Smart Contract Disputes: Where Code Meets Contract Law

Why smart contract disputes are almost never about the code

Smart contract disputes rarely turn on whether the code ran correctly; it almost always did. They turn on off-chain questions: which written terms attached to the transaction, who held the keys that could change or pause the contract, whether a price oracle was manipulated, and how to serve a counterparty who exists only as a wallet address. As one federal court put it, smart contracts are "pieces of computer code or software code, not necessarily contracts as understood in the legal sense."

That framing comes from Judge William H. Orrick in CFTC v. Ooki DAO, in a footnote drawing on the CFTC's complaint. The bytecode is evidence of what happened; the legal relationship, if there is one, lives somewhere else.

Formation: find the terms before you plead the breach

Electronic execution is not the obstacle — but E-SIGN is narrower than it is usually quoted as being. Section 7001(h) provides that a contract or other record relating to a transaction in or affecting interstate or foreign commerce "may not be denied legal effect, validity, or enforceability solely because its formation, creation, or delivery involved the action of one or more electronic agents so long as the action of any such electronic agent is legally attributable to the person to be bound." That closing condition is the whole question in a smart contract dispute. E-SIGN validates the electronic mode of formation; it does not supply the attribution. Section 7001(a) separately provides that a signature, contract, or other record relating to such a transaction may not be denied legal effect, validity, or enforceability "solely because it is in electronic form."

Arizona addresses the point by statute: "A contract relating to a transaction may not be denied legal effect, validity or enforceability solely because that contract contains a smart contract term," with a smart contract defined as "an event-driven program, with state, that runs on a distributed, decentralized, shared and replicated ledger and that can take custody over and instruct transfer of assets on that ledger." Ariz. Rev. Stat. § 44-7061(C), (E)(2). The statute answers the enforceability objection. It does not answer who agreed to what.

That second question is the hard one.

In Risley v. Universal Navigation Inc., 690 F. Supp. 3d 195 (S.D.N.Y. 2023), the court's account of the pleadings distinguished the Uniswap front-end interface — on which Uniswap Labs posted terms of service on April 23, 2021, and which at some point afterward began prompting browser-method users with a disclaimer — from the protocol itself. Users who reached the protocol through a connected wallet were not prompted with that disclaimer. The terms, as quoted in the complaint, disclaimed control: Uniswap Labs "does not control or operate any version of the Protocol on any blockchain network." Judge Katherine Polk Failla also separated the protocol's "core" and "router" contracts, which she described as "distinctive from the token contracts unique to each pool and drafted by issuers" — and it was the issuers' contracts that carried the alleged misconduct.

In United States v. Eisenberg, the absence of terms was dispositive on one count. At the time of the offense, Mango Markets "had no terms and conditions, policies, or rules regarding either manipulation or the borrowing of funds." The government argued that toggling "borrow" carried an implied promise to repay. The court disagreed: "here there were no terms and no negotiations. There was just the word 'borrow.' That word could have been 'Access Collateral,' 'Utilize Assets,' or anything else for that matter."

The consequence is evidentiary before it is doctrinal. Which access path a user took, on what date, and what text appeared at that moment are reconstructable facts — from archived captures of the interface, the wallet's transaction history, and the deployment address of the contract version in force. A claim premised on terms the client never saw has a formation problem long before it has a merits problem.

When the code executes something nobody intended

Deterministic software does what it was told, which is why doctrines built around a party's state of mind sit awkwardly on it. The most developed treatment is Singapore's, in Quoine Pte Ltd v B2C2 Ltd [2020] SGCA(I) 02 — persuasive reasoning from a foreign court, and not authority binding in any court in the United States. Trades executed at roughly 250 times the prevailing market rate, and the platform reversed them. The Court of Appeal held that where contracts are formed by deterministic programs, the knowledge relevant to unilateral mistake has to be found in a human being, and it located that mind in the programmer: "working backwards from the output that emanated from the programs, we are driven to assess the relevant state of knowledge by examining that of the programmers." The question was whether the programmer knew, or ought to have known, when he wrote the pricing logic that the algorithm would be taken up only by a counterparty acting under a fundamental mistake, and designed it to exploit that. He did not, and the trades stood.

That framing converts a contract-law question into a discovery problem. A mistake theory needs a person, a moment, and a state of knowledge. The materials that bear on it are the commit history and code-review comments for the relevant contract version, the design specification, any pre-deployment audit report and the responses to its findings, and the deployment transaction that fixes the version and the time. Those artifacts reward the scrutiny given to an expert's work product; our guide to reading a forensic report sets out the questions that separate a supported opinion from an inference.

Eisenberg makes a related point from the other direction. Because "the platform automatically measured the actual value of his collateral," the court found "he didn't represent anything untrue" when the automated health check ran. Automation can remove the human representation that fraud claims usually attach to. Where parties want representations, they generally have to write them down off-chain.

Admin keys and upgradeability are the real control question

"Immutable" is a design claim, not a legal one. The CFTC's complaint in Ooki DAO, as recounted by the court, described Administrator Keys that allowed bZeroX to "access and control" the operation of the smart contracts and the funds held in them, "including by updating code, pausing or suspending trading, and directing deposits of funds to users." When the founders transferred those keys to the DAO, the court noted, they transferred the ability to access and operate the protocol and to control the funds held in the smart contracts.

Where the keys land bears directly on who is exposed. In Ooki DAO, the court held that capacity to be sued is governed by Federal Rule of Civil Procedure 17(b)(3), looked to California Code of Civil Procedure section 369.5(a) and the definition of an unincorporated association in California Corporations Code section 18035(a), and concluded "that the CFTC sufficiently alleged, for the purposes of their service motion, that Ooki DAO is an unincorporated association under state law." That was a pleading-stage conclusion tied to service — not a merits holding on the DAO's status.

In Sarcuni v. bZx DAO, arising from the same protocol after a phishing attack on a developer led to the theft of $55 million, Judge Larry Alan Burns applied California Corporations Code section 16202(a) — "the association of two or more persons to carry on as coowners a business for profit forms a partnership, whether or not the persons intend to form a partnership" — and found that plaintiffs "have stated facts sufficient to allege that a general partnership existed among the BZRX tokenholders." The same order then went defendant by defendant and found that the complaint failed to allege that either Leveragebox LLC or bZeroX LLC was a general partner of the DAO, dismissing the claims against those two without prejudice. Partner status has to be pleaded defendant by defendant, not by category — and Sarcuni, like Ooki DAO, resolved only the adequacy of the pleadings.

A written control inventory is what makes those questions answerable: the proxy admin address, the timelock delay if any, the multisig signers and threshold, the pause and emergency-withdraw functions, and every upgrade transaction with its date and signer. It is also the record that answers the client who insists nobody is in charge. Where key compromise rather than governance is the triggering event, the obligations that attach on day one are their own workstream — see ransomware response and legal obligations and what to advise clients about cyber insurance.

Oracle failure is an input problem

The Mango Markets record is the clearest illustration. MNGO Perpetuals were valued on the platform using an oracle that drew on three cryptocurrency exchanges — FTX, Serum, and AscendEX. Avraham Eisenberg used two wallets to hold both the long and the short side of the same perpetuals, then bought MNGO on those same three exchanges, driving the oracle price up. The court noted trial evidence that his MNGO trading "caused reference prices to rise by 700% in fourteen minutes." He borrowed against the inflated position and, in total, "borrowed and then quickly withdrew over $100 million in cryptocurrency from Mango Markets."

The outcome shows how little the criminal law settled. A jury convicted on commodities fraud, commodities manipulation, and wire fraud. On the Rule 29 motion, the court vacated the two commodities counts for lack of venue in the Southern District of New York: there was no evidence that Eisenberg's trades were executed, cleared, or settled in the district — they ran through a smart order routing engine the evidence did not place there, and the New York team's role was retrospective quality control rather than an essential conduct element of the offense. The court then entered a judgment of acquittal on the wire-fraud count for failure of proof on falsity, reasoning that on "a platform with no rules, instructions, or prohibitions about borrowing, the government needed more to show that Eisenberg made an implicit misrepresentation by allowing the algorithm to measure the actual value of his collateral." It reached that result by applying United States v. Connolly, 24 F.4th 821 (2d Cir. 2022), where the absence of any rule or instruction prohibiting the conduct defeated an implied-certification theory. The government appealed in July 2025; the appeal is docketed in the Second Circuit as No. 25-1782, so the district court's reasoning is not the last word.

The opinion does not say that any particular contract term would have changed the result — its reasoning runs to the absence of any rules or terms at all. But the gap it identifies is one that drafters can close off-chain: naming the oracle and its constituent sources, specifying a maximum permitted deviation and the consequence of exceeding it, providing for a circuit breaker and identifying who may trip it, and taking an express representation that the counterparty has not traded to influence the reference sources.

Suing and serving a counterparty with no name

Two obstacles compound. First, the person a plaintiff wants is often unidentifiable. Risley said so directly: plaintiffs were "looking for a scapegoat for their claims because the defendants they truly seek are unidentifiable."

That case is also a caution against reading a single disposition as the end of the story. In August 2023 the district court dismissed the federal claims with prejudice and the state-law claims without prejudice to refiling in state court. On appeal, the Second Circuit affirmed the dismissal of the Securities Act and Exchange Act claims but vacated and remanded as to the state-law claims, holding that the district court should have reached them because original jurisdiction had been pleaded under the Class Action Fairness Act. Risley v. Universal Navigation Inc., No. 23-1340-cv, 2025 WL 615185 (2d Cir. Feb. 26, 2025) (summary order, which carries no precedential effect). On remand the plaintiffs filed a second amended complaint focused on state-law violations, and on March 2, 2026 the district court dismissed it in full, with prejudice.

Second, even a defendant who can be named may have no address. In Ooki DAO, the CFTC served through the mechanisms the DAO itself provided to the public — a help chat box and an online discussion forum — and the court concluded service was achieved, finding that the DAO had actual notice.

The rule path there is worth getting right, because it is entirely domestic. No individual could be identified as an officer or agent under Rule 4(h)(1)(B) — as the court observed, making that determination "seems to defeat the decentralized structure of the DAO" — so the court applied Rule 4(h)(1)(A), which directs that an unincorporated association be served "in the manner prescribed by Rule 4(e)(1) for serving an individual," that is, "following state law for serving a summons in an action brought in courts of general jurisdiction in the state where the district court is located or where service is made." From there it went to California Code of Civil Procedure section 413.30, which lets a court direct service "in a manner which is reasonably calculated to give actual notice to the party to be served." Rule 4(f)(3), which permits service "by other means not prohibited by international agreement, as the court orders," is a different instrument: Rule 4(f) governs serving an individual in a foreign country, and it reaches entities only through Rule 4(h)(2), for service "at a place not within any judicial district of the United States." Invoking Rule 4(f)(3) for domestic alternative service invites an avoidable objection.

Two moves tend to matter early. Expedited discovery under Rule 26(d)(1) — which bars a party from seeking discovery from any source before the Rule 26(f) conference "except in a proceeding exempted from initial disclosure under Rule 26(a)(1)(B), or when authorized by these rules, by stipulation, or by court order" — is the mechanism for subpoenaing the centralized venues, bridges, and custodians holding know-your-customer records tied to the wallet addresses in the trail. And the off-chain record — governance forum threads, chat servers, social posts, snapshot votes — needs preservation under the same authentication discipline as any social media exhibit, which our primer on authenticating social media evidence addresses. Where the technical record is large enough to need its own referee, a discovery special master is often cheaper than motion practice.

Collecting against on-chain assets

A judgment against a pseudonymous defendant is not self-executing. Ooki DAO ended in a default judgment entered June 8, 2023: a $643,542 civil monetary penalty, permanent trading and registration bans, and an order that the DAO and any third party providing web-hosting or domain-name registration services shut down its website and remove the content from the internet. A separate CFTC administrative order, settled on September 22, 2022, imposed a $250,000 civil monetary penalty on bZeroX, LLC and its two founders and addressed the transfer of control of the protocol to the bZx DAO on approximately August 23, 2021. A money judgment against someone who cannot be found is often worth less than injunctive relief that runs against infrastructure.

Enforcement mechanics still work, but they run through off-chain chokepoints. Rule 69(a)(1) provides that a money judgment is enforced by a writ of execution "unless the court directs otherwise," with the procedure on execution according with the procedure of the state where the court is located, "but a federal statute governs to the extent it applies." Rule 69(a)(2) lets the judgment creditor "obtain discovery from any person — including the judgment debtor — as provided in these rules or by the procedure of the state where the court is located," which is the authority for post-judgment subpoenas to exchanges, custodians, and fiat off-ramps.

Timing matters for a specific doctrinal reason. Delaware has enacted UCC Article 12, under which "[a] qualifying purchaser acquires its rights in the controllable electronic record free of a claim of a property right in the controllable electronic record." Del. Code tit. 6, § 12-104(e). The protection is defined narrowly, and the definition is where the practical work happens: a "qualifying purchaser" is a purchaser who "obtains control of the controllable electronic record for value, in good faith, and without notice of a claim of a property right in the controllable electronic record." Id. § 12-102(a)(2). Notice defeats the status — which is why identifying assets and putting custodians on notice has consequences well beyond building a record.

Learn more

• Gregory M. Sleet — JAMS neutral; twenty years on the U.S. District Court for the District of Delaware, seven as chief judge.
• James Orenstein — JAMS neutral; U.S. Magistrate Judge, Eastern District of New York, 2004 to 2020.
• Claude M. Stern — JAMS neutral; chair or co-chair of Quinn Emanuel's national intellectual property litigation practice from 2003 through 2021.
• Aaron Tantleff — Partner, Foley & Lardner LLP.
• Gail Gottehrer — Vice President, Global Litigation, Labor & Employment Law, and Government Relations, Fresh Del Monte Produce, Inc.
• Michael Kleinman — Litigation Special Counsel, Fried Frank.
• Katherine Charonko — Partner and ESI Practice Group Leader, Bailey & Glasser.

This article is general information, not legal advice, and does not create an attorney-client relationship. Several of the decisions discussed here are pleading-stage rulings or are on appeal; verify current authority before relying on any of it.