needed.  

If a record’s substance and existence can’t be contested, that would do away with a lot of disputes and make summary judgment practice simpler for many.  As for broader applications, here’s a nice formulation by Nina Kilbride of Eris Industries:

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It may not happen overnight, but this may be how blockchain based smart contracts may start to pave a way to smart lawsuits.  The first lawsuit or summary judgment motion that refers to a contract address may have the distinction of being the first (sorta) smart lawsuit.

*  Photo credit:  https://pixabay.com/en/bird-cage-hanging-birdcage-vintage-783185/.  CC0 public domain.

** Disclaimer:  These are my personal opinions only.  They may not be shared by and are not sanctioned by clients, past, present or future, or any law firm with which I’m affiliated.  And none of this is legal advice.  A blog post isn’t a substitute for a lawyer.

[1].  Neither smart, not contracts.  You’ll find a recent and very thoughtful discussion of “smart legal contracts” here:  http://www.coindesk.com/making-sense-smart-contracts/.

[2].  The world is a big place.  The fact that I’m referring to U.S. practice is because I am U.S. trained lawyer.


  , the author of this post, is a lawyer focused on Construction, Insurance, and Compliance Driven Software Development. @palleylaw