Dean v. KIS Corp.

¶1MEMORANDUM OPINION AND ORDER

¶2Plaintiffs have filed a motion for entry of default judgment pursuant to Fed.R.Civ.P. 54(b) and 55(b)(2) against defendants KIS, S.A., Serge Crasnianski, Peter Burgess, and Phillip Frank (“the defendants”). In response, defendants have filed a motion for sanctions pursuant to Fed.R.Civ.P. 11. For the reasons set forth below, both motions are denied.

¶3I. Plaintiffs’ Motion for Default Judgment

¶4On June 30, 1987, plaintiffs filed a complaint against seven defendants. This motion is directed against only five of the defendants.1 The threshold question is whether plaintiffs properly served those defendants under Fed.R.Civ.P. 4(c)(2)(C)(ii). In relevant part, that rule provides:

A summons and complaint may be served upon a defendant ... by mailing a copy of the complaint (by first-class mail, postage prepaid) to the person to be served, together with two copies of a notice and acknowledgement conforming substantially to form 18-A and a return envelope, postage prepaid, addressed to the sender. If no acknowledgement of service under this subdivision of. the rule is received by the sender within 20 days after the date of mailing, service of such summons and complaint shall be made under subparagraph (A) or (B) of this paragraph in the manner prescribed by subdivision (d)(1) or (d)(3) [personal or abode service].

¶5Fed.R.Civ.P. 4(c)(2)(C)(ii).

¶6In this case, plaintiffs attempted to effect service upon the corporate defendants, as well as the individual defendants, by mailing copies of the appropriate documents, together with an acknowledgement form, to each defendant at KIS Corporation’s office address in Somerset, New Jersey.2 The acknowledgement forms were not returned within 20 days of the initial mailing. Nonetheless, plaintiffs did not effect personal or abode service upon the defendants as required by the second sentence of Rule 4(c)(2)(C)(ii).

¶7Plaintiffs now argue that mere receipt of the acknowledgement, resulting in “actual notice” of the lawsuit, renders service effective under Rule 4(c)(2)(C)(ii). Specifically, plaintiffs claim that defendants’ counsel’s subsequent oral acknowledgement of receipt of summons and complaint, without *76more, satisfies the requirements of the rule. We disagree.

¶8The plain language of the rule persuades us that plaintiffs’ position is incorrect. The rule requires personal or abode service when an acknowledgement is not returned within 20 days of mailing. The acknowledgement proves actual notice, which is required before a default judgment may be entered. Thus, service under Fed.R.Civ.P. 4(c)(2)(C)(ii) is not effective without return of the acknowledgement form or another authorized method of service.

¶9This interpretation of the rule is followed by a majority of courts. See, e.g., Stranahan Gear Co., Inc. v. NL Industries, Inc., 800 F.2d 53 (3rd Cir.1986); Norlock v. City of Garland, 768 F.2d 654 (5th Cir.1985); Armco, Inc. v. Penrod-Stauffer Bldg. Systems, Inc., 733 F.2d 1087 (4th Cir.1984). Although the Seventh Circuit has not addressed this issue, at least two lower courts within this circuit have. See Coldwell Banker & Co. v. Eyde, 661 F.Supp. 657 (N.D.Ill.1986); Zisman v. Sieger, 106 F.R.D. 194 (N.D.Ill.1985).3 At first glance, these opinions appear to be contrary.

¶10In Coldwell Banker, the plaintiff attempted to serve the defendants by mailing the appropriate documents on September 17,1985. The documents were not actually delivered to the defendants until October 7, 1985, approximately 20 days after the initial mailing. The documents were actually received, but not timely acknowledged. On these facts, the court held that service was ineffective under Rule 4(c)(2)(C)(ii). In arriving at this conclusion, the court relied on the plain language of the rule, as well as its underlying legislative history. See Coldwell Banker, 661 F.Supp. at 658-59 n. 5. The rule itself makes proper service contingent upon the return of the acknowledgement form within 20 days of mailing and requires some alternative form of personal service if no acknowledgement form is returned within 20 days. See Fed.R.Civ. P. 4(c)(2)(C)(ii); see also Coldwell Banker, 661 F.Supp. at 658-59. Likewise, the legislative history clearly mandates that “if the proper person receives the notice and fails to return the acknowledgement form, another method of service authorized by law is required.” 128 Cong.Rec. H9850 (daily ed. Dec. 15, 1982) (statement of Rep. Edwards), reprinted in Service Under Amended Rule 4, 96 F.R.D. at 119; Coldwell Banker, 661 F.Supp. at 658-59 n. 5.

¶11In Zisman, the third-party plaintiff attempted to serve one of the third-party defendants, a Japanese corporation, by mailing the appropriate documents to the Japanese corporation’s offices in Japan and to its wholly owned subsidiary’s offices in the United States. Although the Japanese corporation received the documents, it failed to return either acknowledgement form within 20 days of the initial mailing. As a result, the third-party plaintiff hired a special process server to personally serve the Japanese corporation by serving an agent at the offices of its wholly owned subsidiary in Illinois. Unlike the instant case, at issue in Zismanwas whether the second personal service attempt on the agent of the wholly owned subsidiary complied with the second sentence of Rule 4(c)(2)(C)(ii) (which requires another authorized method of service if no acknowledgement is returned). The court in Zismanconcluded that personal service on the agent of the wholly owned subsidiary satisfied the second sentence of the rule. In addition, although the issue was not before it, the court noted in dictum that a received, but unacknowledged, mail service is effective even without the second personal service called for by the rule. Thus, while the result reached in Zismanconforms to the technical requirements of the rule, the dictum in Zismansuggests that something less than technical compliance with the rule is sufficient.

¶12Although this Court agrees with the result in Zisman, we disagree with the dic*77turn suggesting that mail service is effective under Rule 4(c)(2)(C)(ii) if the appropriate documents are actually received, but not acknowledged. The authority for this dictum is Morse v. Elmira Country Club, 752 F.2d 35 (2d Cir.1984), a case cited by plaintiffs in support of the instant motion. The Morsedecision, however, is predicated upon equitable considerations which are not present in this case. In any event, the Morsedecision fails to provide a reasoned interpretation of the rule. For that reason, like the court in Coldwell Banker, we find the Morsedecision unpersuasive. See Coldwell Banker, 661 F.Supp. at 659.

¶13We follow the court in Coldwell Banker and expressly hold that a defendant’s failure to return an acknowledgement form within 20 days of the initial mailing, despite actual receipt of the appropriate documents, renders service ineffective under Rule 4(c)(2)(C)(ii). If the acknowledgement form is not returned within 20 days of the initial mailing, then the plaintiff is required to effect service using some other authorized method.

¶14Plaintiffs argue that allowing defendants to ignore the return of the acknowledgement form and requiring plaintiffs to obtain personal service will nullify the rule. Yet, Rule 4(c)(2)(D) avoids that pitfall. Under that provision, unless a defendant establishes good cause for failing to make timely return of the acknowledgement, the court shall order the payment of the costs of personal service by the person served. Fed.R.Civ.P. 4(c)(2)(D). See, e.g., Sally Beauty Company, Inc. v. Nexxus Products Company, Inc., 578 F.Supp. 178 (N.D.Ill.1984).

¶15In spite of plaintiffs’ urging, the Court has determined that plaintiffs failed to effect proper service on these defendants. Without proper service, this Court cannot enter a default judgment against the defendants. Consequently, plaintiffs’ motion for entry of default judgment is denied.

¶16II. Defendants’ Motion for Sanctions

¶17As the foregoing discussion demonstrates, there is existing law supporting plaintiffs’ motion for entry of default judgment. Furthermore, it can hardly be said that the issue of whether Rule 4(c)(2)(C)(ii) requires return of acknowledgement or alternative service has been conclusively determined by the Seventh Circuit. Thus, although plaintiffs did not prevail on the merits of their motion, there was a color-able legal basis to move for entry of default judgment. That satisfies the requirements of Fed.R.Civ.P. II.4See Magnus Electronics, Inc. v. La Republica Argentina, 830 F.2d 1396, 1405 (7th Cir.1987) (colorable legal claim avoids Rule 11 sanctions). Defendants have offered no evidence that plaintiffs filed .this motion for an otherwise improper purpose under Rule 11.5 Accordingly, defendants’ motion for sanctions is denied.

¶18III. Conclusion

¶19For the reasons stated, the Court denies both plaintiffs’ motion for entry of default judgment pursuant to Fed.R.Civ.P. 54(b) and 55(b)(2) and defendants’ motion for sanctions pursuant to Fed.R.Civ.P. 11.