Opinion
Case No. 09-31565-svk, Adversary No. 09-02472.
September 29, 2010
MEMORANDUM DECISION ON DEFENDANT'S MOTION TO DISMISS
Introduction and Statement of Facts
This adversary proceeding challenging the dischargeability of a debt was commenced by Allen S. Musikantow (the "Plaintiff") against John D. Blossom (the "Defendant") on December 7, 2009. A summons was issued on December 11, 2009, but the Plaintiff utilized a process server, rather than first class mail, to serve the summons and complaint. The process server could not find the Defendant, and filed a certificate stating that fact. On January 9, 2010, another process server found the Defendant, and stated in her certificate of service filed on February 4, 2010: "I further certify that the service of this summons and a copy of the complaint was made on January 9, 2010 by . . . Personal Service: By leaving the process with defendant or with an officer or agent of defendant."
On February 8, 2010, the Defendant filed a motion to dismiss Plaintiff's "Adversary Complaint Pursuant to F.R.C.P. 12(b)(6)" (the "Motion"). The Motion states that the complaint should be dismissed "for failure to meet the pleading requirements of Section 5009(b) Bankruptcy Court Rules (sic)." In the section of the Motion entitled "Procedural History and Background," the Motion states: "As of the time of this [M]otion, the Complaint has not been properly served on Defendant. A copy of the Complaint was received, and reviewed by Counsel for Defendant." The main thrust of the Motion was that Plaintiff's allegations of fraud did not meet the elements of 11 U.S.C. § 523(a)(2) and Bankruptcy Rule 7009(b). The relief requested in the Motion did not include dismissal of the complaint for insufficient service of process.
A hearing was held and the Motion was denied, but the Court required the Plaintiff to amend the complaint to include a more definite statement of the alleged fraud. At the tail end of the hearing, the Defendant's counsel mentioned that he had received an e-mail from Plaintiff's former counsel admitting that service was not proper. The Defendant's counsel alleged that only the summons but not the complaint had been served on the Defendant. The Plaintiff's new counsel was unaware of any defect in service, and when the Court started to inquire about the point of raising this argument when the Motion had already been decided, the Defendant's counsel said: "That's all right Your Honor. That's another issue." He did not in any way press the Court to rule on the propriety of service at that time.
The amended complaint was filed on March 25, 2010, and served on the Defendant's counsel via electronic service through the Court's electronic filing system. In his answer to the amended complaint, the Defendant again alleged: "Plaintiff has failed to affect (sic) proper service on this [D]efendant, and therefore, there is a lack of personal jurisdiction." However, the Defendant included a counterclaim as part of his answer, and the Defendant also propounded what was described as "extensive" discovery on the Plaintiff.
The Court issued an amended pretrial order on April 6, 2010. That order required the parties to file proposed findings of fact and conclusions of law, an exhibit list, and copies of all exhibits prior to the final pretrial conference on August 2, 2010. In the pretrial order, the Court cautioned that if the exhibits were not timely filed, they would not be admitted into evidence. The pretrial order also stated: "MOTIONS: All dispositive motions must be heard before August 2, 2010, on not less than 14 days notice to the opposing party. Contact the Court to schedule the hearing prior to filing the motion." On July 27, 2010, the Defendant filed an exhibit list, but did not file copies of the exhibits. The Defendant did not file his proposed findings of fact and conclusions of law until after the final pretrial conference, and he did not file his exhibits until the day of trial. The proposed findings of fact and conclusions of law did not mention any defect in service of the summons and complaint. At the final pretrial conference, the Defendant did not raise the issue of insufficient service of process.
Although not identified on his exhibit list, before the Plaintiff's case, the Defendant sought to introduce into evidence a February 4, 2010 e-mail from the Plaintiff's former counsel to Defendant's counsel stating:
I agree that our service was defective. Our attempts at service were performed as his last known address. I have spoken with the Court's clerk who is willing to provide us with another summons, based upon the affidavit of non-service on file, and then we could reperform service. I was hoping that this would be unnecessary and that you would be willing to accept and/or stipulate to service as you have obviously received the Complaint. If that courtesy is not forthcoming, please let me know and I would be happy to make sure that proper service is performed forthwith.
The Court questioned the timeliness of raising the defective service issue at the trial, but the Defendant insisted that he had preserved this argument during the entire proceeding, such as in his Motion to dismiss. The Defendant conceded that since all the witnesses had appeared and were ready to go, the Court should hear the testimony, but the Defendant reserved his right to argue that the Court lacked personal jurisdiction.
At the conclusion of the testimony, the Court ruled for the Plaintiff, and held that a nondischargeable judgment of $37,050 should be entered against the Defendant. The Defendant renewed his request to dismiss the case for insufficiency of service of process, and the Court took the matter under advisement. The Court has considered the parties' briefs, and this Memorandum Decision constitutes the Court's findings of fact and conclusions of law under Bankruptcy Rule 7052.
Analysis
The Court concludes that this case should not be dismissed for two reasons. First, the Court's records do not show any defect in the service of the summons and complaint, and second, assuming service was faulty, the Defendant waived the defect by not pressing his claim in a timely and appropriate manner.
1. Service was not defective according to the Court's docket
The Defendant's attorney has maintained that service of the summons and complaint was not proper. However, after reviewing the entire record, the Court was unable to find any testimony, affidavit or declaration by the Defendant himself that he was not served with a copy of the summons and complaint. Therefore, the verified certificate of the process server that she duly served the summons and complaint prevails. The Defendant's attorney relies heavily on the e-mail from the Plaintiff's former attorney to prove that service was not valid. However, considering the e-mail in its entirety clarifies that the Plaintiff's former attorney was discussing the prior attempted service on December 27 and December 28, 2009, when the process server could not locate the Defendant. A letter filed with the original certificate stating that the Defendant could not be found explains that a new address had been located, and another attempt would be made. Then on February 4, 2010, the Plaintiff filed the certificate of service stating that the summons "and a copy of the complaint" were personally served on the Defendant. It appears that the Plaintiff's former attorney was unaware of this fact when he e-mailed the Defendant's counsel. The origin of the information that only the summons, but not the complaint, was served is unknown; the Court's records show a notarized certificate of service stating that the summons and complaint both were personally served on the Defendant.
Moreover, the amended complaint was served properly. An amended complaint does not need to be served on the defendant, only upon the attorney. See Fed.R.Bankr.P. 7005, incorporating Fed.R.Civ.P. 5(b). In Bayou Louie Farm, Inc. v. White (In re Heigle), 401 B.R. 752 (Bankr. S.D. Miss. 2008), an action was commenced in the state court, removed to the federal district court, and then transferred to the bankruptcy court when one of the plaintiffs filed a Chapter 11 petition. In the bankruptcy court, an amended complaint was filed adding new plaintiffs, defendants, and causes of action, and that amended complaint was served on counsel for one of the defendants, but not on the defendant himself. At trial, the defendant argued that he was not served properly under Bankruptcy Rule 7004, but the bankruptcy court determined that based on Federal Rule of Civil Procedure 5(a)(1)(B) and (b)(1), service on his attorney was sufficient. In this case, while mentioning in passing that his client was not properly served, the Defendant's attorney insisted upon either dismissal of the complaint under Federal Rule 12(b)(6) or amendment of the complaint to give a more definite statement of the Defendant's alleged fraud. The Court ordered the Plaintiff to amend the complaint, and the Defendant did so, and served it on the Defendant's attorney as permitted by Federal Rule 5. Given the certificate of service of the process server, stating that the Defendant was properly served with the original summons and the complaint, and the fact that service of the amended complaint was properly made on the Defendant's attorney, the Defendant's motion to dismiss for insufficiency of service of process should be denied.
2. The Defendant waived the alleged defect in service
Even assuming that the original complaint was not properly served, this defect is waived if not raised at the first opportunity. Federal Rule of Civil Procedure 12(g) and (h) provide that if a party makes a Rule 12(b) motion, the party must add all of the defenses in Rule 12(b)(2) through (5), or they are deemed waived. Specifically, Rule 12(h)(1)(B) states, in pertinent part: "A party waives any defense listed in Rule 12(b)(2) — (5) by failing to . . . make it by motion under this Rule . . ." (emphasis supplied).
In this case, in response to the complaint, the first pleading the Defendant filed was a Motion to dismiss for failure to state a claim under Rule 12(b)(6). As part of the introductory matter, he mentioned the alleged defect in the service of process. By this allegation, the Defendant did not "make" a motion to dismiss for insufficiency of service of process, especially given that his request for relief did not include dismissal on this ground. Therefore he did not comply with Rule 12(g) and (h), and the defense is waived. Even assuming that the mention of the defense was construed as "making a motion," the Defendant's arguments at the hearing on the Motion all focused on the Rule 12(b)(6) arguments. Only after the Court ruled on those arguments, almost as an afterthought, the Defendant's attorney raised the e-mail concerning the defective service. But when the Court inquired, the Defendant's attorney still did not press the issue.
Where service of process is defective, undue delay in challenging personal jurisdiction may result in a waiver, even if the defense is asserted in a timely answer or motion. Datskow v. Teledyne, Inc., 899 F.2d 1298 (2d Cir. 1990). "Additionally, a party's conduct evidencing that it has submitted itself to the court's jurisdiction will constitute a waiver of insufficient service of process." In re Lefler, 319 B.R. 538, 541 (Bankr. E.D. Tenn. 2004) (citing Slone-Stiver v. Mazer Corp., 223 B.R. 116, 122 (Bankr. S.D. Ohio 1998)). Assuming that the Defendant properly preserved this defense by noting it as a background fact in his Motion, his subsequent conduct indicated that he had submitted himself to the Court's jurisdiction. The first example of this conduct is the Defendant's counterclaim filed in response to the amended complaint. If the Court did not have personal jurisdiction over the Defendant because of faulty service, how could the Court adjudicate his counterclaim? The Seventh Circuit has held that filing a counterclaim is a waiver of the Rule 12(b)(2) through (5) defenses. See Switzer Bros., Inc. v. Chicago Cardboard Co., 252 F.2d 407, 411 (7th Cir. 1958) (plaintiff submitted to the court's jurisdiction by filing counterclaim).
As the trial approached, the Defendant had other opportunities to press his defense that service was defective. The amended final pretrial order set a date for the scheduling of dispositive motions; the Defendant let that date pass without asking for a hearing on the service of process issue. He did not include any mention of this defect in the proposed findings of fact and conclusions of law (although he did repeat some of the other allegations made in the Rule 12(b)(6) Motion). He did not raise the issue at the final pretrial conference, and he did not include the e-mail on his exhibit list, but rather produced it at the trial, and then contended that he had always maintained that the Court had no personal jurisdiction over the Defendant.
The trial is too late to consider a Rule 12(b)(5) motion. Federal Rule of Civil Procedure 12(i) provides: "If a party so moves, any defense listed in Rule 12(b)(1) through (7) — whether made in a pleading or by motion — and a motion under Rule 12(c) must be heard and decided before trial unless the court orders a deferral until trial." No such deferral was ordered here. In short, the burden was on the Defendant to press his Rule 12(b)(5) defense, and the mention of such a defense as a background fact in another Rule 12 motion is insufficient. Even if the defense was preserved by stating it as part of the background in the Motion, the Defendant's failure to request a hearing on the issue, while at the same time, propounding discovery, filing and prosecuting a counterclaim, and neglecting to mention the defense in proposed findings of fact and conclusions of law or at the final pre-trial conference, constitutes a waiver of this defense.
The Court has considered the case of New York v. Shtayyeh (In re Shtayyeh), 424 B.R. 55 (Bankr. W.D.N.Y. 2010), cited by the Defendant, and finds that it is distinguishable. In that case, there was no evidence that the summons and complaint were timely served. Six months after the deadline to file an adversary proceeding to determine dischargeability, the court issued a show cause order as to why the case should not be dismissed for failure to prosecute. The plaintiff then obtained a new summons for service, and argued that Federal Rule of Civil Procedure 4(m) justified an extension of time to serve that summons with the complaint. Since the deadline for objecting to dischargeability had expired, the court denied the plaintiff's request. Here, according to the certificate of service on file with the Court, the summons and complaint were served on the Defendant, although his attorney disputes that fact based on an e-mail from the Plaintiff's former counsel. But the Defendant waited until trial to press the alleged defect in service, unlike the Shtayyeh defendant who resisted the plaintiff's motion to extend the time for service by seeking dismissal of the complaint. As stated above, the trial is too late to hear and decide a Rule 12(b)(5) challenge, and the Defendant has waived this defense.
Conclusion
A separate order will be issued denying the Defendant's motion to dismiss for insufficient service of process and granting the judgment awarded at the trial to the Plaintiff.
Dated: September 29, 2010