Opinion
01 Civ. 5589 (JGK)
August 30, 2003
OPINION AND ORDER
The plaintiff, Local 78, Asbestos, Lead Hazardous Waste Laborers, AFL-CIO ("Local 78" or "Union"), sued Termon Construction, Inc. ("Termon") alleging breach of the parties' collective bargaining agreement. After Termon failed to answer the plaintiff's Amended Complaint, a default judgment was entered against the defendant in the amount of $148,172.40. Termon now moves to vacate the default judgment pursuant to Rules 55(c) and 60(b) of the Federal Rules of Civil Procedure.
I.
The relevant facts, as alleged in the Complaint, the Amended Complaint, and the affidavits submitted by the parties in connection with the current motion, are as follows. Local 78 is a "labor organization" within the meaning of 29 U.S.C. § 152(5) with its principal offices located in the Southern District of New York. (Am. Compl. ¶ 2); see 29 U.S.C. § 152(5). Termon, which is an "employer" within the meaning of 29 U.S.C. § 152(2), is bound by a collective bargaining agreement ("Agreement") with Local 78. (Am. Compl. ¶¶ 3, 5); see 29 U.S.C. § 152(2).
Local 78 commenced this action on June 19, 2001 in this Court alleging that Termon violated and continues to violate Article III of the Agreement, which requires Termon to employ members of Local 78 to perform asbestos and lead abatement work. (Compl. ¶¶ 7, 12.) Specifically, Local 78 alleged that Termon employed at least seven non-Union workers for at least five days, eight hours per day, at the Harlem River Houses jobsite. (Id. at ¶¶ 7-8.) The Complaint requested damages resulting from the breach and an order enjoining Termon to honor the terms of the Agreement. (Id. at ¶¶ 14, 18.)
Once the Complaint was filed, the plaintiff attempted to effectuate service on Termon. The server filed an Affidavit of service with the Clerk of the Court on June 28, 2001. (Aff. of Service dated June 28, 2001 ("Aff. of Service") attached as Ex. 2 to Aff. of Thomas Heavey dated May 1, 2002 ("Heavey Aff.").) The affidavit of service indicates that the Summons and Complaint was served on Termon on June 26, 2001 by delivering a copy of each to "Jack Brady," a "warehouse manager," at Termon's corporate office in Brooklyn. (Id.) According to the defendant, however, there was no employee named Jack Brady employed at Termon's corporate office. (Heavey Aff. ¶¶ 4-5.) The defendant claims that the only male employee at the corporate office is Edward Savenaro, who has never been known by the name Jack Brady, is not a warehouse manager, and did not receive the Summons and Complaint. (Id. at ¶ 5; Aff. of Edward Saverno dated May 7, 2002 ("Saverno Aff.") ¶¶ 4-5.) The defendant also asserts that Thomas Heavey ("Heavey"), the only other male employee at the office on a regular basis, did not receive service of the Summons and Complaint, and that the documents were not delivered to any of the office's female employees. (Heavey Aff. ¶¶ 5, 7.) Termon acknowledges that employees may visit Termon's office occasionally on Fridays, which are paydays, to pick up pay checks, but points out that June 26, 2001 was not a Friday and that, in any event, these employees could not have been properly served. (Id. at ¶ 6.)
Local 78 filed an Amended Complaint on July 10, 2001, which increased the scope of the action. (Am. Compl. at 10-11.) In addition to the allegations concerning the Harlem River Houses site, the Amended Complaint includes claims relating to two other Termon jobsites, Vladek Houses and St. Ann's School. (Id. at ¶¶ 9-11.) The Amended Complaint alleges that fifty-four non-Local 78 workers were employed at Termon jobsites. (Id.) The Amended Complaint enumerates ten causes of action. Specifically, Local 78 claims that Termon failed to pay Local 78-represented workers' wages and contributions for work at the Harlem River Houses site (Am. Compl. ¶¶ 32-36), employed non-Union workers for Bargaining Unit Work at the three jobsites (id. at ¶¶ 24-27, 41-44, 53-56), refused to grant Union representatives access to the three jobsites (id. at ¶¶ 28-31, 45-48. 57-60), and failed to employ Union Handlers at the jobsites (id. at ¶¶ 20-23, 37-40, 49-52).
The defendant maintains that Local 78 did not effect service of the Amended Complaint. (Heavey Aff. ¶ 16.) The plaintiff believes that the Amended Complaint was personally served on Termon, but makes no effort to substantiate this assertion. Both parties agree that no affidavit of service of the Amended Complaint was filed with the Clerk of the Court. (Id.; PL's Mem. of Law at 11.)
Notwithstanding the issue of personal service of the Amended Complaint, the plaintiff insists that it sent three letters to Beatrice Weber ("Weber"), who signed the Agreement on behalf of Termon as "President." (Agreement dated Mar. 8, 2001 attached as Ex. A to Am. Compl. at p. 27.) The plaintiff asserts that the first letter advised Termon of the pending litigation and the original date for the Initial Pretrial Conference, the second included the rescheduled date for the Pretrial Conference, and the third informed Termon of the deadline for answering the Amended Complaint and of the conference scheduled for August 27, 2001. (Aff. of Lowell Peterson, Esq. dated June 25, 2002 ("Peterson Aff.") ¶¶ 4, 5, 7.) Local 78 further asserts that it sent a letter to Heavey-who is not a lawyer but is associated with Termon-reminding him of the August conference and stating that Termon was in default. (Id. at ¶ 8.) It claims that it sent another letter informing the defendant that Local 78 was filing liens against the Harlem River Houses and Vladek Houses jobs. (Id. at ¶ 11.) It is known that Heavey received the correspondence because he had conversations with counsel for Local 78 in response to the correspondence. (Id. ¶¶ 8-10.)
Termon failed to appear at the at the Initial Pretrial Conference, which was originally scheduled for July 30, 2001 and was actually held on July 27, 2001. (Initial Pretrial Conference Notice dated June 26, 2001 at 1; Order and Judgment of Default dated Aug. 31, 2001 ¶ 2.) Termon did not answer the Amended Complaint and failed to appear at a second conference scheduled for August 27, 2001. (Id. at ¶¶ 2, 5.) As a result, the default judgment against Termon in the amount of $148,172.40 was signed on August 31, 2001 and entered on September 4, 2001. (Id. at 2.) A subsequent Order and Judgement of Default, which was signed on September 5, 2001 and entered on September 7, 2001, modified the earlier entry of default judgment by adding an injunction against Termon to honor the terms of the Agreement. (Order and Judgment of Default dated September 5, 2001 at 2-3.)
II.
Termon now moves pursuant to Federal Rule of Civil Procedure 55(c) and Federal Rule of Civil Procedure 60(b) to vacate the default judgment. Rule 55(c) provides that "[f]or good cause shown the court may set aside an entry of default and, if a judgment by default has been entered, may likewise set it aside in accordance with Rule 60(b)." Fed.R.Civ.P. 55(c). Since a default judgment against Termon has already been entered, Rule 55(c) requires that the motion to vacate be considered under Rule 60(b). See. e.q., China Mariners' Assurance Corp. v. M.T. W.N. VACY ASH. No. 96 Civ. 9953, 1999 WL 126921, at *1-2 (S.D.N.Y. Mar. 9, 1999) (determining that a default judgment was issued and consequently applying the Rule 60(b) standard to the motion to vacate). Rule 60(b) allows the Court to "relieve a party . . . from a final judgment, order or proceeding" and lists six grounds for such relief. Fed.R.Civ.P. 60(b).
Motions to vacate default judgments under Rule 60(b) are left to the sound discretion of the Court. See Davis v. Musler, 713 F.2d 907, 912 (2d Cir. 1983). Relief depends upon the circumstances of the case and the credibility and the good faith of the parties. See Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir. 1993). There is a clear preference in this Circuit, however, for resolving disputes on the merits. See, e.g., Percarsky v. Galaxiworld.com Ltd., 249 F.3d 167, 174 (2d Cir. 20(31);Am. Alliance Ins. Co., Ltd, v. Eagle Ins. Co., 92 F.3d 57, 62 (2d Cir. 1996); Brien v. Kullman Indus., Inc., 71 F.3d 1073, 1077 (2d. Cir. 1995); Cody v. Mello, 59 F.3d 13, 15 (2d Cir. 1995) (collecting cases). Moreover, "it is well established that default judgments are disfavored."Percarsky, 249 F.3d at 174. Accordingly, motions to vacate default judgments are to be granted liberally, with all doubts about whether to vacate the judgment resolved in favor of the moving party. See Triad Energy Corp. v. McNeil, 110 F.R.D. 382, 384 (S.D.N.Y. 1986); Leab v. Streit, 584 F. Supp. 748, 754 (S.D.N.Y. 1984).
The defendant claims relief under Rule 60(b)(4), asserting that Local 78 failed to effect proper service of process. Rule 60(b)(4) allows the Court to vacate a default judgment if "the judgment is void." Fed R. Civ. P. 60(b)(4). While motions to vacate a default judgment under Rule 60(b) are usually within the Court's discretion, if a judgment entered against the moving party is void, the Court has no discretion and the 60(b)(4) motion must be granted. See Popper v. Podhragy, 48 F. Supp.2d 268, 271 (S.D.N.Y. 1998); Triad, 110 F.R.D. at 384.
The procedural requirement of effective service of process must be satisfied before a Court can assert personal jurisdiction over a defendant. See Am. Inst. of Certified Pub. Accountants v. Affinity Card. Inc., 8 F. Supp.2d 372, 376 (S.D.N.Y. 1998); Triad, 110 F.R.D. at 385;China Mariners' Assurance Corp., 1999 WL 126921, at *3-7. A judgment obtained in the absence of personal jurisdiction is void within the meaning of Rule 60(b)(4). See Popper, 48 F. Supp.2d at 271; Triad, 110 F.R.D. at 385. Hence, a default judgment entered against the defendant by means of improper service is void under Rule 60(b)(4). See Affinity Card. 8 F. Supp.2d at 376; Triad, 110 F.R.D. at 385; China Mariners' Assurance Corp., 1999 WL 126921, at *3-7.
Termon first maintains that Local 78 failed to effect proper service of the Summons and Complaint. Service upon a corporation is governed by Federal Rule of Civil Procedure 4(h)(1), which provides that service shall be effected
in a judicial district of the United States 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 appointment or by law to receive service of process. . . .
Fed.R.Civ.P. 4(h)(1). Rule 4(h)(1) does not require that service be made upon "a restricted class of formally titled officials, but rather permits it to be made upon a representative so integrated with the organization that he will know what to do with the papers." Affinity Card, 8 F. Supp.2d at 376 (quoting Montclair Elecs., Inc. v. Electra/Midland Corp., 326 F. Supp. 839 (S.D.N.Y. 1971)).
Rule 4(e)(1), to which Rule 4(h)(1) refers, provides that service may be effected "pursuant to the law of the state in which the district court is located, or in which service is effected." Fed.R.Civ.P. 4(e)(1). Thus, to determine whether the service was proper, a court may also look to New York law, which provides that personal service upon a corporation shall be made by delivery "upon any domestic or foreign corporation, to an officer, director, managing or general agent, or cashier or assistant cashier or to any other agent authorized by appointment or by law to receive service." N.Y. C.P.L.R. § 311(a)(1). New York courts have construed the statute liberally, sustaining service of process "if service is made in a manner which, objectively viewed, is calculated to give the corporation fair notice."Fashion Page, Ltd, v. Zurich Ins. Co., 406 N.E.2d 747, 751 (N.Y. 1980).
Termon has submitted sworn affidavits attesting to the deficiencies of the service of the Summons and Complaint. Termon maintains that the warehouse manager allegedly served on June 26, 2001 was not an officer or manager of the company allowed to receive service of process on behalf of Termon. In fact, Termon claims that Jack Brady was not even an employee at Termon's office. The plaintiff makes no effort to verify the accuracy of the server's Affidavit of Service.
In light of the abovementioned principle that all doubts are to be resolved in favor of the party seeking to vacate the default, the Court should credit Termon's representations that a non-employee received service of the Summons and Complaint. See Affinity Card, 8 F. Supp.2d at 376 ("[W]here the parties' accounts of the attempted service differ but both are inherently plausible, and there is nothing in the record upon which to judge the veracity of either version, a court should credit the version of the party seeking to vacate the default judgment."). The plaintiff has made no effort to establish the existence or authority of the alleged "warehouse manager." The defendant's affidavits are detailed and precise in their denials. A person who is unknown to any of the employees at the corporate office cannot be sufficiently "integrated" with Termon to have the authority to receive service. Cf. Affinity Card, 8 F. Supp.2d at 376-78 (finding that, notwithstanding the fact that the president of defendant corporation received actual notice of the lawsuit, service on non-employee of defendant was invalid); Sansui Elecs. Corp. v. Am. S. Ins. Co., No. 88 Civ. 6184, 1992 WL 77591, at *4 (S.D.N.Y. Mar. 26, 1992) (determining that a paralegal employed by defendant corporation's parent corporation was not a person so "integrated with defendant that it is fair and just to imply authority on her part to receive service for the defendant"). Furthermore, it is clear that service upon a non-employee cannot be reasonably expected to put Termon on notice of the lawsuit.Cf. Holmes v. K M Jewelry, Inc., 462 N.Y.S.2d 218, 219 (App.Div. 1983) (invalidating service where summons and complaint were delivered to the defendant's jewelry counter and received by a salesclerk who was employed by the department store and not by the defendant in any capacity). Thus, Local 78 failed to effect valid service of process of the Summons and Complaint.
The plaintiff also asserts that its attorney sent correspondence to Termon representatives and had telephone conversations with Heavey. Termon disputes that it was fully aware of the litigation. Nonetheless, the possibility that Termon may have had actual notice of the pending litigation does not cure Local 78's failure to serve the Summons and Complaint effectively. See, e.g., China Mariners' Assurance Corp., 1999 WL 126921, at *8; Affinity Card, 8 F. Supp.2d at 277; Martocci v. Oceanus Mut. Underwriting Ass'n (Bermuda) Ltd., No. 84 Civ. 1025, 1985 WL 402 (S.D.N.Y. Apr. 3, 1985).
Termon further contends that Local 78 failed to serve the Amended Complaint. Federal Rule of Civil Procedure 5(a) provides that
every pleading subsequent to the original complaint . . . shall be served upon each of the parties. No service need be made on parties in default for failure to appear except that pleadings asserting new or additional claims for relief against them shall be served upon them in the manner provided for service of summons in Rule 4.
Fed.R.Civ.P. 5(a). Local 78 believes that the Amended Complaint was personally served, but has made no effort to confirm this assertion.
Local 78 asserts that, regardless of whether the Amended Complaint was or was not served, it was not required under Rule 5(a) to serve the Amended Complaint because the Amended Complaint did not assert any new or additional claims for relief. The Amended Complaint included eight new causes of action and allegations regarding two additional construction sites and employment of forty-seven additional non-Union employees. Thus, Local 78 was required to serve the Amended Complaint.Cf. Nat'l Dev. Co. v. Triad Holding Corp., 131 F.R.D. 408, 413 (S.D.N.Y. 1990) (holding that plaintiff was required to serve Supplemental Complaint, which contained one new claim for confirmation of an arbitration award, in the manner provided for service in Rule 4). Resolving doubts about whether service of the Amended Complaint occurred in favor of Termon, this Court finds that Local 78 failed to serve the Amended Complaint effectively. Therefore, Local 78 could not have obtained a valid default judgment on all the additional claims added in the Amended Complaint.
Local 78 also argues that Termon was not a party in default when the Amended Complaint was filed because the time to answer the original Complaint had not yet expired. This argument is irrelevant. If Termon were not a party in default for failure to appear, Local 78 would have had to serve the subsequent pleading upon Termon in compliance with Rule 5(b). See Fed.R.Civ.P. 5(a). Local 78 does not make any representations to that effect.
Valid service of process was never effected on Termon. These jurisdictional defects render the default judgment void and unenforceable. Hence, the default judgment must be vacated under Rule 60(b)(4).
CONCLUSION
For the reasons explained above, the defendant's motion to vacate the default judgment pursuant to Federal Rule of Civil Procedure 60(b) is granted. SO ORDERED.