Opinion
Paul A. McCarthy, Catherine Anne Brainerd, Rhoades McKee P.C., Grand Rapids, MI, for Plaintiffs.
Christopher Daniel Messing, Dennis M. Goebel, Harvey Kruse PC, Troy, MI, for Defendants.
OPINION
Paul L. Maloney, United States District Judge
This matter is before the Court on Defendant Sunlighten Incorporated’s motion to set aside default. Because service was proper, and because Sunlighten lacks a meritorious defense, the Court will deny the motion.
I.
For purposes of this motion, only a limited recitation of the facts is required. Plaintiffs purchased a home sauna from Sunlighten in June of 2015. They allege that the sauna was defective and that it caused a fire that destroyed their home in August of 2016.
By September of 2016, Plaintiffs’ homeowner’s insurance conducted an inspection of Plaintiffs’ home, which was attended by Sunlighten’s counsel and an independent expert Sunlighten had retained. Sunlighten’s counsel was in contact with Plaintiffs’ counsel and the homeowner’s insurance for the remainder 2016 and into 2017, but the dispute could not be resolved pre-litigation.
Plaintiffs filed the complaint in this action on September 28, 2017. The next day, Plaintiffs’ counsel emailed a copy to defense counsel, requesting that he waive formal service of process for his client. (ECF No. 1.) Initially, Sunlighten’s counsel did not respond. But on November 8, 2018, after a second attempt, defense counsel advised that Sunlighten would not allow him to waive service.
Meanwhile, the summons was issued on October 5, 2017, but it listed Sunlighten’s registered agent as Connie Krieger at 12 Shari Drive, St. Louis, MO 63122. (ECF No. 3.) However, the day after the complaint was filed, Sunlighten had changed its registered agent to a corporation called S & A Registered Agent, with an address in Missouri, and a principal named Sheila Seck.
Plaintiffs eventually achieved service on Randa Piper, an employee for Seck’s law firm, Seck & Associates, at 7285 West 132nd Street, Suite 240, Overland Park, KS 66213 on November 20, 2017. (ECF No. 4.) But after Plaintiffs served Randa Piper, Sunlighten did not defend the suit. The Clerk of Court entered a default as to Sunlighten on December 15, 2017. (ECF No. 7.) Five days later, Attorney Dennis M. Goebel entered an appearance on behalf of Sunlighten. And approximately two weeks later, Sunlighten moved to set aside default. (ECF No. 8.)
In its initial motion, Sunlighten argued that that service was legally ineffective because it was made upon S & A Registered Agent in Overland Park, Kansas, rather than the office at 4240 Duncan Ave, # 200, Saint Louis, Missouri, which S &A maintained as its address with the Missouri Secretary of State. Defendant emphasized that the Complaint was never served on any its employees, officers, or directors. In response, Plaintiffs argued that they had properly effected service by serving the complaint and summons on Randa Piper at the Overland Park office because Piper was an agent of S & A. In reply, Sunlighten contested whether Randa Piper had authority to accept documents for S & A Registered Agent.
After receiving the briefing, the Court determined that factual disputes relating to Piper’s authority needed to be resolved before a ruling could issue, and so it ordered an evidentiary hearing. The parties then engaged in limited discovery by conducting depositions of relevant witnesses. At the hearing, the Court also took live testimony from Sunlighten employee Tiffany Genrich.
The Court now makes the following findings of fact pertaining to service of process in this matter:
A. The Relationship Between S & A Registered Agent and Seck & Associates
1. S & A Registered Agent is a corporation, and it is solely owned and operated by Sheila Seck.
2. Sheila Seck is also the sole owner of a law firm known as Seck & Associates.
3. Seck & Associates maintains office space at 7285 W. 132nd Street, # 240 in Overland Park, Kansas.
4. Seck & Associates also maintains a Missouri office at 4240 Duncan Avenue, # 200 in Saint Louis, Missouri.
5. S & A Registered Agent listed the same Kansas and Missouri offices in its filings with the Missouri Secretary of State.
6. S & A Registered Agent has no employees, resources, assets, or liabilities in either Kansas or Missouri.
7. Any work performed by S & A Registered Agent was actually carried out by employees of Seck & Associates.
8. Seck & Associates collects the fees and pays the bills associated with S & A Registered Agent.
9. Any records generated by S & A Registered Agent are stored in the software maintained by Seck & Associates.
B. Randa Piper’s Relationship to S & A Registered Agent and Seck & Associates
10. Randa Piper began working as a paralegal at Seck & Associates in 2014, and her employment with the firm ended on November 30, 2017.
11. She worked at the law firm’s Overland Park, Kansas location.
12. During her employment, she worked at the front desk area of the office.
13. Her job duties were to answer the phone, handle walk-in traffic, prepare office space for meetings, make copies, and other administrative work.
14. Piper remembered signing for a complaint on at least one occasion prior to being served in this case.
15. Piper could not remember being reprimanded or instructed not to sign on behalf of Seck & Associates or S & A Registered Agent.
16. Piper’s usual practice would have been to immediately hand over whatever legal documents she had signed for to Ms. Seck.
17. Piper believed that she had authority to accept documents on behalf of S & A Registered Agent.
18. Sheila Seck confirmed that she gave Piper authority to accept service on behalf of S & A Registered Agent.
C. Sunlighten appoints S & A Registered Agent as its registered agent
19. Up until September 29, 2017, Connie Krieger served as Sunlighten’s registered agent in Missouri.
20. Ms. Krieger moved out of Missouri around that time, so Sunlighten needed to find a new registered agent.
21. Sunlighten employee Tiffany Genrich was responsible for selecting Sunlighten’s new registered agent.
22. She received a referral from another attorney to Sheila Seck.
23. Sunlighten, through Genrich, then hired Seck’s company, S & A Registered Agent, to be its registered agent as of September 29, 2017.
D. Plaintiffs Serve S & A Registered Agent
24. Plaintiff’s process server, Martin Hueckel, first attempted to serve Sunlighten at the Duncan Avenue location on November 3, 2017 but was unsuccessful.
25. Hueckel learned that the Duncan Avenue office was a coworking space that housed many companies and operated solely as a mailing address to others.
26. Hueckel returned to the Duncan Avenue office several days later and learned that S & A generally had a single employee stationed there, but that the sole employee, Samantha Fechter, was out on maternity leave, and no other employee worked in the office.
27. Plaintiffs’ process-serving agency then contacted Sunlighten directly to try to obtain information about Sunlighten’s registered agent and left a message.
28. By November 8, 2017, Genrich was aware that someone was trying to serve a lawsuit against Sunlighten, and she emailed Sheila Seck:
We just got a call from someone. It was a little odd, but he referenced Samantha [Fechter] and was trying to apparently file suit or serve us with something, but he said he couldn’t find any contact information for Samantha. He then referenced your [Overland Park] address. So I’m not sure where to go from here and what to provide for this instance and if it happens again...
29. Seck responded by email, "If there is an attorney involved, he can find the address. No need to help him out."
30. By November 9, 2017, Hueckel learned that S &A Registered Agent had an Overland Park, Kansas office and found a telephone number: (913) 815-8481.
31. The telephone number was the main office number for Seck & Associates at Overland Park.
32. Hueckel called the number and told the woman who answered about his attempts to serve S & A Registered Agent at the Duncan Avenue office.
33. The woman on the phone indicated that S & A would accept service at the Overland Park office.
34. On November 20, 2017, process server Joseph Baska served Randa Piper with the Complaint and Summons at the Overland Park office, and he executed a sworn affidavit declaring that he made service upon her.
E. Events After Service
35. There is no dispute that Baska actually served Piper on November 20, 2017, although neither Baska or Piper specifically remembered the circumstances of their exchange.
36. There is no evidence that S & A (through Seck, Piper, or any other agent) transmitted the summons and complaint to Sunlighten.
37. Seck later admitted in an email to Genrich that she had found one document in her records relating to this litigation, but that she had not found "the whole set of documents" that she expected to see if S & A had been served.
II.
A decision granting or denying a motion to set aside a default falls within the district court’s discretion. United States v. $ 22,050.00 United States Currency, 595 F.3d 318, 322 (6th Cir. 2010) (citation omitted). Ordinarily, district courts should be "extremely forgiving to the defaulted party and favor a policy of resolving cases on the merits instead of on the basis of procedural missteps." Id.
Under Rule 55(c) of the Federal Rules of Civil Procedure, a court may set aside a default for good cause. In determining whether good cause exists, the court must consider (1) whether the defendant’s culpable conduct led to the entry of default, (2) whether the defendant has a meritorious defense, and (3) whether the plaintiff would be prejudiced by setting aside the default. Id. at 324 (citing Waifersong, Ltd. v. Classic Music Vending, 976 F.2d 290, 292 (6th Cir. 1992) ).
However, "[p]roper service of process ‘is not some mindless technicality.’ " Williams v. GEICO Corp., 792 F.Supp.2d 58, 65 (D.D.C.2011) (quoting Friedman v. Estate of Presser, 929 F.2d 1151, 1156 (6th Cir. 1991) ). The requirement of proper service "stems from the Due Process Clause of the Fifth Amendment, which requires that defendants receive adequate notice of proceedings against them." Id. Accordingly, if service of process was not proper, the Court need not consider the three factors before setting aside the default. See O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 355 (6th Cir. 2003). Thus, the Court must first establish whether Plaintiffs made proper service upon Defendant. If they did, then the Court must inquire as to whether good cause exists to set the default aside.
Rule 4(h) of the Federal Rules of Civil Procedure govern the service of a corporation, partnership, or association:
Unless federal law provides otherwise, or the defendant’s waiver has been filed, a domestic or foreign corporation, or a partnership or other unincorporated association that is subject to suit under a common name, must be served:
(1) in a judicial district of the United States:
(A) in the manner prescribed by Rule 4(e)(1) for serving an individual; or
(B) by delivering a copy of the summons and of the complaint to an officer, a managing or general agent, or any other agent authorized by appointment or by law to receive service of process and - if the agent is one authorized by statute and the statute so requires - by also mailing a copy of each to the defendant ....
Here, Sunlighten appointed S & A Registered Agent to receive service of process on its behalf. Accordingly, service by Plaintiffs was proper under Rule 4(h)(1)(B) if they delivered a copy of the summons and complaint to S &A. And as discussed, S & A Registered Agent had no employees, no physical presence, and no assets or obligations. But someone had to act on behalf of S & A Registered Agent. Those people were the employees of Seck & Associates. Sheila Seck, as principal of both entities, explained as much in her deposition:
Q. Do any of the Seck & Associates employees complete the registered agent - you know, when you’re filling out the forms for clients naming S & A Registered Agent, Inc., is any of that done by Seck & Associates employees?
A. In their capacities as agents for S & A, yes.
(ECF No. 20 at PageID.581.) Seck also admitted that "probably" Randa Piper had acted in this capacity. (Id. ) Later on, Seck confirmed that Piper had authority to accept service on behalf of S & A:
Q....Who has authority to accept service on behalf of S & A?
A. Obviously, I do. Sammy Fechter does. We don’t have a policy, but I suppose our front desk person could. But I would expect them to ask questions or not sign unless we had discussed, like they might call me and say is it okay if I sign for this.
(Id. PageID.599.)
Sheila Seck was the principal of S & A Registered Agent, and her actions could create authority in agents of her choosing. In other words, corporations act through people— they are "nothing but bundles of agency relations ...." Faust v. Menards, Inc., 2012 WL 3264987 (N.D. Ind. Aug. 9, 2012). Seck, as the principal agent of S & A, authorized other employees of Seck & Associates to act as agents of S & A Registered Agent, including Randa Piper.
In fact, Randa Piper remembered accepting service of process on one other occasion, about a year after she had started at Seck & Associates. (ECF No. 19 at PageID.286.) And she specifically recalled that the documents she signed for were a summons and complaint:
Q. [T]hat instance that you mentioned to [Plaintiffs’ counsel], that was not a summons and complaint, was it?
...
Q. When you signed for the client, to your recollection, that was not a summons and complaint? A. No. It was.
(Id. at PageID.302-03.)
Piper exercised her authority— delegated by Ms. Seck, the principal of S & A Registered Agent— by accepting service of process on more than one occasion. When an employee has been authorized to carry out acts on behalf of a principal of the corporation, those acts have legal meaning because the employee has been granted actual authority to carry them out. Restatement (Third) of Agency, § 2.01; See, e.g., Arch Ins. Co. v. WM Masters & Assocs., Inc., 2013 WL 145502, at *1 n.3 (N.D. Tex. Jan. 14, 2013) (finding service proper where corporation authorized its counsel to accept service, even though specific attorney on whom service was made no longer worked for the firm at the time service was made). Thus, the Court finds that Piper was an agent of S & A Registered Agent, and she had actual authority to accept service of process as an agent of S & A Registered Agent. Accordingly, Plaintiffs achieved valid service of process under Rule 4(h)(1)(B) of the Federal Rules of Civil Procedure.
Sunlighten mistakes the relevant inquiry by viewing itself as the principal for purposes of the agency relationship. It asserts that Piper could have neither actual nor apparent authority to accept service of process because she had no dealings with Sunlighten itself. Sunlighten is incorrect because it designated a corporation as its registered agent. As has already been explained, corporations act through people. And Sunlighten did not have the ability to control which people acted as agents on behalf of S & A Registered Agent. If Sunlighten wanted to limit service to a particular person— like Sheila Seck, for example, it could have done so by naming her as its registered agent, rather than the corporation.
Even if service were not proper under the Federal Rules, Plaintiffs arguably achieved service under Kansas law, as permitted by Rule 4(h)(1)(A), which permits for service of a corporation in the manner allowed for service of an individual by Rule 4(e)(1).
Rule 4(e)(1) allows for service by "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." Fed.R.Civ.P. 4(e)(1). Here, service was made in Kansas, and thus Plaintiffs could achieve service under Kansas’ rules for service of process. Id.
Under the pertinent Kansas statute, service "[o]n a domestic or foreign corporation, domestic or foreign limited liability company, domestic or foreign limited partnership, domestic or foreign limited liability partnership or a partnership or other unincorporated association that is subject to suit in a common name" can be achieved in three ways:
(1) Serving an officer, manager, partner or a resident, managing or general agent;
(2) leaving a copy of the summons and petition or other document at any of its business offices with the person having charge thereof; or
(3) serving any agent authorized by appointment or by law to receive service of process, and if the agent is one authorized by statute to receive service and the statute so requires, by also mailing a copy to the defendant.
KSA § 60-304(e) (2014).
Plaintiffs argue that when Joseph Baska served Randa Piper in Overland Park, service was proper because S & A Registered Agent had been appointed Sunlighten’s registered agent for Missouri, and Kansas law says allows for service upon "an officer, manager, partner or a resident ... agent." Id. Accordingly, they assert that their method of service complied with Kansas law.
Sunlighten disagrees. It focuses on KSA 60-304(f), which is entitled "Resident agent for a corporation, limited liability company, limited partnership or limited liability partnership." That extraordinarily cumbersome subsection declares that the Kansas Secretary of State is authorized to accept service of process on behalf of a business organization, if the organization "fails to appoint or maintain in [Kansas] a resident agent," or if "its resident agent cannot with reasonable diligence be found at the registered office in [Kansas]." KS Stat. § 60-304 (f) (2014). Sunlighten directs the Court’s attention to this subsection because it asserts that Plaintiff could have achieved service on it by directing service to the Kansas Secretary of State. Sunlighten also highlights § 60-304(f)’s repeated use of the term "in this State" and points out that S & A Registered Agent had never been appointed to act as Sunlighten’s Kansas registered agent.
At the heart of the parties’ dispute is a deceptively difficult question: For purposes of Kansas law, does it matter that Sunlighten’s Registered Agent, on file with the Missouri Secretary of State, was served in Kansas ? In other words, no one disputes that, had Plaintiffs successfully served the summons and complaint on the employee who generally staffed S & A’s Duncan Avenue location, service would have been proper; it is only the process server’s trek across state lines that creates the procedural complexity.
However, the parties disregard § 60-304(e)(3), which provides for service upon "any agent authorized by appointment to receive service. S & A was plainly authorized to receive service, as the Court has discussed. Thus, service was proper under both state and federal law. In addition, the Court concludes that Plaintiffs substantially complied with § 60-304(e)(1) by serving S & A as Sunlighten’s resident agent. Finally, the Court must note that Plaintiffs were induced to serve S & A in Kansas. As it previously found, Plaintiffs’ process server contacted S & A to question why no person was available to accept service at the company’s Missouri office. An employee of Seck & Associates then informed the process server that S & A would accept service at the company’s Overland Park location. That service was achieved.
III.
Having found that service was proper upon Defendant Sunlighten, Incorporated, the Court must now weigh the three factors under Rule 55(c) to determine whether the default should be set aside.
The first factor is whether Sunlighten is culpable for the defect. "[F]or the defendant to be deemed culpable for the default, he ‘must display either in intent to thwart judicial proceedings or a reckless disregard for the effect of its conduct on judicial proceedings.’ " $22,050.00 United States Currency, 595 F.3d at 327 (citation omitted); see also Momah v. Albert Einstein Med. Ctr., 161 F.R.D. 304, 308 (E.D Pa. 1995) ("To be ‘culpable,’ the conduct leading to entry of default must have been willful, intentional, reckless or in bad faith. More than mere negligence is required."). As detailed above, Sunlighten failed to defend this suit after service. It asserts that it did not receive notice of the suit until after default entered, in mid-December of 2017, and that it responded quickly by entering an appearance five days later.
However, Sunlighten had actual notice of the substance of this suit much earlier. For approximately one year before the action was filed, Sunlighten had engaged with Plaintiffs to resolve the suit. Once it became clear that litigation would be required, Plaintiffs’ counsel emailed a copy of the complaint to Sunlighten’s counsel and twice requested that he waive formal service. Then, Plaintiffs’ process server called Sunlighten directly to discuss arranging for service after it proved impossible at the S & A’s Duncan Avenue location. This conversation is evidenced by email traffic between Genrich and Sheila Seck. In Seck’s words, since an attorney was involved there was "no need to help him [or her] out." Accordingly, this litigation can hardly come as a shock to Sunlighten. Cf. Drummond v. Armata Logistics, Inc., 2014 WL 2897849, at *3-4 (D. Kan. June 26, 2014) (concluding that defendant’s alleged lack of knowledge of the suit did not weigh in favor of setting aside default because the purportedly defective service made to defendant’s registered agent was proper under Kansas law). Thus, the Court finds that Sunlighten’s conduct constitutes at least reckless disregard for its effect on the judicial proceedings and that it led directly to the entry of default.
Second, Sunlighten’s only attempt at showing a meritorious defense comes from the affidavit of Dustin Stevens, the company’s Customer Care Manager. (ECF No. 8-5.) Stevens merely declares that he is "not aware of any defect in the manufacture or design" of the sauna that the Adams allege to have caused the fire. (Id. (emphasis added).) As Plaintiffs point out, Stevens is not an engineer, and there is no evidence to suggest that he was in a position to determine whether or not the sauna was defective. His awareness, or lack of awareness, relating to a defect in the sauna is not particularly relevant to the Plaintiffs’ claims.
The Court further observes that the Adams received a phone call from Stevens within days of the incident, and the day after the phone call, Plaintiffs received an email from Sunlighten to ensure that the Adams had completed a "warranty upgrade" to replace a fuse in their sauna. The email was individualized and included a case number. There, Sunlighten explained that the replacement fuse was "an important warranty upgrade" and that they were "committed to [e]nsuring" that the fuses had been installed for all customers. An attachment to the email warned sauna users to "discontinue use of the sauna" until the fuses had been replaced. The Adams claim to have never received notice of the warranty fuse issue until five days after the fire.
"[A] defense is meritorious if it is ‘good at law,’ regardless of whether the defense is actually likely to succeed on the merits. $22,500 of U.S. Currency, 595 F.3d at 326 (quoting Williams v. Meyer, 346 F.3d 607, 614 (6th Cir. 2003) (citations omitted). [A]ll that is needed is " ‘a hint of a suggestion’ which, proven at trial, would constitute a complete defense." Id. (quoting INVST Fin. Group v. Chem-Nuclear Sys., 815 F.2d 391, 399 (6th Cir. 1987); see also Cox v. Sprung’s Transport & Movers, Ltd., 407 F.Supp.2d 754, 757 (D.S.C. 2006) ("All that is necessary to establish the existence of a meritorious defense, in support of motion to vacate default, is a presentation or proffer of evidence, which if believed, would permit either the Court or the jury to find for the defaulting party.")
Sunlighten has not presented a meritorious defense. Stevens does not (and cannot) assert that there was no defect in the sauna. Based on this record, Stevens has no particular expertise that would qualify him to give an expert opinion as to the design or manufacture of the sauna. He is limited to his personal knowledge as a customer care manager, and he made a corresponding declaration that he lacks awareness of any defect.
Even if believed, Stevens’ assertion would not constitute a complete defense because it is entirely possible that a defect existed in the sauna— but that he was "not aware" of it. In other words, asserting a lack of knowledge is not the same as a positive assertion that no defect exists. See, e.g., Coach, Inc. v. Brothers Gas, 2013 WL 1414435 (E.D. Mich. April 8, 2013) (holding that lack of knowledge was not a defense to Lanham Act claim). But Cf. In re Ward, 2010 WL 4286211 (N.D. Ohio Bankr. Ct., October 25, 2010) (concluding that lack of knowledge was a meritorious defense where "intent [was] a pivotal element" to the claims). Accordingly, Stevens’ lack of knowledge, even if it proves true, would not constitute a "complete defense" to the Plaintiffs’ claims. 595 F.3d at 326.
Finally, there has been little discussion of prejudice as to Plaintiffs. However, with the first two factors favoring Plaintiffs, and especially in light of Sunlighten’s failure to assert a meritorious defense, the Court finds that the record as a whole does not support setting aside the default.
IV.
In sum, while mindful of the relatively light burden on Sunlighten, and with awareness of the preference for resolving claims on the merits, the Court finds that Sunlighten simply has not met its burden of establishing good cause for setting aside the entry of default. The motion will be denied.
ORDER
For the reasons explained in the Court’s opinion, Defendant Sunlighten Incorporated’s motion (ECF No. 8) to set aside default is DENIED.
IT IS SO ORDERED.