A judgment-debtor that fails to comply with such orders can be held in contempt of court, meaning they can be fined or imprisoned until they supply the requested information or turn over the identified money or property to satisfy the judgment.
Current constraints on in personem remedies are either statutory or judge-made, and vary from state to state. Some states require a judgment-creditor to unsuccessfully attempt in rem execution first before resorting to in personem remedies, while others allow in personem debt collection as soon as a money judgment is rendered.
Surprisingly, debtors’ prisons are not prohibited by the federal constitution. Nevertheless, a federal statute does bar federal courts from imprisoning defendants for debt “in any State wherein imprisonment for debt has been abolished. ” And some states, such as Florida, have, indeed, abolished imprisonment for debt . Only about one third of states allow contempt against judgment-debtors for refusal to turn over assets.
But statutes and state constitutions can be amended (or reinterpreted) with comparative ease. The evolution of the court’s current in personem post-judgment enforcement powers provides an example of the civil justice system’s adaptability in the face of novel forms of property.
At early common law in rural societies, in rem execution of judgments against property satisfied creditors’ needs because wealth was held in immobile, tangible and transparent real estate and chattels. There was no need to coerce the debtor through threat of imprisonment because the sheriff could enforce a writ of execution by forcibly seizing such property in the event a debtor refused to turn over their assets.
But as new forms of intangible or equitable property arose (think stock certificates, bonds and other debt instruments), the old in rem remedies proved less and less effective at enforcing judgments. Necessity is the mother of invention, and thus the in personem judgment enforcement remedies were born, allowing judgment-creditors to discover and compel the turnover of personal and hard to reach property.
Bitcoin is the ultimate form of intangible property. But in personem remedies were created to overcome enforcement challenges presented by just such incorporeal stores of wealth. The civil justice system has the tools to countervail Bitcoin’s seizure resistance (blunt though they may be), they need only be made more readily available. State-sanctioned coercion, especially the threat of indefinite imprisonment, is very difficult to resist. Faced with contempt proceedings, judgment-debtors who self-custody bitcoin will hold the cryptographic keys to their own jail cells.
Conclusion: Is Bitcoin A Catalyst For A New Dispute-Resolution Paradigm?
The Western civil justice system has endured for centuries by remaining dynamic and flexible in the face of threats to the money judgment. It would be naive to think that seizure-resistant bitcoin will sound the death knell of that system of liability. The aim of this essay has been not to cheerlead for that outcome, but to identify likely pain points as the civil justice system transitions in response to Bitcoin. Some form of rights enforcement must persevere if we are to live in a civilization possessed of the rule of law and peaceful dispute resolution.
“Rights enforced through liability are among the most precious we hold. These include the civil rights of minorities, the rights of access of the disabled, and the right to be compensated for the infliction of injury to one’s person, property, or reputation.”
–“The Death Of Liability,” Lynn M. LoPucki
The absence of enforceable liability is anarchy. An injured party who cannot turn to the courts for redress may resort to a $5 wrench attack instead. Bitcoin may be seizure resistant, but people are quite susceptible to coercion by violence.
Preparing for the civil justice system’s proliferation of coercive in personem tools and pre-judgment deprivations of wealth requires a multi-layered approach.
The first layer is individual. As previously mentioned, individuals can reclaim due process by acquiring, holding and using bitcoin as privately as possible. Plaintiffs cannot freeze defendants’ assets if they don’t know about them. Privacy means different things to different people, and involves a spectrum of trade-offs, but ensuring bitcoin remains unmapped to one’s personal identifiable information is crucial to avoiding being burned in the financial conflagration of a Mareva injunction.
The second layer is communal. The Bitcoin community as a whole needs to promote, foster and build a peer-to-peer circular economy. This will help Bitcoiners avoid gated on- and off-ramps like centralized exchanges, which can be co-opted to inform on defendants or freeze and seize assets.
This initial transition period of curtailed due process and increased coercion need not become the permanent state of affairs, however. Bitcoin’s disintermediation of the civil justice system presents a unique opportunity for society to create fairer and more humane systems of dispute resolution.
Human history is replete with examples of alternative dispute resolution systems beyond the adversarial court paradigm. In pre-colonial African societies, which were marked by social cohesion and shared values and beliefs, conflict was resolved through a system of concentric communal circles, starting with the family circle and expanding outward to the village circle . The communal elders played an important role as arbiters, as they were highly valued and respected. Trust was vital to this type of conflict resolution.
Modern South Africa sought to heal the wounds of apartheid through its ground-breaking Truth and Reconciliation Commission (TRC). The TRC took the form of truth-telling testimonials from victims and perpetrators of human rights abuses. Culprits sought forgiveness and reintegration into society. This method followed the theory that sunshine is the best antiseptic. The court-based, prosecutorial criminal justice system would have kept much of the truth of the apartheid regime’s violations buried.
Restorative justice advocates have modeled alternatives to the criminal justice system on South Africa’s TRC. These conflict-resolution methods take the form of diversions from the court system, during which the accused and victim participate in programs designed to facilitate forgiveness predicated on the accused taking active responsibility for their actions .
Or perhaps, an entirely novel dispute resolution system is necessary. The forgoing examples require high levels of trust, social cohesion, respect and personal responsibility. Those are not hallmarks of today’s Western society. Bitcoin, however, offers a trustless solution to conflict resolution.
Consider the Bisq network’s decentralized autonomous organization, or DAO . The Bisq network facilitates decentralized, peer-to-peer Bitcoin transactions. Instead of working for a centralized company, contributors collaborate (writing open-source code for the client software or performing operational roles) through a DAO that rewards work with the BSQ token — which is really just colored, or marked, bitcoin .
BSQ is also a governance token that directs the DAO’s collective action through voting rights. Operational roles include mediators and arbitrators, who must post BSQ bonds to ensure performance and fidelity, and which can be confiscated by vote of the DAO. The mediators and arbitrators are compensated in BSQ, which they can exchange for bitcoin. And all traders transacting on the Bisq network must post either bitcoin or BSQ security deposits into a time-locked, two-of-two multi-signature wallet, which will send all funds to a donation address in the event that trader disputes are not timely resolved. Arbitrators compensate the injured trader by reimbursing them their deposit, plus any trading and mining fees. The trader found liable is punished with the loss of their security deposit.
As Bisq describes the process : “This dynamic essentially makes bitcoin confiscatable, enabling a sort of mutually assured destruction to drive dispute resolution on Bisq without trusted third parties.”
Perhaps versions of Bisq’s dispute resolution process could be imported and scaled to other societal contexts. It overcomes Bitcoin’s seizure resistance to remedy wrongs — but only where the aggrieved party and perpetrator have voluntarily assented to this system beforehand. Such a mechanism could be integrated into a so-called Free Private City , as part of an actual social contract signed by all residents, thereby removing state coercion altogether from liability enforcement and retaining due process. In addition to basic fees charged by operators of such Free Private Cities, new residents could be required to post bitcoin bonds, which would be forfeited upon a finding of liability by an arbitrator.
Thus, while Bitcoin will have a destabilizing effect on the civil justice system in the short-term as it continues to disintermediate the system’s financial linchpins, it is possible to leverage Bitcoin to replace this system with improved conflict resolution paradigms. Bitcoin can be the catalyst for better liability enforcement methods, but that’s not an inevitability. Bitcoin won’t just fix this. It will require concerted efforts by lawyers, developers, entrepreneurs and other stakeholders to devise and implement alternative systems.
So, let’s get to work.
This is a guest post by Aaron Daniel. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.