Koehler v. Dodwell

Decision Date04 August 1998
Docket NumberNo. 97-2652,97-2652
Citation152 F.3d 304
PartiesLee N. KOEHLER, Plaintiff-Appellant, v. A. David DODWELL, Defendant-Appellee, and Susan J. Mitchell, Party in Interest, The Reefs; Jenkins and Gibson, Limited; Windward Properties, Limited; The Reefs Beach Club, Limited, Garnishees.
CourtU.S. Court of Appeals — Fourth Circuit

ARGUED: Brian Grayson West, Towson, Maryland, for Appellant. Thomas Carroll Beach, III, Whiteford, Taylor & Preston, L.L.P., Baltimore, Maryland, for Appellee. ON BRIEF: Paul F. Newhouse, Towson, Maryland, for Appellant. Michael A. Stover, Whiteford, Taylor & Preston, L.L.P., Baltimore, Maryland, for Appellee.

Before WILKINS and LUTTIG, Circuit Judges, and FABER, United States District Judge for the Southern District of West Virginia, sitting by designation.

Reversed by published opinion. Judge WILKINS wrote the opinion, in which Judge LUTTIG and Judge FABER joined.

WILKINS, Circuit Judge:

Lee N. Koehler appeals a decision of the district court vacating a default judgment against A. David Dodwell on the basis that the judgment was void for lack of personal and subject-matter jurisdiction. See Fed.R.Civ.P. 60(b)(4). Koehler argues that the judgment was not void because Dodwell was served in accordance with the terms of the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, done November 15, 1965, 20 U.S.T. 361, 658 U.N.T.S. 163 [hereinafter the Hague Service Convention], and that the court had federal diversity jurisdiction over the suit, see 28 U.S.C.A. § 1332 (West 1993). We reverse.

I.

Koehler, a Maryland resident, and Dodwell, a Bermuda resident, are each 50 percent shareholders in Windward Properties, Ltd. ("WPL") a Nevis, British West Indies corporation engaged in resort hotel operations. This suit arose from budget overruns that WPL incurred in renovating a resort it had acquired. The complaint, which alleged federal diversity jurisdiction, stated two causes of action. In a shareholder's derivative claim, Koehler alleged that Dodwell not only caused the cost overruns by failing to use his best efforts to complete the project within budget, but also concealed the overruns, thereby preventing Koehler from restructuring the debt WPL incurred as a result of the project. Koehler also advanced a claim for negligent misrepresentation, claiming that Dodwell, by falsely representing that he would pledge his stock in another corporation to the bank financing the renovations in order to secure WPL's otherwise precarious financial situation, induced Koehler to pledge his own stock in that company. Koehler sought, inter alia, $1,561,294 in damages for the derivative claim and $2,096,343 in damages for the negligent misrepresentation claim, in addition to pre- and post-judgment interest.

Koehler's attorney forwarded the summons and complaint to a Bermudian process server, who in turn personally served them upon Dodwell. When Dodwell did not answer or otherwise make an appearance, Koehler applied for a default judgment in the amount of the damages sought in the negligent misrepresentation claim--$2,096,343. The district court subsequently entered a default judgment for Koehler in that amount as well as post-judgment interest and costs. Over the next four years, Koehler initiated garnishment proceedings against various entities in an effort to collect on the default judgment. After that period, Dodwell moved to vacate the judgment. See Fed.R.Civ.P. 60(b)(4). 1 The district court found that it had lacked personal jurisdiction over Dodwell because service was ineffective and Dodwell did not waive that defect. The court also concluded that it lacked diversity jurisdiction over the suit because (1) WPL was necessary and indispensable to the prosecution of the shareholder's derivative claim, see Fed.R.Civ.P. 19; (2) WPL's citizenship was therefore relevant in determining whether the parties were diverse; and (3) WPL's presence in the action would have destroyed diversity. The court refused Koehler's request to drop the derivative claim to preserve the validity of the default judgment, finding that the judgment did not distinguish between the derivative and misrepresentation causes of action.

Finally, having determined that the default judgment was void, the district court addressed the question of whether it should dismiss the negligent misrepresentation claim in addition to the derivative claim. The district court concluded that WPL was a necessary and indispensable party to the negligent misrepresentation claim. And, because WPL could not be joined without destroying diversity, the district court ruled that the negligent misrepresentation claim could not go forward. Accordingly, the court vacated the judgment and dismissed Koehler's complaint for lack of diversity jurisdiction.

II.

Koehler first argues that the default judgment was not void for lack of personal jurisdiction because the service upon Dodwell complied with the terms of the Hague Service Convention as ratified by the United Kingdom on Bermuda's behalf. See Fed.R.Civ.P. 4(f)(1) (allowing service on an individual in a foreign country "by any internationally agreed means reasonably calculated to give notice, such as those means authorized by the [Hague Service Convention]"). We agree.

Absent waiver or consent, a failure to obtain proper service on the defendant deprives the court of personal jurisdiction over the defendant. See Armco, Inc. v. Penrod-Stauffer Bldg. Sys., Inc., 733 F.2d 1087, 1089 (4th Cir.1984). Moreover, any judgment entered against a defendant over whom the court does not have personal jurisdiction is void. See id. Whether the district court correctly determined that it lacked personal jurisdiction is a question of law subject to de novo review. See Nichols v. G.D. Searle & Co., 991 F.2d 1195, 1198 (4th Cir.1993). The parties agree that here the service was effective only if it was made in accordance with the terms of the Hague Service Convention.

The purpose of the Hague Service Convention is to create a method for service of judicial and extrajudicial documents to addressees in different countries. See Hague Service Convention, 20 U.S.T. at 362, 658 U.N.T.S. at 165. To this end, Article 2 of the Convention requires the designation of a "Central Authority" of each signatory state through which requests for service of process may be routed; Articles 3 through 6 provide the necessary procedures; and Article 9 allows a state to use consular or--in exceptional circumstances--diplomatic channels to forward the judicial documents to the designated authorities. Id. arts. 2-6, 9, 20 U.S.T. at 362-63, 658 U.N.T.S. at 165, 167, 169.

In crafting the terms of the Hague Service Convention, however, member states also determined that states should be free to consent to additional methods of service within their own borders, consistent with their own laws; consequently, Articles 8 and 10 provide for alternative methods of service and allow ratifying states to decide whether they will object to the methods described. See id. arts. 8, 10, 20 U.S.T. at 363, 658 U.N.T.S. at 169, 171; Vazquez v. Sund Emba AB, 152 A.D.2d 389, 548 N.Y.S.2d 728, 730 (N.Y.App.Div.1989); see also Hague Service Convention art. 21, 20 U.S.T. at 365-66, 658 U.N.T.S. at 177 (requiring each contracting state to inform the Ministry of Foreign Affairs of the Netherlands of opposition to the service methods described in Articles 8 and 10). Of particular relevance here is Article 10(c), which allows "any person interested in a judicial proceeding to effect service of judicial documents directly through the judicial officers, officials or other competent persons of the State of destination." Hague Service Convention art. 10(c), 20 U.S.T. at 363, 658 U.N.T.S. at 171. In ratifying the Hague Service Convention for Bermuda, the United Kingdom declared that "[w]ith reference to the provisions of paragraph[ ] ... (c) of Article 10 of the Convention, documents sent for service through official channels will be accepted in [inter alia, Bermuda] by the designated authority and only from judicial, consular or diplomatic officers of other Contracting States." Declarations of the United Kingdom 3(d), reprinted following Fed.R.Civ.P. 4 (emphasis added).

Dodwell does not dispute that Koehler's attorney is a "person interested in [this] judicial proceeding" or that the process server whom Koehler hired was competent to effect service in Bermuda. Dodwell contends, however, that the service upon him did not comply with the declaration of the United Kingdom regarding Article 10. We disagree. The declaration by its own terms applies only to "documents sent for service through official channels"; however, Koehler forewent "official channels" by forwarding the papers directly from his attorney to a private process server in Bermuda, who in turn served them upon Dodwell. 2 See Tax Lease Underwriters, Inc. v. Blackwall Green, Ltd., 106 F.R.D. 595, 596 (E.D.Mo.1985) (holding that "service through official channels" in the context of the declaration in question applies only to documents from embassy or consulate officials); Balcom v. Hiller, 46 Cal.App.4th 1758, 54 Cal.Rptr.2d 536, 540 (1996) (same); White v. Ratcliffe, 285 Ill.App.3d 758, 221 Ill.Dec. 113, 119-20, 674 N.E.2d 906, 912-13 (1996) (same).

Dodwell also argues that even if the United Kingdom did not reject Article 10(c) on Bermuda's behalf, that provision nevertheless does not permit service by all persons competent to effect service under Bermuda law, but rather allows service only by government officials. Specifically, Dodwell asserts that "competent persons of the State of destination" in the context of "judicial officers, officials or other competent persons of the State of destination," refers only to competent persons who are employed by the destination State. That is clearly a tortured reading,...

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