Senior Loiza Corp. v. Vento Development Corp., 84-1834

• Decision Date: 04 March 1985
• Docket Number: No. 84-1834,84-1834
• Parties: SENIOR LOIZA CORPORATION, Plaintiff, Appellee, v. VENTO DEVELOPMENT CORPORATION, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 20

760 F.2d 20

SENIOR LOIZA CORPORATION, Plaintiff, Appellee, v. VENTO DEVELOPMENT CORPORATION, Defendant, Appellant.

No. 84-1834.

United States Court of Appeals First Circuit.

Heard March 4, 1985.

Decided April 24, 1985.

E.J. McCormick, Auburn, N.Y., with whom Alberto J. Perez-Hernandez and Law Offices of Alex Gonzalez, San Juan, P.R., were on brief for defendant, appellant.

David P. Freedman, Hato Rey, P.R., with whom Mario J. Pabon, Pedro J. Santa-Sanchez and O'Neill & Borges, Hato Rey, P.R., were on brief for plaintiff, appellee.

Before CAMPBELL, Chief Judge, COFFIN, Circuit Judge, and RE, ^* Judge.

LEVIN H. CAMPBELL, Chief Judge.

This is an appeal from the district court's denial of appellant's motion to set aside a default judgment entered against appellant Vento Development Corp. ("Vento") of Puerto Rico. We affirm.

The litigation between the parties commenced in 1973 when Continental Mortgage Investors ("CMI"), a business trust from Massachusetts, petitioned with other creditors of Vento in the United States District Court for the District of Puerto Rico for Vento's reorganization under Chapter X of the Bankruptcy Act. The district court approved this petition, and we affirmed in In re Vento Development Corp., 560 F.2d 2 (1st Cir.1977). Thereafter, in light of Vento's continuing inability to meet its financial obligations, CMI obtained an order from the bankruptcy court lifting the automatic stay of proceedings against Vento for the purpose of enforcing its secured interest. The bankruptcy court had determined Vento's corporate address to be in Hato Rey, Puerto Rico, at the address Vento had filed with the Department of State of Puerto Rico. ¹ However, Mr. Felix Rosabal, Vento's president, resident agent and (together with his wife) sole stockholder, was at this point no longer living in Puerto Rico, having moved to Miami, Florida, a fact which may have been known to some of CMI's agents in Puerto Rico. Vento had not informed the Department of State of any change in its or its agent's address, nor had it appointed another resident agent in Puerto Rico as required by Puerto Rico law. ²

On August 25, 1980, the trustees of CMI, which at this time was also undergoing reorganization under the Bankruptcy Act, sued in the district court to collect their debt from Vento or foreclose their mortgage on Vento's property. CMI attempted to serve its complaint on Vento in Puerto Rico but was unsuccessful on account of Rosabal's absence from the island. CMI then filed a verified motion requesting authorization for the service of summons by publication under Fed.R.Civ.P. 4(e) ³ and Rule 4.5 of the Puerto Rico Rules of Civil Procedure, P.R. Laws Ann. tit. 32, App. III, R. 4.5. ⁴ Since Vento challenges the sufficiency of this document, we describe it in detail.

The caption of CMI's motion contained the name of the parties and a description of the action as a "collection of monies and mortgage foreclosure." The text averred, inter alia, that plaintiff had tried to serve the summons and complaint on Vento through Mr. Sergio Torres, CMI's private process server, and that Mr. Torres had been unable, despite all his efforts, to find the actual address of Vento, its resident agent or any of its officials. It was also stated that the matter of Vento's corporate address had been adjudicated by the bankruptcy court which had found the correct address to be the one listed in the Department of State's files. The next paragraph read: "As it fully appears from the complaint in the above captioned case, plaintiff has a valid claim against defendant." The motion concluded with a request that service of process by publication be allowed. It was signed (but not sworn to) by one of plaintiff's attorneys.

At the end of the same page was a sworn statement by Mr. Bruce Anglin, senior asset manager of CMI, attesting to his personal circumstances and affirming that "he has read the foregoing motion and that the facts stated in the same are correct and true" and that "he is familiarized with the claim in the above captioned action and that he believes that CMI has a meritorious and valid claim."

The motion was accompanied by three exhibits which were alluded to in its text: (1) an affidavit by Mr. Torres testifying that his attempts to find and serve process on Vento's resident agent in Puerto Rico had been unsuccessful and explaining the steps he had taken trying to do this; (2) a copy of a verified motion to set evidentiary hearing that had been filed by Mr. Rosabal in the bankruptcy court whereby he sought to reopen the bankruptcy proceedings on the grounds that he had not been notified, his current address being in Florida, not Puerto Rico; and (3) a copy of an opinion by the bankruptcy court denying Rosabal's and other motions by Vento in which it was mentioned by the court that CMI was a "secured creditor" of Vento, and in which it was held that Vento was estopped from alleging lack of notification because Vento had itself failed to inform the court of the change of address of its resident agent.

Plaintiff's motion to serve by publication was allowed by the district court. Notice was accordingly published in a newspaper in Puerto Rico. A copy of the summons was also sent by mail to the Hato Rey address that Vento had listed with the Department of State. Vento did not answer. In the meantime, CMI transferred its credit against Vento to appellee Senior Loiza Corp. ("Senior") of Puerto Rico. Senior was substituted as plaintiff in the action. A default judgment was entered against Vento on December 3, 1981, and executed shortly after. The mortgaged property was sold to a third party.

On May 3, 1984, Vento moved under Fed.R.Civ.P. 60(b) to set aside the judgment and declare the sale null on the ground that process had not been correctly served under Puerto Rico Rule 4.5. Vento complained (1) that notice had not been sent to its last known address in Florida, and (2) that the affidavit accompanying the motion was deficient under the rule in that it did not set forth sufficient facts justifying the granting of relief against the person to be served, i.e., Vento.

The district court denied Vento's motion. It held that under Hospital Mortgage Group, Inc. v. Parque Industrial Rio Canas, 653 F.2d 54 (1st Cir.1981), notice had been correctly sent to the address listed with the Department of State of Puerto Rico. With respect to Vento's second claim, it concluded that "the reference in the verified motion to the facts alleged in the complaint effectively converted the complaint into a verified one," thus entitling the court to rely on the allegations contained therein under Rule 4.5.

We agree with the district court that the first of Vento's contentions is foreclosed by Hospital Mortgage. There we considered an argument by a corporate defendant that service could and should have been made on its president, whose address was personally known to plaintiff, instead of resorting to service by publication under Rule 4.5. Noting that under the laws of the Commonwealth of Puerto Rico, a corporation has a duty to make its address known by maintaining an accurate record with the Department of State, we said,

[h]aving failed to keep its public records up to date, [defendant] is in no position to complain that [plaintiff] relied on the Commonwealth's outdated records rather than conducting and relating an extensive investigation or drawing on personal knowledge of its officers regarding the residence of [defendant's] president.

Hospital Mortgage, 653 F.2d at 56. The Supreme Court of Puerto Rico has since ruled that when defendant is a corporation, plaintiff complies with the requirements of Rule 4.5 when he relies on the information filed with the Department of State, no other investigation being necessary. See Hach Co. v. Pure Water Systems, Inc., --- P.R.R. ---, 83 J.T.S. 32 at 3098 (1983).

Vento claims that its situation is distinguishable because at the time the action was filed Vento had ceased doing active business and was undergoing bankruptcy proceedings. This is no reason, however, for exemption from its obligations to give notice of any change of address and keep a resident agent in Puerto Rico. If anything, the obligation to do so was greater. Nor does it avail Vento that the Rosabals were the sole stockholders or that Mr. Rosabal was both Vento's president and resident agent. As the district court correctly observed,

the ... complaint was filed against Vento not against its president. Irrespective of the residence of its president, Vento is required by Section 102 of the General Corporations Law, 14 L.P.R.A. Sec. 1102 to keep its address on file in the Department of State, and it is at that address that service of process must be effected.

Vento's second contention is that CMI's affidavit accompanying its motion to serve by publication was inadequate. Rule 4.5 requires that plaintiff's "affidavit ... or the verified complaint filed states a claim justifying the granting of some relief against the person to be served or that the person to be served is a proper party to the action." ⁵ This requirement, derived from a similar provision in a California statute, ⁶ is interpreted in a strict and technical manner. See Garcia & Gonzalez v. Registrar, 41 P.R.R. 663 (1930); O'Sheaf v. District Court, 38 P.R.R. 231 (1928); Goldsmith v. Villari, 27 P.R.R. 726 (1919). Rule 4.5 sets out the exclusive method through which a court may obtain jurisdiction over a party solely by way of publication, and any significant failure to comply with its requirements will cause the nullity of the judgment. See Ortiz v. The Crescent Trading Co., 69 P.R.R. 464, 468-69 (1949); Cerda v. Osorio, 65 P.R.R. 315, 320 (1945); McCormick v. McCormick, 61 P.R.R. 812, 814-15 (1943). See also Gibbs v. Paley, 354 F.Supp. 270, 272 (D.P.R.1973).

In keeping with the above-cited authorities, we held in Hospital Mortgage, 653 F.2d 54, that a plaintiff does not...