Stranahan Gear Co., Inc. v. NL Industries, Inc.
| Decision Date | 29 July 1986 |
| Docket Number | No. 86-1028,86-1028 |
| Parties | STRANAHAN GEAR COMPANY, INC. v. NL INDUSTRIES, INC. v. BLUE STREAK INDUSTRIES, INC. Appeal of NL INDUSTRIES, INC. . Submitted Under Third Circuit Rule 12(6) |
| Court | U.S. Court of Appeals — Third Circuit |
Joseph J. Serritella, J. Kurt Straub, James J. Ferrelli, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for appellant NL Industries, Inc.
Tom P. Monteverde, Michael E. Scullin, Monteverde, Hemphill, Maschmeyer & Obert, Philadelphia, Pa., for appellee Blue Streak Industries, Inc.
Before ALDISERT, Chief Judge, HIGGINBOTHAM, Circuit Judge, and RE, Judge. *
We must decide whether the district court erred in opening a default judgment against a third party defendant on the ground that the third party plaintiff had not complied with the requirements for service of process of Rule 4(c)(2)(C)(ii), F.R.Civ.P., because the third party defendant refused to acknowledge receipt of service. We must also decide whether the district court erred in subsequently dismissing the third party complaint for lack of personal jurisdiction. We affirm.
Blue Streak Industries, Inc., a Louisiana corporation, builds "jack-up barges" for use with offshore oil rigs in the Mississippi Delta region. Prior to the events giving rise to this action, Blue Streak had placed four orders with NL Industries, Inc., a New Jersey corporation, for special gearbox assemblies for use on its barges. These assemblies are manufactured in Langhorne, Pennsylvania by Stranahan Gear Company, Inc., a Pennsylvania corporation, and are distributed by NL Rucker Products, a division of NL Industries.
In February 1982, Blue Streak agreed to purchase another one hundred special gearbox assemblies from NL. Stranahan shipped the assemblies from Pennsylvania directly to Blue Streak in Chalmette, Louisiana, but Blue Streak refused to accept delivery or to pay for a portion of the shipment. Blue Streak then sent its Director of Materials, Vic Bares, to the Stranahan facility in Langhorne, Pennsylvania for meetings with Stranahan regarding the order. The first meeting occurred in June or July, 1982. Bares again visited the Stranahan facility in August or September, 1982.
Stranahan filed suit in the district court against NL demanding payment for the order. NL filed a third party complaint against Blue Streak alleging that Blue Streak had breached its agreements with NL and had "entered into separate negotiations [with Stranahan] purporting to extend and delay the delivery terms of NL's contract with Blue Streak and add an interest charge upon such undelivered goods." App. at 31a. NL attempted to serve Blue Streak pursuant to Rule 4(c)(2)(C)(ii), F.R.Civ.P., by mailing a summons and third party complaint directly to Blue Streak at its office in Louisiana. NL included two copies of a form 18-A notice and acknowledgment as required by the Rule. Blue Streak apparently received the mail service of process but did not return the acknowledgment form or otherwise respond to NL's third party complaint.
After the response time had expired, NL filed praecipes for the entry of default and default judgment against Blue Streak. As proof of service, NL submitted the affidavit of Donald Smith, an employee of NL, who stated that he had been told by Dennis Good, Blue Streak's President, that Blue Streak had received NL's service of process in the mail. The district court entered a default judgment on October 28, 1983 in the amount of $380,925.00 plus interest and costs.
Subsequently, Blue Streak moved to strike the default judgment. The district court granted Blue Streak's motion, holding that the default judgment was void because service was ineffective under Rule 4(c)(2)(C)(ii), F.R.Civ.P.
Pursuant to Rule 4, NL then properly served Blue Streak by personal service upon its agent for service in Louisiana. Blue Streak moved to dismiss NL's claims on the ground that the district court lacked in personam jurisdiction. The district court granted this motion and dismissed NL's claims against Blue Streak. NL appeals.
The standard of review of the district court's ruling on a motion to strike a default judgment for lack of proper service is plenary. Gold Kist, Inc. v. Laurinburg Oil Co., 756 F.2d 14 (3d Cir.1985); Boughner v. Secretary of HEW, 572 F.2d 976 (3d Cir.1978). To the extent that the district court's subsequent order dismissing NL's complaint for lack of personal jurisdiction is based on findings of fact, these findings will not be disturbed unless clearly erroneous. To the extent that its conclusion is based on the application and interpretation of legal precepts, the standard of review is plenary. Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 101-02 (3d Cir.1981).
NL contends that the district court erred in striking the default judgment against Blue Streak, arguing that its service of process was valid under Rule 4(c)(2)(C)(ii), F.R.Civ.P. That Rule, in pertinent part, provides for service:
by mailing a copy of the summons and of the complaint (by first class mail, postage prepaid) to the person to be served, together with two copies of a notice and acknowledgment conforming substantially to form 18-A and a return envelope, postage prepaid, addressed to the sender. If no acknowledgment of service under this subdivision of the rule is received by the sender within 20 days after the date of the mailing, service of such summons and complaint shall be made under subparagraph (A) or (B) of this paragraph in the manner described by subdivision (d)(1) or (d)(3).
NL concedes that Blue Streak did not return the form 18-A acknowledgment. It maintains that literal compliance with Rule 4 is not required, however, and that the admission of Blue Streak's President that Blue Streak had received the summons and complaint is sufficient acknowledgment.
We conclude that the district court did not err in striking the default judgment. We are satisfied that in drafting Rule 4 Congress meant precisely what its clear language states and that mail service is effective only if the provisions of Rule 4(c)(2)(C)(ii) are complied with literally. If an acknowledgment form is not returned, the formal requirements of mail service are not met and resort must be had to personal service. We adopt as our own the reasoning in Armco, Inc. v. Penrod-Stauffer Building Systems, Inc., 733 F.2d 1087, 1089 (4th Cir.1984):
When there is actual notice, every technical violation of the rule or failure of strict compliance may not invalidate the service of process. But the rules are there to be followed, and plain requirements for the means of effecting service of process may not be ignored. This is particularly so when the means employed engenders the kind of confusion which the defendant's officers reasonably experienced here, leaving them without clear notice of the necessity to respond.
We agree with the Court of Appeals for the Fourth Circuit that Rule 4 contains an express, "specific restriction" that must be followed: "when no acknowledgment was received within twenty days, [the] Rule itself required that service be made ... [by] personal service upon an agent of the corporate defendant." Id.; see also Delta Steamship Lines, Inc. v. Albano, 768 F.2d 728, 730 (5th Cir.1985); Norlock v. City of Garland, 768 F.2d 654, 657 (5th Cir.1985) (following Armco ); Crocker National Bank v. Fox & Co., 103 F.R.D. 388, 390 (S.D.N.Y.1984); Billy v. Ashland Oil, Inc., 102 F.R.D. 230, 233 (W.D.Pa.1984).
Notwithstanding the language of the Rule, NL argues that Blue Streak in fact received the complaint by mail and should not be rewarded for refusing to return the acknowledgment. Blue Streak, however, counters that the Rule is clear--where acknowledgment in the proscribed form has not been sent, even if notice is actually received, the standard form of personal service is required. Blue Streak argues that the only penalty for awaiting personal service is that the party to be served must bear the expense.
Academic authority and the cases support Blue Streak's contention. In his practice commentaries on Rule 4, Professor David D. Siegel has noted: "The defendant can frustrate the whole process just by refusing to acknowledge receipt, thereby putting the plaintiff to the burden of effecting service by some other method." 28 U.S.C.A., Rule 4, Federal Rules of Civil Procedure (Supp.1986 at 36). Courts have rejected the contention that this result, however inequitable, provides a sufficient basis for deviating from the express requirements of the Rule. See Armco, Inc. v. Penrod-Stouffer Building Systems, Inc., 733 F.2d 1087 (4th Cir.1984); Coldwell Banker & Co. v. Eyde, No. 85-C-8036 ; In re Alexander Grant & Co., 110 F.R.D. 544, No. (S.D.Fla. 1986); Billy v. Ashland Oil Inc., 102 F.R.D. 230 (W.D.Pa.1984).
The Court of Appeals for the Second Circuit has reached a different conclusion on facts similar in some respects to those of the instant case. In Morse v. Elmira Country Club, 752 F.2d 35 (2d Cir.1984), the court ruled that:
strong factors of justice and equity push toward reading Rule 4(c) as providing for effective mail service where, as here, the recipient actually receives the mail service but refuses to acknowledge it properly.... Certainly, the desire to harass or inconvenience plaintiff, or to delay the tolling of limitations, should not be an excuse or a reason to interpret the rule against plaintiff. There is, in other words, no rationale for allowing a properly served defendant deliberately and willfully to postpone the ending of limitations by simply refusing to do what the rule calls upon him to do. In short, Congress would have no ground for providing that proper and known mail service would become ineffective simply because the defendant, without reason, acted like the dog in the manger.
Id. at 40. This interpretation is at odds...
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