Direct Mail Specialists, Inc. v. Eclat Computerized Technologies, Inc., Dba Computerized Technology

Citations: 840 F.2d 685; 10 Fed. R. Serv. 3d 802; 1988 U.S. App. LEXIS 2191; 1988 WL 12961Docket: 87-5911

Court: Court of Appeals for the Ninth Circuit; February 24, 1988; Federal Appellate Court

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Eclat Computerized Technologies, Inc. appeals a district court's denial to vacate a default judgment in favor of Direct Mail Specialists, Inc. (DMS). The case revolves around a marketing contract between DMS, a Mississippi corporation, and either Eclat or its associated California partnership, Computerized Technology (CT). DMS claims it is owed $18,075 for services rendered under the contract, which involved marketing Eclat's energy-saving devices. Eclat disputes liability, asserting that CT is responsible for the debt and that it was CT that ceased payment on checks to DMS.

DMS initially filed a complaint naming CT as the defendant but later amended it to reflect Eclat as the correct entity after discovering Eclat's full name. The process server attempted to serve Eclat at its office, leaving the complaint and summons with the receptionist, Raenell McSpadden. Following this, the process server also mailed copies of the documents to Eclat. A day after service, DMS's vice president, Jim Fotheringill, spoke with Eclat's president, Mr. Bujkovsky, who was aware of the service and reacted angrily. The court ultimately affirmed the default judgment against Eclat.

On November 10, 1986, DMS filed a request for default judgment after leaving a summons with Eclat's receptionist. The default judgment was entered by the clerk on November 17, 1986. DMS subsequently levied Eclat's bank accounts on January 23, 1987, following a writ of execution. Eclat filed motions to quash service and remove the default on January 29, 1987, which the district court denied after a hearing on March 27. Eclat appealed on April 27, 1987.

Jurisdiction is established under 28 U.S.C. § 1332 due to diversity between Eclat, a California corporation, and DMS, a Mississippi corporation, with the amount in controversy exceeding $10,000. The appellate court has jurisdiction under 28 U.S.C. § 1291.

The standard of review indicates that if facts are undisputed, personal jurisdiction determinations are reviewed de novo, while denials of motions to set aside default judgments are reviewed for abuse of discretion.

Eclat presents three arguments: (1) improper service under Fed. R. Civ. P. 4, asserting the district court lacked personal jurisdiction; (2) constructive appearance, claiming the default judgment was unjustified; and (3) the default should be vacated for surprise and fraud as per Fed. R. Civ. P. 60(b). The court emphasizes that proper service is essential for jurisdiction, noting that while Rule 4 requires substantial compliance, it is flexible and aims to ensure sufficient notice. The court finds that service on Eclat was proper under Rule 4(d)(3), thus not addressing the other provision.

Service of process on a corporation may be executed by delivering the summons and complaint to an officer, managing agent, or any authorized agent. The appellee, DMS, does not argue that the receptionist acted in any of these capacities and suggests she was not an employee of Eclat, but rather of CT. Courts have concluded that service is not restricted to designated officials; it can be effective if made to a representative closely integrated with the organization who would know how to handle the papers. The validity of service hinges on whether the individual has the authority to accept it, which is determined through a factual analysis of their role within the organization. Prior rulings indicate that actual receipt of process can also validate service if fair circumstances exist. For instance, service on a secretary was deemed valid when she was essentially acting as an assistant manager or if the defendant was frequently unavailable. In this case, Eclat acknowledged being a small company, suggesting the receptionist's role was significant. She was the only employee present during the service, indicating substantial responsibility. Additionally, evidence showed that DMS had actual notice of the service the day after it occurred, further supporting the sufficiency of service on the receptionist. Mr. Bujkovsky, being a lawyer, was aware of the implications of neglecting the service and the risks of default judgment. Consequently, service on the receptionist at the shared office was deemed sufficient to establish personal jurisdiction over Eclat under Rule 4(d)(3).

Eclat's argument hinges on whether it 'appeared' in the legal action before a default judgment was issued. The parties mistakenly assume that 'appearance' pertains to Eclat's entitlement to three days notice for a default hearing under Fed. R. Civ. P. 55(b)(2). However, the record indicates that the default was entered by the clerk under Rule 55(b)(1), applicable when a defendant has never appeared in the action. For Rule 55(b)(1) to apply, the plaintiff's claim must be for a sum certain, and the defendant must have been defaulted for failing to appear.

An 'appearance' typically involves some submission or presentation to the court, and courts generally prefer to find an appearance to avoid default judgments. The appellant cites H.F. Livermore Corp. v. Aktiengesellschaft Gebruder Loepfe, where an appearance was found due to numerous communications and meetings between parties. Conversely, in Wilson v. Moore, the court did not recognize informal contacts as an appearance when no settlement negotiations took place.

In this case, the only pre-summons negotiations occurred before or on the day of service, with no subsequent contact. Furthermore, the lack of a clear intention to defend, as evidenced by an attorney's statement indicating no interest in defending the lawsuit, undermines Eclat's claim of 'appearance.' The record shows only a disagreement over a bill, not a substantive defense intent. Thus, the judgment remains valid as Eclat did not appear, and therefore, the clerk's entry of default was appropriate under Rule 55(b)(1).

Under Federal Rule of Civil Procedure 12(a), a defendant has twenty days from service of process to respond, failing which a default judgment can be entered. In this case, Eclat had until November 5, 1986, to respond, but the default judgment was entered on November 10, 1986, after the response deadline. The appellants sought to vacate this judgment under Fed. R. Civ. P. 60(b), citing surprise and fraud. The district court's decision is reviewed for abuse of discretion, which is only reversible upon a clear showing of such abuse. 

The court considers three factors: Rule 60(b) must be applied liberally, default judgments are generally disfavored, and any doubts should favor granting relief if the defendant has a meritorious defense. However, a motion can be denied if granting it would prejudice the opposing party, if the defendant lacks a meritorious defense, or if the defendant's own conduct caused the default. In this instance, the court determined that Eclat's culpable conduct, specifically the actual notice of the action received by its president, Mr. Bujkovsky, who failed to respond, justified the refusal to vacate the default judgment. Thus, the court affirmed the decision, concluding that the district court did not abuse its discretion.