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acknowledging but declining to exercise its discretion to grant additional service time in the absence of good cause
Summary of this case from Blake v. Wells Fargo Bank, N.A.Opinion
Case No. C-2-00-946
April 17, 2001
OPINION AND ORDER
Plaintiff Steven Sprader brings this action against defendant Norwest Financial, Inc. Medical and Dental Plan and defendant James E. Goodson, plan administrator for Norwest Financial. Plaintiff was seriously injured from an automobile accident while a passenger in a motor vehicle operated by his wife. Plaintiff submitted his medical bills to defendants for payment, but defendants refused to reimburse plaintiff until he executed a "Subrogation and Reimbursement Agreement."
Plaintiff seeks a declaration that he need not execute the subrogation agreement as a precondition to recovering benefits under the plan and a declaration that defendants are not entitled to recoupment of any benefits paid to plaintiff from his automobile insurance policy with Nationwide Mutual Insurance Company. Plaintiff also seeks a judgment against defendants in the amount of the medical benefits allegedly due plaintiff under the Medical and Dental Plan.
This matter is before the Court on the Magistrate Judge's January 4, 2001 Order for plaintiff to show cause why defendants should not be dismissed without prejudice for failure to obtain service on them. (Doc. 4). For the reasons set forth below, this action is dismissed under Fed.R.Civ.P. 4(m) for plaintiff's failure to effect service.
Also pending is plaintiff's request for oral argument. S.D. Ohio civ. R. 7.2-(b)(2) states that oral argument is proper when essential to the fair resolution of the case because of its public importance or the complexity of the issues. The court finds that oral argument is not essential to this case. Plaintiff's request for oral argument is therefore denied.
I. Facts
Steven Sprader is an employee of Norwest Financial, Inc. and is a participant in Norwest's Medical and Dental Plan ("the Plan"). Sprader submitted to the Plan his medical bills relating to the December 12, 1999 auto accident. The Plan refused to process the payments until Sprader executed a Subrogation and Reimbursement Agreement.
Plaintiff's counsel, Darin G. Kendall, sent correspondence to the Plan on May 24, 2000, challenging its insistence that Sprader sign the subrogation agreement. (Compl., Ex. 4). On August 8, Eugene Sheih, assistant general counsel for Wells Fargo Financial, Inc., sent a response to Kendall in which he rejected Kendall's position on the subrogation agreement. (Compl. . . ., Ex. 5).
Norwest Financial, Inc. is now Wells Fargo Financial, Inc.
Sprader filed this action on August 16, 2000. Service was not attempted at that time. On September 18, Kendall sent a letter and a copy of the complaint to Sheih. The letter stated that service of process had not been effected. (PI.'s Mem. in Opp'n to Dismissal, EX. 2). The letter reiterated Kendall's belief that, under Sixth Circuit law, Sprader need not sign the subrogation agreement. Also, the letter proposed that the two sides reach a settlement on the matter. The letter concluded by stating that Kendall would initiate service of process and would file a motion for a preliminary injunction if a settlement was not reached.
Sheih and Kendall had several telephone conversations during the first two weeks of October. (Defs.' Mem. in Support of Dismissal, Ex. A, Sheih Aff., ¶ 7). According to Sheih, they reached an agreement whereby Norwest would process Sprader's claims for medical payments without Sprader first signing the subrogation agreement. ( Id.). In exchange, says Sheih, Kendall agreed to voluntarily dismiss Counts II and III of the complaint. ( Id.). No agreement was reached with respect the parties' rights to benefits Sprader received from his automobile insurance carrier, Nationwide. ( Id.). On October 16, Sheih faxed a letter to Kendall confirming the agreement. ( Id., Ex. 4).
The Plan processed Sprader's claims for medical expense benefits. The Plan paid $463,916.15 of Sprader's medical bills. (Pl.'s Mem. in Opp'n to Dismissal, Ex. 4). Payment was made by November 8, 2000.
On November 13, 2000, according to Sheih, he and Kendall had a telephone conversation. (Sheih Aff., ¶ 9). Kendall stated that he would be effecting service and expressed his desire to discuss settlement of the subrogation issue, that is, the parties' rights to any benefits paid out by Nationwide. ( Id.). Sheih said that he was unwilling to resolve the subrogation issue until Sprader voluntarily dismissed Counts II and III of the complaint. ( Id.).
Although it appears this position was never communicated to Sheih, Kendall states that counts II and III were not voluntarily dismissed because there were over $50,000 in unpaid medical bills remaining. On January 23, 2001, Kendall sent Sheih a letter requesting the Plan to determine the status of these unpaid medical bills. (Pl.'s Reply Mem., Ex. A-1).
On December 4, Kendall and Sheih had another conversation. According to Sheih, Kendall again stated that he would be effecting service and expressed his desire to discuss settlement. ( Id., ¶ 10). Sheih reiterated his position that resolution of the subrogation issue was not possible until Sprader voluntarily dismissed Counts II and III of the complaint. ( Id.).
During the December 4 conversation, Kendall and Sheih also discussed a $295,000 settlement draft that Sprader had received from Nationwide. (Pl.'s Mem, in Opp'n to Dismissal, Ex. 1, Kendall Aff., ¶ 3). The draft was made jointly payable to Sprader and the Plan. ( Id.). Kendall suggested the draft be deposited into an interest-bearing account; Sheih wanted Kendall to put his proposal in writing. ( Id.). Sheih states that he never received a written proposal from Kendall. (Sheih Aff., ¶ 10).
On December 22, 2000, the Plan filed suit against Sprader in the United States District Court for the Southern District of Iowa. (Pl.'s Mem. in Opp'n to Dismissal, Ex. 7). The complaint alleges that the Plan is entitled to the Nationwide settlement draft because the Plan's subrogation clause gives it first priority to the settlement draft.
The Magistrate Judge issued a Show Cause Order on January 4, 2001. The Order required plaintiff to show cause why defendants should not be dismissed without prejudice for failure to obtain service on them.
Defendants dispute whether plaintiff obeyed the Magistrate Judge's order that plaintiff show cause within 11 days of the date of the Order. Plaintiff filed his response to the Order on January 16, 2001. (Doc. 6). Plaintiff's response was timely because January 15, 2001 was a legal holiday; therefore, under Fed.R. civ. P. 6(a), the deadline became January 16.
Plaintiff served defendants with the summons and complaint on January 8, 2001. This was 25 days past the December 14, 2000 deadline. At no time did plaintiff seek an extension of the deadline.
II. Rule 4(m)
A plaintiff has 120 days after filing the complaint to serve a defendant. When plaintiff fails to effect service within 120 days, the court "shall dismiss the action without prejudice as to that defendant or direct that service be effected within a specified time." However, "if the plaintiff shows good cause for the failure, the court shall extend the time for service for an appropriate period."
The court must extend the time for service when plaintiff shows good cause and has the discretion to do so even when good cause is not shown. The Advisory Committee Notes for the 1993 amendments state, "[Rule (m)] authorizes the court to relieve a plaintiff of the consequences of an application of this subdivision even if there is no good cause shown." See Wise v. Dep't of Defense, 196 F.R.D. 52, 56 (S.D. Ohio 1999). The Notes mention certain situations in which relief in the absence of good cause may be appropriate, such as when the refiled action would be timebarred, when the defendant evades service, and when pro se plaintiffs deserve protection.
III. Discussion
A. plaintiff Has Not Shown Good Cause
Plaintiff argues that the settlement negotiations between Kendall and Sheih constitute good cause why defendants were not timely served. Plaintiff cites Assad v. Liberty Chevrolet, Inc., 124 F.R.D. 31 (D.R.I. 1989) as support. Plaintiff contends that his efforts, beginning on September 18 and ending in early December, to resolve the medical expenses dispute and the subrogation dispute constitute good cause. Plaintiff notes that his efforts were largely successful insofar as he received payment for nearly all of his medical expenses.
Defendants argue that plaintiff has not shown good cause. Defendants contend that this is not a case where plaintiff made diligent efforts to effect service but failed for some reason out of his control. Instead, say defendants, plaintiff made no effort at all to serve them before the deadline, nor did plaintiff request an extension. Defendants reject the contention that settlement discussions constitute good faith and state that Assad is not persuasive authority. Even if Assad has some precedential value, defendants argue that Assad is distinguishable — in Assad the negotiations were ongoing as the deadline for service passed, whereas here Kendall and Sheih conducted no negotiations after October 2000.
In Assad, plaintiffs served defendant 13 days after the September 6 deadline. Settlement discussions ended sometime during September. Plaintiff proceeded with service once the discussion ended. In a brief opinion, the court held that the "good faith settlement negotiations . . . constituted good cause." 124 F.R.D. at 31.
Defendants are correct that Assad has been questioned and qualified. See Bank off Cape Verde v. Bronson, 167 F.R.D. 370, 371 n. 1 (S.D.N Y 1996) (citing cases). Assad's proposition that good faith settlement negotiations constitute good cause is at its strongest when plaintiff requested an extension and when the negotiations were ongoing as the deadline passed. The court in Bronson observed, "As the cases [cited] demonstrate, good cause will not be found, despite settlement efforts, where no extension application is made before expiration of the time period for service." Id. at 372.
In Gambino v. Village of Oakbrook, 164 F.R.D. 271, 275 (M.D. Fla. 1995), plaintiff "tried to settle [the] case up to three days before the 120-day deadline and then delivered the Amended Complaints and Summonses overnight to the respective law enforcement agency to effectuate service." Even though not all defendants were served within 120 days, the court found good cause for the failure.
Thus, the existence of settlement negotiations alone is an insufficient basis for finding good cause. There must be other indications that plaintiff acted reasonably and diligently during the 120-day period. Here, it is undisputed that plaintiff neither requested a time extension nor attempted service until after the January 4, 2001 Order to show cause.
Plaintiff argues that the negotiations carried on into December, less than 10 days before the deadline for service. Defendants respond that no settlement negotiations occurred after October 16. (Sheih Aff., ¶ 11). Based on the evidence of record, defendants have the more convincing argument.
It is clear that Kendall and Sheih did engage in settlement negotiations and in fact reached a partial agreement in early October. The agreement is reflected in Sheih's October 16 letter to Kendall. (Defs.' Mem. in Support of Dismissal, Ex.4). According to the letter, and not disputed by plaintiff, Kendall and Sheih reached an agreement with respect to the Plan's payment of Sprader's medical expenses, but did not reach an agreement with respect to the parties' rights to any benefits paid out by Nationwide.
The subsequent communications between the parties cannot be viewed as good faith negotiations. These communications can be divided into two types. The first type is correspondence between the Plan and Sprader regarding the processing of Sprader's medical claims. On October 27, Kendall sent to Sheih documentation of Sprader's medical expenses at the University of Wisconsin Hospital and Clinics. (PI.'s Mem. in Opp'n to Dismissal, Ex. 6). On October 31, Claims Supervisor Shellie Brown sent a letter to Sprader requesting the tax identification numbers of three medical service providers and an itemized bill for another. ( Id., Ex. 3). On November 6, Brown sent Sprader an individual payment report. ( Id., Ex. 4). On November 27, Brown sent Sprader a letter reflecting receipt of Sprader's response to Brown's October 31 letter. ( Id., Ex. 5). This letter also clarified certain calculations made in the payment report.
These communications cannot be viewed as good faith negotiations. Instead, they are follow-up letters to the October 2000 agreement that the Plan would pay Sprader's medical expenses without requiring Sprader to sign a subrogation agreement. In other words, the negotiations were over and a settlement had been reached. The October 27 and November 6 correspondence carried out the agreement, while the October 31 and November 27 letters merely addressed minor concerns that arose while processing Sprader's claims. Most of the correspondence involved Brown and Sprader, not Kendall and Sheih. Brown and Sprader were not in a position to be engaging in settlement negotiations.
The second type of communications were the November 13 and December 4 telephone conversations between Kendall and Sheih. During these conversations, Kendall stated that he would be effecting service and expressed his desire to discuss settlement of the subrogation issue, that is, to resolve the parties' rights to any benefits paid out by Nationwide. (Sheih Aff., ¶¶ 9, 10). Sheih rejected any settlement discussions on the subrogation issue. ( Id.). According to Sheih, he did so because plaintiff had not carried out his promise under the October agreement to voluntarily dismiss Counts II and III of the complaint. ( Id.). Sheih's belief that Kendall had failed to abide to the October agreement led Sheih to doubt whether Kendall would negotiate in good faith over the subrogation issue. ( Id.).
During the December 4 conversation, Kendall and Sheih also discussed the $295,000 settlement draft that Sprader had received from Nationwide. (Kendall Aff., ¶ 3). Kendall suggested the draft be deposited into an interest-bearing account, and Sheih requested Kendall to put his proposal in writing. ( Id.). According to Sheih, he never received a written proposal from Kendall. (Sheih Aff., ¶ 10).
The November 13 and December 4 telephone conversations cannot be viewed as good faith negotiations. Kendall expressed his desire to settle the subrogation issue, but Sheih refused. Kendall and Sheih never reached the stage of negotiating a settlement. Rather, Kendall made an offer to discuss settlement, which Sheih promptly rejected.
Kendall and Sheih did discuss how to handle the $295,000 draft, but this was not a discussion about settlement. They were not resolving the parties' rights to the draft but instead were discussing what should be done with the draft until those rights were resolved.
The Court finds that the parties were not engaged in ongoing settlement negotiations at or near the time of the December 14 deadline for service. The last negotiations occurred in October. Subsequent communications in late October, November, and early December were not negotiations.
Accordingly, plaintiff has not shown good cause for his failure to effect service within the 120-day period.
B. Plaintiff Is Not Entitled To A Discretionary Extension
Plaintiff argues that he deserves a discretionary 25-day extension in the time for service, even in the absence of good cause. Citing the factors considered in Wise v. Dep't of Defense, 196 F.R.D. 52, 56-57 (S.D. Ohio 1999), plaintiff states that defendants had actual notice of the lawsuit, that the delay in service was only 25 days, and that the delay worked no prejudice against defendants. According to plaintiff, dismissal of this case would greatly prejudice him because it would shift the dispute over the $295,000 draft to the district court in Iowa. plaintiff contends that it would be costly and burdensome for him to defend in the Iowa litigation.
Defendants argue that none of the factors mentioned in the Advisory Committee Notes for Rule 4(m) are present here. Plaintiff's refiled action would not be time-barred, defendants have not evaded service, and plaintiff is not appearing pro se. Defendants urge the Court not to consider plaintiff's argument of prejudice — plaintiff cites no cases factoring in the costs of litigating in an out-of-state forum as part of the Rule 4(m) analysis. Defendants add that plaintiff has overstated those costs insofar as Sprader himself would not need to attend preliminary conferences and insofar as such conferences could be conducted by telephone.
In Wise, the court exercised its discretion to extend the time for service. Plaintiff's counsel was ill, so her legal assistant filed the complaint. The legal assistant left the clerk's office wrongly believing that every step had been taken to effect service. Defendants were properly served about a month after the deadline.
The court found that a number of factors justified a discretionary extension. First, plaintiff "did not significantly delay effecting proper service." 196 F.R.D. at 56-57. Second, defendants had actual notice of the complaint and thus were not prejudiced by the delay. Id. at 57. Third, dismissal would "substantially prejudice" plaintiff because his refiled suit would be time-barred. Id. Finally, the court noted the illness of plaintiff's counsel, the legal assistant's "good-faith attempts" to effect service, and efforts by plaintiff's counsel to resolve service problems by contacting the Postal Service. Id.
This factor in Wise — plaintiff's flawed but good faith attempts to effect service — is important in light of the rule followed by most courts that "[n]either actual notice nor absence of prejudice to the defendant provides an adequate basis for excusing noncompliance with Rule 4(m), unless plaintiff has diligently attempted to complete service." Mused v. U.S.D.A. Food Nutrition Serv., 196 F.R.D. 28, 35 (w.D.N.Y. 1996).
Here, the delay in service was less than one month. Plaintiff served defendants on January 8, 2001, 25 days after the December 14, 2000 deadline. Defendants had actual notice of the lawsuit in September 2000 when Kendall sent a copy of the complaint to Sheih.
What sets this case apart from Wise, however, are the other factors. In Wise, the legal assistant believed she had effected proper service. The court considered that to be a "good faith attempt." Here, plaintiff made no attempt at all to effect service. Kendall deliberately withheld service in order to use the threat thereof as a bargaining ploy. Failure to observe Rule 4(m) cannot be forgiven where plaintiff strategically flaunts the Rule's obligations, and then, having failed tactically, requests the court to relieve him from the consequences of his own strategic failure.
Plaintiff urges the Court to equate the prejudice he will suffer from a dismissal with the prejudice in Wise. In Wise, dismissal would have resulted in the plaintiff's claim being barred y the statute of limitations. Such is not the case here. The major remaining dispute between the parties is their rights to the $295,000 draft from Nationwide. Dismissal will not prevent plaintiff from being heard on his claim to the draft. The suit brought by defendants in Iowa will settle that very dispute. Thus, plaintiff will have a full and fair opportunity to present his claim to the draft before the district court in Iowa.
The Court recognizes plaintiff will incur costs and be inconvenienced by litigating in Iowa. However, given that plaintiff did not diligently attempt to serve defendants within the 120-day period, the increased burden of litigating in Iowa is not an unfair consequence of plaintiff's failure.
Accordingly, plaintiff is not entitled to a discretionary extension of the 120-day period for service.
IV. Conclusion
For the reasons set forth above, this action is DISMISSED WITHOUT PREJUDICE under Fed.R.Civ.P. 4(m) for plaintiff's failure to obtain service on defendants.