Summary
In Orix v. First Choice Freight, 2006 U.S. Dist. LEXIS 53394, at *4 (S.D.N.Y. 2006), C-A Credit did not mail notice to the address listed in the guaranty, but to a "seemingly incorrect address which had been provided by Orix."
Summary of this case from ORIX FINANCIAL SERVICES v. PHIPPSOpinion
03 Civ. 9296 (RMB).
July 31, 2006
DECISION AND ORDER
I. Background
On or about November 21, 2003, Orix Financial Services, Inc. ("Orix" or "Plaintiff") filed a complaint ("Complaint") against 1st Choice Freight Systems, Inc. ("1st Choice"), Jeffry W. Alan, and Catherine Alan (together, the "Alans"), alleging breach of contract after 1st Choice defaulted on three separate equipment leases. On or about April 26, 2004, Plaintiff moved by Order to Show Cause for a default judgment because no responsive pleadings had been submitted and the Defendants failed to attend the Initial Pretrial Conference. (See Order to Show Cause dated April 26, 2004 ("Order to Show Cause") at 1.) On May 13, 2004, the Court granted the default judgment in the total amount of $275,905.04. (See Order dated May 13, 2004 ("May 13, 2004 Order") at 2.)
At the heart of Plaintiff's Complaint were three lease agreements between Orix and 1st Choice, and guaranteed by the Alans, for four semi-tractors. (Complaint ¶¶ 6, 31, 35.)
On or about April 28, 2006, the Alans filed a motion "for an order vacating the default judgment and dismissing the above-captioned proceeding" pursuant to Rules 60(b)(6) and 4(m) of the Federal Rules of Civil Procedure (" Fed.R.Civ.P."). (Notice of Motion dated April 28, 2006 ("Def. Mot." or "Motion") at 1.) On the same day, the Alans filed a Memorandum in Support of Motion to Vacate Default Judgment and Dismiss ("Def. Mem." or "Memorandum of Law"), arguing, among other things, that (1) service of the summons and Complaint "was defective as it does not satisfy the service requirements set forth in the [Fed.R.Civ.P.]"; and (2) dismissal of the Complaint is appropriate because Orix failed to serve the Defendants within 120 days of commencing this action, as required by Fed.R.Civ.P. Rule 4(m) ("Rule 4(m)"). (Def. Mem. at 1.)
Defendant 1st Choice does not join in the instant motion.
On or about May 15, 2006, Plaintiff filed a Memorandum of Law in Opposition to Defendants' Motion to Vacate the Default Judgment and Dismiss the Case ("Opposition"), arguing, among other things, that (1) "the Alans were properly served with copies of the Summons and Complaint by personal service thereof upon their designated agent for service of process . . . pursuant to the terms of [guaranties executed by the Alans on July 31, 1998 (the "Guaranties")]"; and (2) "the Alans' contention that this case should be dismissed pursuant to Rule 4(m) is clearly baseless" because "service of process was validly effected . . . only twelve (12) days after the action was commenced. (Opposition at 3, 12.)
The Guaranties named Edwin M. Baum, Esq. and C-A Credit Corp. "as [the Alans'] true and lawful attorney-in-fact and agent for each of us and in our name, place and stead to accept service of any process within the State of New York . . ." (Complaint Exhibits ("Exs.") H, I.) The Guaranties further provided that C-A Credit Corp. ("C-A Credit") would notify the Alans of any service of process by certified mail within three days of receipt of service by C-A Credit. (Complaint Exs. H, I.)
For the following reasons, Defendants' motion to vacate default judgment is granted and their motion to dismiss is denied.
II. Legal Standard
Fed.R.Civ.P. Rule 60(b)(4) ("Rule 60(b)(4)") provides that a court may relieve a party from a final judgment "if the judgment is void." See Fed.R.Civ.P. Rule 60(b)(4). "A judgment obtained in the absence of in personam jurisdiction is void, and a court must vacate such a judgment." China Mariners Assur. Corp. v. M.T.W.M. Vacy Ash, 96 Civ. 9553, 1999 WL 126921, at *3 (S.D.N.Y. March 9, 1999). "A motion predicated on subsection four is unique . . . in that relief is not discretionary and a meritorious defense is not necessary as on motions made pursuant to other 60(b) subsections." Am. Inst. of Certified Pub. Accountants v. Affinity Card, Inc., 8 F. Supp. 2d 372, 375 (S.D.N.Y. 1998).
The United States Court of Appeals for the Second Circuit "has expressed on numerous occasions its preference that litigation disputes be resolved on the merits, not by default." Cody v. Mello, 59 F.3d 13, 15 (2d Cir. 1995).
III. Analysis
As a preliminary matter, although Defendants bring the instant motion under Rule 60(b)(6) (and cite Rule 60(b)(4) only in their Reply), their arguments appear to center on the allegation that there was improper service upon Defendants, implicating Rule 60(b)(4). See China Mariners, 1999 WL 126921, at *2 n. 5 (analyzing motion to vacate default judgment under Rule 60(b)(4) where "Defendant does not specifically cite Rule 60(b)(4), but . . . argue[s] that the judgment is void.")
Rule 60(b)(6), which is also cited in Defendants' Motion and Memorandum of Law "is properly invoked only when there are extraordinary circumstances justifying relief, when the judgment may work an extreme and undue hardship, and when the asserted grounds for relief are not recognized in clauses (1)-(5) of the Rule." Nemaizer v. Baker, 793 F.2d 58, 63 (2d Cir. 1986) (internal citations omitted). Here, the Alans have not demonstrated extraordinary circumstances or extreme hardship, and the asserted ground for relief (improper service) is encompassed by Rule 60(b)(4).
(1) Service of Process
The Alans argue that "Plaintiff's efforts to serve Defendants [with the summons and Complaint] here were ineffectual, sloppy, and wholly inadequate to meet the requirements of the Federal Rules of Civil Procedure or the Due Process Clause of the 14th Amendment to the Constitution" because "Plaintiff fails to establish . . . that its attempted service was reasonably calculated to ensure that Defendants received notice of this proceeding." (Reply at 3.) Plaintiff counters that the Alans "were properly served with copies of the Summons and Complaint by personal service thereof upon their designated agent . . . pursuant to the terms of the Guaranties admittedly signed by them" and that "plaintiff made a good faith effort to discover the whereabouts of the Alans prior to such service, given the fact that they had moved from the address appearing on their Guaranties more then eight (8) months prior to service and never notified plaintiff of their new address." (Opposition at 3.)
"Most importantly, to meet due process requirements, notice must be 'reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.'"Cheyenne Autumn, Inc. v. Mine and Bill's, 94 Civ. 4011, 1995 WL 366388, at *4 (S.D.N.Y. June 19, 1995) (quoting Mullane v. Central Hanover Bank, 339 U.S. 306, 311 (1950)).
Service upon individuals is governed by Fed.R.Civ.P. Rule 4(e), which states that service of process may be effected either:
(1) pursuant to the law of the state in which the district court is located, or in which service is effected, for the service of a summons upon the defendant in an action brought in the courts of general jurisdiction of the State; or
(2) by delivering a copy of the summons and of the complaint to the individual personally or by leaving copies thereof at the individual's dwelling house or usual place of abode with some person of suitable age and discretion then residing therein or by delivering a copy of the summons and of the complaint to an agent authorized by appointment or by law to receive service of process.
Fed.R.Civ.P. Rule 4(e). New York Civil Practice Law and Rules ("C.P.L.R.") provides, in pertinent part, that service of process may be made upon an individual "by delivering the summons within the state to the agent for service of the person to be served as designated under rule 318." C.P.L.R. § 308(3).
C.P.L.R. § 318 states: "A person may be designated by a natural person, corporation or partnership as an agent for service in a writing, executed and acknowledged in the same manner as a deed, with the consent of the agent endorsed thereon. The writing shall be filed in the office of the clerk of the county in which the principal to be served resides or has its principal office. The designation shall remain in effect for three years from such filing unless it has been revoked by the filing of a revocation, or by the death, judicial declaration of incompetency or legal termination of the agent or principal."
It is well settled that parties to a contract "may agree to service upon a third person with respect to litigation arising from the contract, even where that person is not an agent authorized under . . . CPLR 318." Orix Fin. Services, Inc. v. Baker, 1 Misc. 3d 288, 291, 768 N.Y.S.2d 780 (Sup.Ct. 2003);see also National Equip. Rental v. Szukhent, 375 U.S. 311 (1963). When the agent for service of process is appointed by contract, as here, "the requirements of due process are deemed met when the 'agent' promptly accepts the summons or process, and promptly transmits it or notice thereof to the principal."Baker, 1 Misc. 3d at 291 (quoting Matter of Bd. of Educ. of Half Hollow Hills Cent. School Dist. of Huntington, 79 Misc. 2d 223, 227 (Sup.Ct. 1974)).
Prior to the commencement of this action, "[h]aving discovered that the Alans no longer lived at the addresses set forth in their Guaranties, [Orix] conducted a further investigation to determine, as best as it was able, the then current residence of the Alans." (See Affidavit of Jean-Claude Degrave in Opposition to Defendants' Motion to Vacate the Default Judgment and Motion to Dismiss the Action ("Degrave Aff.") ¶ 3.) Orix believed that the Alans' new address was 1300 Lunt, in Elk Grove, Illinois (the "Elk Grove Address"), "delivered copies of the summons and Complaint by personal service on an officer of C-A Credit Corp.," and "advised C-A Credit Corp. of the information that [Orix] had obtained concerning what [Orix] believed to be the then current residence addresses of the Alans." (Degrave Aff. ¶ 4; Declaration of Todd E. Duffy in Support of Defendants' Motion to Vacate Default Judgment ("Duffy Dec.") Ex. A.) C-A Credit then "sent notice of the commencement of [the] case and copies of the Summons and Complaint" to the Elk Grove Address. (Degrave Aff. ¶ 4.) On December 3, 2003, Orix attempted directly to notify the Alans of the commencement of this action by mailing, "by certified and first-class mail, copies of the Summons and Complaint" to the Elk Grove Address. (Degrave Aff. ¶ 3.)
The Alans assert that, in fact, they moved to 5825 Hawthorn Lane in Lakewood, Illinois, in April of 2003, that they "made no effort to hide [their] new address" and that their mail was being forwarded to the new address from the address indicated in the Guaranties. (See Declaration of Jeffry Alan ("J. Alan Decl.") ¶¶ 4-7; Declaration of Catherine Alan ("C. Alan Decl.") ¶¶ 4-7) They allege that they did not learn of the judgment against them until August of 2005, when "[they] discover[ed] the lien placed on [their] property by Orix as a result of the Default Judgment." (J. Alan. Decl. ¶ 12; C. Alan Decl. ¶ 12.)
The default judgment is vacated here because it appears that C-A Credit did not "promptly transmit" notice to the Alans, but rather mailed notice to a seemingly incorrect address which had been provided by Orix. Because the agency relationship was contractual, C-A Credit's failure to "promptly transmit [the summons and Complaint] or notice thereof" to the Alans "does not comport with the traditional notions of 'fair play and substantial justice' necessary to establish personal jurisdiction. Baker, 1 Misc. 3d at 291 (citation omitted); see also Half Hollow Hills, 79 Misc. 2d at 227; Szukhent, 375 U.S. at 316-318. And, as to Orix's direct mailing to the Elk Grove Address, "it cannot be said that such service of the summons and [Complaint] on defendants is sufficient for this court to exercise personal jurisdiction over them." Baker, 1 Misc. 3d at 292.
(2) Motion to Dismiss
Defendants argue that "Plaintiff's failure to effectuate good service of the summons and complaint . . . within 120 days of their filing of the complaint necessitates dismissal of this action pursuant to Rule 4(m) of the FRCP." (Def. Mem. at 9.) Plaintiff counters that "service of process was validly effected upon the Alans by service of process on their designated and appointed agent on December 3, 2003, only twelve (12) days after the action was commenced." (Opposition at 12.)
Rule 4(m) provides, in pertinent part:
If service of the summons and complaint is not made upon a defendant within 120 days after the filing of the complaint, the court, upon motion or on its own initiative after notice to the plaintiff, shall dismiss the action without prejudice as to that defendant or direct that service be effected within a specified time; provided that if the plaintiff shows good cause for the failure, the court shall extend the time for service for an appropriate period.
Fed.R.Civ.P. Rule 4(m). "Even where good cause does not exist, courts remain free to exercise their discretion in extending the time for service." Feingold v. Hankin, 269 F. Supp. 2d 268, 277 (S.D.N.Y. 2003); see also Henderson v. United States, 517 U.S. 654, 663-664 (1996) ("Most recently, in 1993 amendments to the Rules, courts have been accorded discretion to enlarge the 120-day period "even if there is no good cause shown.") "In exercising this discretion, courts consider 1) whether the statute of limitations would bar a re-filed action, 2) whether the defendant attempted to conceal the defect in service, 3) whether the defendant would be prejudiced by excusing the plaintiff from the time constraints of the provision, and 4) whether the defendant had actual notice of the claims asserted in the complaint." Feingold, 269 F. Supp. 2d at 277.
Although the Court is vacating the default, dismissal of this case is inappropriate. Applying the elements set forth inFeingold, the Court finds that (1) although the statute of limitations does not appear to bar re-filing of this action, "it would be judicially uneconomical to force that procedure,"Feingold, 269 F. Supp. at 277; (2) Plaintiff does not contend that the Alans "attempted to conceal the defect in service"; (3) there is no evidence here that Defendants would be prejudiced by continuing the action; and (4) affidavits submitted by the Plaintiff suggests that the Alans may, in fact, have had "actual notice" of this lawsuit — a "mitigating factor in a plaintiff's favor." In Re Teligent Servs, Inc., 324 B.R. 467, 474 (Bankr. S.D.N.Y. 2005); see also Affinity Card, 8 F. Supp. 2d at 377. Balancing these factors, the Court concludes that an extension of time for service of process, until August 7, 2006, is clearly warranted. See Feingold, 269 F. Supp. 2d at 277; Myers v. Secretary of the Dept. of the Treasury, 173 F.R.D. 44, 48 (E.D.N.Y. 1997).
IV. Decision Order
For the reasons set forth above, Defendants' motion to vacate the default judgment is granted, and their motion to dismiss the Complaint is denied. Because it has not joined in the instant motion, the default judgment against Defendant 1st Choice remains intact. Plaintiff is directed to serve the Alans' New York counsel within seven (7) days of the date of this order, i.e. by August 7, 2006. Defendants then have 20 days to answer.
The parties are directed to appear for a scheduling/settlement conference on Wednesday, September 13, 2006 at 10 a.m. in Courtroom 14A of the United States Courthouse, 500 Pearl Street, New York, New York. The parties are directed to engage in good faith settlement negotiations prior to the conference.