Ex parte Lereta, LLC

Citations: 226 So. 3d 140; 2016 WL 7030971Docket: 1151054

Court: Supreme Court of Alabama; December 1, 2016; Alabama; State Supreme Court

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LERETA, LLC, seeks a writ of mandamus from the court to vacate a prior order that denied its motion to set aside a default judgment issued against it in a lawsuit initiated by Fronia Warhurst. The court granted the petition, concluding that Warhurst failed to perfect service of process on LERETA. 

The case arose from a flooding incident at Warhurst's home in September 2012, leading her to sue the City of Tuscumbia, JP Morgan Chase Bank, and LERETA in July 2014. Warhurst alleged negligence by Tuscumbia regarding storm drainage, wrongful termination of her flood insurance by Morgan Chase, and incorrect flood-zone determinations by LERETA. She sought $250,000 in damages.

Warhurst attempted to serve LERETA through certified mail to its corporate headquarters, but the mail was addressed only to "Lereta LLC" without a specific recipient. An employee, not authorized to receive legal documents, signed for the mail. LERETA did not respond, resulting in a default judgment entered against it on October 9, 2014.

In March 2016, LERETA filed a motion to set aside the default judgment, arguing that the service was improper and that it had a valid defense. LERETA’s CEO, John Walsh, stated he was unaware of the lawsuit until March 2016. Warhurst had initiated debt-collection proceedings in California in April 2016. On May 26, 2016, the circuit court denied LERETA's motion, prompting the current petition for mandamus relief.

A petition for a writ of mandamus is deemed appropriate to address the circuit court's denial of LERETA's motion to set aside a default judgment because mandamus is an extraordinary remedy applied under specific conditions: the petitioner must have a clear legal right, the respondent must have an imperative duty that is being refused, there must be no adequate alternative remedy, and the court must have proper jurisdiction. In this case, the default judgment did not resolve all claims against all parties and lacked certification as final under Rule 54(b), making it interlocutory and not subject to direct appeal. LERETA faces ongoing collection efforts in California despite the judgment's nonfinal status, leaving mandamus as the only viable means to challenge the judgment. Furthermore, LERETA asserts that the default judgment is void due to lack of personal jurisdiction, claiming improper service under Rule 4, Ala. R. Civ. P. The court agrees that if a default judgment is void, it must be set aside, noting that while the trial judge has discretion in such matters, that discretion must not be exceeded if the judgment is indeed void.

The validity of a judgment determines whether it can be set aside or must remain in effect, with no discretionary authority involved. A void judgment must be vacated, whereas a valid judgment stands firm, as outlined in *Smith v. Clark* and further supported by *Boudreaux v. Kemp*. The court employs a de novo standard of review for motions to vacate a default judgment based on its void status, where discretion is not applicable. A default judgment is rendered void if there is a failure to perfect service, which deprives the trial court of personal jurisdiction over the defendant. 

In this case, Warhurst attempted to serve LERETA via certified mail in accordance with Rule 4(i)(2)(B)(i) of the Alabama Rules of Civil Procedure. This rule specifies that the clerk must send the process and complaint to the intended recipient with forwarding instructions. For corporations, Rule 4(c)(6) mandates service upon a designated individual, such as an officer or an authorized agent. The Committee Comments on the amendment to Rule 4 emphasize that service must now be directed to a specific person or registered agent, eliminating the previous allowance for service at a general business address. Additionally, Rule 4(i)(2)(C) outlines that service by certified mail is considered effective upon delivery to the addressee or their authorized agent, with the agent's authority confirmed by acknowledgment of receipt.

An action cannot be dismissed for improper service unless the defendant was not informed of the action in time to avoid default. For entities under Rule 4(c), service must be directed to a specific individual, such as an officer or managing agent, as defined in Rule 4(c)(6), rather than simply to the entity itself. Effective service via certified mail requires delivery to an "addressee" who is a person authorized to receive such mail on behalf of the entity. In this case, the certified mail was addressed merely to "Lereta LLC" and not to a qualified individual, rendering the service ineffective. Consequently, the circuit court lacked personal jurisdiction over LERETA, making the default judgment void. The court's denial of LERETA's motion to set aside the default judgment was an error, and the court is directed to grant this motion and set aside the judgment. The committee comments, while not binding, support this interpretation and have been echoed in various federal district court decisions, affirming that service must be addressed to a human associated with the entity for it to be valid under Alabama law.