Opinion
Civil Action No. 02-2677, Section "L"(4)
October 16, 2002
ORDER REASONS
Before the Court are defendant Pennant Shipping Services' Motions to Vacate the Attachment or Garnishment and for Rule 11 Sanctions. For the reasons set forth below, the Motion to Vacate is GRANTED, and the Motion for Sanctions is DENTED.
BACKGROUND
In February, 2002, plaintiff Katerina Navigation Co. (Katerina) and defendant United Orient Atlantic Lines (UOAL) entered into a time charter agreement for UOAL to operate the MN KATERINA for six months. UOAL apparently failed to pay its charter hire. The defendant Pennant Shipping Lines (Pennant) is the alter ego of UOAL making Pennant liable to Katerina for the unpaid charter. Pennant allegedly had in its possession funds belonging to UOAL in a Bank One account within the Eastern District of Louisiana. As a result, Katerina filed a complaint under Admiralty Rule B, which permits it to garnish Pennant's bank account for the unpaid fees because, according to Katerina, neither Pennant nor UOAL are either registered to do business in this state or have authorized agents for service of process and thus are not "within the district" of this court as required by Rule B. In its petition, Katerina was very careful to continually point out to the Court that Pennant did not have an agent for service of process in the Eastern District, which Katerina interpreted to mean that Pennant was not "found within the district" so as to permit the application of Rule B. On August 30, 2002, this Court granted plaintiffs motion for garnishment, and Pennant now seeks to vacate that order on the grounds that Pennant is within the district since it has an office in Kenner, Louisiana, which was known to Katerina, precluding application of Rule B. The issue presented by this motion is the meaning of the phrase "not found within the district" as used in Rule B.
ANALYSIS
Application of Supplemental Admiralty Rule B
Admiralty Rule B provides that "[i]f a defendant is not found within the district, a verified complaint may contain a prayer for process to attach the defendant's tangible or intangible personal property — up to the amount sued for — in the hands of garnishees named in the process." FED. R. CIV. PROC. SUPP. ADM. RULE B. The rules do not define the meaning of the phrase" not found within the district," and the comments suggest that it is to be determined on a case-by-case basis. See Advisory Committee Notes, FED. R. CIV. P. SUPP. ADM. RULE B. The Fifth Circuit, in LaBanca v. Ostermuchner, 664 F.2d 65 (5th Cir. 1981), provided courts some guidance when it announced the following two-part test:
First, can the defendant be found within the district in terms of jurisdiction? Second, can the defendant be found within the district for service of process? If the answer to both questions is affirmative, then the defendant can be found within the district for the purposes of Rule B(1), and the process of attachment and garnishment is not available to the plaintiff.Id. at 67.
Pennant's contacts with the state of Louisiana are clearly sufficient to establish the minimum requirements necessary to satisfy the jurisdiction part of the LaBanca inquiry; thus, the answer to the first question is yes. A more complicated issue arises, however, in determining what "found within the district" means in the context of being amenable for service of process.
Pennant argues that it is amenable to service of process by virtue of its office in Kenner, pointing out that Katerina in its complaint directed the Marshals to serve Pennant at that location according to Rule 4(h) of the Rules of Civil Procedure, which detail the proper method for serving a corporation. Katerina, however, would have this court equate "found within the district for service of process" with having a duly appointed agent for service of process. Since the parties do not dispute that Pennant no longer has a duly appointed agent for service of process in this state, its authorization to do business in Louisiana having lapsed or been revoked, Katerina contends Pennant is not found within the district as that phrase is used in Admiralty Rule B.
To support its argument Katerina relies on the Fourth Circuit's decision in Maritrans Operating Partners v. M/V BALSA, 64 F.3d 150 (4th Cir. 1995). In Maritrans, the court observed that a local court rule specifically defined "found within the district" as encompassing all of the methods for service of process provided in Civil Procedure Rule 4. Thus, the Secretary of State of Virginia was the defendant's agent for service of process, and, applying that rule, the defendant was "found within the district for service of process" purposes, and Rule B was inapplicable. Under Katerina's logic, since no similar local rule is found in the Eastern District, Civil Procedure Rule 4 is not applicable. Thus, the defendant is not within the district for service of process, and Rule B applies. Katerina's argument would make the application of Rule 4 dependant on a local rule. Such a result would introduce chaos into federal practice and defeat uniformity which is a defined purpose of the Federal Rules.
Furthermore, the LaBanca court's discussion of Rule 4 provides some insight on how to resolve this issue. In Labanca, the Fifth Circuit upheld an attachment under Supplemental Rule B because the only agent for service of process was the Secretary of State in Florida, whose office was located in a different district than the one in which the district court granting the attachment was located. The court refused to apply the statewide service of process provisions of Rule 4 and held that "[i]n order to be found 'within the district' as contemplated by Supplemental Rule (B)(1), a defendant must be susceptible to service within the actual district." LaBanca, 664 F.2d at 68 (emphasis added). The LaBanca court was also aware of the discrepancies that its holding would create in those states with only a single district (which would have mandated the opposite result), but the court concluded "this distinction was intended by Congress and is consistent with traditional admiralty practice. Id. at 68 n. 4. Although Louisiana is not a single district state, this footnote indicates that the Fifth Circuit intended for Rule 4 to apply within the district court's district but not to extend beyond those boundaries, unless a local rule exists like that found in the Maritrans case.
In the present case, the defendant has an office within the jurisdiction of this Court. It is not necessary for Rule 4 to be extended by local or state rule. It is applicable of its own force. Rule 4(h)(1) provides corporations located in the United States may be served in two ways. Service is proper "in the manner prescribed for individuals by subdivision (e)(1), or by delivering a copy of the summons and of the complaint to an officer, a managing or general agent, or to any other agent authorized by law to receive service of process." FED. R. CIV. P. 4(h)(1). Thus, the Federal Rules do not mandate that for service of process to be effective a registered or general agent for service of process must be served. The Rules seemed designed specifically to handle the situation where there is no registered agent for service of process in the state but the corporation nonetheless has an office there.
The incorporation of Rule 4(e)(1) by Rule 4(h)(1) permits service of process according to the laws of the state in which the district court is located. Under Louisiana law, a corporation that does not have an agent for service of process may be served "[b]y personal service on any employee of suitable age and discretion at any place where the business of the corporation is regularly conducted." LA. CODE CIV. PROC. ANN. art. 1261(B)(2) (West Supp. 2002). It is clear that under Article 1261 any employee at the company's offices in Kenner may have been properly served by the Marshals. Further, it is also clear that Katerina knew of Pennant's offices since that is where they directed the Marshals to deliver the service of process.
Even if Pennant is amenable to service of process in the Eastern District, Katerina argues that is not the end of this court's inquiry citing West of England Ship Owners Mutual Ins. Ass'n v. McAllister Bros. (West of England), 829 F. Supp. 122 (E.D. Pa. 1993). The defendants in that case were denied the right to vacate a Rule B attachment even though a corporate officer resided in that district. Katerina argues that this case helps its arguments, but a closer reading of the case reveals that the court looked not only at whether an agent was in the state but also to the actions of the plaintiff in attempting to locate such an agent. The court in West of England was convinced that although the defendant was technically "within the district" under the terms of Rule 4 because of the officer's presence, the plaintiff could not have found this officer's presence even through the exercise of due diligence. Id. at 123-24. Rather than helping Katerina's argument, this case in fact works against it. It is beyond dispute that Katerina was aware of Pennant's presence in the district so they cannot claim innocent ignorance of this fact. Finally, Katerina is correct when it asserts that the common theme of West of England and the other cases it cites the necessity of an agent for service of process to effectuate service. In none of those cases did the defendant have an office within the district so it was necessary that an agent be appointed. This case is factually distinguishable from those cases, and thus compels a different result.
Considering the above, the Court finds that Pennant is found within the district, as that phrase is used in Rule B and that Katerina knew this to be the case. Therefore, Rule B cannot be used to garnish or attach Pennant's property, and the Motion to Vacate is granted.
Pennant's Motion for Sanctions Under Rule 11
Pennant also seeks sanctions under Rule 11 arguing that Katerina contained allegations in its pleading that it knew to be false, namely that Pennant was not "found within the jurisdiction." The Court notes first that the procedural steps for filing a motion under Rule 11 have not been complied with. Rule 11(c)( 1) requires that the motion must be made separate and apart from any other motions and cannot be filed until 21 days after service. Neither of those were done in this case, and this motion should be denied.
On a further note, the Court finds that the plaintiff's conduct in this action did not rise to a level that permits sanctions under Rule 11. It cannot be asserted that this action was filed to harass Pennant, or that it was totally unsupported by a good-faith argument of the law. As such, this motion is denied.
CONCLUSION
The Court finds that the defendants, Pennant Shipping Services, is within the jurisdiction for purposes of a Rule B attachment, but that the plaintiffs conduct does not rise to a level actionable under Rule 11. IT IS ORDERED, therefore, that the Motion to Vacate the Garnishment or Attachment be and hereby is GRANTED. IT IS FURTHER ORDERED that the Motion for Rule 11 Sanctions be and hereby is DENIED.