In re Inc.

• Court: U.S. District Court — District of Maine
• Writing for the Court: DECISION AND ORDER ON MOTION TO SET ASIDE DEFAULT
• Citation: In re Inc., 746 F.Supp.2d 207 (D. Me. 2010)
• Decision Date: 27 October 2010
• Docket Number: Civil No. 10–189–P–H.
• Parties: In re GAME TRACKER, INC., Debtor.Ernest Edwards and Karla Edwards, Plaintiffsv.Eastman Outdoors, Inc., Robert Eastman, II, Robert Eastman, III and Erik Eastman, Defendants.

746 F.Supp.2d 207

In re GAME TRACKER, INC., Debtor.Ernest Edwards and Karla Edwards, Plaintiffs

v.Eastman Outdoors, Inc., Robert Eastman, II, Robert Eastman, III and Erik Eastman, Defendants.

Civil No. 10–189–P–H.

United States District Court, D. Maine.

Oct. 27, 2010.

A. Robert Ruesch, Adrianne E. Fouts, Verrill Dana LLP, Portland, ME, Barry B. Sutton, Bishop A.L.E. Bartoni, John R. Prew, Milton S. Karfis, Harvey Kruse, Troy, MI, for Debtor and Defendants.Verne E. Paradie, Jr., Trafton & Matzen, Auburn, ME, for Plaintiffs.

DECISION AND ORDER ON MOTION TO SET ASIDE DEFAULT

D. BROCK HORNBY, District Judge.

This motion presents two major issues: whether service of process was proper upon a corporation that, at the time of service, was dissolved; and if so, whether good cause exists to set aside a default entered against it. I conclude that service of process met Maine law standards, and that the corporation has failed to establish that there is “good cause” to set aside the default.

Facts and Procedural History

Ernest Edwards claims that he was injured on October 11, 2002, while using a defective elevated hunting stand sold by Game Tracker, Inc. Ernest Edwards and his wife, Karla Edwards, initiated a lawsuit against Game Tracker and others in this court in July 2004. They served Michael Stone, Esq. at the former corporate offices of Game Tracker in Michigan on July 20, 2004. Summons in Ernest and Karla Edwards v. Game Tracker and Wal–Mart Stores East LP (Docket Item 6) in No. 2:04cv145. After Game Tracker filed no answer, the Edwardses requested entry of default and default judgment against it. The Clerk entered default on August 20, 2004. Order Granting Mot. for Default (Docket Item 8) in No. 2:04cv145. On October 15, 2004, Game Tracker filed for bankruptcy protection in the Eastern District of Michigan. Thereafter, the case was stayed in this court because of those bankruptcy proceedings. Order Granting Mot. to Stay (Docket Item 23) in No. 2:04cv145. Approximately six months later, the Bankruptcy Court lifted the automatic stay to permit the Edwardses to pursue a reach and apply action against Game Tracker's insurers. Bankruptcy Court Order (Docket Item 36–7) in No. 2:04cv145 (The Bankruptcy Court's Order vacating the automatic stay permitted the Edwardses to pursue their claims against Game Tracker, but only if recovery were limited to insurance proceeds.). After a damages hearing in November 2006, the Magistrate Judge made recommended findings of fact and conclusions of law recommending damages of $1,964,931.23 in favor of the Edwardses. Recommended Findings of Fact and Conclusions of Law (Docket Item 46) in No. 2:04cv145. I adopted the Report and Recommended Decision and ordered that Default Judgment be entered accordingly. Order Adopting Report and Recommended Dec. and Default J. (Docket Items 49 and 50) in No. 2:04cv145. But ultimately the Edwardses were unable to recover on their reach and apply claim against the insurers.¹ See Edwards v. Lexington Ins. Co., 507 F.3d 35 (1st Cir.2007).

In October 2002, at the time of Ernest Edwards' injuries, Game Tracker was an ongoing business, formed under the laws of Michigan, selling elevated hunting products, archery products and camping equipment. Aff. of Michael Stone ¶ 3 (Docket No. 30–4). Game Tracker ceased doing business on June 23, 2003. Id. After June 23, 2003, Game Tracker, Inc. had no place of business, and no employees. Aff. of Robert Eastman ¶ 3 (Docket Item 41–1). Game Tracker filed its Certificate of Dissolution on June 24, 2003. Stone Aff. ¶ 3. Upon filing dissolution, Game Tracker ceased all operations.² Id.

From August 2002 through June 23, 2003, Michael Stone Esq. served as corporate counsel for Game Tracker. Id. ¶ 2; Eastman Aff. ¶ 4 (“[Michael Stone] was no longer employed by Game Tracker as of June 23, 2003.”). Although he was never an officer, director, or registered agent for Game Tracker and was never in charge of any office for Game Tracker, Stone was present at the former business location of Game Tracker on July 20, 2004, when an individual served the Edwardses' summons and complaint upon him and he acknowledged receipt of the summons and complaint.³ Stone Aff. ¶ 11. Thereafter, Stone states, while “winding up the dissolved company” he “began an open and continuous discourse advising [the Edwardses' Maine lawyer Verne Paradie] of the lack of insurance coverage and limited, if not, insufficient funding remaining for the defense and payment of the existing product liability claims.” ⁴ Supplemental Stone Aff. ¶ 5; Stone Aff. ¶ 5.

Aware of the Edwardses' and other product liability lawsuits, “the former shareholders of Game Tracker determined that the prudent course of action was to file bankruptcy, placing the remaining monies into bankruptcy to allow the individual litigants to seek recovery from the remaining assets.” Stone Aff. ¶ 12. Stone was asked to renew his role as counsel and assist with the preparation of the necessary materials for filing bankruptcy. Id. ¶ 13; Supplemental Stone Aff. ¶ 2. Sometime thereafter Stone advised the Edwardses' counsel that Game Tracker would be filing bankruptcy. Stone Aff. ¶ 13. Ultimately, the Edwardses filed their claim against the bankruptcy estate.

In October 2006, the trustee in bankruptcy initiated an adversarial action (it included the Edwardses' and other product liability claims) against Eastman Outdoors, Inc., Robert Eastman II, Robert Eastman III and Erik Eastman. Second Am. Compl. (Docket Item 174) in No. 06–03242 (E.D. Mich. Bank.). The individual Eastmans were the pre-dissolution owners of Game Tracker and are now the owners of Eastman Outdoors. The Eastmans and Eastman Outdoors entered into a settlement agreement and later an amended settlement agreement with the trustee, by which they agreed to pay successful product liability claims, subject to a total damages cap of $500,000. Settlement Agreement ¶ 4 (Docket Item 30–9). The bankruptcy court approved the settlement agreement. Order Granting Trustee's Mot. for Order Approving Amended Settlement Agreement (Docket Item 285) in No. 06–03242 (E.D. Mich. Bank.). The bankruptcy court then recommended withdrawal of the reference as to the Edwardses' claims. See Sua Sponte Recommendation to the District Court to Withdraw the Reference Regarding Objection to Claim No. 13 of Earnest and Karla Edwards (Docket Item 2). Thereafter, the District Court for the Eastern District of Michigan found that venue was proper in the District of Maine and transferred the matter here. Opinion and Order Setting Venue (Docket Item 16). It was opened here as a new case, and the adversarial defendants and Game Tracker (collectively “Game Tracker”) now seek to set aside default in the 2004 lawsuit. Motion to Set Aside (Docket Item 30).

Analysis

Game Tracker asserts that the default must be lifted because it is contrary to the settlement agreement entered into between Game Tracker and the bankruptcy trustee; because service of process preceding the default was improper; and because there is otherwise good cause to set aside the default.

I. Settlement Agreement

With respect to the bankruptcy settlement agreement, Game Tracker argues that it retained its rights to “fully litigate liability in this proceeding by ‘preserv[ing] and retain[ing] any and all defenses to the Product Claims' and by disclaiming all ‘liability for such claims.’ ” Mot. to Set Aside Default at 8. What the settlement agreement says is that the Game Tracker defendants “shall assume full rights and responsibilities for all product liability claims” of the Edwardses and others, but that they “preserve and retain any and all defenses to the Product Claims and by entering into this Settlement Agreement do not acknowledge that the bankruptcy estate or any of the Defendants have any liability for such claims.” Settlement Agreement ¶¶ 3, 5. That language does not resurrect any rights previously forfeited by the 2004 entry of default in the lawsuit in this court. Any basis for setting aside that default must come from Rule 55(c). Fed.R.Civ.P. 55(c).

II. Setting Aside the Default

Rule 55(c) allows for default to be set aside upon a showing of “good cause.” Fed.R.Civ.P. 55(c); see also Franco v. Selective Ins. Co., 184 F.3d 4, 8 (1st Cir.1999); Coon v. Grenier, 867 F.2d 73, 76 (1st Cir.1989).

A. Service of Process

Due process requires proper service for a court to have jurisdiction to adjudicate the parties' rights. O.J. Distributing, Inc. v. Hornell Brewing Co., Inc., 340 F.3d 345, 353 (6th Cir.2003). If service of process on Game Tracker was improper, the court must set aside the default. Id.; see also Omni Capital Int'l, Ltd. v. Rudolf Wolff & Co., Ltd., 484 U.S. 97, 104, 108 S.Ct. 404, 98 L.Ed.2d 415 (1987) (“Before a federal court may exercise personal jurisdiction over a defendant, the procedural requirement of service of summons must be satisfied.”); Mason v. Genisco Tech. Corp., 960 F.2d 849, 851 (9th Cir.1992) (default judgment is void where a plaintiff fails to serve process properly); Bank One of Cleveland, N.A. v. Abbe, 916 F.2d 1067 (6th Cir.1990); Direct Mail Specialists, Inc. v. Eclat Computerized Techs., Inc., 840 F.2d 685, 688 (9th Cir.1988) (“A federal court does not have jurisdiction over a defendant unless the defendant has been served properly[.]”).

It is the Edwardses' burden to establish proper service on Game Tracker in 2004. Rivera–Lopez v. Municipality of Dorado, 979 F.2d 885, 887 (1st Cir.1992); Saez Rivera v. Nissan Mfg. Co., 788 F.2d 819, 821 n. 2 (1st Cir.1986). Federal Rule of Civil Procedure 4(h) governs service upon corporations. The version in effect in 2004 stated:

Unless otherwise provided by federal law, service upon a domestic or foreign corporation ... shall be effected: ... in a judicial district of the United States in the manner prescribed for individuals by subdivision (e)(1), or by delivering a copy of the summons and of the complaint to an...