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Case of the Day: Carney v. Beracha

The case of the day is Carney v. Beracha (D. Conn. 2014). Carney was the court-appointed receiver for Highview Point Partners, LLC. The court had appointed him as receiver in connection with an enforcement action by the Securities and Exchange Commission against Francisco Illarramendi for alleged violation of the federal securities laws. Carney, once appointed, filed actions against Moris Beracha and Bradleyville, Ltd., among others, to recover property for the purpose of distributing it to the victims of the fraud Illarramendi is alleged to have committed.
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Case of the Day: Monagas v. Samsung

The case of the day is Monagas v. Samsung Electronics America, Inc. (D. Conn. 2013). The facts of the dispute are not made clear in the decision. Liana Monagas sued Samsung Electronics America, Inc., Samsung Electronics Corp., and Sears Roebuck & Co. in the Connecticut state courts. Samsung Electronics America and Sears removed the case to the District Court, and Monagas moved to remand the case on the grounds that Samsung Electronics Corp. had not joined in the removal.

Ordinarily all defendants must join in a notice of removal, but there is an exception where a defendant has not been “properly joined and served” at the time of the removal. 28 U.S.C. § 1446(b)(2)(A). Here, Monagas had attempted to effect service on Samsung Electronics Corp. in South Korea, but it had done so by mail. Korea, a party to the Hague Service Convention, has objected to service by postal channels. Thus the court held that Samsung had not been properly served, and thus that its consent to the removal was not required. Thus the court denied the motion to remand.

The decision seems correct. There doesn’t seem to be much possibility of abuse here, as there arguably could have been with Gentile v. Biogen IDEC had the case come out the other way. There, the point was that a defendant might be able to remove an otherwise unremovable case simply by filing the notice of removal before the plaintiff was able to effect service of process. Here, the issue isn’t whether anyone could make a removable case unremovable or make an unremovable case removable, but rather just an issue of timing.

Case of the Day: Cook v. Toidze

The case of the day is Cook v. Toidze (D. Conn. 2013). Peter Cook, Thea Duell, Aleksandar Milosavlievic-Cook, Maya Toidze, Alexandre Ivankine, Tim Toidze, and Alexandre Avroutine were members of Maya’s Meals, LLC. Cook, Duell, and Milosavlievic sued the Toidzes, Ivankine, and Avroutine on their own behalf and derivatively on behalf of the LLC. The basic claim was that Maya Toidze had failed to transfer certain intellectual property rights, including “a system for producing dough; food technology related to crepes, frozen soup, and entrees; and recipes to create various food products,” to a joint venture to which the LLC was a party. I hate the business of processed foods: who wants to hear about “food technology”, “systems” for “producing” food, or “food products”? But anyway, according to Cook, Duell et al., the parties agreed to settle the case but the Toidze et al. failed to finalize the settlement, leading to the dissolution of the joint venture. After the settlement failed, the plaintiffs amended their complaint and then moved for entry of default judgment when the defendants did not respond. Because the new complaint added a new cause of action, the judge denied the motion, holding that the new complaint had to be served on the defendants under FRCP 5(a)(2). (It’s unclear to me why it hadn’t been served as a matter of course, since under FRCP 5(a)(2) amended pleadings must be served except parties that were in default for failing to appear, and it’s not clear from the decision that the defendants hadn’t appeared. In any event, the plaintiffs served the Toidze and Ivankine and moved for default judgment again, but the judge directed them to serve process via the Hague Service Convention (the Toidzes and Ivankine were residents of Canada). The plaintiffs served process via registered mail, and this time the judge granted the motion for entry of default judgment. The defaulted defendants then sought relief from the judgment under FRCP 60(b) on the grounds that the judgment was void.

The judge’s opinion covers some interesting jurisdictional ground, which I am relegating to a footnote, 1 so that we can get right to the main question: in Hague Service Convention cases where a party serves process via the postal channels, what happens if the mailings are returned unopened? Or in other words, is actual receipt required for service by mail under the Convention?

Note that this question really can only arise in courts within the Second Circuit or in other jurisdictions where the courts treat Article 10(a) of the Convention as an affirmative authorization of service by mail as opposed to simple permission to use service of process by mail if authorized by the law of the forum. If Article 10(a) is merely permissive, then it seems to me that the question whether receipt is required for valid service is a question of the law of the forum only.

The court’s discussion is unenlightening, merely pointing to some cases that have not held that actual receipt is required and others that have. Ultimately, the judge held that the service was sufficient because it was undisputed that the defendants had actual notice of the proceedings.

It seems to me that this case simply highlights one of the reasons why we should not read Article 10(a) as an affirmative grant of authority to serve through the postal channel, untethered from the law of the forum. If Article 10(a) itself is the source of authority for service by postal channels, then the courts need to develop a federal common law of Article 10(a)—and maybe even international law on Article 10(a)—to answer such questions. Is actual receipt required? Must the form of the mail require a signed receipt? There is already some law like this out there—many cases hold that private couriers such as Fedex are within the meaning of “postal channel”—but those cases are at least tied to the text of the Convention. Far better, I think, to say that Article 10(a) merely permits service of process by mail if allowed by the law of the forum, and then to look to the law of the forum on questions such as the necessity of receipt, the necessity of a signed acknowledgment, etc.

Notes:

  1. The judge began with a jurisdictional problem that she raised sua sponte. The supposed basis for jurisdiction was diversity of citizenship: the plaintiffs were all residents of Connecticut; the individual defendants were residents of Canada. But the LLC itself was also a defendant, and because an LLC is not incorporated, it has the citizenship of each of its members. Not all of the members had been named as defendants; the unnamed members were, like the plaintiffs, residents of Connecticut. So there was no complete diversity of citizenship. The plaintiffs raised several arguments to support jurisdiction, of which I will consider only one here: they argued that the judgment was not void because the court had made a mere error in the exercise of jurisdiction, which is different from a judgment that is a nullity from the beginning. But the judge disagreed. A “mere mistake of jurisdiction” case is one where the court makes an erroneous decision about its own jurisdiction. But here, the court had never even considered jurisdictional problems earlier in the case, so the judgment was indeed void as long as the LLC was in the case. The judge then considered whether reopening the case and dismissing the LLC to solve the jurisdictional problem would be futile in light of the individual defendants’ challenge to the service of process, which takes us to the main issue in the case.