Commodities Future Trading Commission v. Wall Street Underground, Inc.

Citations: 221 F.R.D. 554; 2004 U.S. Dist. LEXIS 7912; 2004 WL 954542Docket: Civ.A. No. 03-2193-CM

Court: District Court, D. Kansas; January 22, 2004; Federal District Court

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Defendant Nicholas A. Guarino filed a motion to set aside a default judgment, claiming improper service and lack of personal jurisdiction. The plaintiff initiated a lawsuit against Guarino under the Commodity Exchange Act on April 22, 2003, and attempted to serve him on July 15, 2003, by delivering the summons and complaint to a third party at his address. Following Guarino's failure to respond, a default judgment was entered on September 4, 2003.

The court analyzed whether the plaintiff properly served Guarino, noting that proper service is a prerequisite for establishing personal jurisdiction. Under Federal Rule of Civil Procedure 4(e)(2), service can be validly executed by delivering documents personally or leaving them at the defendant's dwelling with a suitable person. The Commodity Exchange Act allows for nationwide service, enabling a plaintiff to serve a defendant in any district where the defendant can be found.

Plaintiffs have 120 days from filing a complaint to effectuate service, after which the court may dismiss the case or quash the service, allowing for proper re-service. The court highlighted that if service is found insufficient but curable, it typically quashes the defective service and permits re-service. Furthermore, the plaintiff must demonstrate good cause for any failure to timely serve; if good cause is not shown, the court may still consider granting an extension at its discretion, potentially leading to dismissal without prejudice or an extended service period.

Plaintiff attempted to serve the defendant by leaving a copy of the summons and complaint at 1828 University Place, Sarasota, Florida, with Barbara Williams, a resident of that address. Plaintiff justified this as the defendant's "dwelling house or usual place of abode" based on the defendant's Florida driver’s license and bank accounts, both listing 1828 University Place as his address. Under Florida law, the defendant is presumed to have verified this address on his driver’s license application. However, Williams provided an affidavit stating that the defendant does not reside there and has never lived at her residence, although his mail is delivered to that address. She mentioned that the defendant may have visited once but has no personal acquaintance with him.

The defendant submitted evidence, including multiple IRS tax returns and U.S. Patents, indicating his address is in Honduras, contending that he has abandoned 1828 University Place. The court concluded that, based on Williams's affidavit, the address cannot be considered the defendant's usual place of abode and quashed the attempted service, ruling it improper.

Regarding actual notice, the plaintiff argued that the defendant received actual notice of the lawsuit despite the improper service. Federal courts generally recognize that actual notice can satisfy service requirements, but this is determined on a case-by-case basis. Previous cases support that imperfect service may still provide actual notice if the defendant is aware of the action. However, mere notification by a third party without formal service does not constitute actual notice.

The plaintiff in Bethley argued that the defendant was adequately notified of the lawsuit due to shared legal representation and the filing of a motion for summary judgment, which the plaintiff claimed constituted a waiver of any service issues. However, the court ruled that actual notice alone did not meet the service of process requirements. The plaintiff asserted that the defendant had actual notice since October 1, 2003, when his attorney filed an appearance. The court noted that simply hiring an attorney does not equate to actual notice or a waiver of the requirements under Rule 4, especially since this date was 42 days post the application for default judgment and 27 days after the default was entered. Moreover, the plaintiff's claim that the defendant was informed by a third party, Frank Asaro, lacked evidence and would not suffice for proper service.

The court acknowledged the plaintiff's unsuccessful attempts to serve the defendant according to the Federal Rules of Civil Procedure but opted not to dismiss the case, recognizing the plaintiff's good faith efforts to locate the defendant. The court granted a 120-day extension for proper service, emphasizing that the plaintiff must demonstrate good cause for any further delays beyond this period.

Regarding default judgments, the court reiterated that they are disfavored and can be set aside for good cause, particularly if proper service has not been executed, which is necessary for establishing personal jurisdiction. Since the court determined that the plaintiff failed to serve the defendant properly, it concluded that the entry of default against the defendant must be vacated due to a lack of personal jurisdiction.

Defendant Nicholas A. Guarino filed motions to stay discovery while appealing Magistrate Judge James P. O’Hara’s denial of his motion for a protective order and a stay of discovery. The court reviews magistrate decisions for clear error. Judge O’Hara denied the stay because the defendant failed to demonstrate a likelihood of success on the merits of his dispositive motion, which claimed improper service under Federal Rule of Civil Procedure 4(m). The court found this claim inconsistent with the precedent set in Espinoza v. United States, noting that even if service issues existed, the court retains discretion to extend the service period.

Additionally, Judge O’Hara ruled that the information sought through discovery could impact the resolution of the defendant’s motion, countering his assertion that only his residence at the time of service was relevant. Evidence, such as affidavits from a witness, suggested that there were discoverable facts pertinent to the case. Lastly, the judge dismissed the defendant's claim that discovery would be burdensome, stating that he only needed to comply with the minimal disclosure requirements outlined in Rule 26(a). Overall, the court affirmed the magistrate’s conclusions, indicating no clear error in the decision to deny the motions to stay discovery.

Defendant Nicholas A. Guarino contends that Magistrate Judge O’Hara erred by ruling that he was required to consult with plaintiff's counsel before filing a motion for protective order under Rule 26(c). The defendant argues that the parties could not resolve the dispute without court intervention. However, the court referenced D. Kan. Rule 37.2, which mandates that parties must confer before a magistrate judge can entertain a discovery dispute motion. The judge’s conclusion was upheld.

The court denied Guarino’s motions to stay discovery, declaring them moot following a ruling on his motion to set aside default and dismiss for improper service. However, the court determined that discovery against Guarino should be stayed until he is properly served, granting the plaintiff 120 days to do so, as it would be unfair to require extensive discovery prior to establishing jurisdiction.

The court’s order grants in part and denies in part Guarino's motion to set aside default and quash service, quashing the plaintiff's service and setting aside the default against him, while denying the motion to dismiss. Additionally, Guarino’s motions regarding the protective order and stay of discovery were denied as moot, and his request for oral argument was deemed unnecessary. The court focused solely on Guarino, stating that if he falsely claimed his residence, it could constitute perjury under Florida law. The court refrained from evaluating personal jurisdiction due to the improper service issue, which does not impact Magistrate Judge O’Hara's ruling.