Media Duplication Services, Ltd. v. HDG Software, Inc.

• Decision Date: 01 October 1990
• Docket Number: No. 90-1495,90-1495
• Citation: 928 F.2d 1228
• Parties: MEDIA DUPLICATION SERVICES, LTD., Plaintiff, Appellee, v. HDG SOFTWARE, INC., Defendant, Appellant, Joseph Wine, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1228

928 F.2d 1228

19 Fed.R.Serv.3d 20

MEDIA DUPLICATION SERVICES, LTD., Plaintiff, Appellee, v. HDG SOFTWARE, INC., Defendant, Appellant Joseph Wine, Appellant.

No. 90-1495.

United States Court of Appeals First Circuit.

Heard Oct. 1, 1990.

Decided March 27, 1991.

As Amended April 23, 1991.

Marshall M. Schribman, Boston, Mass., with whom Joseph Wine, Braintree, Mass., was on brief, for defendant, appellant and appellant.

Harry C. Mezer, Boston, Mass., with whom M. Robert Queler, Wellesley, Mass., was on brief, for plaintiff, appellee.

Before TORRUELLA, Circuit Judge, BOWNES, Senior Circuit Judge, and WOODLOCK, ^* District Judge.

WOODLOCK, District Judge.

Trial counsel in this case, each separately pursuing a shortsighted and obfuscatory course, have together managed to suffuse a relatively modest piece of contract litigation with the mists of considerable confusion.

The confusion began at the inception of the action when the defendant disingenuously declined to acknowledge the efficacy of service by mail. Confronted by the defendant's dissimulation regarding service, the plaintiff in turn never bothered to take the steps necessary to establish a perfected service.

The confusion continued through to the culmination of the case in the trial court, when defendant's counsel unilaterally undertook to absent himself from the scheduled trial itself, thereby promptly earning a $7,500 sanction. For his part, plaintiff's counsel attended the trial but failed to direct the court to what he understood--albeit mistakenly--to be an unresolved dispute concerning subject matter jurisdiction.

The outcome after this discreditable course of advocatory conduct is that the judgment on the merits for plaintiff must be reversed and the case, which doubtless will be recommenced, must be dismissed in the district court below. In addition, we remand for further consideration of the sanction the trial judge imposed for the failure of defendant's counsel to attend properly to the court's proceedings.

I

On January 25, 1989, plaintiff Media Duplication Services, Ltd. ("MDS") filed a complaint claiming $41,671.86 in damages for the alleged failure of defendant HDG Software, Inc. ("HDG") to pay MDS for software diskettes and manuals. The complaint also alleged that HDG willfully violated Mass.Gen.L. ch. 93A, Sec. 11 by (i) ordering goods when HDG had neither the intention nor the ability to pay for them; (ii) falsely alleging defects in the goods to avoid payment; and (iii) falsely threatening to sue MDS without adequate factual or legal basis.

A. The Dispute Over Service of Process

MDS attempted to serve HDG, a Massachusetts corporation, by mailing copies of the summons, complaint and Form 18-A-- the notice and acknowledgment form for service by mail--pursuant to Fed.R.Civ.P. 4(c)(2)(C)(ii). The material was sent by certified and regular mail, addressed to "HDG Software Inc." at the Massachusetts address MDS had used when it last did business with HDG. On March 7, 1989, MDS filed a copy of a return receipt reflecting delivery in Florida on February 13, 1989, and requested that HDG be defaulted for failing to answer the complaint. The district court issued the default the day it was requested.

On March 17, 1989, HDG entered a special appearance and moved the court to remove the default and either dismiss the complaint due to insufficient service of process or, in the alternative, permit HDG to answer late. In support, HDG filed the affidavit of Helen Gens, its sole officer and director. Mrs. Gens averred that HDG, while "still a Massachusetts corporation," stopped doing business in Massachusetts as of November, 1988. She declared that the purported mail service was delivered to her Florida residence and was received by a family member having no affiliation with HDG. She asserted that the service documents were not brought to her attention until the notice of default was also forwarded to Florida. Mrs. Gens never returned the 18-A acknowledgment form, and MDS never attempted to serve HDG by any other method.

MDS opposed HDG's motion, arguing that service was effective because HDG admitted receipt of the summons and complaint. The district court allowed the motion to remove the default, but denied without opinion the motion to dismiss due to invalid service. Thereafter, HDG filed its answer raising as defenses, inter alia, inadequate service and lack of diversity jurisdiction. A counterclaim alleged that MDS had breached its contract with HDG by making only partial delivery, by shipping defective goods, and by refusing to compensate HDG for replacement costs and loss of sales.

B. The Dispute Over Diversity Jurisdiction

On September 3, 1989, MDS moved for summary judgment on its contract claim and against HDG on the counterclaim for defective goods, arguing that there was no dispute about HDG having purchased the goods and further that HDG had not established any evidence of defects. HDG responded on September 20 by filing: an opposition to the MDS motion for summary judgment, with supporting affidavits; a motion to strike the one affidavit MDS submitted in support of its motion for summary judgment; and a motion to dismiss for lack of subject matter jurisdiction.

The original papers reflect that the district court denied both the MDS motion for partial summary judgment and the HDG motion to dismiss for lack of subject matter jurisdiction by endorsement on October 26, 1989. However, these decisions were not recorded on the docket at that time. The decision denying the MDS motion for partial summary judgment was finally noted on the docket on April 20, 1990, the day after a pretrial conference was held. But no notation was ever recorded on the docket regarding the denial of the HDG motion to dismiss for lack of diversity jurisdiction. Thus, before us, counsel for both parties appeared to share the erroneous view that the trial court never expressly acted with respect to that motion. The motion to strike the affidavit was apparently never acted upon.

C. The Trial and The Sanction

The pretrial conference on April 19 set the case down for jury trial beginning Monday, April 30, and resulted in an order requiring the parties to submit witness lists and voir dire questions by April 26.

On April 23, 1990, Attorney Wine, defense counsel, notified counsel for MDS by letter that HDG had instructed him not to prepare for or appear at trial because the court lacked jurisdiction. Attorney Wine did not himself notify the court of his intentions in this regard. In lieu of a pretrial memorandum, on April 26 counsel for MDS filed with the district court a copy of the letter from Attorney Wine along with a cover letter declaring the intention of attorneys for MDS to appear ready for trial on the appointed date.

Plaintiff's counsel appeared for trial on April 30, 1990. Before taking evidence the trial judge asked counsel for MDS whether there were any outstanding disputes about jurisdiction. Despite the fact that MDS has continuously maintained--even in argument before us--that the district court never explicitly acted on the HDG motion to dismiss on grounds of lack of diversity, ¹ trial counsel for MDS in the following colloquy failed to alert the trial judge regarding what he believed to be a jurisdictional loose end.

THE COURT: The issue of jurisdiction has been determined, has it not?

MR. QUELER: It has your Honor.

THE COURT: Well, I need not make any further findings on the question of jurisdiction. This Court has jurisdiction of this cause of action.

MR. QUELER: That's correct, your Honor.

The trial judge summarily found for plaintiff on the breach of contract claim. After hearing testimony from one witness, the court found the conduct of HDG, including its pre-trial strategy of pressing the defense and counterclaim that the goods were defective, was in bad faith and in violation of Mass.Gen.L. ch. 93A. Consequently, the court assessed triple damages against HDG as well as attorney's fees of $7500. In addition, the court ruled that the conduct of defense counsel in pressing for trial on the issue of defective goods and then failing to appear on the ground that the court lacked jurisdiction--without notifying the court of his intentions--was "in bad faith and close to contumacious of this court's order." The court imposed an additional $7500 sanction against Attorney Wine personally, payable to counsel for MDS, for "gross" violation of Fed.R.Civ.P. 11. The trial judge thereafter signed a form Order on Sanctions, prepared by plaintiff's counsel, reciting Fed.R.Civ.P. 16 and 28 U.S.C. Sec. 1927, in addition to Rule 11, as authority for the sanction.

On appeal, HDG argues that the district court erred by not granting the motions to dismiss for lack of personal jurisdiction and lack of subject matter jurisdiction. Defense counsel also argues that the trial judge erred by imposing sanctions without affording him notice and an opportunity to be heard.

II

We are of the view the district court's assertion of personal jurisdiction over HDG was erroneous, given the manner of service undertaken by MDS. This lack of personal jurisdiction alone is sufficient basis to reverse the judgment and order the case dismissed. In addition, because we assume that plaintiff may seek to recommence the action with proper service in the United States District Court for the District of Massachusetts, and because we have concluded that diversity jurisdiction was not established there in this proceeding, we also base our decision to dismiss the judgment on grounds of lack of subject matter jurisdiction.

A. Service to Obtain Personal Jurisdiction

1. Fed.R.Civ.P. 4(c)(2)(C)(ii)

HDG contends that personal jurisdiction was never established because service of process is ineffective under Fed.R.Civ.P. 4(c)(2)(C)(ii) unless the Form 18-A acknowledgment is returned. The Rule provides in pertinent part:

(C) A summons and complaint may be served upon a [corpora...