Case of the Day: RCC Ventures v. Brandtone Holdings

The case of the day is RCC Ventures, LLC v. Brandtone Holdings, Ltd. (S.D.N.Y. 2017). RCC was in the business of introducing businesses to institutional lenders. Brandtone was an Irish firm with its offices in Dublin. RCC had a claim against Brandtone for money it claimed was due under an exclusive debt financing agreement.

Brandtone sued in New York. It served process on Brandtone, Inc., which it said was a wholly-owned subsidiary of Brandtone, via the New York Secretary of State. Then RCC sought a default judgment.

Now, why would Brandtone have proceeded as it did? Sure, service on a subsidiary can sometimes be effective, as we know from the Volkswagen case itself, depending on applicable state law and the facts of the particular case. But Ireland is a party to the Hague Service Convention, and it has not objected to service by postal channels. Indeed, although Ireland has objected to service under Article 10(c), its object “is not intended to preclude any person in another Contracting State who is interested in a judicial proceeding (including his lawyer) from effecting service in Ireland directly through a solicitor in Ireland.” In other words, service by process in Ireland is easy, and if you don’t want to do it yourself for some reason, you can always request the Irish central authority to serve process for you.

The judge was plainly uneasy about RCC’s attempt at service. He warned RCC that he would “carefully scrutinize the issue of service of process prior to granting any default judgment,” and he reminded RCC of “the ample case law holding that service of process on a subsidiary does not constitute valid service on the parent merely by virtue of the parent-subsidiary relationship.” So RCC was warned. It was given an explanation. Nevertheless, it persisted.

The judge, unsurprisingly, denied the motion for a default judgment and ordered RCC to show cause why the case should not be dismissed without prejudice for failure to serve process.

RCC moved for reconsideration. It made new arguments, which you usually can’t do on a motion for reconsideration, and it justified its use of new arguments by arguing that the judge had not requested argument on the issue of service, quoting some of what the judge had said before but not the sentences that I quoted above. But this incensed the judge:

 RCC’s omission of the first three sentences from that paragraph does not reflect highly on the candor of its counsel’s representations to the Court. The Court is troubled by this selective quotation of its own order. To the extent that the portion quoted by RCC would not, on its own, clue RCC in to the need to brief the issue of service on Brandtone’s subsidiary—a conclusion the Court does not accept—the first sentence surely does. The Court is pained to conceive of any other reasonable interpretation of that sentence. RCC’s argument that it did not know it should brief the issue of service of process in moving for default judgment, even after the issuance of the June 15, 2017 order, is simply untenable. And, regardless, it was RCC’s burden to establish its entitlement to default judgment (including effective service of process) even without any prompting by the Court. The Court also rejects RCC’s argument that the propriety of process on Brandtone’s subsidiary was so “obvious” that it “required neither rehearsal nor repetition.”

Surely RCC’s lawyers are no dummies, so I took a look at their supplemental papers to see what their new arguments were, and what had gone wrong. The claim was that Brandtone—but not its US subsidiary—was in liquidation proceedings in Ireland. So, according to RCC, the Irish central authority would not have effected service on Brandtone if asked. RCC also suggests that an Irish solicitor would not have been able to effect service, either.

I disclaim any knowledge of Irish law, but I question whether this is right, and in particular, whether what RCC says about the Service Convention is right. It seems to me that the pendency of the liquidation proceeding would not be grounds for the Irish central authority to refuse to serve process. As Article 13 provides:

Where a request for service complies with the terms of the present Convention, the State addressed may refuse to comply therewith only if it deems that compliance would infringe its sovereignty or security.

It may not refuse to comply solely on the ground that, under its internal law, it claims exclusive jurisdiction over the subject-matter of the action or that its internal law would not permit the action upon which the application is based.

But in any case, RCC did not need an Irish solicitor or the Irish central authority: it could have served process by mail under FRCP 4(f)(2)(C)(ii).

Moreover, I don’t see how serving the subsidiary solves the problem RCC seeks to solve, which is a problem of substantive law, not a problem of procedural law about service of process. The problem is that you can’t sue a Irish firm in liquidation proceedings. The manner of service doesn’t change this. To be sure, it doesn’t seem from the opinion that Brandtone had taken any steps in the US court to make this point, but surely, if RCC had effected service, Brandtone would have pointed to the Irish proceedings and asked the US court to dismiss or stay the case, perhaps by invoking Chapter 15 of the Bankruptcy Code, perhaps in another way.

In short, it is very difficult to understand why RCC proceeded as it did. But this case is so unusual that perhaps I’m missing something. Comments welcome!

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